SIE Knowledge of Capital Markets Question 1: Answer and Explanation

Question: 1

Which of the following is the main reason the Securities Act was enacted?

• A. To prevent investors from losing their principal
• B. To help investors improve their return on investment
• C. To provide issuers of bonds a larger number of bondholders
• D. To bring stability to the capital market

Correct Answer: D

Explanation:

D: The Securities Act was enacted after the stock market crash of 1929 to bring stability to the capital market. Choice A may be an indirect result of fair disclosure of new stock issues through registration with the Securities Exchange Commission (SEC). Choice B is not a main purpose of the Securities Act, although it could be an indirect benefit. Choice C could be an indirect result of the Securities Act if investors wishing to buy bonds feel greater confidence through reading the disclosures required by the 1933 act.