FINRA SIE TEST FINAL EXAM QUESTIONS WITH DETAILED
VERIFIED ANSWERS (100% CORRECT ANSWERS) /ALREADY
GRADED A+
Question 1
If interest rates fall, the issuer will most likely call which bonds first?
A) Low coupon rate preferred issues trading at a discount.
B) High coupon rate preferred issues trading at a premium.
C) Bonds with long maturities.
D) Bonds with short maturities.
E) Bonds that are non-callable.
Correct Answer: B) High Dividend Rate preferred issues trading at a premium
Rationale: Issuers call bonds to refinance at lower interest rates. They will prioritize
calling high-interest bonds (high dividend rate preferred issues) that are trading at
a premium (meaning their market price is above their par value) to save on future
interest payments.
Question 2
What are some actions by a corporation that will affect an individual common shareholder's
equity?
A) Conversion of convertible preferred stocks or bonds.
B) Repurchase of common shares.
C) Issuance of additional common shares.
D) Stock splits (these do not affect shareholders' equity but they affect par value).
E) All of the above except D.
Correct Answer: E) 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)
Rationale: Conversion of convertible securities increases common shares,
repurchase decreases them, and issuance increases them, all directly impacting the
number of common shares outstanding and thus individual equity. Stock splits
change the number of shares and par value per share but not the total equity value.
Question 3
What is a benefit to a Convertible stock compared to a regular debenture?
A) Convertible stock will have a slightly higher yield than non-convertible.
B) Convertible stock will have a a slightly lower yield than non-convertible however it will raise
in value as the market price of common stock rises.
C) Convertible stock is always tax-exempt.
D) Convertible stock has a fixed maturity date.
E) Convertible stock is callable at a discount.
Correct Answer: B) 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
Rationale: Convertible securities offer the potential for capital appreciation if the
underlying common stock performs well, which is an attractive feature that allows
the issuer to offer a slightly lower coupon rate than comparable non-convertible
securities.
Question 4
What traits do preferred stock and bonds have in common? How are they different?
A) Both have voting rights; preferred has a maturity date, bonds do not.
B) Both are always tax-exempt; both have variable payments.
, C) 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.
D) Both are convertible; both are junior to common stock.
E) Both have ownership interest; both are issued by corporations.
Correct Answer: C) 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.
Rationale: This comprehensive answer highlights the key similarities (fixed income
nature, seniority to common, no voting rights, callable feature) and crucial
differences (maturity, mandatory nature of payments) between preferred stock
and bonds.
Question 5
When are common dividends typically declared and paid by corporations?
A) Annually.
B) Quarterly for both.
VERIFIED ANSWERS (100% CORRECT ANSWERS) /ALREADY
GRADED A+
Question 1
If interest rates fall, the issuer will most likely call which bonds first?
A) Low coupon rate preferred issues trading at a discount.
B) High coupon rate preferred issues trading at a premium.
C) Bonds with long maturities.
D) Bonds with short maturities.
E) Bonds that are non-callable.
Correct Answer: B) High Dividend Rate preferred issues trading at a premium
Rationale: Issuers call bonds to refinance at lower interest rates. They will prioritize
calling high-interest bonds (high dividend rate preferred issues) that are trading at
a premium (meaning their market price is above their par value) to save on future
interest payments.
Question 2
What are some actions by a corporation that will affect an individual common shareholder's
equity?
A) Conversion of convertible preferred stocks or bonds.
B) Repurchase of common shares.
C) Issuance of additional common shares.
D) Stock splits (these do not affect shareholders' equity but they affect par value).
E) All of the above except D.
Correct Answer: E) 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)
Rationale: Conversion of convertible securities increases common shares,
repurchase decreases them, and issuance increases them, all directly impacting the
number of common shares outstanding and thus individual equity. Stock splits
change the number of shares and par value per share but not the total equity value.
Question 3
What is a benefit to a Convertible stock compared to a regular debenture?
A) Convertible stock will have a slightly higher yield than non-convertible.
B) Convertible stock will have a a slightly lower yield than non-convertible however it will raise
in value as the market price of common stock rises.
C) Convertible stock is always tax-exempt.
D) Convertible stock has a fixed maturity date.
E) Convertible stock is callable at a discount.
Correct Answer: B) 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
Rationale: Convertible securities offer the potential for capital appreciation if the
underlying common stock performs well, which is an attractive feature that allows
the issuer to offer a slightly lower coupon rate than comparable non-convertible
securities.
Question 4
What traits do preferred stock and bonds have in common? How are they different?
A) Both have voting rights; preferred has a maturity date, bonds do not.
B) Both are always tax-exempt; both have variable payments.
, C) 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.
D) Both are convertible; both are junior to common stock.
E) Both have ownership interest; both are issued by corporations.
Correct Answer: C) 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.
Rationale: This comprehensive answer highlights the key similarities (fixed income
nature, seniority to common, no voting rights, callable feature) and crucial
differences (maturity, mandatory nature of payments) between preferred stock
and bonds.
Question 5
When are common dividends typically declared and paid by corporations?
A) Annually.
B) Quarterly for both.
