FINRA SIE Practice Test 5

1. What is the buying power in a margin account?

A. The amount of available cash

B. The amount of margin available to borrow

C. The amount of available cash plus the amount able to be borrowed

D. None of the above. Margin accounts do not have buying power.

2. If an investor writes a covered call and wishes to close the transaction, he needs to enter which of the following trades:

A. Sell to close

B. Buy to close

C. Sell to open

D. Both A and B

3. All of the following are true of an investor's rights in a rights offering except that

A. in the event the investor chooses to not purchase the shares offered, he or she may sell those rights to another investor.

B. the investor chooses to purchase the shares.

C. the investor’s rights expire after 35 days due to the current market price dropping below the offering's subscription price.

D. all of the above are true.

4. Which of the following describe characteristics of a shareholder's preemptive rights?

A. In the event that the number of new shares proposed to be sold by the corporation causes the number of outstanding shares to outnumber the number of shares they are authorized to sell, the current shareholders must approve the increase to authorized shares before the sale can proceed.

B. Current shareholders are given the first option to purchase any new shares sold by a corporation.

C. Only after current shareholders have declined the offer to purchase shares from the corporation’s new offering can the shares be offered for sale to the general investing public.

D. All of the above are true.

5. Which of the following terms can be described as the day the decision is made by the corporation's board of directors to provide the common stockholders with a dividend?

A. Declaration date

B. Record date

C. Ex-dividend date

D. None of the above

6. What are some characteristics of preferred stock?

A. Unless noted differently, par value for these shares is $1,000.

B. Ownership of these shares provides a means of fixed income for an investor through dividend payments.

C. Due to the fixed income nature of these shares, changes in interest rates have no effect on the price of these shares.

D. Maturity dates for these shares range from 1 to 25 years.

7. All of the following are true of the transferability of securities except that

A. securities can be transferred between parties by physically exchanging stock certificates.

B. a stock owner does not need the approval of the issuing organization of that stock to sell his or her shares.

C. the secondary market is where the transferring of securities is executed.

D. a broker dealer may assist in the transferring process of securities between two parties.

8. Of the different types of preferred stock, which one has the feature of enabling its owner to receive both the preferred and common dividend?

A. Cumulative preferred

B. Callable preferred

C. Participating preferred

D. Convertible preferred

9. Of the following, which is the LEAST likely to be utilized by economists in analyzing the overall condition of the economy?

A. Oil prices

B. Supply and demand

C. Gross domestic product (GDP)

D. Fluctuations in the country’s business cycle

10. The stock market will be negatively impacted by all of the following except

A. an increase in taxation.

B. a money supply reduction.

C. an interest rate reduction.

D. reduced government spending.

11. When considering the four stages of an economic business cycle, which of the following are characteristics of the expansion stage?

I. Decline in savings

II. Real estate prices on the rise

III. An increase in gross domestic product (GDP)

IV. Rise in inventories

A. II, III, and IV

B. III only

C. II and III

D. I, II, and III

12. Which of the following is an example of a company in the defensive sector?

A. Manufacturing

B. Automobile

C. Computer

D. Pharmaceutical

13. What does a buy limit order do?

A. Allows an investor to set a maximum price he or she is willing to pay for a security

B. Allows an investor to set a minimum price at which he or she is willing to sell a security

C. Guarantees execution

D. All of the above

14. A specialist can handle all of the following types of orders except for

A. stop orders.

B. market orders.

C. AON orders.

D. buy limit orders.

15. What does security arbitrage involve?

A. Simultaneously buying and selling both a stock and a security that may be converted into that same underlying stock

B. Buying shares in a company that is being taken over or acquired while shorting shares in the company about to acquire them

C. Simultaneously buying and selling the same security in two different markets to exploit the price difference between the two

D. None of the above

FINRA SIE Practice Test 5

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