SIE - Pass Perfect Mastery Exam 1: Exam #3 Questions And Answers
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1. Where would a quote for an unlisted Unlisted stocks are those that do not meet exchange
stock be found? listing standards. For equities, the Second Market is
a-otc markets (pink sheets) the OTC Markets Group, which maintains 3 quotation
b. nasdaq feeds:
c. nyse OTCQX: Established U.S. and international companies
d. cqs OTCQB: Development stage U.S. and international
companies
Pink Open Market: Speculative stocks with minimal
quotation standards
NYSE and NASDAQ are exchanges with listing stan-
dards. CQS - the Consolidated Quotations Service - ag-
gregates and shows quotes for NYSE and AMEX listed
issues from all sources (the exchanges themselves and
Third Market Makers that are quoting exchange listed
stocks).
2. A customer has made multiple pur- Form 1099-A is for acquisitions from the lender.
chases of a stock at different dates. Form 1099-B is for the sale of acquisitions.
If the customer sells a portion of the Form K-1 is for limited partnerships. Form 1040 is for
position, the customer's cost basis personal tax filing.
is reported by the broker-dealer on: ans: Form 1099-B is for the sale reporting.
3. If a new bond is issued with a call c. When a newly-issued bond is callable, the issuer has
option, when is it callable by the is- the right to call in the bonds anytime on or after the call
suer? date. The bond contract will specify the first date that
a only during the period of call pro- that the bond can be called and the price that the is-
tection suer will pay based on a call schedule. There is an initial
b only on the call date period of call protection (typically 10 years) where the
c anytime on/after the call date issuer cannot call the bonds. Also, remember that the
d only on the semi-annual interest issuer will only call the bonds if market interest rates
payment date
, SIE - Pass Perfect Mastery Exam 1: Exam #3 Questions And Answers
Verifie
100% Correct!!!
decline after issuance. Then the issuer can refund the
issue at a lower interest cost.
4. A securities dealer is quoting ABCD a. buy 1500 shares at $10 and sell 2,000 shares at 11.
stock at 10.00 - 11.00 (15 x 20). This
means that the dealer is willing to:
5. At the time of issuance, a warrant A warrant is a long-term option to buy common stock
has: that is attached by an issuer to preferred stock or bond
otterings to make them more marketable.
ans: time value.
An example would be a 5-year warrant to buy common
stock of ABC at $50 per share that is attached to each
$1,000 bond sold by an issuer. The price of the com-
mon stock at that time might be, say, $20. This means
that the warrant is "out the money" by $30 at the time
of issuance - it has no intrinsic value. The stock price
must rise by at least $30 over the 5-year life of the
warrant for the holder to have a profit. Warrants have
no dividend or voting rights. They trade in the market
alongside the stock for their life.
6. Variable rate municipal notes avoid Variable rate municipal notes avoid "interest rate risk,"
which of the following risks? also known as market risk, since a rise in interest rates
a market risk (also interest rate risk) will not devalue these securities. With a fixed rate note,
b default risk as interest rates rise or fall, the note's value must de-
c marketability risk crease or increase proportionately, so that the note
d credit risk gives a yield that approximates the current level of in-
terest rates. Variable rate notes periodically adjust the
rate of interest paid to holders, usually based upon an
index of government securities. The interest rate on the
, SIE - Pass Perfect Mastery Exam 1: Exam #3 Questions And Answers
Verifie
100% Correct!!!
notes is adjusted up or down, based upon prevailing
market interest rates; thus the price of the instrument
will stay at, or very close to, par.
7. The risk that inflation will lower the b. Purchasing Power Risk is the risk that inflation will
present value of bond interest and lower the value of bond interest payments and prin-
principal repayments is: cipal repayments. If inflation increases, then interest
a credit risk (risk that the issuer of rates will rise, forcing bond prices down.
a bond (or preferred stock) may de-
fault on interest and principal pay-
ments.
b purchasing power risk (inflation
risk)
c legislative risk (regulatory risk)
d interest rate risk (risks associated
with interest rate fluctuations)
8. A corporation has issued Formula:
$10,000,000 of 7 1/4%, 20 year, par value of bond/conversion ratio=conversion $
$1,000 par, convertible debentures, ans. $1,000/25:1 = $40.
convertible at a ratio of 25:1. The
bond is currently trading at 101,
while the company's common stock
is at 38. The conversion price per
share is:
9. Prior to the opening of the op- The orders that are placed lower than the current mar-
tions exchange, an investor wishes ket are "OBLOSS" - Open Buy Limit orders and Open
to place an order to buy an option Sell Stop orders. Thus, to buy an option at a premium
contract at a premium that is lower that is lower than the closing price, an open buy limit
than the previous day's close. The order would be placed.
Verifie
100% Correct!!!
1. Where would a quote for an unlisted Unlisted stocks are those that do not meet exchange
stock be found? listing standards. For equities, the Second Market is
a-otc markets (pink sheets) the OTC Markets Group, which maintains 3 quotation
b. nasdaq feeds:
c. nyse OTCQX: Established U.S. and international companies
d. cqs OTCQB: Development stage U.S. and international
companies
Pink Open Market: Speculative stocks with minimal
quotation standards
NYSE and NASDAQ are exchanges with listing stan-
dards. CQS - the Consolidated Quotations Service - ag-
gregates and shows quotes for NYSE and AMEX listed
issues from all sources (the exchanges themselves and
Third Market Makers that are quoting exchange listed
stocks).
2. A customer has made multiple pur- Form 1099-A is for acquisitions from the lender.
chases of a stock at different dates. Form 1099-B is for the sale of acquisitions.
If the customer sells a portion of the Form K-1 is for limited partnerships. Form 1040 is for
position, the customer's cost basis personal tax filing.
is reported by the broker-dealer on: ans: Form 1099-B is for the sale reporting.
3. If a new bond is issued with a call c. When a newly-issued bond is callable, the issuer has
option, when is it callable by the is- the right to call in the bonds anytime on or after the call
suer? date. The bond contract will specify the first date that
a only during the period of call pro- that the bond can be called and the price that the is-
tection suer will pay based on a call schedule. There is an initial
b only on the call date period of call protection (typically 10 years) where the
c anytime on/after the call date issuer cannot call the bonds. Also, remember that the
d only on the semi-annual interest issuer will only call the bonds if market interest rates
payment date
, SIE - Pass Perfect Mastery Exam 1: Exam #3 Questions And Answers
Verifie
100% Correct!!!
decline after issuance. Then the issuer can refund the
issue at a lower interest cost.
4. A securities dealer is quoting ABCD a. buy 1500 shares at $10 and sell 2,000 shares at 11.
stock at 10.00 - 11.00 (15 x 20). This
means that the dealer is willing to:
5. At the time of issuance, a warrant A warrant is a long-term option to buy common stock
has: that is attached by an issuer to preferred stock or bond
otterings to make them more marketable.
ans: time value.
An example would be a 5-year warrant to buy common
stock of ABC at $50 per share that is attached to each
$1,000 bond sold by an issuer. The price of the com-
mon stock at that time might be, say, $20. This means
that the warrant is "out the money" by $30 at the time
of issuance - it has no intrinsic value. The stock price
must rise by at least $30 over the 5-year life of the
warrant for the holder to have a profit. Warrants have
no dividend or voting rights. They trade in the market
alongside the stock for their life.
6. Variable rate municipal notes avoid Variable rate municipal notes avoid "interest rate risk,"
which of the following risks? also known as market risk, since a rise in interest rates
a market risk (also interest rate risk) will not devalue these securities. With a fixed rate note,
b default risk as interest rates rise or fall, the note's value must de-
c marketability risk crease or increase proportionately, so that the note
d credit risk gives a yield that approximates the current level of in-
terest rates. Variable rate notes periodically adjust the
rate of interest paid to holders, usually based upon an
index of government securities. The interest rate on the
, SIE - Pass Perfect Mastery Exam 1: Exam #3 Questions And Answers
Verifie
100% Correct!!!
notes is adjusted up or down, based upon prevailing
market interest rates; thus the price of the instrument
will stay at, or very close to, par.
7. The risk that inflation will lower the b. Purchasing Power Risk is the risk that inflation will
present value of bond interest and lower the value of bond interest payments and prin-
principal repayments is: cipal repayments. If inflation increases, then interest
a credit risk (risk that the issuer of rates will rise, forcing bond prices down.
a bond (or preferred stock) may de-
fault on interest and principal pay-
ments.
b purchasing power risk (inflation
risk)
c legislative risk (regulatory risk)
d interest rate risk (risks associated
with interest rate fluctuations)
8. A corporation has issued Formula:
$10,000,000 of 7 1/4%, 20 year, par value of bond/conversion ratio=conversion $
$1,000 par, convertible debentures, ans. $1,000/25:1 = $40.
convertible at a ratio of 25:1. The
bond is currently trading at 101,
while the company's common stock
is at 38. The conversion price per
share is:
9. Prior to the opening of the op- The orders that are placed lower than the current mar-
tions exchange, an investor wishes ket are "OBLOSS" - Open Buy Limit orders and Open
to place an order to buy an option Sell Stop orders. Thus, to buy an option at a premium
contract at a premium that is lower that is lower than the closing price, an open buy limit
than the previous day's close. The order would be placed.
