SIE Midterm Exam

Which of the following statements regarding a bond issued with a 6% coupon and now trading in the secondary market is TRUE?

If interest rates rise, the coupon will remain at 6%

What are some key differences between general obligation (GO) bonds and revenue bonds

-Only GO bonds are subject to statutory debt limits and require voter approval.
-GO funds are backed through taxes
-Revenue bonds are backed by the revenues generated by the project the bonds funded.

Regarding a public offering and a private placement, all of the following are true

-A key difference is that private placements are generally exempt from the registration requirements of the Securities Act of 1933
-both allow securities to be sold to individual and institutional investors
-both are methods of offering securities for sale to investors
-both may utilize the services of investment bankers to facilitate the sale of securities

Your firm has a number of clients who like to speculate with penny stocks; therefore, it is important to be familiar with the definitions and rules applicable to them.

-Customers holding penny stock positions must receive a monthly account statement regardless of activity in the account.
-Before an initial penny stock transaction, a new customer must receive a copy of a risk disclosure statement and sign and date an acknowledgement of its receipt.
-Established or existing customers are exempt from the suitability statement requirements but not the risk disclosure requirements.

A registration statement disclosing material information about a new issue must be filed with the Securities Exchange Commission. The accuracy and adequacy of the registration statement is the responsibility of...

the issuer

A corporate bond has a stated yield set at the time of issuance. This stated yield is also known as...

Nominal or coupon yield

One of your new clients explains that she prefers investments paying income with a fixed rate of return, but also allows for the possibility of realizing greater gain potential. She would likely favor investments in

convertible preferred shares

Regarding a tombstone advertisement, what are the 3 key points?

-it is the only type of advertisement permitted between the time the registration statement is filed with the SEC and the effective date
-all such advertisements must contain an advisory stating that the ad is neither an offer to sell nor a solicitation of an offer
-they are limited to the information that may be contained in them

It would be appropriate to refer to which of the following as an issuer transaction?

-a repo
-an IPO
-an APO

Underwriters have been taking indications of interest for shares of an upcoming new issue. Indications of interest are...

non-binding on all parties

Secondary market transactions are ones in which

an investor is selling securities to another investor

Which of the following are a characterization of the Securities Act of 1933?

-Truth in Securities Act
-Paper Act
-Prospectus Act

Occasionally our economy experiences an unusual combination of rising prices and high unemployment. Economists have given this unusual pairing what name?

Stagflation

Rank the following government-issued securities from shortest to longest maturity.

Treasury bills, notes, bonds

For a fully disclosed firm, which of the following is TRUE?

It can execute both buy and sell orders for a customer.

A company is engaging in a securities offering that is a combination of a primary and secondary offering. Which of the following is TRUE?

This combination is known as a split offering where the issuer receives some of the proceeds and existing shareholders receive some of the proceeds from the sale

A shelf registration...

is good for 2 years and requires a supplemental prospectus be filed before each sale

Which of the following are considered money market instruments?

-banker's acceptances (BAs)
-commercial paper
-negotiable jumbo certificates of deposit (CD)

A registered options principal (ROP) at your broker-dealer has just approved an options account for one of your new clients. How long does the client have to return the signed options agreement?

15 days

An affiliate of a corporation has purchased shares of restricted securities (fully paid for) in a private placement. Under Rule 144 the affiliate can

sell shares after a 6-month holding period but is subject to volume restrictions

Your customer is long 1 DFG July 35 call at 2. You explain to the customer that in order to breakeven, DFG stock must be trading at

37

A basis point is valued at

1/100th of 1 percent

A point is valued at

1% of face value or $10 per bond

An issuer files a registration statement with the SEC for the sale of new securities on May 1. While reviewing the registration statement, the SEC determines that it has not been filed properly and issues a deficiency letter on May 5. The issuer submits a corrected registration statement on May 8. Which of the following is TRUE regarding the 20-day cooling-off period?

It is halted on the day the deficiency letter is issued and resumes where it left off on the day the corrected registration is received.

BBB Corporation is liquidating under a Chapter 7 bankruptcy. What is the order of payout?

Senior bond holders, general creditors, preferred stock holders, common shareholders

What information must be included on a Final Prospectus?

-A statement by the SEC that the offering is neither approved or disapproved
-A history of the business including any risks to purchasers that might be unique to that business or industry
-The intended use of the proceeds for such corporate actions including expansion, mergers, or acquisitions

Which of the following funds would most likely fall the most in a rising interest rate environment?

A T-bond fund

An investor has purchased a senior, unsecured debt security that trades on an exchange and is issued by a financial institution. It is backed only by that institution's good faith and credit. The security tracks the performance of a particular market index, but does not represent ownership in a pool of securities the way share ownership in a mutual fund does. This security that pays no interest and has a stated maturity date is known as

an exchange-traded note (ETN)

A client has just purchased a ZZZ June 35 call @ 8 when the stock is trading at 41. What is the contact's premium?

6 points of intrinsic value and 2 points of time value.

What are the primary benefits of common stockholders?

-The opportunity to collect income from the distribution of corporate profits
-Liability to the extent of one's entire investment in the case of corporate failure
-Limited access to the corporations books and records (annual report)

An investor has purchase a bond where the issuer will repay part of the bond's principal before the final maturity date, and then pay off the major portion of the debt principal at final maturity. This is...

a balloon maturity schedule

Which of the following direct participation programs (DPPs) is most likely to be associated with intangible costs and depletion allowances?

Oil and gas income program

Which of the following statements regarding open-end and closed-end funds is TRUE?

-Both pay dividends when declared.
-Only open-end funds can issue fractional shares.
-Only closed-end funds can issue debt securities.
-Open-end fund shares are priced by formula (NAV + sales charge = POP).
-Closed-end fund shares are priced by supply and demand.

The business cycle is best characterized as

expansion, peak, contraction, trough

Which of the following statements regarding put and call features on debt securities are correct?

-Put features benefit the bond holder.
-Call features benefit the issuer.
-A puttable bond is likely to be put back when interest rates are rising.

To facilitate a public offering where securities are offered and sold to the investing public, issuers will utilize the services of...

-investment bankers
-broker-dealers
-U.S. stock exchanges

A corporate bond ($1,000 PAR) purchased several years ago at $825 matures. At maturity, the bond holder will receive principal in what amount?

$1,000 face value

For initial public offerings (IPOs) of common stock, who would be considered a restricted persons?

- fiduciaries acting on behalf of the underwriters
- a member firm
- employees of the member firm
- a person owning at least 10% of the member firm

Regarding annuity products offered by insurance companies, which of the following is TRUE?

Variable annuities are securities; fixed annuities are not

A small company, in order to raise capital for expansion, wants to sell shares of stock to investors. The company has never offered ownership outside the founding partners to new investors before. This offering is known as

an IPO

Financial markets encompass

equity, debt, currency, and derivative products

During the cooling-off period, underwriters may...

take non-binding indications of interest from public investors

A corporation deposits marketable securities it owns into a trust in order to secure a loan. The loan for this type of arrangement would be facilitated by the corporation issuing

collateral trust bonds

What could be possible reasons for a surplus in the US balance of payments?

-the value of the U.S. dollar is currently down against other currencies
-more dollars are flowing out of the United States than into the United States
-exports are currently exceeding imports

The Federal Reserve Board (FRB) can have an impact on the money supply by...

-raising or lowering the discount rate
-raising or lowering the reserve requirement
-buying and selling government securities in the open market

Which of the following option contracts is in the money if ABC stock is currently trading at $45 per share?

Jan 55 put