SIE – FOURTH SIMULATION

#1. Which federal law created the Securities and Exchange Commission (SEC)?

Investment Company Act of 1940

Securities Exchange Act of 1934

Securities Act of 1933

Bank Secrecy Act

#2. Which of the following securities is typically sold at a discount and does NOT make periodic interest payments?

Corporate debenture

Treasury note

Preferred stock

Zero-coupon bond

#3. Which of the following types of municipal securities is issued to meet short-term cash flow needs?

Tax anticipation note (TAN)

Revenue bond

Industrial revenue bond

General obligation bond

#4. Which party is responsible for maintaining the ownership records of a corporation’s stock and handling name changes on certificates?

Underwriter

Trustee

Transfer agent

Custodian bank

#5. Which of the following best describes a shelf registration?

A registration limited to exempt securities

A registration that allows an issuer to sell securities over a period of time

A registration used only for municipal securities

A registration that applies only to IPOs

#6. Regulation S primarily governs:

Offers and sales of securities made outside the United States

Secondary market trading on U.S. exchanges

Private placements to accredited investors in the U.S.

New issues of U.S. government securities

#7. Which of the following is TRUE about Rule 147 intrastate offerings?

They may only be sold to institutional investors

They may be sold freely in any state

They may be sold only to residents of one state

They are always exempt from state registration

#8. Which of the following is considered a money market security?

Preferred stock

30-year Treasury bond

Bankers’ acceptance

Long-term corporate note

#9. Which of the following securities represents a loan to a corporation?

Common stock

Debenture

Warrant

American Depositary Receipt

#10. Which of the following is a characteristic of a warrant?

It pays a fixed dividend

It gives the holder the right to purchase stock at a set price in the future

It must be exercised within one year of issuance

It represents a short-term debt obligation

#11. Rights issued to existing shareholders in a rights offering are typically:

Short-term and exercisable at a discount to current market price

Short-term and exercisable only at par value

Long-term and nontransferable

Long-term and exercisable at a premium to market price

#12. Which of the following is a characteristic of cumulative preferred stock?

Missed dividends must be paid before common dividends can be paid

Dividends are guaranteed by the federal government

Dividends are paid only when the company is liquidated

Dividends increase automatically each year

#13. Convertible preferred stock allows the shareholder to:

Exchange preferred shares for bonds at par

Convert dividends into tax-free income

Exchange preferred shares for a specified number of common shares

Exchange stock for cash at any time at par

#14. Which of the following is typically TRUE of growth stocks?

They offer guaranteed returns

They usually retain earnings and pay low or no dividends

They are issued only by utilities

They always pay high fixed dividends

#15. Blue-chip stocks are best described as:

Shares of newly formed speculative companies

Shares of companies in financial distress

Shares of companies trading below $5

Shares of large, well-established companies with a history of stable earnings

#16. Which of the following risks is MOST associated with holding foreign bonds?

Longevity risk

Call risk

Exchange-rate risk

Prepayment risk

#17. Which of the following is considered an interest-rate sensitive security?

Long-term Treasury bond

Short-term CD

Non-interest-bearing checking account

Money market fund

#18. Which of the following is the BEST example of purchasing-power risk?

A bond is called when interest rates fall

An investor cannot sell a thinly traded security quickly

Inflation reduces the real value of a fixed pension payment

A company defaults on its bond interest payments

#19. Which of the following best describes systematic risk?

Risk that applies only to high-yield bonds

Risk unique to a specific company

Risk that only affects foreign investments

Risk that cannot be eliminated through diversification

#20. The primary risk of investing in high-yield corporate bonds is:

Liquidity risk

Political risk

Currency risk

Credit risk

#21. Which of the following is an example of a derivative security?

Treasury note

Preferred share

Negotiable certificate of deposit

Put option on a stock index

#22. Which option position has unlimited potential loss?

Short covered call

Long call

Long put

Short uncovered call

#23. A customer believes a stock will remain stable and wants to generate income from a long stock position. Which strategy is MOST suitable?

Writing a covered call

Writing an uncovered call

Buying a protective put

Buying an out-of-the-money call

#24. Which of the following BEST describes time value in an options premium?

The intrinsic value of the option

The difference between strike price and market price

The minimum value at expiration

The portion of the premium attributable to the time remaining until expiration

#25. Which of the following securities is MOST likely to have prepayment risk?

Treasury bill

Zero-coupon corporate bond

Commercial paper

Residential mortgage-backed security

#26. Which organization acts as the central counterparty and guarantees performance on listed options contracts?

FINRA

Options Clearing Corporation (OCC)

FDIC

MSRB

#27. Which of the following orders is designed to buy a stock if it trades at or below a specified price?

Sell limit order

Buy stop order

Buy limit order

Market order

#28. A sell stop order placed below the current market price is MOST often used to:

Guarantee a specific selling price

Establish a new long position

Protect a profit or limit a loss on a long stock position

Protect a short position from a price increase

#29. Which of the following orders becomes a limit order once activated?

Immediate-or-cancel order

Market order

Fill-or-kill order

Stop-limit order

#30. Regular-way settlement for Treasury notes and bonds occurs on:

T+1 business day

Same day

T+3 business days

T+2 business days

#31. Which date determines who is entitled to receive a declared cash dividend?

Declaration date

Ex-dividend date

Payment date

Record date

#32. Which of the following best describes marking the open or close?

Recording trades for tax reporting

Adjusting account statements for interest and dividends

Accurately reporting the first and last trades

Manipulating a security’s price at the beginning or end of the trading day

#33. Which of the following is generally considered a fraudulent practice?

Charging a commission for executing a trade

Guaranteeing a customer against losses in a securities account

Recommending a diversified portfolio

Disclosing risks in a prospectus

#34. An associated person who participates in a private securities transaction for compensation must:

Notify FINRA but not the firm

Receive approval only from the customer

Report only to the SEC

Obtain the employing firm’s prior written approval

#35. Under FINRA rules, sharing in customer profits or losses is generally permitted only if:

The customer provides verbal consent only

The representative guarantees losses will be limited

The sharing is proportional to each party’s contribution and approved by the firm

The account is a retirement account

#36. Which of the following is considered a red flag for potential money laundering?

Reinvesting dividends automatically

Investing in a diversified mutual fund

Placing a single large stock order

Structuring cash deposits to avoid reporting thresholds

#37. A Suspicious Activity Report (SAR) must be filed within:

60 calendar days

30 calendar days of detecting suspicious activity

90 calendar days

10 calendar days

#38. Which of the following accounts would most likely require a corporate resolution to open?

UGMA custodial account

Corporate brokerage account

Individual account

Joint tenants account

#39. For a partnership account, which document is typically required to specify who is authorized to trade?

Partnership agreement

Form CRS

Prospectus

Margin disclosure statement

#40. Which of the following statements about joint tenants with rights of survivorship (JTWROS) is TRUE?

Each owner’s share passes to their estate at death

The account may be opened only by spouses

Only one owner may place trades

Each owner has an undivided interest, and assets pass to the surviving owner

#41. A custodian for a UTMA account has a fiduciary duty to:

Manage the assets for the benefit of the minor

Use the assets for the custodian’s personal expenses

Avoid any investments in securities

Transfer the account to the minor at any age the custodian chooses

#42. Which of the following is the primary purpose of a customer’s new account form?

To guarantee investment performance

To collect information needed to service and supervise the account

To replace required disclosures

To serve as a margin agreement

#43. Which of the following items is NOT required to be obtained prior to executing the first trade in a new account?

Customer’s tax return

Residential address

Customer’s name

Date of birth

#44. Which of the following BEST describes a prime brokerage account?

A custodial account for a minor

A retirement account offered by banks only

An arrangement where a primary broker provides centralized services to an active trading client

An account limited to Treasury securities only

#45. Which of the following accounts allows a spouse to make contributions on behalf of a nonworking spouse?

UTMA account

401(k) plan

Spousal IRA

529 plan

#46. Which of the following statements regarding traditional IRAs is CORRECT?

Contributions are never tax-deductible

Earnings are taxed annually as they accrue

Distributions are generally taxed as ordinary income

Qualified withdrawals are tax-free

#47. Which of the following plans is a defined contribution plan?

Social Security

Fixed annuity payout plan

Defined benefit pension

401(k) plan

#48. Contributions to a 529 savings plan are generally:

Limited to employer contributions only

Taxed annually as ordinary income

Made with after-tax dollars and may grow tax-free if used for education

Tax-deductible at the federal level

#49. Which of the following is an advantage of a Roth IRA over a traditional IRA?

Investment earnings are taxed annually

Contributions are always tax-deductible

Required minimum distributions begin at age 73

Qualified withdrawals are tax-free

#50. Which of the following is TRUE about required minimum distributions (RMDs) from traditional IRAs?

They must generally begin by a specified age or face a penalty

They apply only to Roth IRAs

They may be deferred indefinitely without penalty

They are taxed at capital gains rates only

#51. Which of the following is considered earned income for IRA contribution purposes?

Capital gains from investments

Interest income

Dividend income

Salary from employment

#52. Which of the following is a characteristic of a fixed annuity?

Payments are always tied to an equity index

The contract value fluctuates with separate account performance

The investor bears all investment risk

The insurance company guarantees a minimum interest rate

#53. Which of the following best describes equity-indexed annuities?

They offer returns tied to an equity index with some downside protection

They guarantee a fixed rate with no market exposure

They invest directly and fully in stocks

They are issued only by mutual fund companies

#54. Which of the following is typically considered the MOST liquid investment?

Treasury bill

Thinly traded corporate bond

Limited partnership interest

Direct real estate holding

#55. An investor who wants capital appreciation and is willing to accept significant risk would MOST likely choose:

Aggressive growth mutual fund

Stable value fund

Investment-grade bond fund

Treasury money market fund

#56. An investor in a high tax bracket who wants tax-advantaged income would MOST likely invest in:

Treasury money market fund

Taxable corporate bond fund

Municipal bond portfolio

Nondividend-paying growth stocks

#57. Which of the following is a leading economic indicator?

Prime interest rate

Average duration of unemployment

Building permits for new homes

Unemployment rate

#58. Which of the following is a coincident economic indicator?

Personal income after taxes

Average prime rate charged by banks

Industrial production

Stock market index

#59. During an economic expansion, which of the following is MOST likely to increase?

Business failures

Unemployment rate

Corporate profits

Bankruptcy filings

#60. Which of the following best describes fiscal policy?

Setting margin requirements for broker-dealers

Central bank actions that affect money supply

Government use of taxation and spending to influence the economy

Regulation of securities markets by the SEC

#61. Which of the following is the primary goal of diversification in a portfolio?

Reduce overall portfolio risk

Maximize trading frequency

Eliminate all market risk

Guarantee a fixed rate of return

#62. A defensive stock is best described as one that:

Is issued only by technology companies

Is highly sensitive to economic cycles

Pays no dividends

Maintains stable earnings during economic downturns

#63. Which of the following describe securities issued by state or local governments?

Money market instruments only

Municipal securities

Corporate securities

Agency securities

#64. Which of the following is TRUE of revenue bonds?

They never have call provisions

They are backed by the income from a specific project

They are guaranteed by the federal government

They are backed by the full taxing power of the issuer

#65. Which of the following is a potential disadvantage of investing in a limited partnership?

Investors have unlimited liability

They are insured by the FDIC

Income and losses cannot be passed through

Interests are often illiquid and difficult to sell

#66. Which of the following is TRUE regarding hedge funds?

They are required to offer daily liquidity

They guarantee principal and interest

They are typically offered only to accredited or institutional investors

They are registered investment companies open to all investors

#67. Which of the following BEST describes a covered put?

A put written against a long call

A put written against a short stock position

A put written with no stock position

A put purchased to hedge a short stock position

#68. Which of the following is TRUE regarding a stop order?

It is executed immediately upon entry

It guarantees a specific execution price

It becomes a market order once the stop price is reached

It is only valid for one trading session

#69. Which of the following account types is specifically designed for self-employed individuals and small business owners?

SEP IRA

529 savings plan

Roth IRA

403(b) plan

#70. Which of the following is a characteristic of a money purchase pension plan?

Employer contributions are fixed according to the plan document

Employee contributions are always discretionary

Contributions are made only in profitable years

Benefits are guaranteed by the PBGC

#71. Which of the following is a typical feature of a wrap account?

One fee covers transaction costs and investment advisory services

Commissions are charged on each individual trade

No advisory services are provided

Only mutual funds may be purchased

#72. Which of the following investments would be MOST appropriate for an investor seeking to track the performance of a broad market index at low cost?

Actively managed sector fund

Closed-end country-specific fund

Index ETF

Hedge fund of funds

#73. Which of the following is a risk of investing heavily in a single sector ETF?

Elimination of market risk

Currency conversion risk only

Sector concentration risk

Government guarantee risk

#74. Which of the following is typically TRUE about no-load mutual funds?

They are always index funds

They have no operating expenses

They are only available through commissioned brokers

They do not charge a sales load but may have other fees

#75. Which of the following is a characteristic of systematic withdrawal plans from mutual funds?

Shareholder receives periodic payments by redeeming fund shares

Redemptions are not allowed during the plan

Principal is guaranteed to last for life

Payments come only from dividends and interest

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