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SIE Exam: 1001 Practice Questions For Dummies 1st Edition Steven M. Rice (Author) - Solutions

All of the following are governed by MSRB rules EXCEPT(A) issuers(B) registered reps(C) broker-dealers(D) bank-dealers
One of your new customers is currently looking to purchase a new home. As such, they would like to invest their money in securities with little risk. Which of the following securities would be suitable to meet their needs?(A) High-yield bonds(B) Treasury bills(C) Treasury bonds(D) An aggressive
Which of the following money-market securities is a time draft used to facilitate the importing and exporting of products?(A) Treasury bills(B) Banker’s acceptances(C) Commercial paper(D) Repurchase agreements
What is the difference between regular CDs issued by a bank and negotiable CDs?(A) Negotiable CDs can be traded in the secondary market whereas regular CDs cannot.(B) Regular CDs can be trade in the secondary market whereas negotiable CDs cannot.(C) Negotiable CDs have a fixed rate of return and
Which of the following is true of negotiable CDs?I. They are considered money market instruments and can be traded in the secondary market.II. They are not considered money market instruments, and only non-negotiable CDs can trade in the secondary market.III. They typically require a minimum
TUBBB Corp. needs to raise money for seasonal inventory. Which of the following securities would they most likely issue?(A) Commercial paper(B) Bonds(C) Common stock(D) Preferred stock
Corporate commercial paper has a maximum maturity of(A) 30 days(B) 45 days(C) 90 days(D) 270 days
Which of the following is TRUE about commercial paper?I. It trades without accrued interest.II. It is backed by the issuer’s assets.III. It is an exempt security.IV. It matures in 270 days or less.(A) I, III, and IV(B) II and IV(C) II, III, and IV(D) I, II, and III
A Federal Reserve member bank has deposits in excess of their reserve requirements.They lend this money to another member bank to help them meet their reserve requirements. These loans are(A) banking funds(B) depositors’ funds(C) certificates of deposit(D) federal funds
Most money market instruments are(A) debt securities with a fixed income and long-term maturity(B) debt securities with a fixed income and short or intermediate-term maturity(C) debt securities with a fixed income and short-term maturity(D) debt securities with a variable rate and short- or
Which of the following are capital market instruments?(A) Common stocks(B) Treasury bills(C) Banker’s acceptances (BAs)(D) Repurchase agreements
The risks of holding money market securities include which two of the following?I. Money market instruments are typically illiquid.II. The risk of potentially having to reinvest the money received at maturity at a lower rate.III. Lower returns than longer-term maturities.IV. They are consider safer
Which of the following are money market instruments?I. Banker’s acceptances II. T-notes III. Commercial paper IV. Treasury bills(A) I and III(B) I, II, and III(C) I, III, and IV(D) II, III, and IV
Money market instruments are(A) short-term debt(B) long-term debt(C) common stock(D) preferred stock
When comparing money market securities with longer-term debt securities, holders of money market instruments would expect that they have securities I. that are safer than longer-term debt securities II. that are riskier than longer-term debt securities III. that will provide a higher return than
Which of the following are backed by the full faith and credit of the U.S. government?(A) Ginnie Mae (GNMA)(B) Freddie Mac (FHLMC)(C) Fannie Mae (FNMA)(D) All of the above
Which of the following debt securities are direct obligations of the U.S. government?I. T-bills II. GNMA III. TIPS IV. T-bonds(A) I and IV(B) I, II, and III(C) II, III, and IV(D) I, II, III, and IV
Which of the following U.S. government securities earns interest but doesn’t pay interest?(A) Treasury bills(B) Treasury notes(C) Treasury bonds(D) TIPS
All of the following debt securities make regular interest payments EXCEPT(A) Treasury STRIPS(B) Treasury notes(C) Corporate bonds(D) Treasury bonds
These U.S. Treasury securities have interest payments that are tied to inflation or deflation.(A) T-bills(B) T-strips(C) T-notes(D) TIPS
Which of the following are debt securities that do not pay semiannual interest?(A) T-notes(B) Treasury STRIPS(C) Corporate bonds(D) T-bonds
T-bonds(A) pay interest semiannually and mature at par value(B) pay interest monthly and mature at current market value(C) are issued at a discount and mature at par value(D) annually and mature at par value
Interest on Treasury notes is stated as(A) a percentage of the current market value(B) a variable depending on current interest rates(C) a percentage of the purchase price(D) a percentage of par value
Mary Smith would like to start saving money for her son who will be going to college in 15 years. Which of the following U.S. government securities would best suit her needs?(A) Treasury bills(B) Treasury stock(C) Treasury strips(D) GNMAs
All of the following securities are directly backed by the U.S. government EXCEPT(A) Treasury bills(B) Treasury stock(C) Treasury strips(D) Treasury bonds
Treasury bills are issued in all of the following maturities EXCEPT(A) 26 weeks(B) 32 weeks(C) 17 weeks(D) 13 weeks
Place the following U.S. government securities in order of initial maturity from shortest term to longest term.I. Treasury notes II. Treasury bonds III. Treasury bills(A) I, II, III(B) III, II, I(C) III, I, II(D) II, I, III
Treasury bonds are(A) issued at a maturity of 20 years or more(B) issued at a maturity of 2 to 10 years(C) issued at a maturity of 1 year or less(D) issued at a maturity of 270 days or less
Which of the following securities earns interest?I. Treasury bills II. Treasury bonds III. Treasury stock IV. Treasury STRIPS(A) II only(B) I, II, and IV(C) II and III(D) II and IV
Which of the following are possible maturities for a Treasury bill?I. 4 weeks II. 8 weeks III. 17 weeks IV. 52 weeks(A) I and II(B) I, II, and III(C) I, II, and IV(D) I, II, III, and IV
Debt securities issued by the U.S. Treasury(A) are all issued in book-entry form(B) all pay semiannual interest(C) are sold in minimum denominations of$1,000(D) all of the above
TUV convertible bonds are convertible into TUV common stock for $20. If the stock is trading at $24, what is the parity price of the bonds?(A) $1,120(B) $1,200(C) $1,320(D) $1,000
Curly Fry Lighting Corporation bonds are convertible at $50. If DIM’s common stock is trading in the market for $42 and the bonds are trading for 83, which of the following statements are TRUE?I. The bonds are trading below parity.II. The stock is trading below parity.III. Converting the bonds
A bond is convertible into common stock for$25. If the stock trades at $28, what is the parity price of the bond?(A) $990(B) $1,020(C) $1,040(D) $1,120
TUV Corp. has issued $10 million worth of convertible mortgage bonds, which are convertible for $40. The bonds are callable beginning in March 2020, while the maturity date is March 2030. The bond trades at 110, and the stock trades at $48. What is the conversion ratio of the bonds?(A) 10(B)
A bond is convertible into 25 shares of common stock. The bond trades at 98, and the stock trades at $40. If the bond is called at 102, which of the following is the BEST alternative for an investor?(A) Allow the bond to be called.(B) Sell the bond in the market.(C) Convert the bond and sell the
If a bond is convertible into 50 shares of common stock, what is the conversion price?(A) $20(B) $25(C) $40(D) $50
A convertible feature on ABDC corporate bonds(A) allows ABDC bondholders the right to convert their bonds into ABDC preferred stock(B) allows ABDC bondholders the right to convert their bonds into ABDC nonvoting common stock(C) allows ABDC bondholders the right to convert their bonds into ABDC
Regarding callable and puttable bonds, which of the following are true?I. The issuer would likely call their bonds if interest rates rise.II. The issuer would likely call their bonds if interest rates fall.III. The investor would likely put their bonds if interest rates rise.IV. The investor would
Which of the following BEST describes the call premium for debt securities?(A) The amount that investors paid above par value to purchase the bond in the primary market(B) The amount that investors paid above par value to purchase the bond in the secondary market(C) The amount that investors must
The call premium on a callable bond is(A) the amount an investor must pay above par value when calling the bonds early(B) the amount an issuer must pay above par value when calling its bonds early(C) the amount of interest an issuer must pay on its callable bonds(D) the difference in interest an
All of the following are true about callable bonds EXCEPT(A) they usually offer higher yields than non-callable bonds(B) any call features are stated on the indenture(C) the investor decides when to exercise the call privilege(D) an announcement of a call must be made before the actual call date
Which of the following is the MOST appealing to the issuer of a corporate bond?(A) A high coupon rate(B) A put feature(C) A high call premium(D) Little call protection
A call feature on a bond(A) allows the bondholder to force the issuer to call in the bonds prior to the maturity date only if interest rates drop(B) allows the bondholder to force the issuer to call in the bonds prior to maturity if it’s to the benefit of all bondholders(C) allows the issuer to
Additional features added to bonds to make them more or less attractive to investors would include all of the following EXCEPT(A) put(B) maturity(C) convertible(D) call
Place the following Moody’s bond ratings from highest to lowest:I. A1 II. Aa3 III. Aa2 IV. Aaa(A) IV, III, II, I(B) IV, I, III, II(C) I, IV, III, II(D) I, II, III, IV
One of your clients wants to purchase a corporate bond with a high degree of safety.You have recommended four different bonds with varying credit ratings. Place the following S&P bond ratings from highest to lowest:I. A+II. AA–III. AA IV. AAA(A) IV, III, II, I(B) IV, I, III, II(C) I, IV, III,
Which of the following would affect the liquidity of a bond?I. The rating II. The coupon rate III. The maturity IV. Call features(A) I and II(B) I, II, and III(C) II, III, and IV(D) I, II, III, and IV
Which of the following Moody’s bond ratings are considered investment grade?I. Aa II. A III. Baa IV. Ba(A) I and II(B) I and III(C) I, II, and III(D) I, II, III, and IV
Which of the following is rated by Moody’s and Standard & Poor’s?(A) Default risk(B) Market risk(C) Systematic risk(D) All of the above
One point on a bond equals(A) $10(B) $1(C) $100(D) 1% of the current market value
A bond has increased in value by 50 basis points, which is equal to which TWO of the following?I. 0.50%II. 5%III. $5 IV. $50(A) I and III(B) I and IV(C) II and III(D) II and IV
If a corporate bond was purchased at a price of $1,020 and the basis is 5, what is true of the nominal yield?(A) It is 5%.(B) It is greater than 5%.(C) It is lower than 5%.(D) It cannot be determined without knowing the number of years until maturity
An investor purchased a corporate bond with a 6% coupon for 101.Depending on the number of years until maturity, this investor might expect a yield to maturity of(A) 6.15%(B) 6.10%(C) 6.05%(D) 5.75%
Which of the following is TRUE of bonds selling at a discount?I. The market price is lower than par value.II. The current yield is greater than the coupon rate.III. Interest rates most likely declined after the bonds were issued.IV. The yield to maturity is greater than the current yield.(A) I and
Which of the following bonds may be purchased at the cheapest price?(A) A 5% bond yielding 7%(B) A 6% bond yielding 6%(C) A 7% bond yielding 4%(D) A 5% bond yielding 3%
A 6% bond is trading at 104.What yield could an investor expect if purchasing the bond at the current price and holding the bond until maturity?(A) 6%(B) Above 6%(C) Below 6%(D) Cannot be determined
A 7% bond has a basis of 4.30%. The bond is trading at a(A) discount(B) par(C) premium(D) cannot be determined
DEF mortgage bonds are trading for $1,100.If they pay a semiannual interest of $35, what is the current yield?(A) 3.18%(B) 3.5%(C) 6.36%(D) 7%
A 4% bond is purchased at 92 with 25 years until maturity. What is the current yield?(A) 3.65%(B) 4%(C) 4.35%(D) 4.66%
What is the current yield on a T-bond with an initial offering price of $1,000, a current market price of $101.16, and a coupon rate of 4.25%?(A) 4.19%(B) 4.25%(C) 4.37%(D) 4.41%
To determine the current yield on a bond, you can divide the(A) semi-annual interest by the market price(B) semi-annual interest by the par value(C) annual interest by the market price(D) annual interest by the par value
If a Treasury bond is priced at par, which of the following is true?(A) The current yield is equal to the yield to maturity.(B) The current yield is greater than to the yield to call.(C) The yield to maturity is less than the yield to call.(D) The current yield is less than the yield to maturity.
The indenture of a corporate bond includes the(A) current yield(B) yield to maturity(C) yield to call(D) nominal yield
An investor purchased a 5% corporate bond at par. Since their purchase, interest rates have been on a steady decline. The market price of their bond likely(A) decreased(B) increased(C) remained the same(D) cannot be determined
The coupon rate on an existing bond(A) moves in the direction of current interest rates(B) moves in the opposite direction of current interest rates(C) remains fixed(D) can move up or down depending on the performance of the DJIA
One of your new clients has listed income as their biggest investment objective. Which of the following would you least likely recommend?(A) U.S Treasury bonds(B) Mortgage bonds(C) Income bonds(D) Participating preferred stock
Bad Luck Corporation is attempting to emerge from a bankruptcy. Issuing which of the following types of bonds would help them reach their goal?(A) Equipment trust bonds(B) Debentures(C) Mortgage bonds(D) Adjustment bonds
Which of the following types of bonds trade without interest payments unless declared by the issuer’s board of directors?(A) Callable bonds(B) Debentures(C) Income bonds(D) Puttable bonds
You have a customer who is risk-averse and wants to start investing in bonds. Which of the following should you NOT recommend?(A) TIPS(B) income bonds(C) AAA rated corporate bonds(D) T-bonds
All of the following are secured debt securities EXCEPT(A) collateral trust bonds(B) equipment trust bonds(C) investment grade debentures(D) mortgage bonds
WHYWHY Corp. has issued subordinated debentures. Which of the following is true regarding those debentures in the event of bankruptcy?(A) It has a claim that is lower than other debt securities but higher than the issuer’s preferred stock.(B) It has a claim that is lower than all other debt
A type of bond backed by no assets except a written promise by the issuer that the principal and interest will be paid on time is a(n)(A) equipment trust bond(B) mortgage bond(C) collateral trust bond(D) debenture
Which of the following BEST describes a guaranteed bond?(A) One that is mainly issued by transportation companies(B) One that is backed by the assets of another company(C) One that is issued by corporations in bankruptcy(D) One that is backed by stocks and bonds held by the issuer
A collateral trust bond is(A) mainly issued by transportation companies(B) backed by stocks and bonds owned by the issuer(C) issued by corporations in bankruptcy(D) backed by the assets of a parent company
Which of the following is true of equipment trust certificates?(A) The titles to the assets backing the issue are held in trust.(B) The equipment backing the issue is held in trust.(C) If the issuer defaults on the issue, the assets can be repossessed and sold by the trustee.(D) Both (A) and (C).
The type of secured bond typically issued by transportation companies is called(A) a guaranteed bond(B) a mortgage bond(C) an equipment trust bond(D) a collateral trust bond
Corporations may issue which of the following debt securities?I. Equipment trust bonds II. Mortgage bonds III. Double-barreled bonds IV. Revenue bonds(A) I and IV(B) I and II(C) II, III, and IV(D) I, II, III, and IV
HIJ Corp. has issued $30 million worth of convertible mortgage bonds, which are convertible for $25. The bonds are callable beginning in March 2020, while the maturity date is March 2040. The bond trades at 98, and the stock trades at $24. The bonds are secured by(A) rolling stock(B) the full faith
Bonds can be issued with all of the following maturity types EXCEPT(A) series(B) term(C) balloon(D) serial
Which type of bond issue pays off a portion of the bond principal prior to the final maturity, but the largest portion is paid at the final maturity date?(A) Series(B) Term(C) Balloon(D) Serial
Which type of bond issue has an equal amount of debt maturing each year?(A) Term(B) Series(C) Serial(D) Balloon
The type of security that is most likely to have a sinking fund is a(A) series bond(B) term bond(C) serial bond(D) none of the above
This type of bond is structured so that the entire issue matures at one time.(A) Serial(B) Term(C) Balloon(D) All of the above
Term bonds are quoted according to(A) a percentage of dollar price(B) its nominal yield(C) its yield to call(D) its yield to maturity
Which of the following is true regarding different types of debt security maturities?(A) A balloon maturity uses components of not only term maturities but also serial maturities.(B) A term maturity uses components of not only balloon maturities but also serial maturities.(C) A series maturity uses
A corporate bond indenture would include which of the following?I. The nominal yield II. The rating III. Any collateral backing the bond IV. The yield to maturity(A) I and II(B) I and III(C) I, III, and IV(D) III and IV
An investor purchased a 4% corporate bond at 98 with ten years to maturity. If the bond is currently trading at 101, how much interest will the investor receive next time he gets paid?(A) $19.60(B) $20.00(C) $20.20(D) $40.00
Mr. Bear purchased a bond with a 6% coupon rate. Mr. Bear will(A) receive $6 annual interest until the bond matures(B) receive $60 semiannual interest until the bond matures(C) receive $60 annual interest until the bond matures(D) earn $60 per year interest, which is not paid until maturity
Ayla K. has 100 DEF corporate bonds with a coupon rate of 4½%. The bonds were purchased at 98% of $1,000 par each.How much interest will Ayla receive the next time she gets paid?(A) $2,205(B) $2,250(C) $4,410(D) $4,500
A corporate bond with a 5.5% coupon rate would make I. annual interest payments of $55 II. annual interest payments of $5.50 III. semiannual interest payments of $2.75 IV. semiannual interest payments of $27.50(A) I and III(B) I and IV(C) II and III(D) II and IV
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
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
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
ABC Corporate Bonds are quoted at 1013⁄8.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
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
An investor who purchases a corporate bond is I. borrowing money from the issuer II. lending money to the issuer III. a creditor IV. an owner(A) I and III(B) I and IV(C) II and III(D) II and IV
Corporations that sell bonds are taking the position of a(n)(A) borrower(B) loan shark(C) investment banker(D) creditor
Which of the following are TRUE regarding warrants?I. Warrants are often issued with a corporation’s other securities to make an offering more attractive to investors.II. Warrants provide a perpetual interest in an issuer’s common stock.III. Holders of warrants have no voting rights.(A) I and
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

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