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Securities Industry Essentials (SIE)
Examination
⏹ If interest Rates fall the issuer will most likely call which bonds first? Answer: High Dividend Rate preferred issues trading at a premium ⏹ What are some actions by a corporation will affect an individuals common shareholder's equity Answer: 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 Answer: 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? Answer: 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? Answer: 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? Answer: 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
NOT Options and Not Tax deferments ⏹ Preferred Stock is? Answer: 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.. Answer: Debenture ⏹ Trades of all of the following will settle in Fed Funds Except?
- US Treasury Bonds
- Treasury Bills
- Prime Commercial Paper
- Prime Banker's Acceptances Answer: 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?
- Toll Fees
- Park Fees
- Capitalized interest
- Sales Tax Answer: 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 Answer: 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 =.
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? Answer: The current yield will be lower than the nominal yield. The dollar price of the bond will be at a premium. Nominal (stated) =. Market price of bond = .08/.07 = 1, Current Yield = 80 / 1143 =. ⏹ New issues of Government debt are issued in what form? Fully registered Fully registered to principal Book entry Mega super registered to a bro Answer: Book entry
⏹ All new corporate bonds are issued in what form? Fully registered Book entry Mega man entry Registered to principal Answer: Book entry ⏹ zero coupon bond Answer: a bond that makes no coupon payments and is thus initially priced at a deep discount ⏹ call premium Answer: 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? Answer: Moody's, Standard and Poor's, Fitch NOT BEST's BEST's DOESNT DO A THING ⏹ Treasury notes and Bonds are registered in?
IV Settlement date is not known Answer: 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 Answer: 1) Management Company
- Unit Investment Trust
- Face Amount Certificate Company ( Real Estate Investment Trust are not considered under this act) ⏹ Constitutional Debt Limits are imposed on the issuance of? Answer: 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 Answer: 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 Answer: They have the following rights (Voting for BOD, Voting for the adviser, Receive reports) ⏹ Trust indenture of a Bond contains the following information? Answer: Interest Rate
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 Answer: 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 Answer: 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 Answer: 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 Answer: I II and III Are all ECN's
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? Answer: 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 Answer: 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: Answer: 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 Answer: 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
II Maturity Date III Call Date IV Put Date Answer: 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 Answer: II Federal Funds ⏹ An Open ended fund have a NAV of $10/share. The minimum purchase price is? I $ II $10 plus commission
III The market price IV The market price plus commission Answer: I $ ⏹ 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 Answer: 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
