SIE Knowledge 5

Question 1

Which of the following correctly defines 'liquidity' in the context of securities?

Accepted Answer

The ease with which a security can be converted to cash without significant price impact

Answer

Liquidity refers to how quickly and easily a security can be bought or sold in the market without causing a significant change in its price.

Question 2

A callable bond gives the issuer the right to:

Accepted Answer

Redeem the bond before its maturity date

Answer

A callable bond allows the issuer to repurchase and retire the bond before its stated maturity, typically when interest rates decline.

Question 3

Which of the following entities protects customers of FINRA member broker-dealers if the firm fails?

Accepted Answer

SIPC

Answer

SIPC (Securities Investor Protection Corporation) protects customers of failed broker-dealers by covering up to $500,000 in securities and cash.

Question 4

An investor buys a stock for $40 and sells it after 8 months for $55. This gain is taxed as a:

Accepted Answer

Short-term capital gain

Answer

Short-term capital gains apply to assets held for one year or less (here 8 months) and are taxed at ordinary income rates.

Question 5

Which term describes the difference between the bid and ask prices of a security?

Accepted Answer

Spread

Answer

The bid-ask spread is the difference between the price a buyer will pay (bid) and the price a seller will accept (ask).

SIE - Securities Industry Essentials Practice Test