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- Herausgeber: John Wiley & Sons
- Kategorie: Bildung
- Sprache: Englisch
A helpful and effective SIE test prep resource If you want a job in the Securities industry, the first step is to show your employer you've got what it takes. And to do that, you need a great score on the SIE Exam. You can maximize your chances of acing it on the first try with the latest SIE practice resource from your friends at For Dummies. SIE Exam: 1001 Practice Questions For Dummies offers helpful and challenging practice questions, along with detailed, step-by-step answers and explanations, for anyone preparing for the Securities Industry Essentials exam. This useful study aid will help you banish test anxiety and get familiar with the format of the test questions. It also provides: * Questions for every domain on the SIE exam * Fully explained answers for every question so you can see where you went wrong (or right!) on each one The perfect companion for everyone preparing for the Securities Industry Essentials exam, SIE Exam: 1001 Practice Questions For Dummies is a fast, efficient, and effective way to prep for the test.
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SIE® Exam: 1001 Practice Questions For Dummies®
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Library of Congress Control Number: 2023939002
ISBN 978-1-394-19524-4 (pbk); ISBN 978-1-394-19525-1 (ebk); ISBN 978-1-394-19526-8 (ebk)
SIE® Exam: 1001 Practice Questions For Dummies®
To view this book's Cheat Sheet, simply go to www.dummies.com and search for “SIE Exam: 1001 Practice Questions For Dummies Cheat Sheet” in the Search box.
Table of Contents
Cover
Title Page
Copyright
Introduction
What You’ll Find
Beyond the Book
Where to Go for Additional Help
Part 1: Tackling the Questions
Chapter 1: Securities Underwriting: The Process and the Team Players
The Problems You’ll Work On
What to Watch Out For
1–35 Bringing New Issues to Market
36–43 Types of Securities Offerings
44–61 Exempt Securities and Transactions
Chapter 2: Equity Securities: Corporate Ownership
The Problems You’ll Work On
What to Watch Out For
62–97 Common Stock
98–125 Preferred Stock
126–141 ADRs, Rights, and Warrants
Chapter 3: Debt Securities: Corporate and U.S. Government Loans
The Problems You’ll Work On
What to Watch Out For
142–178 Types of Bonds
179–208 Price and Yield Calculations
209–224 U.S. Government Securities
225–238 Money Market Instruments
Chapter 4: Municipal Bonds: Local Government Securities
The Problems You’ll Work On
What to Watch Out For
239–268 GO and Revenue Bonds
269–275 The Primary Market
276–286 Additional Municipal Bonds
287–296 Municipal Notes
297–302 Municipal Fund Securities
303–313 Taxes on Municipal Bonds
314–335 Municipal Bond Rules
Chapter 5: Delivering Diversification with Packaged Securities
The Problems You’ll Work On
What to Watch Out For
336–340 Investment Company Rules
341–384 Management Investment Companies
385–406 Investment Company Options
407–431 Annuities
432–436 Variable Life Insurance Products
Chapter 6: Working with Direct Participation Programs and REITs
The Problems You’ll Work On
What to Watch Out For
437–457 DPPs, General, and Limited Partners
458–464 Partnership Paperwork
465–470 Passive Gains and Losses
471–491 Types of DPPs
492–502 REITs
Chapter 7: Options: Understanding the Basics of Puts and Calls
The Problems You’ll Work On
What to Watch Out For
503–535 Option Basics
536–573 Standard Option Math
574–602 Option Paperwork and Rules
Chapter 8: Customer Accounts: Doing the Right Thing
The Problems You’ll Work On
What to Watch Out For
603–622 Opening Accounts
623–640 Selecting the Appropriate Type of Account
641–664 Margin Accounts
665–667 Telephone Act of 1991
Chapter 9: Securities Analysis: Doing a Little Market Research
The Problems You’ll Work On
What to Watch Out For
668–686 Systematic and Nonsystematic Risk
687–709 Fundamental and Technical Analysis
710–734 Money Supply and Monetary Policy
735–744 Economic Indicators
745–752 Cyclical, Defensive, and Growth Investments
753–755 Economic Theories
Chapter 10: Securities Markets: Taking Orders and Executing Trades
The Problems You’ll Work On
What to Watch Out For
756–763 Primary and Secondary Market
764–774 Making the Trade
775–781 Broker-Dealer
782–810 Executing Customer Orders
811–815 Types of Investors
Chapter 11: Making Sure the IRS Gets Its Share: Taxes and Retirement Plans
The Problems You’ll Work On
What to Watch Out For
816–822 Tax Categories and Types of Income
823–843 Taxes on Investments
844–876 Retirement Plans
Chapter 12: Rules and Regulations: No Fooling Around
The Problems You’ll Work On
What to Watch Out For
877–892 Securities Regulatory Organizations
893–904 FINRA Registration and Reporting Requirements
905–957 Trading After the Account Is Open
958–993 Additional Rules
994–1,001 FDIC and SIPC
Part 2: Checking Your Answers
Chapter 13: The Answers
Chapter 1 Answers
Chapter 2 Answers
Chapter 3 Answers
Chapter 4 Answers
Chapter 5 Answers
Chapter 6 Answers
Chapter 7 Answers
Chapter 8 Answers
Chapter 9 Answers
Chapter 10 Answers
Chapter 11 Answers
Chapter 12 Answers
Index
About the Author
Connect with Dummies
End User License Agreement
Guide
Cover
Title Page
Copyright
Table of Contents
Begin Reading
Index
About the Author
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Introduction
This book is designed for people like you who are getting prepared to tackle the Securities Industry Essentials (SIE) Exam. Although the Securities Industry Essentials Exam is not as difficult as some of the other securities exams, it’ll be rough if you don't prepare adequately. It is not enough for you to have a good grasp on the material covered on the SIE; you also need to have completed enough practice questions to go in to take the real deal with confidence.
No doubt tackling test questions is a skill. I have tutored many students who could just about recite an SIE, Series 65, or Series 7 book, but when it came down to answering questions, they were lost. The only way to get better is to answer a lot of questions. You need to learn how to break questions down, focus on the last sentence in the question, and eliminate wrong answers.
Although the book is broken down into chapters and sections, you can jump around the book to whatever topic you need help with. Even though the book is broken down into logical chapters, when you take the real SIE Exam, the questions are not going to be in chapter order; they will be jumbled. If you would like to get somewhat of a feel for the real exam, you may want to randomly grab 75 questions encompassing all of the different chapters and subchapters. Maybe you can even answer every 13th question or so, starting with number 1 the first time, 2 the second time, and so on.
This is your book, so feel free to either take a question and go look at the answer and explanation or complete a section before looking at the answers and explanations. Either way you do it, make sure that you give your best effort in answering each question before looking at the answer. Also, keep your eyes from wandering to the answers and explanations for questions you haven't completed yet.
Work hard and give yourself the best opportunity to pass the Securities Industry Essentials Exam on the first (or next) attempt.
What You’ll Find
The 1,001 Securities Industry Essentials Exam practice problems in the book are divided into 12 chapters with several subsections. Each chapter provides an abundance of question types you are likely to face when taking the real exam. As on the real exam, some questions will take you a few seconds to answer, and some will take you a couple of minutes. Remember, the real exam weights the questions, so the more difficult ones are worth more, and the easier ones are worth less.
The last chapter of the book provides the answers and detailed explanations to all the problems. If you get an answer wrong, give it a second attempt before reading the explanation. Eliminating answers that you know are wrong will have a big impact on your score as compared to just “C”ing your way through (just choosing the answer “C” for every answer you're not sure of).
Beyond the Book
This product also comes with an online Cheat Sheet that helps you increase your odds of performing well. Go to www.dummies.com and type “SIE Exam: 1001 Practice Questions For Dummies cheat sheet” in the search box. Here, you'll find articles that will help you prepare for the SIE.
Where to Go for Additional Help
I wouldn't say that any part of the Securities Industry Essentials is overly difficult, but the exam itself is tough. The problem is that there is soooo much to remember. Remembering everything and not confusing rules and numbers makes it a little tougher than exams you faced when you were in high school.
In addition to getting help from people who have recently passed the Securities Industry Essentials Exam, securities teachers (like me), or tutors (like me), you can find a variety of questions and study materials online. A simple online search often turns up heaps of information. You can also head to www.dummies.com to see the many articles and books that can help you in your studies.
This book gives you 1,001 practice questions and answers in order for you to prepare yourself for the SIE Exam. If you need more in-depth study and direction, check out the latest edition of Securities Industry Essentials Exam For Dummies, which I also wrote. Here, you'll find in-depth coverage of all the topics and concepts presented in the SIE Exam along with full-length practice exams.
Part 1
Tackling the Questions
IN THIS PART …
Underwriting securities (
Chapter 1
)
Equity securities (
Chapter 2
)
Corporate and U.S. government debt securities (
Chapter 3
)
Municipal bonds (
Chapter 4
)
Packaged securities (
Chapter 5
)
DPPs and REITs (
Chapter 6
)
Options (
Chapter 7
)
Customer accounts (
Chapter 8
)
Securities analysis (
Chapter 9
)
Orders and trades (
Chapter 10
)
Taxes and retirement plans (
Chapter 11
)
Rules and regulations (
Chapter 12
)
Chapter 1
Securities Underwriting: The Process and the Team Players
A good place to start is at the beginning. Prior to corporations “going public,” they must register and have a way of distributing their securities. The Series 7 exam tests your ability to understand the registration process, the entities involved in bringing new issues to market, and the types of offerings. In addition, you’re expected to know which securities are exempt from Securities and Exchange Commission (SEC) registration.
The Problems You’ll Work On
As you work through this chapter, be sure you can recognize, understand, and, in some cases, calculate the following:
The process involved with bringing new issues to market
The different types of offerings
Exempt securities and transactions
What to Watch Out For
Read the questions and answer choices carefully and make sure that you
Watch out for words that can change the answer you’re looking for, such as EXCEPT, NOT, ALWAYS, and so on.
Recognize that there’s a difference between
exempt securities
and
exempt transactions.
If you’re not certain of the correct answer, try to eliminate any answers that you can. Doing so may make the difference between passing and failing.
1–35 Bringing New Issues to Market
1. Which of the following securities acts covers the registration and disclosure requirements of new issues?
(A) The Securities Act of 1933
(B) The Securities Exchange Act of 1934
(C) The Trust Indenture Act of 1939
(D) All of the above
2. The Securities Act of 1933 was enacted to
(A) require full and fair disclosure regarding sales of new securities to the public
(B) regulate the exchanges and the over-the-counter market in trades of outstanding securities
(C) require broker-dealers and registered reps to be licensed
(D) all of the above
3. The federal security law that provides rules for securities traded in the secondary market is
(A) the Trust Indenture Act of 1939
(B) the Securities Exchange Act of 1934
(C) the Securities Act of 1933
(D) FDIC
4. The Securities Exchange Act of 1934 created rules regarding all of the following EXCEPT
(A) the extension of credit in margin accounts
(B) transactions by insiders
(C) the registration of securities
(D) the handling of customer accounts
5. Which of the following securities is exempt from the Trust Indenture Act of 1939?
T-bonds
GO bonds
Equipment trust bonds
Revenue bonds
(A) I only
(B) II and III
(C) I, II, and IV
(D) I, III, and IV
6. The Trust Indenture Act of 1939 regulates all of the following EXCEPT
(A) debentures
(B) collateral trusts
(C) mortgage bonds
(D) Treasury bonds
7. Which of the following information must be included in the registration statement to the SEC when registering new securities?
the issuer’s name and description of its business
what the proceeds of sale will be used for
financial statements
the company’s capitalization
(A) I and III
(B) I, II, and III
(C) I, III, and IV
(D) I, II, III, and IV
8. What is the underwriting arrangement that allows an issuer whose stock is already trading publicly to time the sales of an additional issue?
(A) shelf registration
(B) a standby underwriting
(C) a negotiated offering
(D) an Eastern account underwriting
9. SEC Rule 415 outlines rules for
(A) primary offerings
(B) shelf offerings
(C) secondary offerings
(D) IPOs
10. KO Corp., a new company, has held back some of its shares for later use. According to shelf distribution rules, KO can sell the shares over the course of the next __________ without having to reregister the shares.
(A) 180 days
(B) 270 days
(C) 1 year
(D) 3 years
11. The cooling-off period for a new issue lasts approximately how many days?
(A) 20
(B) 30
(C) 40
(D) 60
12. Under the Securities Act of 1933, the SEC has the authority to
approve new issues of common stock
issue stop orders
review registration statements
(A) I and II
(B) II and III
(C) I and III
(D) all of the above
13. Zamzow, Inc., has filed a registration statement and is currently in the cooling-off period. Zowie Broker-Dealer is the lead underwriter for Zamzow and is in the process of taking indications of interest. Which TWO of the following are TRUE regarding indications of interest?
They are binding on Zowie.
They are binding on customers.
They are not binding on Zowie.
They are not binding on customers.
(A) I and II
(B) III and IV
(C) I and IV
(D) II and III
14. A corporation in the process of issuing stock has not filed a registration statement with the SEC. An account executive may do which of the following relating to the new issue?
(A) Accept money from customers.
(B) Obtain indications of interest.
(C) Guarantee to customers that they will be able to purchase 1,000 shares of the new issue.
(D) Nothing.
15. A tombstone ad would include all of the following names EXCEPT
(A) selling group members
(B) syndicate members
(C) the syndicate manager
(D) the issuer
16. Which of the following are types of state securities registration?
filing
communication
qualification
coordination
(A) I, III, and IV
(B) II, III, and IV
(C) I, II, and III
(D) I, II, III, and IV
17. This type of state registration is used for securities that are exempt from SEC registration but require state registration.
(A) Filing
(B) Coordination
(C) Qualification
(D) Notification
18. This type of state registration is used for established companies that have previously sold securities within the state.
(A) Notification
(B) Coordination
(C) Qualification
(D) (A) or (B)
19. This type of state registration is used for corporations who wish to register their securities with the SEC and states at the same time.
(A) Filing
(B) Coordination
(C) Qualification
(D) Notification
20. The main function of an investment banker is to
(A) advise an issuer on how to raise capital
(B) raise capital for issuers by selling securities
(C) help issuers comply with the laws of the Securities Act of 1933
(D) all of the above
21. A group organized to underwrite municipal or corporate securities is called
(A) a market maker
(B) a dealer’s group
(C) a syndicate
(D) a posse
22. All of the following would be found in a final prospectus EXCEPT
(A) the issuer’s business plan and what they intend to do with the proceeds of sale
(B) the underwriter’s agreement
(C) the effective date
(D) the offering price
23. Which of the following types of underwriting agreements specify that any unsold securities are retained by the underwriters?
(A) mini-max
(B) firm commitment
(C) all-or-none (AON)
(D) best efforts
24. Which of the following documents details the liabilities and responsibilities of each firm involved in the distribution of new securities?
(A) the registration statement
(B) the letter of intent
(C) the agreement among underwriters
(D) the code of procedure
25. Which of the following is NOT a type of bond underwriting?
(A) Mini-max
(B) Best efforts
(C) Standby
(D) AON
26. Silversmith Securities is the lead underwriter for 2 million shares of HIJ common stock. Silversmith has entered into an agreement with HIJ to sell as many shares of their common stock as possible, but HIJ will cancel the offering if the entire 2 million shares are not sold. What type of offering is this?
(A) Firm commitment
(B) All-or-none
(C) Mini-max
(D) Best efforts
27. In this type of securities underwriting a certain minimum dollar amount of securities must be sold for the offering not to be cancelled.
(A) Firm commitment
(B) Mini-max
(C) All or none
(D) None of the above
28. A registered rep may use a preliminary prospectus to
(A) solicit orders from clients to purchase a new issue
(B) show prospective investors that the issue has been approved by the SEC
(C) obtain indications of interest from investors
(D) accept orders and payments from investors for a new issue
29. Who is responsible to make sure the information placed in a prospectus is accurate?
(A) The managing underwriter
(B) The selling group
(C) The SEC
(D) FINRA
30. All of the following are included in the preliminary prospectus EXCEPT
the public offering price
the financial history of the issuer
the effective date
(A) I only
(B) I and II
(C) II and III
(D) I and III
31. A red herring is also known as a
(A) tombstone advertisement
(B) final prospectus
(C) preliminary prospectus
(D) stop order
32. A preliminary prospectus
(A) may be used to help obtain indications of interest
(B) may not be sent to potential investors during the cooling-off period
(C) is also known as the pink sheets
(D) includes the final offering price
33. Which of the following is included in a preliminary prospectus?
The purpose of the funds being raised by the offering
Financial statements
A written statement in red citing that the prospectus may be amended and a final prospectus issued
The final offering price
(A) I and II
(B) I, II, and III
(C) II and IV
(D) I, II, III, and IV
34. Which of the following is TRUE?
The registrar is responsible for making sure that a corporation’s outstanding shares do not exceed the quantity of authorized shares.
The transfer agent is responsible for making sure that a corporation’s outstanding shares do not exceed the quantity of authorized shares.
The registrar maintains records of a corporation’s stock and bond owners plus mails and cancels old certificates as necessary.
The transfer agent maintains records of a corporation’s stock and bond owners plus mails and cancels old certificates as necessary.
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
35. Which of the following is a function of a transfer agent?
(A) Underwriting shares in new corporate stock offerings
(B) Preparing corporate balance sheets
(C) Advising municipalities regarding the debt structure of new issues
(D) Sending out proxies
36–43 Types of Securities Offerings
36. The first time a corporation ever issues securities to the public is called a(n)
(A) IPO
(B) first-market trade
(C) rights offering
(D) none of the above
37. HIJ Corporation is issuing common stock through an IPO that will trade on the OTCBB when it is first issued. Broker-dealers who execute orders for clients in HIJ common stock must have a copy of a final prospectus available for how long?
(A) 25 days after the effective date
(B) 30 days after the effective date
(C) 40 days after the effective date
(D) 90 days after the effective date
38. Pluto Broker-Dealer is offering an IPO that will not be listed on the NYSE, NASDAQ, or any other exchange. How long after the effective date must Pluto provide a final prospectus to all purchasers?
(A) 20 days
(B) 30 days
(C) 40 days
(D) 90 days
39. A corporation is offering 1 million shares of its common stock to the public. Of those shares, 600,000 are authorized but previously unissued, while insiders of the company are selling the other 400,000 shares. What type of offering is this?
(A) IPO
(B) Primary
(C) Secondary
(D) Combined
40. WXY Corporation is offering a large block of treasury stock. What type of offering is this?
(A) IPO
(B) Primary
(C) Secondary
(D) Split
41. The first time a corporation issues stock is called a(n)
(A) primary offering
(B) secondary offering
(C) split offering
(D) initial public offering
42. Another name for a combined offering is a __________ offering.
(A) split
(B) dual
(C) secondary
(D) coupled
43. A primary offering would do which of the following?
Increase the number of shares outstanding.
Decrease the number of shares outstanding.
Raise additional capital for the issuer.
Include selling treasury stock.
(A) I, III, and IV
(B) II, III, and IV
(C) I and IV
(D) I and III
44–61 Exempt Securities and Transactions
44. All of the following are exempt securities under the Securities Act of 1933 EXCEPT
(A) Treasury bonds
(B) municipal general obligation bonds
(C) REITs
(D) public utility stocks
45. Which of the following securities is exempt from SEC registration?
(A) Corporate term bonds
(B) Warrants
(C) General obligation bonds
(D) None of the above
46. Which TWO of the following are nonexempt securities under the Securities Act of 1933?
Variable annuities
Fixed annuities
Non-negotiable CDs
Oil and gas limited partnerships
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
47. Which of the following securities are exempt from SEC registration?
Revenue bonds
Treasury bonds
Variable annuities
Securities issued by not-for-profit organizations
(A) I, II, and IV
(B) II, III, and IV
(C) II and IV
(D) I, II, III, and IV
48. Under the Securities Act of 1933, all of the following securities must be offered by a prospectus EXCEPT
(A) variable annuities
(B) mutual funds
(C) UITs
(D) TIPS
49. Which of the following securities are exempt from the full registration requirements of the Securities Act of 1933?
(A) Corporate convertible bonds
(B) Closed-end funds
(C) Real estate limited partnerships
(D) Commercial paper
50. Which of the following are exempt transactions?
Private placements
Securities issued by the U.S. government
Municipal bonds
Intrastate offerings
(A) II and III
(B) II, III, and IV
(C) I and IV
(D) I, II, III, and IV
51. A Rule 147 offering is
(A) an offering of securities only within the issuer’s home state
(B) an offering of securities worth no more than $75 million within a one-year period
(C) an offering of securities to no more than 35 unaccredited investors within a one-year period
(D) also known as an interstate offering
52. A Regulation D offering is
(A) an offering of securities only within the issuer’s home state
(B) an offering of securities worth no more than $75 million within a one-year period
(C) an offering of securities to no more than 35 unaccredited investors within a one-year period
(D) also known as an interstate offering
53. Which of the following is not an offering that is exempt from the full registration requirements of the Securities Act of 1933?
(A) Regulation D
(B) Regulation A+
(C) Regulation T
(D) Rule 147
54. All of the following would be considered accredited investors EXCEPT
(A) financial institutions
(B) joint investors with a combined income of at least $200,000 for the current year and previous two years
(C) corporations with a net worth of at least $5 million
(D) investors with a net worth of at least $1 million excluding primary residence
55. Which of the following is TRUE of Regulation A+ Tier 2 offerings?
(A) They are limited to 35 unaccredited investors each year.
(B) They are issued without using a prospectus.
(C) They are limited to raising up to $20 million per year.
(D) They are also known as private placements.
56. Which of the following is true?
(A) Public securities offerings are typically exempt from SEC registration.
(B) All securities offerings are exempt from SEC registration.
(C) No securities offerings are exempt from SEC registration.
(D) Private securities offerings are typically exempt from SEC registration.
57. Which of the following are considered accredited investors?
(A) Financial institutions
(B) Investors with a net worth of $1 million or more excluding primary residence
(C) Rural business investment companies
(D) All of the above
58. Under Rule 144, what percentage of outstanding shares may a control person sell every 90 days?
(A) 1%
(B) The average weekly trading volume for the previous 4 weeks
(C) Either (A) or (B)
(D) Neither (A) nor (B)
59. SEC Rule 144 regulates
(A) the sale of control stock
(B) the sale of new securities
(C) the sale of equity securities worth $75 million or less in a one-year period
(D) the conversion of convertible preferred stock into common stock
60. Sig Hillstrand has held shares of Greenhorn restricted stock for more than one year. Greenhorn has 4 million shares outstanding. The most recently reported weekly trading volumes for Greenhorn are as follows:
What is the maximum number of shares that Sig can sell under Rule 144?
(A) 35,000
(B) 46,250
(C) 44,000
(D) 42,500
61. Which of the following securities is subject to the anti-fraud provision of the Securities Act of 1933?
(A) U.S. government securities
(B) Common stock issued by any corporation
(C) Private placements under Regulation D
(D) All of the above
Chapter 2
Equity Securities: Corporate Ownership
To be a corporation, you must have stockholders. Both common and preferred stock are considered equity securities because they represent ownership of the corporation. A majority of most registered representatives’ commission is earned by selling equity securities because, historically, equity securities have outpaced inflation.
Although this isn’t the largest section on the Series 7 exam, it does relate to many other chapters, such as packaged securities and options.
The Problems You’ll Work On
In this chapter, you’re expected to understand and calculate questions regarding the following:
The specifics of common stock
The difference between common stock and preferred stock
The reason for American depositary receipts (ADRs), rights, and warrants
What to Watch Out For
Read the questions and answer choices carefully, and be sure you
Don’t assume an answer without reading each question and answer choice completely (twice if necessary).
Watch out for key words that can change the answer (EXCEPT, NOT, and so on).
Eliminate any incorrect answer choice that you can.
Look at questions from the corporation’s or the investor’s point of view depending on how the question is worded.
62–97 Common Stock
62. Which of the following would be owners of a corporation?
Common stockholders
Debenture holders
Participation preferred stockholders
Equipment trust bondholders
(A) I and III
(B) II and IV
(C) I, III, and IV
(D) II, III, and IV
63. Equity securities include
(A) TIPS
(B) debentures
(C) preferred shares
(D) GO bonds
64. Regarding investments, which of the following is true?
(A) Bonds represent ownership in an issuing corporation.
(B) Warrants and bonds represent ownership in an issuing corporation.
(C) Stocks represent ownership in an issuing corporation.
(D) Warrants represent ownership in an issuing corporation.
65. AylDec Corporation has just decided to go public. AylDec will issue
(A) preferred stock
(B) common stock
(C) term bonds
(D) warrants
66. Poor Outlook Corporation has just declared bankruptcy. Remaining assets would be distributed in which way (from first to last)?
(A) IRS, unpaid workers, general creditors, preferred stockholders, secured creditors, subordinated debenture holders, common stockholders
(B) Common stockholders, general creditors, preferred stockholders, subordinated debenture holders, secured creditors, IRS, unpaid workers
(C) Unpaid workers, IRS, secured creditors, general creditors, subordinated debenture holders, preferred stockholders, common stockholders
(D) IRS, unpaid workers, secured creditors, subordinated debenture holders, general creditors, preferred stockholders, common stockholders
67. In the event of corporate bankruptcy, preferred stockholders have priority claim of assets over
(A) unpaid workers
(B) debenture holders
(C) the IRS
(D) common shareholders
68. Common stockholders have which of the following rights and privileges?
The right to receive monthly audited financial reports
The right to vote for cash dividends
The right to vote for stock splits
A residual claim to assets at dissolution
(A) I and II
(B) III and IV
(C) I, III, and IV
(D) II, III, and IV
69. Common stockholders have the right to vote for all of the following EXCEPT
cash dividends
stock dividends
stock splits
members of the board of directors
(A) I, II, and III
(B) III and IV
(C) I and II
(D) IV only
70. Which of the following investors would have the right to vote for corporation board of director positions?
(A) Preferred stockholders
(B) Commons stockholders
(C) Bondholders
(D) Both (A) and (B)
71. ABCD Corporation’s common shareholders would have the right to vote for
members of the board of directors (BOD)
cash dividends
stock dividends
stock splits
(A) II and III
(B) I and III
(C) I and IV
(D) II and IV
72. An investor who holds common stock has
limited liability
unlimited liability
voting rights
no voting rights
(A) I and III
(B) I and IV
(C) II and IV
(D) II and III
73. Cain Weidman owns 1,000 shares of HIT Corp. HIT issues stock with cumulative voting. What is the maximum number of votes that Cain can cast for one candidate if the board of directors of HIT has four vacancies?
(A) 100
(B) 250
(C) 1,000
(D) 4,000
74. An individual owns 2,000 shares of TUV common stock. TUV has four vacancies on the board of directors. If the voting is cumulative, the investor may vote in any of the following ways EXCEPT
(A) 4,000 votes for two candidates each
(B) 5,000 votes for one candidate and 3,000 votes for another candidate
(C) 3,000 votes each for three candidates
(D) 2,000 votes for four candidates each
75. This type of voting gives smaller shareholders (in terms of shares) a better chance to gain representation on the board of directors (BOD).
(A) Statutory
(B) Cumulative
(C) Regular
(D) Break-up
76. As a stockholder, Ayla Rice would really like to attend the vote for board of director members. Unfortunately, her schedule will not allow her to attend in person. Which of the following is true?
(A) Ayla can vote by proxy.
(B) Ayla will have to wait until the next vote.
(C) Ayla can show up to the location to cast her vote in person as long as it’s within two weeks of the vote.
(D) Ayla will lose her right to vote for the next two years.
77. All of the following are possible ways to vote for the board of directors of a corporation EXCEPT
(A) in person
(B) by telephone
(C) by mailed proxy
(D) by online proxy
78. Which of the following does NOT describe treasury stock?
(A) Treasury stockholders have no voting rights.
(B) It is stock that was previously authorized but still unissued.
(C) It is issued stock that has been repurchased by the company.
(D) It has no dividends.
79. Treasury stock is
(A) U.S. government stock
(B) local government stock
(C) authorized but unissued stock
(D) repurchased stock
80. Macrohard Corp. was authorized to issue 2 million shares of common stock. Macrohard issued 1.1 million shares and subsequently repurchased 150,000 shares. How many of Macrohard’s shares remain outstanding?
(A) 150,000
(B) 900,000
(C) 950,000
(D) 1.85 million
81. Which of the following changes the par value of a common stock?
(A) A cash dividend
(B) A stock dividend
(C) A stock split
(D) All of the above
82. The par value of a common stock is
used for bookkeeping purposes
one dollar
adjusted for stock splits
the amount investors receive at maturity
(A) I and III
(B) I, II, and III
(C) II, III, and IV
(D) I, II, III, and IV
83. The amount over par value that an issuer receives when selling stock is called
(A) a bonus
(B) equity surplus
(C) surplus over par
(D) additional paid in capital
84. Tender offers typically __________ the price of the outstanding shares of a corporation.
(A) increase
(B) decrease
(C) do not affect
(D) cannot be determined
85. Which of the following changes the par value of a stock?
(A) A rights offering
(B) The issuer repurchasing some of its outstanding stock
(C) A stock split
(D) A cash dividend
86. TUV Corporation declares a 4-for-3 stock split; an investor who owns 600 shares would receive __________ additional shares.
(A) 100
(B) 200
(C) 400
(D) 600
87. Dana Black, an investor, purchased 1,000 shares of ABC at $40. If ABC announces a 5-for-4 split, what is Dana’s position after the split?
(A) 800 ABC at $50
(B) 1,250 ABC at $32
(C) 1,250 ABC at $50
(D) 800 ABC at $32
88. An investor owns 100 shares of DEF common stock at the current market price of $40 per share. If DEF conducts a 1-for-2 reverse split, what would be the investor’s position after the split?
(A) 50 shares at $20 per share
(B) 50 shares at $80 per share
(C) 200 shares at $20 per share
(D) 200 shares at $80 per share
89. Declan K. owns 2,500 shares of common stock of AylDec Corporation. Which of the following actions would dilute Declan’s equity?
A primary share offering (registered)
A stock split
Payment of a stock dividend
A secondary share offering (registered)
(A) I only
(B) II only
(C) I, II, and IV
(D) I, II, III, and IV
90. Which of the following is true regarding cash dividends?
They are decided by a shareholder vote.
They are decided by the board of directors.
They are guaranteed.
They are not guaranteed.
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
91. TUVW Corp. declared a $0.40 dividend to their shareholders of record. Future dividend payments
(A) are not guaranteed
(B) are guaranteed to be paid although the amount needs to be decided
(C) will be $0.40 per share
(D) are guaranteed to be at least $0.40 per share
92. A listed stock closed at $24.95 on the business day prior to the ex-dividend date. If the company previously announced a $0.30 dividend, what will be the opening price on the next business day?
(A) $24.35
(B) $24.65
(C) $24.95
(D) $25.25
93. ABCDEF Corporation will be paying a cash dividend to its common stockholders. On what date will the market price of ABCDEF be reduced to reflect the dividend?
(A) The declaration date
(B) The ex-date
(C) The record date
(D) The payment date
94. The ex-dividend date as related to cash dividends is
the date that the stock price is reduced by the dividend amount
the date that the stock price is increased by the dividend amount
one business day before the record date
one business day after the trade date
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
95. What is the main reason a corporation would split its stock?
(A) To bring in additional funds
(B) To increase the overall market value of its stock
(C) To decrease the amount of dividend paid per share
(D) To increase the demand for its stock
96. One of your customers owns 1,000 shares of DIM common stock at $24. DIM declares a 20% stock dividend. On the ex-dividend date, your customer will own
1,000 shares
1,200 shares
stock at $20 per share
stock at $24 per share
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
97. EYEBM Corp. shares are trading at $55 per share when it declares a 5% stock dividend. After EYEBM pays the dividend, one of your clients who owned 500 shares now owns
(A) 500 shares valued at $57.73 per share
(B) 525 shares valued at $55.00 per share
(C) 550 shares valued at $55.00 per share
(D) 525 shares valued at $52.38 per share
98–125 Preferred Stock
98. Which of the following are advantages of holding straight preferred stock over common stock?
A fixed dividend
More voting power
Preference in the event of issuer bankruptcy
The ability to receive par value at maturity
(A) I and II
(B) II and IV
(C) I and III
(D) I, III, and IV
99. Preferred stock has
characteristics of debt securities
no characteristics of debt securities
characteristics of common stock
no characteristics of common stock
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
100. Preferred dividends may be paid in the form of
cash
stock
product
(A) I only
(B) I and II
(C) I and III
(D) I, II, and III
101. As interest rates rise, prices of outstanding preferred stock will likely
(A) fall
(B) rise
(C) fluctuate
(D) remain stable
102. Which TWO of the following are TRUE of preferred stock?
Holders have voting rights.
Holders do not have voting rights.
In the event of corporate bankruptcy, preferred stock is senior to common stock.
In the event of corporate bankruptcy, preferred stock is junior to common stock.
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
103. Which of the following is true of a preferred stock dividend?
(A) It is variable and based on the consumer price index (CPI).
(B) It is fixed and based on the par value.
(C) It is variable based on the current market value.
(D) It is fixed and based on the current market value.
104. Preferred stockholders have
(A) preemptive rights
(B) voting rights
(C) both (A) and (B)
(D) neither (A) nor (B)
105. A preferred stock dividend is based on a percentage of
(A) its market price
(B) its par value
(C) the Consumer Price Index
(D) the current T-bill rate
106. Which two of the following are true of straight preferred shares?
They are cumulative.
They are non-cumulative.
They have no provision for missed dividends to be paid at a later date.
They provide for any missed dividends to be paid at a later date.
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
107. LMNOP Corporation has past due dividends on their cumulative preferred stock. Which of the following is true?
(A) LMNOP can choose to resume current dividends when they are able and write off the past due dividends.
(B) Common stockholders must continue to receive dividends even though the dividends on their cumulative preferred stock are in arrears.
(C) They continue to accumulate on the company's books until they can be paid.
(D) The past due dividends must be paid within 90 days of a common dividend being paid.
108. Any corporation that has issued cumulative preferred stock
(A) must pay the current preferred dividend before paying interest on their bonds or dividends on their common stock
(B) must pay any past and current preferred dividends before paying any dividends on its common stock
(C) must pay only the current dividend on their preferred stock before paying a dividend on their common stock
(D) must pay only the current dividend with no liability for any missed dividends
109. A company has previously issued 4% of $100 par cumulative preferred stock. Over the first three years, the company paid out $9 in dividends. If the company announces a common dividend in the following year, how much does it owe preferred stockholders?
(A) $3
(B) $4
(C) $7
(D) $16
110. A corporation has issued 6% $100 par cumulative preferred stock. It paid $4 in dividends the first year and $3 in dividends the second year. If the corporation wants to declare a dividend for common shareholders the following year, how much must the company pay per share to its cumulative preferred stockholders?
(A) $5
(B) $6
(C) $11
(D) $14
111. A customer owns AylDec Corporation 6% cumulative preferred stock. AylDec has not paid a dividend yet this year, and they also missed the previous two years. If the AylDec wishes to pay a dividend to their common shareholders, how much must they pay this customer per share first?
(A) $24
(B) $18
(C) $12
(D) $6
112. One of your clients wants to purchase preferred stock but wants to reduce the risk of inflation. You should recommend
(A) straight preferred stock
(B) callable preferred stock
(C) cumulative preferred stock
(D) convertible preferred stock
113. ABCD Corp. issued convertible bonds. Holders of those bonds can
(A) convert their bonds for a set number of non-convertible bonds at any time
(B) convert their bonds for a fixed number of shares of ABCD common stock
(C) convert their bonds for 10 shares of ABCD straight preferred stock
(D) convert their bonds into non-convertible bonds and receive a premium for doing so
114. Which of the following types of preferred stock will most likely increase in value or decrease in value in line with the issuer’s common shares?
(A) Convertible preferred
(B) Straight preferred
(C) Participating preferred
(D) Adjustable rate preferred
115. If interest rates remained relatively stable over the last year, which of the following types of preferred stock was likely the most volatile during that period?
(A) Adjustable rate
(B) Callable
(C) Participating
(D) Convertible
116. What is the advantage to a corporation issuing callable preferred stock as compared to non-callable preferred stock?
(A) It allows the issuer to take advantage of high interest rates.
(B) The dividend rate on callable preferred stock is lower than that of non-callable preferred stock.
(C) It allows the issuer to issue preferred stock with a lower fixed dividend after the call date.
(D) Callable preferred stock usually has a longer maturity date.
117. Missy Love Corp. has called in its 7% callable preferred shares. Holders of these shares should expect that
(A) the shares will likely be sold to other investors
(B) the shares will continue trading in the market
(C) dividend payments will continue to be paid until the shares are turned in
(D) dividend payments will stop once the shares have been called
118. With everything else being equal, which of the following preferred stock would pay the highest dividend?
(A) Straight preferred
(B) Cumulative preferred
(C) Participating preferred
(D) Callable preferred
119. HIJ Corp. issued 6% callable preferred stock many years ago. Interest rates have been steadily declining over the past few years to where HIJ Corp. could issue 4% callable preferred stock now. What is HIJ Corp. likely to do?
(A) HIJ will likely lower the dividend on their outstanding callable preferred stock to 4%.
(B) HIJ would likely call their outstanding 6% callable preferred stock.
(C) HIJ would likely leave their 6% callable preferred stock in the market and issue new callable preferred stock at a lower coupon rate.
(D) HIJ will attempt to convince the holders to convert their 6% callable preferred shares into common stock.
120. With everything else being equal, a preferred stockholder would expect __________ preferred stock to pay the highest dividend.
(A) convertible
(B) straight
(C) callable
(D) cumulative
121. This type of preferred stock may pay a dividend that is higher than the stated dividend.
(A) Variable-rate
(B) Participating
(C) Senior
(D) Convertible
122. TUV Corporation has continued their winning ways and have had another stellar year. As such, TUV’s board of directors has decided to pay their 5% participating preferred shareholders participating to 8% not only their 5% dividend but their full participating dividend this year. These preferred shareholders will receive
(A) an additional dividend of 3%
(B) an additional dividend of 5%
(C) an additional dividend of 4%
(D) an additional dividend of 8%
123. Which of the following is true regarding the dividend rate on variable preferred stock?
(A) The interest rate is often tied to the returns on S&P 500 index funds.
(B) The interest rate is based off of the Consumer Price Index.
(C) The interest rate is often tied to a benchmark rate like the Treasury bill rate.
(D) The interest rate increases the longer the variable preferred stock is held.
124. This type of stock is most likely to have a more stable price.
(A) Variable rate preferred
(B) Convertible preferred
(C) Participating preferred
(D) Callable preferred
125. When interest rates are steadily increasing, which of the following types of preferred stock would most likely pay a higher divided?
(A) Adjustable rate
(B) Convertible
(C) Callable
(D) Participating
126–141 ADRs, Rights, and Warrants
126. An ADR is
(A) a receipt for a foreign security trading in the United States
(B) a receipt for a foreign security trading in the United States and overseas
(C) a receipt for a U.S. security trading overseas
(D) a receipt for a U.S. security trading in the United States and overseas
127. All of the following are benefits of investing in ADRs EXCEPT
(A) the dividends are received in U.S. currency
(B) transactions are completed in U.S. currency
(C) it has low currency risk
(D) it allows U.S. investors to invest overseas
128. All of the following are characteristics of American depositary receipts EXCEPT
(A) they help U.S. companies gain access to foreign dollars
(B) investors do not receive the actual certificates
(C) investors can’t vote
(D) dividends are paid in U.S. dollars
129. Which of the following securities backs an American depositary receipt (ADR)?
(A) U.S. corporate debt securities
(B) Common stock
(C) U.S. government bonds
(D) Foreign debt securities
130. Why do U.S. investors typically purchase American depositary receipts (ADRs)?
(A) As a hedge against currency risk
(B) Because U.S. investors will receive tax credits for purchasing ADRs
(C) Because typically foreign investments are more stable than U.S. investments
(D) As a way to diversify a portfolio
131. Which TWO of the following are TRUE?
ADRs are priced in U.S. currency.
ADRs are priced in foreign currency.
The price of ADRs fluctuates throughout the day like common stock.
ADRs trade like mutual funds, and the price of trades is not determined until the end of the day.
(A) I and IV
(B) II and III
(C) II and IV
(D) I and III
132. Which of the following best describes ADRs?
They are receipts for foreign securities trading in U.S. markets
They are receipts for U.S. securities trading in foreign markets
They are used to help finance foreign corporations
They are used to help finance U.S. corporations
(A) I and IV
(B) I and III
(C) II and IV
(D) II and III
133. All of the following are TRUE about rights offerings EXCEPT
(A) they are short-term
(B) each share of outstanding common stock receives one right
(C) they typically have a standby underwriter
(D) rights are automatically received by preferred stockholders
134. A corporation needs to raise additional capital. Which of the following would help the corporation meet its goal?
(A) Declaring a stock dividend to existing shareholders
(B) A rights distribution to existing shareholders
(C) Calling in their convertible bonds
(D) Splitting their stock 2 for 1
135. Which of the following statements are true?
Rights are short term.
Rights are long term.
Warrants are short term.
Warrants are long term.
(A) I and IV
(B) II and III
(C) II and IV
(D) I and III
136. All of the following are true about warrants and rights EXCEPT
(A) They are securities regulated by the SEC.
(B) They allow investors to buy stock at a fixed price.
(C) They allow investors to buy unissued stock at a discount from market price.
(D) They are marketable securities.
137. Which of the following is true of rights offerings?
(A) It gives existing shareholders the right to purchase more shares at a discount if the issuer is offering more shares.
(B) It gives existing shareholders the right to purchase more shares at the current market price if the issuer is offering more shares.
(C) It gives existing shareholders the right to purchase more shares at a premium if the issuer is offering more shares.
(D) Each rights offering is unique, and the shares could be purchased at a discount, the current market price, or at a premium depending on the issuer.
138. All of the following securities may pay a dividend EXCEPT
(A) warrants
(B) common stock
(C) American Depositary Receipts (ADRs)
(D) participating preferred stock
139. Which of the following is NOT TRUE regarding warrants?
(A) They are marketable securities.
(B) They offer investors a long-term right to buy stock at a fixed price.
(C) They have voting rights.
(D) Investors do not receive dividends.
140. All of the following are TRUE of warrants EXCEPT
(A) they have a longer life than rights
(B) they are non-marketable securities
(C) they are typically issued in units
(D) the exercise price is above the current market price of the common stock when issued
141. Which of the following are TRUE regarding warrants?
Warrants are often issued with a corporation’s other securities to make an offering more attractive to investors.
Warrants provide a perpetual interest in an issuer’s common stock.
Holders of warrants have no voting rights.
(A) I and II
(B) I and III
(C) II and III
(D) I, II, and III
Chapter 3
Debt Securities: Corporate and U.S. Government Loans
When issuers want to borrow money from the public, they issue debt securities. These issuers include corporations, local governments (municipal bonds), and the U.S. government. Unlike equity securities, holders of debt securities are creditors, not owners.
The Problems You’ll Work On
In this chapter, you’ll work on questions regarding the following:
Understanding the different types of bonds
Determining bond prices and yields
Comparing the different types of bonds
Seeing the benefits and risks of convertible bonds
Recognizing the different types of U.S. government securities and their tax benefits
Comparing money market instruments
What to Watch Out For
Keep the following tips in mind as you answer questions in this chapter:
Be aware of words that can change the answer you’re looking for, such as EXCEPT or NOT.
Don’t jump too quickly to answer a question. Make sure you read each question and answer choice completely before choosing an answer.
Make sure you understand which type of bond the question is talking about prior to answering because there are many differences.
Double-check your math when doing calculations.
142–178 Types of Bonds
142. Corporations that sell bonds are taking the position of a(n)
(A) borrower
(B) loan shark
(C) investment banker
(D) creditor
143. An investor who purchases a corporate bond is
borrowing money from the issuer
lending money to the issuer
a creditor
an owner
(A) I and III
(B) I and IV
(C) II and III
(D) II and IV
144. Dee Plump, an investor, owns a TUB 5% convertible bond purchased at 103 with five years until maturity. If they hold the bond until maturity, Dee will receive
(A) $970
(B) $1,000
(C) $1,015
(D) $1,030
145. ABC Corporate Bonds are quoted at 101⅜. How much would an investor purchasing ten of these bonds pay?
(A) $1,013.75
(B) $1,013.80
(C) $10,137.50
(D) $10,138.00
146. Which is the only yield found on the indenture of a bond?
(A) Nominal yield
(B) Current yield
(C) Yield to maturity
(D) Yield to call
147. An investor owns ten 6% corporate bond purchased at 102 with 7 years until maturity. If holding the bonds until maturity, the investor would receive?
(A) $10,000
(B) $10,200
(C) $10,000 plus $300 interest
(D) $10,000 plus $600 interest
148. The indenture of a corporate bond includes all of the following EXCEPT
(A) the coupon rate
(B) the credit rating
(C) the name of the trustee
(D) the maturity date
149.
