FREE SIE Practice Exam – Part 3

Municipal Advisors assist issuers, such as state and local governments, in structuring and issuing municipal securities.

Role of a Municipal Advisor:
A municipal advisor works directly with issuers, such as cities or municipalities. He /she plans, structures, and issues municipal securities. They provide expert guidance on financing options, regulatory compliance, and cost-effective borrowing strategies.

The FINRA rule limits gifts to $100 per client per year. Since no one client received a gift greater than $100, the representative has not violated the rule.

The market maker earns the difference between the bid price and the ask price. Here the bid price is $45 and asking price is 45.20$. So, the spread is ($45.20 – $45.00)= $0.20.

A market maker earns from the bid-ask spread, which is the difference between the asking price ($45.20) and the bid price ($45.00). In this case, the spread is $0.20 per share.

When an investor buys at the asking price and another sells at the bid price, the market maker earns $0.20 per share as profit.

Under statutory voting, the investor has 400 shares multiplied by 5 positions. Consequently, he/she has a total of 2,000 votes, which must be evenly distributed.

Under statutory voting, each shareholder has one vote per share for each board position. If an investor owns 400 shares and there are 5 board positions, the total votes are calculated as 400×5=2,000.

The votes must be distributed equally among the positions, unlike cumulative voting, where votes can be concentrated on specific candidates. This ensures proportional representation based on share ownership.

Under the SECURE Act 2.0, the beginning date for RMDs for individuals who turn 72 after 2022 is increased to age 73 from a Traditional IRA. This would give more time for retirement savings to grow tax-deferred.

Under the SECURE 2.0 Act of 2022, the age at which individuals must begin taking Required Minimum Distributions (RMDs) from a Traditional IRA is 73 for those who turn 72 after December 31, 2022.

(59½) is the age at which penalty-free withdrawals can begin, but not when RMDs are required.

(70½) is outdated, as the SECURE Act of 2019 raised the age to 72 for those reaching (70½) after 2019.

Therefore; based on current legislation, 73 is the correct RMD age.

American Depositary Receipts (ADRs) are a way for U.S. investors to buy shares in foreign companies without having to deal with foreign stock exchanges directly. An ADR represents a specific number of shares in a foreign company and is traded on U.S. exchanges like the NYSE or NASDAQ. This allows U.S. investors to invest in foreign companies while enjoying the convenience of trading in U.S. dollars and receiving dividends in the same currency.

In the 529 plan, the owner of the account is responsible for investment decisions as well as contributions to be made for this account. The beneficiary is the one whom account funds will be used for, but he cannot make investment decisions.

SROs must file Form 19b-4 with the SEC when proposing new trading rules. This filing justifies that the proposed rule change supports fair trading practices and investor protection.

Form 19b-4 is explicitly required when a Self-Regulatory Organization (SRO) proposes a new rule or amends an existing rule that governs its operations or the markets it oversees.

Purpose of Form 19b-4: This form ensures that the SEC reviews and approves changes to trading rules, maintaining fair and transparent markets.

Other options (e.g., changes in leadership, mission statements, or membership fees) are administrative matters and do not require SEC approval through Form 19b-4.

A buy-limit order allows the investor to purchase a stock at or below a specified price. In this case, the client has set a buy-limit order at $45. If the stock price drops to $45 or lower, the order is triggered and executed at that price or better. This ensures the client does not pay more than $45 per share.

Positive net transactions occur when purchases exceed redemptions, bringing more money into the fund than is being taken out.

T-bills are issued at a discount and mature at face value. It is the difference between the discounted purchase price and the face value at maturity.

After the 3-for-1 stock split, the investor’s 100 shares become 300 shares, reducing the cost basis to $6.67 per share. After reinvesting dividends to purchase 50 more shares, the total number of shares becomes 350. The new cost basis is $2,000 ÷ 350 = $5.71 per share.

For 2025, the maximum contribution limit for a Simplified Employee Pension (SEP-IRA) is the lesser of $69,000 or 25% of net earnings from self-employment. This limit allows high-earning self-employed individuals to save significantly for retirement.

According to SEC Rule 17a-4, customer confirmations must be retained for a minimum of three years.

Tenants in Common (TIC) investments, a type of Direct Participation Program (DPP), allow multiple investors to pool their resources to invest in real estate. Unlike other DPPs, TIC investors directly own a portion of the property, which provides shared benefits and risks but lacks high liquidity.

The intrinsic value is computed by subtracting the time value from the premium. Hence, $10 (premium) – $6 (time value) = $4 (intrinsic value).

Municipal bonds’ interest is generally exempt from federal income tax. This tax-exempt status typically remains regardless of whether the bond is held in a taxable or tax-advantaged account. The key benefit of a tax-advantaged account is deferring or eliminating taxes on other types of investment gains. Municipal bond interest tax exemption is intrinsic to the bond itself.

Moody’s numerical modifiers, where 1 is the highest quality within a given rating category, mean that Aa1 is of higher quality than Aa2 and Aa3.

Mortgage REITs are those that invest in construction loans and mortgages. They derive their income from the interest that is earned by such loans, which is passed on to the investors.

Member firms are required to conduct Firm Element Continuing Education meetings on an annual basis. This will keep the registered representatives informed regarding regulatory developments, new products, and other industry topics that are important.