SIE exam prep

When is a leveraged ETF the most suitable?

Short-term speculation, good for investors who plan on holding them for one trading session.

When an investor gives securities to a qualified charity,

they can deduct the fair market value of the securities as long as they have held them for more than a year

529s are made with ___ tax dollars

after

What do custodians do?

Hold mutual fund shares and monetary funds

A Shares

Front end, low 12b-1 fees, breakpoints, large accounts

B shares

Back-end for a time, higher 12b-1 shares, converts to A shares, intermediate term

C shares

No front-end charges, no back0end charges if kept for a year, highest 12b-1 fees, smaller investors for short term

MSRB Regualtes:

Municipal salespersons, underwriters, and traders. NOT issuers

Securities Investor Protection Corporation coverage is applied:

“Per customer name”

Sales calls cannot be made after when?

9 pm

Insider trading civil penalty

treble damages

Permitted purchasers of Rule 144A are:

Qualified Institutional Buyers (QIBs)

If an officer wishes to sell shares after acquiring them in an open market, they must

File Form 144 with the SEC if the sale is above 5,000 shares or $50,000

Control stock

Stock owned by company insiders (affiliates)

Restricted stock

unregistered stock acquired privately, requiring a holding period before public resale

The periodic payment for a Period Certain Annuity will be ____ than the periodic payment for a life annuity

lower

Are indications of interest binding?

No

Employers must roll funds over into an individual retirement account within how many days of plan termination?

60

When pulling out a check on a joint account, _________ on the account will be on the check

All the parties

In a joint account, orders can be entered in and mail can be sent to

either party

In a joint account with rights of survivorship, if one party dies:

the other party wholly owns the account

Form 1099-DIV reports on what?

taxable events, like cash dividends and capital gains distributions

conversion price formula

par value (1,000) / conversion ratio

Nominal yield of a bond

States rate of interest. Does not move

1 basis point as a percentage

.01%

Open-end mutual funds must pay redemption proceeds within how many days of the order to redeem?

Seven days

Outstanding shares formula

Issued shares minus treasury shares

What are stabilizing bids used for?

Propping up the price of the new issue

Primary and secondary distributions can be offered to

any type of investor

Primary and secondary distributions can both use

underwriters

A primary offering can be combined with a

secondary offering

Current yield formula

annual dividend / market price

Industrial development bonds are backed by

Rental revenues paid by the corporate lessee and take on the credit rating of the corporate lessee

Rights

Expire after 2-4 weeks, issued with a strike price below market price, normally issued with new stock

Warrants

Expire after 2-10 years, issued with a strike price above market price, normally issued when a company issue new bonds

How are funds deposited into a fixed annuity?

Into a general account

Can step-up cost basis lower tax bills?

These costs do not, they increase it.

When can a 529 owner transfer funds to another qualified beneficiary?

as long as the new beneficiary is a family member of the original one

Who owns and controls a 529 account?

The individual who opened the account

While a 529 account owner can withdrawal funds for personal use, any earnings will be

subjected to both ordinary income tax and a 10% penalty

529s can be rolled over tax-free to another qualified family member

Yes they can

Do 529 contributions reduce federal taxable income?

No they do not reduce it

Officers are ____ in the type of non-cash compensation they can give to registered representative or their member firms

restricted

What non-cash compensation is allowed?

Promo items with company’s logo, small gits, meals, entertainment as long as they do not occur on a regular basis or are contingent on meeting a sales target. Education reimbursement as long as certain conditions are met.

What non-cash compensation is NOT allowed?

Gifts that occur on a regular basis or are contingent on meeting a sales goal

The SEC requires broker-dealers to do what with fully paid securities?

Segregate them and ensure they are safely kept

Are municipal bonds considered a liquid investment?

No, they are not considered this.

Bid price

Price a market maker is offering to pay

Ask Price

Offer price, the price a market maker is offering to sell for

A customer who wants to buy immediately will pay at the what?

The ask (offer) price

A customer who wants to sell immediately will get what price?

The bid price

General obligation (GO) bonds

unsecured bonds backed by the full faith and credit of the municipality and paid for by tax-payers

Revenue bonds

secured bonds used to finance specific projects and are funded by the revenue streams generated by the projects

Why are GO bonds considered less risky?

Because the municipality is obligated to raise taxes to pay general obligation bondholders if need be.

Do GO bonds or revenue bonds pay more interest?

Revenue bonds

For SIPIC liquidation, a cash account and a margin account will be counted as how many accounts?

One

Deflation is defined as:

A period of falling prices and the expectation of continued price declines

Recession is defined as:

Two consecutive quarters of declining GDP

Depression is defined as:

A severe and prolonged downturn, lasting a minimum of 18 months or six quarters

Prosperity is defined as:

Period of economic growth typically characterized by rising prices (often seen as equivalent to the peak of the expansionary period

Business Cycle Indicators; Leading:

New consumer goods orders

Initial claims for unemployment

Building permits

Stock prices measured by S&P 500 average

Business Cycle Indicator; Coincendent

Personal income

Industrial production

Employment levels

GDP

Business Cycle Indicator; Lagging

Employment duration

Labor costs

Reported corporate profits

What is the maximum amount of net capital losses that are deductible in a tax year?

$3,000

FINRAs 5% markup policy

Secondary market transactions can have a mark-up that’s either more or less than 5%

When can registered representatives recommend a private placement?

When a written notice to the member transaction is provided, when details in writing any compensation to be received is provided, and when approval is obtained in writing from the other firm

Payments received by the owner of a tax qualified variable annuity are

100% taxable as investment income

Wrap account

A type of brokerage account where the customer is charged a single annual fee for all account services, regardless of activity in the account

Are custodian accounts allowed to have third parties that can control what is done in the account?

No, only the custodian can

Share holders in a management company have the right to vote for what?

The board of directors, vote for changes in the investment objective, to vote annually on the investment adviser, and to receive semi-annual and annual reports

Statutory Voting

Requires shareholders to cast the same number of votes per share for each director candidate

Cumulative Voting

Allows shareholders to pool all their votes and cast them for a single candidate or distribute them unevenly among multiple candidates

Authorized shares

The total number of shares a company is legally allowed to issue, as stated in its charter I

Issued shares

The portion of authorized shares that have been sold or allocated to investors, including those held by the public and any held by the company

Treasury Shares

Issued shares that the company repurchases from the open market. They no longer considered outstanding but are still apart of total issued shares

Outstanding shares

All issued shares that are held by investors (public, insiders, institutions) that are actively traded

When a regulated mutual fund pays out a dividend and capital gains distribution, which the shareholder has automatically reinvested, which part is taxable?

The capital gains

Interest income from muni bonds is exempt from what tax?

Federal, Local, and State tax if purchased in the state

GANs (Grant Anticipation Note)

Issued by a municipality to get immediate access to federal grant monies that are expected to be received months in the future. Typically support mass transit programs

RAN (Revenue anticipation note)

Paid from expected revenues to be received in the future, usually federal highway funds

Hedging/Protection option on a long stock

Long stock + long put

Hedging/Protection option on a short stock

Short stock + long call

Income/Covered option on long stock

Long stock + short call

Income/Covered option on short stock

Long call + short put

Order of yields on bonds:

Nominal Yield → current yield → Yield to Maturity → Yield to call

Current yield

Annual income / market price

Yield to worst

Lower of YTM / YTC

S&P Investment Grade bonds, highest to low

AAA, AA, A, BBB

Moody’s Investment grade bonds, highest to lowest

Aaa, Aa, A, Baa

S&P Speculative grade bonds, highest to lowest

BB, B, CCC, CC, C

Moody’s Speculative grade bonds, highest to lowest

Ba, B, Caa, Ca, C

How much of a REITs annual income must be distributed to shareholders to qualify for tax advantage

90%

FINRA rule 5130

prohibits a member firm (broker/dealer) from selling shares of an IPO to an account in which a “restricted person” has beneficial interest

All employees of a broker-dealer are considered _____ under rule 5130

restricted persons

A bonds current yeild is

Constantly changing

Securities Act of 1933 requires

Registration of non-exempt new issues

Securities Act of 1934 requires

registration of exchanges and their members with the SEC, and allowed the stabilization of new issues in the secondary market under prescribed conditions

open ended shares are purchased at

NAV bare minimum, occasional sales charge if imposes a “sales load”

closed end shares are purchased at

prevailing market price plus a commission

A person can start withdrawing from their IRA without penalty at the age of what?

59 1/2