SIE Knowledge 4

Question 1

A corporation issues new shares directly to existing shareholders in proportion to their current holdings through a:

Accepted Answer

Rights offering

Answer

A rights offering gives existing shareholders the right to purchase additional shares at a set price, usually below market, proportional to their current holdings.

Question 2

Which of the following describes the primary market?

Accepted Answer

Where new securities are first issued to the public

Answer

The primary market is where issuers sell new securities directly to investors, with proceeds going to the issuer.

Question 3

An investment company that raises a fixed amount of capital through a one-time IPO and whose shares then trade on an exchange is a:

Accepted Answer

Closed-end fund

Answer

Closed-end funds issue a fixed number of shares through an IPO, after which the shares trade on secondary markets like stocks.

Question 4

Which risk refers to the chance that a bond issuer will be unable to make interest or principal payments?

Accepted Answer

Credit (default) risk

Answer

Credit risk (also called default risk) is the risk that an issuer will fail to make timely interest or principal payments on its debt.

Question 5

Which of the following is a characteristic of preferred stock compared to common stock?

Accepted Answer

Priority dividend payments

Answer

Preferred stockholders receive dividends before common stockholders and have priority over common stockholders in liquidation.

SIE - Securities Industry Essentials Practice Test

SIE - Securities Industry Essentials Practice Test

SIE Knowledge 4