FINRA SIE Exam

If interest Rates fall the issuer will most likely call which bonds first? - ANSWERHigh Dividend Rate preferred issues trading at a premium

What are some actions by a corporation will affect an individuals common shareholder's equity - ANSWERConversion 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)

Benefits to a Convertible stock compared to a regular debenture - ANSWERConvertible stock will have a slightly lower yield than non-convertible however it will raise in value as the market price of common stock rises

What traits do preferred stock and bonds have in common? How are they different? - ANSWERCan 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

When are common dividends declared and paid? - ANSWERQuarterly for both

A customer owns 256 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 15 rights a shareholder may purchase one additional share.at $24 a share. Any fractional rights may be rounded up to buy an additional share. 

How many shares may the customer buy with these right? - ANSWERA share holder can buy a maximum of 18 shares with these rights paying $432 for them. 

The 17.06 shares may be rounded up to 18.

XXYZ ADR (American Depository Receipt) represents 10% of the value of an XXYZ ordinary share. The ordinary shares trade on the London Stock Exchange, where the current price is 400 British Pounds (BP). The current exchange rate for the British Pound against the US Dollar is $1.40. The ordinary share pays an annualized dividend of 12 BP. The XXYZ ADR is listed on the NYSE. If a customer places an order to buy $560,000 of the ADR on the customer will buy how many shares of the ADR? - ANSWER10,000 Shares with $560.,000 

Explanation 

400 BP x $1.4 = 560

$560,000 / 560 BP/share = 10,000 Shares of XXYZ

Preferred Stock market valuation is based primarily on what?

Performance of stock?

Inflation?

Interest rates? - ANSWERInterest Rates is the correct answer, remember that preferred stock is much like a bond in that it has fixed payments and is considered fixed income. 

Long term market interest rate levels determine the valuation.

Rights are? - ANSWERExerciserable, Negotiable (can be traded), Giftable

Dividends can be paid in the form of? - ANSWERCash or products 

Additional shares of ANOTHER company (yes another company) 

Additional shares of that company 

NOT Options and Not Tax deferments

Preferred Stock is? - ANSWERPerformance based, participating, cumulative (dividends) 

It is not refundable or redeemable

A corporate bond which is backed solely by full faith and credit of the issuer.. - ANSWERDebenture

Trades of all of the following will settle in Fed Funds Except?

1) US Treasury Bonds

2) Treasury Bills

3) Prime Commercial Paper

4) Prime Banker's Acceptances - ANSWER3) Prime commercial paper is not traded by the Federal Reserve therefore does not settle in Fed Funds

Prime Banker's Acceptances, T Bills, T Bonds, are all settled in Fed Funds

All of the following are sources of income that can be used to service debt on municipal revenue bonds Except?

1) Toll Fees

2) Park Fees

3) Capitalized interest 

4) Sales Tax - ANSWERCapitalized interest (property tax) is not used in revenue bonds, it is only used in General Obligation Bonds

A corporation issued a 7? sinking fund debenture at par. Three years later, similar issues are being issues at 8%. Which of the following is true about the outstanding 7% issue? How does the current yield relate to the nominal yield - ANSWERThe current yield will be higher than the nominal yield. 

The nominal yield (stated yield) will be 7% 

The market price of the yield will drop when the new issues are at a higher yield. 

Current yield = annual interest $/ current market price

market price = .07 / .08 = 875

Current yield = 70 / 875

Current yield = .08

Current yield > Nominal

How would you quote a US Government bond with a dollar price of 

$1012.50? - ANSWER101-8 

US GOVT bonds are quoted on a percentage of par at 1/32nds 

101 + 8/32 = 101.25 then multiply by 10x to get to par

$1012.50

A corporation has issued 9%, $1,000 par convertible debenture which convert at $50. The common stock is currently trading at $60. If the bond and the common stock are trading at parity a customer purchasing 5M of the bonds will pay: - ANSWERAnswer $6,000. 

The bonds are convertible at $50, based on a $1,000 par value therefore each bond convert into 20 shares at $50. If the common stock is trading at $60 the bond must be trading at $60 x 20 = $1,200 

Since they are buying 5M that means that are paying 5 x $1,200 = $6,000

Issuance of which of the following municipal issues are NOT subject to statutory debt limits - ANSWERSpecial tax bonds 

Industrial Revenue Bonds 

Moral Obligation bonds 

COPS 

(General Obligation are subject to debt limits)

A corporation has issued bonds at 8%. Three years later similar issues are being offered in the primary market at 7% which of the following statements will be true about the current yield and the nominal yield? - ANSWERThe current yield will be lower than the nominal yield. The dollar price of the bond will be at a premium. 

Nominal (stated) = .08 

Market price of bond = .08/.07 = 1,143

Current Yield = 80 / 1143 = .06999