SIE TEST TOPIC Flashcards
the following outlines the frbs buying
securities come out of the economy and money goes in
ms goes up
interest rates go down
borrowing and spending for consumers easier
economy expands
selling for frb
securities go into the economy and money comes out
ms goes down
interest rates go up
borrowing and spending becomes more difficult
economy contracts
during the cooling off period underwriters cannot
make offers to sell the securities
take orders
distribute sales literature or advertising material
during the cooling off period underwriters can
take indications of interest
distribute preliminary prospectus
publish tombstone advertisements to provide information about the potential availability of the securities
for investors looking for income through preferred stock, which would be most inappropriate
adjustable rate preferred
are treasury receipts or strips backed in full by us government
strips are
receipts are not
guaranteed bonds are unsecured or secured
unsecured
is an income bond a good recommendation for an investor seeking income
no
why would you place money market securities in a clients portfolio
highly liquid
very safe
a good place to invest money that will be needed soon
risks with money market securities
rate of return is low and not suitable for long term investors
all options accounts must
be approved by a firms Registered options principal
closed end investment companies are the only
investment company security that trades in the secondary market
close end investment companies may issue
common stock, preferred stock, and debt securities
a prospectus may or may not be altered
may not. no highlighting, writing, or taking any measure to bring attention to any specific passage or section.
an owner of reits holds
reits may or may not
may or may not be listed on exchanges
are or are not investment companies
offer dividends and gains to investors but
an undividend interest in a pool or real estate investments
be registered with the sec
cannot
not open or closed
do not pass through losses like LP and therefore are not considered DPP
hedge funds are considered
unregulated as they currently do not have to be registered wit the SEC
no matter how diversified a portfolio
it will still be subject to systematic risk
buy to open position=
long=bullish
sell to open a position
short=bearish
Declaration, record, and payment determined by
ex dividend date determined by
BOD
Finra
margin
is the amount of equity that must be deposited to buy securities in a margin account
marginable
securities that can be used as collateral in a margin account
to open a margin account,
it is mandatory that the customer signs the credit agreement and the hypoythecation agreement. Loan consent form is optional
Joint tenants with right to survivorship
all parties have undivided interest in the account
tenants in common
each party must specify a percentage interest in the account
current ira contribution limits and catchup contribution limits for those
50 and older may be tested.
FIncen
bureau of the us treasury department that collects and analyzes information about financial transactions to combat money laundering, domestic and international terrorists financial and other financial crimes
one exception to the lifetime, six year, and three year retention is
the requirement for customer complaints
must be retained for 4 years
a member firms failure to register an employee who performs any of the functions of an RR may
lead to disciplinary action by finra
Reports of rising inventories generally occur during which period of the business cycle?
A)Recovery
B)Peak
C)Contraction
D)Expansion
contraction
Downturns in the business cycle (a contraction) tend to be characterized by rising inventories due to a lack of consumer demand. During expansion or recovery, demand is high and goods are less likely to remain in inventory.
All of the following actions must be completed before a customer enters the first option order EXCEPT
A)completion of (signing of) the options agreement
B)completion of the new account form
C)delivery of an OCC disclosure booklet
D)approval by a branch office manager or registered options principal
A) A)completion of (signing of) the options agreement
Customers do not have to complete (sign) the options agreement before entering an order, although under the rules, the agreement must be signed and returned by the customer within 15 calendar days of account approval.
A mutual fund has breakpoints at $25,000, $50,000, $100,000, and $250,000. Which of the following transactions might be considered a breakpoint sale? I.The client purchases $48,000 worth of shares
II.The client redeems $24,000 worth of shares
III.The client purchases $252,000 worth of shares
IV.The client purchases $96,000 worth of shares
1 and 4
Breakpoints allow for lower sales charges at or above the designated points—in other words, quantity discounts. A breakpoint sale occurs whenever a purchase is made just below a designated breakpoint amount. Allowing a purchase to occur in an amount just below a breakpoint can be viewed as an effort by representatives to share in the higher sales charges.
If the dollar price of a municipal bond is 101 and the basis is 6.10, the nominal yield is
A)6.1
B)greater than 6.10
C)less than 6.10
D)equal to the YTM
b) greater than 6.10
For bonds trading at a premium (101), the nominal yield (or coupon) is higher than the basis (YTM). For bonds at a premium, yields from lowest to highest are yield to call, yield to maturity, current yield, and nominal yield.
A customer wants to save some money for his grandson’s college education in an IRA account. Which of the following regarding a Coverdell Education Savings Account (ESA) is TRUE?
A)The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over.
B)The maximum contribution permitted is $3,000
annually.
C)The customer may make annual contributions until the grandson graduates from college.
D)The customer may take a deduction for the amount contributed.
A)The funds must be distributed by the time the grandchild attains age 30, unless they are rolled over.
The maximum annual contribution to an ESA is $2,000. Contributions are not deductible and must cease when the beneficiary reaches age 18. Any unused balance must be rolled over or distributed by the time the beneficiary attains age 30. Amounts not used for one child may be rolled over tax free to the account of another child of the same family only once during any 12-month period.
Which of the following are not 3-year or 6-year records? I.Compliance and Procedures Manual
II.List of home, regional, and branch offices
III.Minutes of directors’ meetings
IV.Customer complaints
C)III and IV
Minutes of directors’ meetings (The Minute Book) is a lifetime record. Customer complaints must be kept on file for 4 years, not 3 or 6. The Compliance and Procedures Manual, which must frequently be updated, and the list of all offices where business is done are both 3-year records.
Reference: 3.2.4 in the License Exam Manual
When interest rates in the open market move up or down, a bond’s coupon rate will
A)move with the open-market interest rates
B)be adjusted to match the open-market rates
C)be unaffected by the open-market interest rates
D)move inversely to the open-market interest rates
C)be unaffected by the open-market interest rates
Though the price of a bond will react to market forces, such as supply and demand, and be interest-rate sensitive (inverse), the coupon is always the same: A fixed percentage of par value established by the issuer when the bond was first issued.
A company has just conducted a stock offering, by prospectus, through an investment banker. The proceeds of the offering are used to purchase a portfolio of securities. The stock, now in the hands of the public, is freely traded in the secondary market, and the portfolio is managed to generate maximum profit according to a specific investment objective. The company must be
A)a fixed UIT
B)a nonfixed UIT
C)a closed-end company
D)a mutual fund
C) a closed end company
A closed-end company, or closed-end management investment company, is much like any other company, just that its source of profit is investments, rather than selling a product or service. Shares of closed-end companies are traded in the secondary markets, while the other choices listed here offer only redeemable securities.
Which of the following would be unacceptable reasons for an officer of a member firm to make a contribution to the election campaign of a political candidate? I.The candidate is a member of the officer’s political party.
II.The candidate has promised to steer business to the officer’s firm.
III.The candidate is a close relative of a potential customer of the firm.
IV.The officer approves of the policies and programs the candidate has proposed.
A)II and III
B)II and IV
C)I and IV
D)I and III
A)II and III
Political contributions may never be used to procure or enhance business.
A shareholder had arranged to vote by proxy at the corporation’s annual shareholders’ meeting, but later decided to vote the shares personally. All of the following statements regarding this situation are true EXCEPT
A)the shareholders may instead vote personally as they wish
B)the proxy may be assigned to yet another person
C)the shareholders must accept the proxy’s decision
D)the shareholders may still abstain from voting altogether
C)the shareholders must accept the proxy’s decision
If a shareholder decides not to abide by the decision to assign a proxy to a particular person, the decision can easily be abrogated. The shareholder may still abstain, may vote the shares personally or by mail or online, or may reassign the proxy to another.
An investor purchases a T-bill for $9,925 that will mature at $10,000. The difference between the $9,925 paid and the $10,000 that will be received is
A)the discount to par and will be considered interest received at maturity
B)the premium above par and will be considered the interest received at maturity
C)the discount to par and will be considered a capital gain at maturity
D)the premium above par and will be considered dividends received at maturity
A) the discount to par and will be considered interest received at maturity
T-bills are purchased at a discount to par. In this case, it is bought at $9,925, which is a $75 discount to the $10,000 par value to be received at maturity. Debt instruments pay interest not dividends, and the $75 difference between what was paid and what will be received is considered the interest paid on the T-bill at maturity.
Mrs. Jones is an employee of a member firm and as such is a restricted person regarding the purchase of new issues. She belongs to an investment club and has a 1% interest in the club’s brokerage account. The investment club
A)is a restricted account but will be allowed to purchase equity shares of an IPO
B)is a restricted account and will not be allowed to purchase equity shares of an IPO
C) is not a restricted account but will not be allowed to purchase equity shares of an IPO
D) is not a restricted account and will be allowed to purchase equity shares of an IPO
D)is not a restricted account and will be allowed to purchase equity shares of an IPO
Because the restricted person’s interest in the club’s brokerage account does not exceed 10%, the investment club account is not considered a restricted account. If not restricted, the club can purchase shares of an equity issue at the public offering price if it chooses to.
A customer’s account has been frozen. Which of the following is TRUE if the customer wants to purchase more securities?
A)Funds can be borrowed in the form of a margin loan up to 50% of the securities’ value.
B)Approval must be received for any purchase in the account from the SEC.v
C)Funds to pay in full must be available in the account before the buy order is entered.
D)No new purchases can be made in an account that has been frozen.
C)Funds to pay in full must be available in the account before the buy order is entered.
Purchasing securities in a frozen account is permitted, but the funds to pay for the purchase in full must be available in the account before the order can be entered.
An investor holds a November 35 call that was purchased on March 3. The investor, if wanting to exercise the contract, would need to do so no later than
A)1 business day after purchase
B)1 business day after settlement
C)the 3rd Friday of November
D)the 3rd Friday of March
C) the 3rd Friday of November
Options can be exercised up to and including (no later than) expiration. Options expire on the 3rd Friday of the expiry month. In this case, the 3rd Friday of November.
Water and sewer facilities are most likely to use what kind of debt financing to fund expansion plans?
A)U.S. Treasury receipts
B)Municipal revenue bonds
C)Municipal general obligation bonds
D)U.S. Treasury bills
B)Municipal revenue bonds
Municipal revenue bonds are issued to finance any municipal facility that charges user fees. These municipal bonds are self-supporting because principal and interest payments are made exclusively from revenues generated by the project for which the debt was issued, such as a water and sewer facility billing the municipalities’ customers for usage each month.
Which of the following statements regarding $1,000 par value 6.5% bond trading offered at 110 is TRUE?
A)The bond’s current yield equals $65 / $1,100 or 5.9%.
B)The bond is offered at a discount.
C)The bond’s yield to maturity and stated yield are the same.
D)The bond’s current yield is lower than its yield to maturity.
A) The bond’s current yield equals $65 / $1,100 or 5.9%.
This bond is trading at a premium (110 or $1,100). Given the bond is trading at a premium, the current (stated) yield will be higher than its yield to maturity. A bond’s current yield is calculated by dividing its annual interest ($65) by its current (market) price ($1,100), which in this case equals 5.9%
Generally before borrowing from or lending to a customer, a registered representative must advise the firm in writing and receive written permission. Which of the following would be an exception to the written notice and approval requirement?
A)The customer is an immediate family member of the RR.
B)The customer has a business relationship with the RR outside of the firm.
C)Both are employed by and registered in the industry with the same BD.
D) The customer has a personal relationship with the RR outside of the firm.
A)The customer is an immediate family member of the RR.
There are two exceptions to the written notice and approval requirement for permitted lending arrangements between customers and RR’s. They are; when both are immediate family members or when the customer is a lending institution and the loan is a standard commercial lending transaction.
Regarding exchange-traded funds (ETFs), as compared to open-end (mutual) funds, which of the following are TRUE? I.ETF transactions are subject to commissions.
II.Expenses for ETFs tend to be very high compared to mutual funds.
III.ETFs may trade at a price that is less than the NAV per share.
IV.ETFs cannot be purchased on margin while mutual funds can be.
A)II and IV
B)I and IV
C)II and III
D) I and III
D) I and III
Because ETFs usually track an index, the operating expense ratios are generally lower than that of open-end companies. But that advantage can be canceled out by the commission charges when purchasing and selling an ETF. An open-end investment company must redeem shares at the NAV per share; with ETFs, pricing is based on supply and demand, making it possible to receive less than NAV. One cannot purchase open-end shares on margin, but ETFs can be.
All of the following may be purchased on margin EXCEPT
A)exchange listed securities
B)NASDAQ listed stocks
C)call and put contracts
D)municipal securities
C) call and put contracts
Option contracts—calls and puts—are among those securities products that cannot serve as collateral for a margin loan and, therefore, may not be purchased on margin. In the case of options, their unpredictable intrinsic value, diminishing time value, and limited life make them inappropriate for securing any kind of loan.
