SIE Knowledge 2 — Questions and Answers
Question 1: Which regulatory body oversees the securities markets and has broad authority to enforce federal securities laws?
- FINRA
- SEC (Correct answer)
- MSRB
- SIPC
Correct answer: SEC
The SEC (Securities and Exchange Commission) is the primary federal regulator with broad authority to enforce securities laws.
Question 2: A bond that pays no periodic interest but is issued at a discount to face value is called a:
- Convertible bond
- Zero-coupon bond (Correct answer)
- Callable bond
- Floating-rate bond
Correct answer: Zero-coupon bond
Zero-coupon bonds make no periodic interest payments and are sold at a discount, with the investor earning the difference at maturity.
Question 3: Which of the following is considered a money market instrument?
- 30-year Treasury bond
- Commercial paper (Correct answer)
- Convertible preferred stock
- Municipal revenue bond
Correct answer: Commercial paper
Commercial paper is a short-term unsecured debt instrument issued by corporations, making it a money market instrument.
Question 4: The process by which a company first sells shares to the public is known as a(n):
- Secondary offering
- Initial public offering (IPO) (Correct answer)
- Private placement
- Rights offering
Correct answer: Initial public offering (IPO)
An IPO is when a company sells its shares to the public for the first time, transitioning from a private to a public company.
Question 5: When interest rates rise, what happens to the price of existing bonds?
- Bond prices rise
- Bond prices fall (Correct answer)
- Bond prices remain unchanged
- Bond prices become volatile but trend upward
Correct answer: Bond prices fall
Bond prices and interest rates have an inverse relationship; when rates rise, existing bonds with lower rates become less attractive, so their prices fall.
Question 6: Which type of order guarantees execution but not price?
- Limit order
- Stop order
- Market order (Correct answer)
- Stop-limit order
Correct answer: Market order
A market order guarantees execution at the best available current price but does not guarantee a specific price.
Question 7: A mutual fund that trades on an exchange throughout the day like a stock is called a(n):
- Closed-end fund
- Open-end fund
- Exchange-traded fund (ETF) (Correct answer)
- Unit investment trust
Correct answer: Exchange-traded fund (ETF)
ETFs are investment funds that trade on stock exchanges throughout the trading day, unlike mutual funds which are priced once daily at NAV.
SIE Knowledge 2
Which regulatory body oversees the securities markets and has broad authority to enforce federal securities laws?