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Question	Answer
SIE	Securities Industry Essentials Exam
Who charges a commission?	A broker charges a commission to execute the order. A dealer acts as a principal in the trade and charges a markup.
Your customer is extremely concerned about preserving the money she has saved; an appropriate investment for her would be	High-Grade Corporate Bonds
According to FINRA Rule 2210, coies of all retail communication must be kept by the broker dealet for a minimum of how long?	3 years
If a client wisshes to open an account for a minor whereby he, the donor, retains ownership of the account he would most likely opena :	529 Plan
A broker-dealer's public website is	A broker-dealer's public website is considered retail communication even if it is password protected if even a single retail investor may see any part of the site.
Which of the following has unlimited risk?	A call seller has unlimited risk because there is no limit to how high the stock can go.
As it relates to money laundering, which of the following is the first step in the process?	PLacement is the first process.
According to the uniform practice code, cash transactions settle:	The same business day.
For an investor who wants tax benefits, you should recommend	Municipal bonds and municipal bond funds.
Which of the following is an order to buy that allows the floor broker to exercise judgment as to the price?	A Not held order allows the floor broker to determine the best time and price to execute an order.
A no-load mutual fund may charge a 12b-1 fee that is:	That is up to 1/4 of 1% of the NAV.
The public offering price for a mutual fund as quoted in the financial press reflects	The maximum sales charge the fund distributor collects.
Standard VIX options measure the volatility of which of the following?	S&P 500
Which of the following are true regarding dollar cost averaging?	1) It is a long-term investment strategy. 2) It is more effective when the share price varies.
All of the following are not false except:	All of the choices are true (not false) except: An investor who is short a naked put has the potential for an unlimited loss.
Which of the following is true about a put buyer?	A buyer of a put is not bullish on the underlying stock; they are bearish.
A fraudulent practice used to entice buyers as a result of new activity in the security is a violation known as	Matched sales are sales that two parties arrange to increase the volume of the security without any change in ownership. The activity attracts investors, causing the price to rise allowing the violators to sell their shares at a higher price.
A mutual fund may send out capital gains distrubutions?	A mutual fund may only send out capital gains once a year.
The customer make a new purchase of 100 shares of Abra Co. at $90 per share on an IPO. IF THE frb MARGIN REQUIREMENT IS 50%, customer must deposit A. 4,500 B. 9,000 C. 5,500 D.4,000	ANSWER B. 9,000 The customer must deposit the full purchase price. IPOs may not be purchased on margin.
The dividend on an ADR is paid in	The dividend on ADRs is paid in the foreign currency and received by investors in US dollars.
If your customer is concerned about tax preference items for AMT, you would least likely recommend	Private purpose bonds dont get the favorable tax treatment from the IRS that public purpose/essential/GO bonds receive
You have the following positions in your margin account: Long 500 ABC at 27, Long 1500 XYZ at 42, Long 250 MCX at 80. you have a debit balance of $28,200 what is your minimum maintenance?	answer: $24,125 To find the minimum maintenance, multiply the long market value by .25=96,500 x .25 =24,125
A fixed annuity guarantees all of the following except	Protection from inflation If inflation rises, the holder of a fixed annuity may end up worse off due to the loss of value in the dollar.
Your customer has an open order to buy 1000 ABC at $42. AABC goes ex-dividend for 18 cents per share. Your customer's order will now be; A. open order to buy 1000 ABC at 41.82 B. buy at 42.18 C.buy at 42, or D. canceled	answer: an open order to buy 1000 ABC at $41.82. Open orders placed below the market will be reduced by the amount of the dividend.
Once a company decides to raise long-term capital to meet its needs, it will:	A business must hire an underwriter to advise the issuer about the type of securities to issue.
Which of the following is true regarding american depository receipts?	The ADR represents between one and ten shares, and ADR holders do have the right to vote and receive dividends.
Which of the following are true regarding nonqualified plans?	A nonqualified plan is not a trust, and the IRS is not needed. Only the growth is taxed as ordinary income upon receipt.
Which of the following projects are least likely to be financed by a GO bond? I. Public golf course II. Airport runway expansion III. County courthouse IV. Public schools	Both the public golf course and airport runway expansion will generate user fees that will support a revenue bond issue. A county courthouse and a public school benefit the public, and GO Bonds would be used.
XYZ mining Co. is considering the purchase of a large piece of mining equipment to modernize its facility. It is anticipated the new equipment will increase productivity. The purchase of the equipment would make sense if the net present value was	Answer: is greater than zero. The purchase would only make sense if the net present value was greater than zero. The NVP is the difference in present value of the income generated by the equipment relative to the NPV of the expense to purchase the equipment.
A preferred stock that can be redeemed by the issuing corporation is called a:	Answer: A callable preferred. A preferred stock that can be redeemed by the issuing corporation is a callable preferred.
Which of the options would provide the highest monthly payout on an immediate annuity? A. Straight Life B. life with a 20 year period certain. C. Lump Sum D. Life with 10 year certain	Answer: Straight Life Annuity A straight life always has the highest monthly payout of the options with a life contingency. With the Straight life option, the monthly payments end when the annuitant dies, which lowers the risk to the company and results in a higher monthly payout to the annuitant. With the period certain options, there could be a longer payout to a beneficiary based on the time period selected. Because of the potentially longer time period than the life of the annuitant, there is a higher risk to the company. Because of its increased risk, the monthly payments will be lower. The lump sum option is only a one-time payment, not a monthly payment.
As it relates to a member firm conducting business with the public, all of the following are violations except:	Answer: Charging a customer a larger than normal commission for executing a specific order is not a violation. A member firm may charge a customer a larger than ordinary commission for the execution of a specific order as long as it is disclosed to the customer. A member firm must always execute a customer's order.
An investor buys 100 shares of XYZ 7% convertible preferred stock, which is convertible into XYZ common at $20 per share. How many common shares can he receive upon conversion?	First you determine the number of shares. Par/conversion price = 100/20 = 5 multiplied by the number of preferred shares. 5 x 100 = 500
Preferred stock is	An equity security with a fixed-income component. People invest in preferred stock for the fixed income that the preferred shares generate semi-annually.
Which of the following is most suitable for a customer who is looking for growth potential with a minimum guaranteed rate of return? A. Balanced fund B. A variable annuity C. A money market fund D. A combination annuity	A combination annuity. A combination annuity provides a guaranteed rate of return by investing in the general account plus a variable rate of return by investing in the separate account.
A long established mutual fund co. wants to place new ads in the financial papers to try to attract new investors. Which of the following is true?	The ad must be filed with FINRA 10 days after it was first used.
treasury stock has been issued and repurchased by a corporation for which of the following reasons?	To increase earnings per share. A corporation can increase its earnings per share, or EPS without inlcreasing income by repurchasing outstanding shares from the public.
Which type of preferred stock is likely to have the lowest stated dividend rate?	Cumulative preferred. Cumulative preferred stock has the feature of accruing dividends that are missed and paying them out prior to paying out common stock dividends. This protective feature is a benefit to the shareholder, and in exchange the stated dividend rate is relatively lower.
What is not a feature of preferred stock?	Answer: The Par value of all preferred stock is $250. Par value for all preferred is the same, set at $100; companies generally express the par value as a percentage of par value for the preferred stock.
As per FINRA rule 2210 electronic communications with the public:	must be based on the principles of fair dealings. All communications with the public must be based on the principles of fair dealing. It is a violation of the rule to omit material information or to give misleading information via electronic communication.
Which of the following statements are true regarding the act of 1933? I. regulates the new issues. II. It regulates the primary market III. it regulates trades between issuers and the public. IV. it regulates investor-to-investor trades.	answer I, II, III The ACT of 1934 regulates the primary market, also known as the new issue market, where issuers sell securities to the public for the first time. Once the securities are in the public hands, they are traded between investors, and those trades are regulated by the Act of 1934.
A mutual fund has a bid of $11 and an ask of $11.40. The mutual fund has sent out a dividend distribution of 75 cents and a capital gain distribution of 90 cents over the last 12 months. What is the mutual funds current yield? A. 6.57% B. 6.8% C. 15% D. 14.5%	Answer is A; The current yield of a mutual fund may only be based on dividends and must use the highest POP to determine the current yield. Use the following formula: annual income / current market price = .75 / 11.40 = 6.57
opening customer accounts New Account information for all new accounts Full name and address home, work phone #'s SS # or tax ID # Employer, occupation, & employer's address Investment objective, income, net worth Also, a good thing to get is their risk profile	All new accounts must be signed/approved by the principal Rep name will be noted on account Customer profile information must be sent within 30 days and signed and returned by the customer within 30 days. *If the customer does not provide enough info for suitability, you can only deal with customer on non-solicited items
Opening customer accounts cont... No customer signature is required to open a a cash account Customer information must be verified every 36 months. * Rep must update financial information on the customer's account within in 30 days of the information change	Customer agreement; Pre-dispute arbitration clause—client waves right to sue/jury trial. 1. Final, binding, no appeal 2. Discovery process is limited 3. Findings are not based on any legal reasoning or law
Holding customer securities * Transfer and ship Safe Keeping (the broker-dealer registers the securities in their name, but the broker-dealer keeps the securities for a fee) Street name (most popular) meaning the name of the broker-dealer; this is called an ease of transfer. The client would endorse the back of the stock like a car title or power of substitution, which would make it easily transferable. DVP/RVP (delivery versus payment/receipt versus payment): 35 days to settle this transaction; balances on the accounts tend to be zero. Direct registration system/DRS allows clients to digitally hold securities in their own name.	Types of customer accounts * Individual: if the client dies, assets go to the estate. Joint tenants in common/JTIC: allowed to have more than two parties/unequal interest; when one of the parties passes away, the assets pass on to the estate of client who passed Joint Tenants with Rights of Survivorship/JTWROS: assets are passed to the survivor upon the death of the spouse.
Transfer on Death Transfer on death/pay on death TOD/POD Named beneficiary and the assets pass on to that beneficiary and avoid probate. Beneficiary is not provided or able to have any information on the account.	Death of a customer Mark account deceased Cancel all open orders *Await for legal papers
Types of customers accounts Corporate accounts: Broker/dealer must receive a corporate resolution Trust accounts: Rep required to have a copy of the trust agreement, informs who is the trustee and what powers it has to act in the account *Partnership accounts: Rep needs a copy of the partnership agreement, general partnership (Person who manages and has the power to act on the accoun, May only enter orders on the account), law partnership, limited partnership (provides the capital for the business)	Types of customer accounts Cont... Discretionary Accounts: The Client gives authority to act in the account to buy and sell whatever is appropriate for that customer. Power of Attorney: limited to buying and selling but not to writing checks or transferring funds. (That's a full power of attorney.) Action + Asset + Amount Rep may determine the time and price without discretion Customer calls Rep to buy 550 shares of XYZ whenever you think price is right, does the REP need discretionary authority to do so? No, because it meets all the "Three A's." *Action + Asset + Amount Should be executed that same trading day unless implied other by the customer
Types of customers accounts Third-party accounts Fiduciary accounts *UGMA/UTMA Accounts [Uniform gift to minors act or account] Uniform Transfer to minors act or account] It's in the custodian's name, the state, the minor's name, and UGMA. SS# is what the account is under. The account must transfer to the minor at the age of majority. Assets become property of the minor's estate if the minor passes away. The custodian may choose the age when the account transfers to the minor. 25 years of age is the maximum age of majority	Types of customer accounts cont... "Notice": You must inform the employer with a notice in writing that they are opening an account. Accounts for employees of other broker-dealers Numbered accounts: Yes, accounts may be identified only by a number, but their must be some information that refers to the name of the holder of the account, and they are responsible for the taxes
Types of customer accounts Cont... Option accounts Option agreement: a customer has 15 days to sign and return an option agreement. If the agreement is not turned in on time, they may not open up any new options positions. Hypothecation agreement. Loan consent agreement to loan out stock to sell short. *Margin accounts Hypothecates its collateral	Customer account protection Regulation S&P is that the broker-dealer must have policies and procedures in place to lock down their WIFI. Initial and annual privacy notice Information sharing Identity theft must have plans in place to mitigate any losses to customers if their identity is stolen. Must provide the customer a privacy notice about 3rd-party sharing, also an annual notice as well on third-party sharing. The customer must have an option to opt out by either clicking a link or calling an 1800 number. Customer may not opt out with affiliated third-party dealers.
Financial exploitation of seniors Anyone over 65: If th Rep thinks something is fraudulent, the rep may hold the funds for 15 days while they investigate for elder abuse. if rep finds cause for fraud, the rep may hold funds for another 10 days while rep contacts the authorities. Trusted contact On the test you will pick the answer that executes the customer's order and mark unsolicited or contacts your broker-dealer principal.	Able accounts Must be established by the time the person is 26 years old. $100,000 does not impact supplemental benefits. Medical care Wellness care
Able accounts Housing expenses (including mortgage, tax, rent, insurance, and utility payments). Transportation assistive technology education *job training Customer may only have one able account at a time. May take money out of the account for anticipated expenditure or to reimburse for payments made. Any assets that remain in the able account after the customer passes away will go towards the estate to repay any supplemental benefits they received over their lifetime.	The Deposit Amount required in a margin account for a municipal bond. When buying a municipal bond in a margin account, investors must deposit the greater of 7% of par value or 15% of the market value; in this case, 15% x $54,000 = $8,100

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	Created by Ken Tippett 5 months ago