Free SIE Practice Exam
Securities Industry Essentials®
Quiz - 2
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Long-term liabilities are debts that are not due for payment in the next 12 months. Bonds due in 5 years are considered long-term liabilities because they are due beyond the 12-month period. Accounts payable, interest payments due in the next year, and accrued wages are all considered current liabilities because they are expected to be settled within the next 12 months.

Current assets are cash or assets that can be easily converted to cash within a short period (usually 12 months). A company's inventory is an example of a current asset because it can be sold to generate cash in the near term. Real estate, trademarks, and goodwill are not considered current assets.

The Prime Rate is the interest rate that banks charge their most creditworthy borrowers for unsecured loans. It is influenced by the Federal Reserve’s actions and often rises when the Fed raises interest rates.

The Federal Funds Rate is the interest rate at which commercial money center banks charge each other for overnight loans of $1 million or more.

SIPC coverage provides a maximum of $500,000 per separate account, but not per customer. Cash accounts and margin accounts held by the same individual would fall under the same separate account for coverage purposes. The total coverage limit is $500,000, of which no more than $250,000 can be in cash. Thus, both accounts combined would be covered under a total of $500,000, not separately.

According to the Code of Procedure (COP), potential consequences for violating FINRA's Conduct Rules include suspension, expulsion, or barring from membership, fines, or censure. Prison is not a potential consequence under the COP; it is a criminal penalty and would fall under legal systems outside of FINRA's regulatory framework.

For a short put, the break-even point is calculated by subtracting the premium received from the strike price.

Break-even = Strike Price - Premium Received
Break-even = $40 (strike price) - $3 (premium received)
Break-even = $37

This means that if the stock price falls below $37, the investor will begin to incur a loss on the short put position.

For a short call, the break-even point is calculated by adding the premium received for the option to the strike price.

Break-even = Strike Price + Premium Received
Break-even = $50 (strike price) + $5 (premium received)
Break-even = $55

This means that if the stock price rises above $55, the investor will begin to experience a loss on the short call position.

The pump and dump scheme is a form of securities fraud. In this scheme, the price of a stock is artificially inflated (pumped) by spreading false or misleading positive rumors. Once the price rises due to the increased demand caused by these rumors, the fraudsters sell (dump) their overvalued shares at the inflated price. This leaves the investors who bought into the rumors at a loss when the price falls after the dump.

Form U4 requires a detailed 5-year residency history, a 10-year employment history, and information on any charges or convictions relating to the investment business. However, marital status is not required. The information related to educational background is also not necessary, except within the 10-year employment history where full-time education is included.