SIE Practice Exam 1

The Act of ’34 created the SEC.

The SEC reviews the information in a registration statement, it does not approve or disapprove of the information, nor does it guarantee the accuracy of the information disclosures. Therefore no sales agent can say to a prospect that these are ‘government approved’ securities.

SIPC was set up to protect customer ACCOUNTS in the event of a broker-dealer bankruptcy, not protect investments against loss. Be careful of the wording in this question. Cash & securities in customer accounts are ‘insured’ up to $500,000 in the event the B/D goes bankrupt and the cash and securities can’t be located and properly returned to the customer.

Federal securities laws typically supersede State laws.

Since the ‘money market’ includes short term debt instruments only, and since ADRs represent ownership (equity) in foreign stocks, ADRs are not debt.

Going public means sharing equity ownership (common stock) with public investors, for the first time (Initial public offering, IPO).

Whether one considers answers A, B, or C partially accurate, the last answer, D is the most complete therefore best answer.

This is one of the functions of a Transfer Agent. Registrars make sure that a company does not issue more shares than authorized in the Charter.

You cannot lose more than you’ve put at risk. A common stockholder cannot be held liable for any debts of the corporation, therefore they have limited liability.

Splitting a stock provides each shareholder with more shares and the CMV (current market value) of the stock will decline proportionately. Because of the reduced price in the market, it becomes more ‘affordable.’

Stock dividends are not Cash dividends – they are dividends in the form of additional shares.

All three are correct – in fact, Regular and Statutory are the same.

Call option contracts go ‘in the money’ (intrinsic value) when the current market value of the underlying security exceeds the exercise price (strike price) of the option. If a call option's exercise price is $20, and the underlying stock is trading at $25, the intrinsic value of the call option is $5.

Since with a Zero coupon instrument there is no annual income to ‘reinvest,’ Zeroes have no reinvestment risk.

Exchange traded funds trade on exchanges at market prices determined by supply and demand – the same as regular corporate stocks.

Variable annuities sell ‘accumulation units’ to purchasers, whose price each day is based upon the 4 pm net asset value of the separate account.

The maximum maturity is 9 months or 270 days.

This SIE exam enables the candidate to take one of several different FINRA registered reps exam.

Regulation T does not permit margin under normal circumstances on Option contracts.

Buying broad-based Index Put options will provide a hedge against the decline in the broad market.

The best (inside) bid is the price at which a client’s liquidation (sell) order will be executed.

Market making firms post firm quotes during the trading day at which they are obligating themselves to do business with other firms as well as retail customers.

With more active trading in a stock (high volume), the spread between the bid and ask prices usually narrows.

The FINRA markup markdown and commission policy does not apply to new issues as well as municipal bonds --- MSRB has its own such policy.

Syndicate implies a firm commitment; group implies best efforts.