SIE Knowledge 3

Question 1

Under Regulation T, the Federal Reserve sets the initial margin requirement for equity purchases at:

Accepted Answer

50%

Answer

Regulation T requires investors to deposit at least 50% of the purchase price when buying securities on margin.

Question 2

Which of the following best describes a 'bear market'?

Accepted Answer

A market declining 20% or more from recent highs

Answer

A bear market is generally defined as a broad market decline of 20% or more from recent highs over a sustained period.

Question 3

An investor who sells borrowed shares hoping to buy them back at a lower price is engaged in:

Accepted Answer

Short selling

Answer

Short selling involves borrowing and selling shares with the intent to repurchase them at a lower price and return them to the lender for a profit.

Question 4

Which document must be provided to customers before or during the opening of an options account?

Accepted Answer

Options Disclosure Document (ODD)

Answer

The Options Disclosure Document (ODD), titled 'Characteristics and Risks of Standardized Options,' must be delivered to options account customers.

Question 5

Treasury Inflation-Protected Securities (TIPS) protect investors against inflation because their:

Accepted Answer

Principal adjusts with changes in the Consumer Price Index

Answer

TIPS have their principal value adjusted based on changes in the CPI, so the interest paid and maturity value rise with inflation.

SIE - Securities Industry Essentials Practice Test