SIE FINAL 3 Flashcards
Who enacts fiscal policy?
Congress
Fiscal policy is enacted by Congress. Fiscal policy is the use of the government’s power to tax and spend. Control of the economy by changing the levels of government spending and taxation can either put money into the economy, or take money out of the economy. Monetary policy is carried out by the Federal Reserve Board’s use of its available options for increasing or decreasing the supply of money and credit in the economy.
Which term is used for a member of a stock exchange that’s responsible for providing liquidity by buying and selling throughout the trading day?
Market maker
Market makers are exchange members that provide liquidity on stock exchanges by always standing ready to buy or sell. Transfer agents work for an issuer and are responsible for issuing its stock, paying dividends, and distributing voting materials. Underwriters are broker-dealers that sell newly issued securities to investors in the primary market.
A customer buys an IBM call option and pays a 2.50 point premium. The aggregate dollar amount paid is:
$250.00
Each option contract is based on 100 shares of common stock. The dollar amount paid is $250 ($2.50 x 100 shares).
A broker-dealer is permitted to hold a customer’s mail without instructions concerning a valid reason:
For a period not exceeding three consecutive months
A broker-dealer may hold mail for a customer who will not be receiving mail at his usual address provided the firm receives written instructions from the customer that include the time-period during which the mail is to be held. If the period exceeds three consecutive months, the customer’s instructions must also include a valid reason for the request.
Wilsons Chemicals bonds have a nominal yield of 6.6%. They closed the previous day at 91 7/8. An owner of 10 bonds will receive a yearly interest payment of:
$660
A nominal yield of 6.6% for a corporate bond with a $1,000 par value equals $66 in interest payments. If an investor owns 10 bonds, he will receive an annual interest payment of $660.
Which of the following statements is TRUE regarding warrants?
Warrants can be perpetual
Warrants can be perpetual in their duration and are issued by the corporation that also issues the common stock. Warrants give the holder the ability to convert the warrant into the common stock of the same corporation at a specified price and at the holder’s option.
Which of the following statements about municipal revenue bonds is TRUE?
A. They are not subject to the debt limitations that apply to general obligation bonds
C. They can be issued by states, political subdivisions, interstate authorities, and intrastate authorities
D. The interest and principal payments are derived from the funds being generated by the facility
Municipal revenue bonds do not always have maturity schedules that equal the useful life of the facility being built. Instead, the facility’s useful life should significantly exceed the maturity of the bonds. Municipal revenue bonds do not have the debt limitations that apply to general obligation bonds. A debt limitation is considered the statutory or constitutional maximum debt that an issuer may legally incur. Revenue bonds can be issued by states, political subdivisions (e.g., counties and townships), interstate authorities, and intrastate authorities. Municipal revenue bond interest and principal payments are derived from the funds being generated by the facility.
Which of the following choices is considered a leading economic indicator?
Manufacturing new orders
Manufacturing new orders is considered a leading economic indicator. Industrial production is considered a coincident indicator, while average duration of employment and commercial and industrial loans outstanding are lagging indicators.
XYZ company is paying a 25% stock dividend to its common stockholders. If an investor owns 100 shares at $120.00 before the stock dividend, how many shares will the investor own and at what price per share after the dividend is paid?
125 shares at $96
As the result of a stock dividend, an investor will own more shares of the company. In this question, the investor will receive 25 additional shares, which brings the total to 125 shares (100 x 25% = 25 new shares + 100 original shares). Since the number of shares owned increases, the investor’s value per share will fall. An important concept of a stock dividend is that stockholders will neither make nor lose money. In other words, the investor’s overall ownership position will not change. For that reason, the new price per shares is $96 (100 shares x $120 = $12,000 investment before the dividend, and $12,000 ÷ 125 shares after the dividend = $96).
A client is short stock that’s trading at $35.00 and wants to buy, but only if he can buy at $34.00 or lower. He should place which of the following orders?
A buy limit
He should place a limit order to buy, which can only be executed at a specified price or lower. A buy stop and/or buy stop-limit order is placed above a stock’s current value and is used to protect the short position in case it rises in value. A sell stop and/or sell stop-limit is used to protect a long stock position in case it falls in value.
A mutual fund has a NAV of $58.23 and a POP of $62.55. The sales charge, when computed as a percentage of the offering price, is approximately:
6.9%
The sales charge in this example is $4.32, which is found by subtracting the NAV of $58.23 from the POP, $62.55. To find the sales charge percentage, divide the sales charge of $4.32 by the offer price of $62.55, which comes to approximately 6.9% ($4.23 divided by $62.55 = .0691 = 6.91%).
If an investor writes (sells) a covered call, what are the potential profit and loss outcomes?
Limited profit and limited loss
Writing a covered call involves an investor being long (owning) stock and then selling (writing) a call against the same stock. The investor receives the premium for selling the call, which reduces the total investment and breakeven for the position. Since the stock could potentially decline to zero, the investor’s loss is limited to the stock’s purchase price less the premium (i.e., stock’s purchase price - option premium = maximum loss). If the stock price rises, the investor will profit. However, if the stock price rises above the call’s strike price, the call will be exercised and the investor will be forced to sell her shares. Since the sale price is preset as the call strike price, the investor’s potential gain is also limited (i.e., calls strike price - stock’s purchase price + option premium = maximum gain).
Which of the following calculations describes the payout on a variable annuity?
A fixed number of annuity units multiplied by a variable dollar amount
When a variable annuity is annuitized, the annuitant will be assigned a fixed number of annuity units based on several factors, including the value of the investment, assumed interest rate, age and gender of the annuitant, and payout option chosen. This fixed number of annuity units is then multiplied by the net asset value of the separate account at each payout period to determine the dollar amount the annuitant will receive each pay period.
The person who distributes interest in a DPP is referred to as the:
Syndicator A syndicator (underwriter) is the person that distributes interests in a direct participation program (DPP).
During periods of easy money when interest rates are declining, yield curves tend to:
Slope upward from the shorter to the longer maturities
During periods of easy money when interest rates are declining, yields on shorter maturities will be less than yields on longer maturities. Yield curves tend to slope upward from the shorter to the longer maturities.
