FINRA SIE Exam

If interest Rates fall the issuer will most likely call which bonds first?

High Dividend Rate preferred issues trading at a premium

What are some actions by a corporation will affect an individuals common shareholder's equity

Conversion of convertible preferred stocks or bond

Repurchase of common shares

Issuance of additional common shares

(Stock splits do not effect shareholders equity but it must be voted on because it effects Par Value)

Benefits to a Convertible stock compared to a regular debenture

Convertible stock will have a slightly lower yield than non-convertible however it will raise in value as the market price of common stock rises

What traits do preferred stock and bonds have in common? How are they different?

Can be callable by issuer, both have periodic payments. Both are senior securities to common stock.

Neither have voting rights

Preferred is paid dividends on a percentage of face value much like the yield of a bond.

Preferred stock has no maturity date and can be held perpetually while bonds have a set maturity date.

Payments to preferred stock are not mandatory unless a declared dividend has been issued to common stock

Payments to bond holders are mandatory

When are common dividends declared and paid?

Quarterly for both

A customer owns 256 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 15 rights a shareholder may purchase one additional share.at $24 a share. Any fractional rights may be rounded up to buy an additional share.

How many shares may the customer buy with these right?

A share holder can buy a maximum of 18 shares with these rights paying $432 for them.

The 17.06 shares may be rounded up to 18.

XXYZ ADR (American Depository Receipt) represents 10% of the value of an XXYZ ordinary share. The ordinary shares trade on the London Stock Exchange, where the current price is 400 British Pounds (BP). The current exchange rate for the British Pound against the US Dollar is $1.40. The ordinary share pays an annualized dividend of 12 BP. The XXYZ ADR is listed on the NYSE. If a customer places an order to buy $560,000 of the ADR on the customer will buy how many shares of the ADR?

10,000 Shares with $560.,000

Explanation

400 BP x $1.4 = 560

$560,000 / 560 BP/share = 10,000 Shares of XXYZ

Preferred Stock market valuation is based primarily on what?

Performance of stock?

Inflation?

Interest rates?

Interest Rates is the correct answer, remember that preferred stock is much like a bond in that it has fixed payments and is considered fixed income.

Long term market interest rate levels determine the valuation.

Rights are?

Exerciserable, Negotiable (can be traded), Giftable

Dividends can be paid in the form of?

Cash or products

Additional shares of ANOTHER company (yes another company)

Additional shares of that company

NOT Options and Not Tax deferments

Preferred Stock is?

Performance based, participating, cumulative (dividends)

It is not refundable or redeemable

A corporate bond which is backed solely by full faith and credit of the issuer..

Debenture

Trades of all of the following will settle in Fed Funds Except?

1) US Treasury Bonds

2) Treasury Bills

3) Prime Commercial Paper

4) Prime Banker's Acceptances

3) Prime commercial paper is not traded by the Federal Reserve therefore does not settle in Fed Funds

Prime Banker's Acceptances, T Bills, T Bonds, are all settled in Fed Funds

All of the following are sources of income that can be used to service debt on municipal revenue bonds Except?

1) Toll Fees

2) Park Fees

3) Capitalized interest

4) Sales Tax

Capitalized interest (property tax) is not used in revenue bonds, it is only used in General Obligation Bonds

A corporation issued a 7% AA sinking fund debenture at par. Three years later, similar issues are being issues at 8%. Which of the following is true about the outstanding 7% issue? How does the current yield relate to the nominal yield

The current yield will be higher than the nominal yield.

The nominal yield (stated yield) will be 7%

The market price of the yield will drop when the new issues are at a higher yield.

Current yield = annual interest $/ current market price

market price = .07 / .08 = 875

Current yield = 70 / 875

Current yield = .08

Current yield > Nominal

How would you quote a US Government bond with a dollar price of

$1012.50?

101-8

US GOVT bonds are quoted on a percentage of par at 1/32nds

101 + 8/32 = 101.25 then multiply by 10x to get to par

$1012.50

A corporation has issued 9%, $1,000 par convertible debenture which convert at $50. The common stock is currently trading at $60. If the bond and the common stock are trading at parity a customer purchasing 5M of the bonds will pay:

Answer $6,000.

The bonds are convertible at $50, based on a $1,000 par value therefore each bond convert into 20 shares at $50. If the common stock is trading at $60 the bond must be trading at $60 x 20 = $1,200

Since they are buying 5M that means that are paying 5 x $1,200 = $6,000

Issuance of which of the following municipal issues are NOT subject to statutory debt limits

Special tax bonds

Industrial Revenue Bonds

Moral Obligation bonds

COPS

(General Obligation are subject to debt limits)

A corporation has issued bonds at 8%. Three years later similar issues are being offered in the primary market at 7% which of the following statements will be true about the current yield and the nominal yield?

The current yield will be lower than the nominal yield. The dollar price of the bond will be at a premium.

Nominal (stated) = .08

Market price of bond = .08/.07 = 1,143

Current Yield = 80 / 1143 = .06999

New issues of Government debt are issued in what form?

Fully registered

Fully registered to principal

Book entry

Mega super registered to a bro

Book entry

All new corporate bonds are issued in what form?

Fully registered

Book entry

Mega man entry

Registered to principal

Book entry

zero coupon bond

a bond that makes no coupon payments and is thus initially priced at a deep discount

call premium

The call premium is an amount over the face value of the security and is paid in the event that the security is redeemed before the scheduled maturity date. Put another way, the call premium is the difference between the call price of the bond and its stated par value.

Who rates commercial paper?

Moody's, Standard and Poor's, Fitch

NOT BEST's

BEST's DOESNT DO A THING

Treasury notes and Bonds are registered in?

A) Bearer securities

B) Registered to interest only

C) Registered to principal only

D) Fully registered in book entry form

D

Government and Corporate are registered in book entry form

Which statements are true regarding the relationship interest rates and preferred stock?

When interest rates rise preferred stock prices will fall

When interest rates fall the preferred stock prices will rise.

They are inverse! Similar to Bonds

At the time of "when and as if issued" trade the:

I Amount of accrued interest due to the under writer is known

II Amount of accrued interest due to the underwriters is not known

III Settlement date is known

IV Settlement date is not known

II and IV

Interest due is now known

Settlement date is not known

Which of the following are defined as investment companies under the Investment Company Act of 1940

1) Management Company

2) Unit Investment Trust

3) Face Amount Certificate Company

( Real Estate Investment Trust are not considered under this act)

Constitutional Debt Limits are imposed on the issuance of?

General Obligation bonds

(Moral obligation bonds are not subject to debt limits they are issued in desperation)

Which of the following pay dividends?

I Warrants

II ADR's

III Preferred Stocks

IV Real Estate Investment Trust Shares

II , III , IV

Warrants are the only ones that do not pay dividends

Which rights do shareholders in a management company have?

I Vote for the Board of Directors

II Vote for the investment adviser of the fund

III Receive semi-annual and annual reports

IV Choose the broker who executes the portfolio transactions

They have the following rights

(Voting for BOD, Voting for the adviser, Receive reports)

Trust indenture of a Bond contains the following information?

Interest Rate

Maturity

Collateral backing the issue

Call Provisions

Which of the following statements are TRUE about tax shelters about tax shelters that invest in raw land?

Tax shelters for Raw land are NOT Allowed

The main reason to invest in Raw land would be appreciation potential

Sell Limit Orders?

I Used to sell at prices that are lower than current market prices

II Used to sell at prices that are higher than the current market price

III Guarantees a specific price

IV Does not guarantee a specific price

II and III

Sell above the current market price Guarantees a specific price

(These securities can only be filled at the current market price or higher - so they do guarantee a specific price or better)

A municipality wishes to sell a bond issue that is NOT backed by taxing power. Which of the following bonds can be issued?

I Revenue Bond

II Industrial Revenue Bond

III General obligation Bond

IV Lease rental bond

I , II, and IV

Only General obligation bonds are required by taxing power. The rest are revenue backed

Stockholder approval is needed if a corporation wishes to do which of the following?

I Split it's stock 1 for 2

II Split its stock 2 for 1

III Repurchases shares for it's Treasury

IV Issue convertible securities

I II and IV

Stock splits require a vote because they change the par value

Issue of convertible securities

Dividends can be paid out in which three ways

Making cash distributions on stocks (cash)

Product distribution

Stock distributions of that company or another company

No taxable credits may be authorized

Which of the following is an ECN ( Electronic Communications Network)

I INSTINET

II Island

III Archipelago

IV Peninsula

I II and III

Are all ECN's

Peninsula is not an ECN

When do Mutual funds send financial statements to share holders?

Semi-Annually

Who backs Jumbo CD's and are they considered negotiable? Which market trades Jumbo CD's

They are traded on the secondary market

They are backed by the issuing financial institution

They are considered negotiable

Which of the following are taxable in a year?

I Interest earned from investments

II Cash Dividends from investments

III Stock Dividends from investments

IV Stock Splits on Common Stock

I and II are considered taxable

Stock dividends are not taxable because they are not paid in cash

Stock splits are also not taxable

What are three rights of a shareholder of common stock?

Right to vote on members of the BOD

Right to dividends

Right to transfer shares

Which of the following actions by a corporation will affect an individual common shareholder's equity?

I Declaration of stock dividend or Stock split

II Conversion of convertible preferred stock

III Repurchase of common shares outstanding (Stock buy back

IV Issuance of additional common shares

II III and IV

Will all effect an individual shareholders equity

Stock splits and Stock dividends will not

ABC Corp declares a 3:1 Stock split to shareholders of record on November 10th. The price of the stock will be reduced on the ex date by:

The stock will be reduced on the ex date by 67%

Which of the following securities trade in the secondary market?

I Preferred

II American Depository Receipts

III Mutual Finds

IV Municipal Bonds

I II and IV

Mutual Funds do NOT trade in the secondary market

A middle age woman widowed customer has an investment objective of stable income and wants minimal market and liquidity risk. What type of preferred stock would be the best recommendation

I Participating

II Convertible

III Straight Preferred Stock

IV Variable rate preferred

IV Variable Rate preferred

Bankers Acceptances

I Trade at a Premium to par

II Trade at a discount to par

III Have a thinly traded market

IV Have an active market

II and III

They trade at a slight discount and are not traded actively

Which of the following is needed to compute the total dollar price of a municipal bond traded on a yield bases in the secondary market?

I Dated Date

II Maturity Date

III Call Date

IV Put Date

Maturity and Call Date are the only ones needed

The money that bank has in excess of reserves is called the?

I Clearing house funds

II Federal Funds

III Money Market Funds

IV Available Funds

II Federal Funds

An Open ended fund have a NAV of $10/share. The minimum purchase price is?

I $10

II $10 plus commission

III The market price

IV The market price plus commission

I $10

If a fund distributes a capital gain to shareholders which statements are true

I The capital gain is taxable if taken as a check

II The capital gain is not taxable if taken as a check

III The capital gain is taxable if it is auto reinvested

IV The capital gain is not taxable if it is auto reinvested

I and III

The capital gain is taxable either way because it is distributed

Which of the following are types of Oil and Gas direct participation programs?

I Exploratory

II Income

III Balanced

IV Combination

I II and IV

Balanced is not a DPP

What benefits do oil drilling programs provide?

Intangible drilling costs are 100% deductible in the year the drilling takes place

These programs give an immediate deduction

Which is most subject to reinvestment risk?

I Zero Coupon Bonds

II Low Coupon Bonds

III Medium Coupon Bonds

IV High Coupon Bonds

IV High Coupon bonds are the most susceptible to reinvestment risk

A customer places an to buy bonds. The order reads

"Buy 5M ABC 9s M'35 @ 90 GTC"

At which of the following will the price be executed

I 89

II 90

III 91

IV 92

I and II

The order is a Limit Buy so the purchase will only be initiated at or below 90

Treasury Receipts

I Pay interest semi-annually

II Pay interest at maturity

III Are essentially zero coupon T-notes or T-Bonds

IV Are essentially Zero Coupon T- Bills

II and III

They pay interest at maturity basically zero coupon T note or T Bonds

Nominal Yield

the interest rate, also known as the "coupon rate" which is named on the bond certificate

Current Yield Formula

Annual Interest / Current Market Price

Nominal yield Formula

Annual Interest / Par Value

In 2018 a customer buys 5 GE 10% debentures, M'27 at 85. The interest payment dates are Feb 1st and August 1st.

The bonds are callable as of 2022 at 103. The nominal yield is?

I 10%

II 10.81 %

III 11.76^

IV 12.43%

Nominal Yield

Which of the following are TRUE about GNMA Pass Through Certificates

I They are quoted on a par basis in 32nds

II They are issues in $1,000 denominations

III They trade "and interest"

IV Accrued interest on the certs is computed on a 30 day 360 year basis

I III and IV are TRUE

II is NOT true

they are issued on $25,000 minimum

"and interest" means that they trade with accrued interest

Which of the following are likely purchasers of commercial paper?

I Individuals

II Insurance Companies

III Trust Companies

IV Open- End Investment Companies

II III IV

All but individuals are likely purchases of commercial paper

A Sell Stop order is executed when?

I In falling markets

II In rising markets

III at the price specified

IV At the market price

In falling markets

at the market price

Sell stop = Stop loss to prevent further losses it becomes a market order and must fill

Buy stop = protects short sellers it becomes a market order once triggered

Think of stop as a bomb going off

Limit = doesn't trigger if not tripped over.

Which is true regarding warrants?

I Are issues with an exercise price that is higher than the market value of the stock

II Are issued with an exercise price that is lower than the market value of the stock

III Warrants would be exercised when the stock market's price is below the warrant strike price

IV Warrants would be exercised when the stock's market price is above the warrant strike price

I and IV

Warrants are issued with an exercise price that is higher than the market value of the stock

They would be exercised when the value of the stock is above the warrant strike price

Warrants vs Rights

Which has time value

Which has intrinsic

Warrants have time value

Rights have intrinsic value

When would a moral obligation bond be issued?

A moral obligation bond would only be issued in times of financial distress for the municipality that does not have enough taxing power or revenue generating ability to sell a revenue bond.

Which of these Retirement plans are "Qualified"?

I Roth IRA

II SEP

III 401k

IV Traditional IRA

Only III and IV are Qualified

What does it mean to be a qualified Retirement plan in your own words?

It means that contributions are tax-deferred and deductible. They are taxed when they are distributed.