Hi @FoxMcCloud - so sorry the exam didn’t go your way. Here are my thoughts on the topics you mentioned:
Municipal bond tax-exempt securities
Municipal bonds are tax-exempt, as long as the investor is a resident of the state the bond is issued from. I agree with your analysis - try to add these terms into your vocabulary.
Customer wants high yield 9% corporate bond with least reinvestment risk, what municipal bond % would be appropriate for the customer?
Reinvestment risk occurs when an investor receives income from an investment, then reinvests it back into the market at a lower rate of return. If reinvestment risk is the only risk mentioned, then we’ll want to avoid investments that pay large amounts of income. The more income a bond pays, the more reinvestment risk potential. That’s why zero coupon bonds (like STRIPS) are considered to have no reinvestment risk. Therefore, the answer was likely the bond with the lowest coupon rate.
Also, securities that pay frequent income are subject to higher levels of this risk. For example, mortgage backed securities, which pay income monthly, are subject to high levels of reinvestment risk.
Regarding UTMA, a grandparents want to set up a trust that allows him to dictate what he can do with the account.
I think I understood what’s the UTMA is for. but the answer choices were confusing. Does the minor gets all the possession under the account upon majority? or all gifts are revocable in the account until child reached majority?
Custodial accounts (UTMAs and UGMAs) limit the control a person has over the beneficiary’s assets. In both accounts, the account must be turned over to the child at some point in time. UGMAs require them to be turned over to the new adult once they reach the age of majority (18 or 21 depending on the state), while UTMAs allow states to push back that date (sometimes up to age 25). Additionally, all contributions made to the custodial account are irrevocable gifts to the child, which cannot be taken back (ever). Essentially, the custodian must spend the money for the child’s benefit (outside of normal living expenses like food, clothing, etc), or they must turn those assets at the required time. Bottom line - these accounts don’t provide a ton of flexibility to the custodian.
I added few tidbits to the custodial account chapter (linked above) that clarifies a few of these things.
Covered Call
I think I need to review the covered calls because I had quite a few of them.
You’re probably right - here’s the chapter on covered calls. I also will DM you some extra resources that may help.
Client has strong position in energy stock but market is declining. What can client do to avoid this? Sell put, buy energy etf?
I had confusion about it because the ETF threw me off. I figured ETF is diversified or should sell put? Not sure of the answer
Well, an energy exchange traded fund (ETF) would be diversified across numerous energy companies, but isn’t terribly diversified overall. If the value of oil and gas (or whatever energy) falls, this ETF will take a big hit. Buying an energy ETF in this scenario would minimize some non-systematic risks, but still will be subject to the fluctuations of the energy market.
There are three good potential answers here. First, the investor could diversify themselves outside of the energy industry. For example, an investment in an S&P 500 ETF would be broadly diversified, and would reduce the risks specific to the energy industry. Second, they could buy a put as a hedging strategy. It would cost them money, but they would gain some “insurance” if the market price of the stock continued to fall. Third, they could place a sell stop order on the stock, which would sell the shares if they fell further in price.
It’s possible none of the answers I mentioned above were here, but the right answer most likely wouldn’t be either of the two you mentioned (investing in an energy ETF or selling a put, which is a bullish strategy).
I had lot of questions revolving around the Prohibited activities because lot of those questions were not familiar to me. I understood what’s wrong and right but the relationship with customers come up a lot!
For example: RR can make changes to his U-4 under the following situation:
Got a speeding ticket, got subpoenaed for court appearance as witness, resolved issues with creditors/debtors whom he owed money (i am not sure what’s the wording)
Generally speaking, the U4 is only updated if someone that normally must be included on the U4 changes. We discuss the U4 in this section, and part of the discussion involves statutory disqualifications. The answers here likely is the one involve creditors. Compromises with creditors must be disclosed on initial U4 applications, but also additionally if it occurs while the representative is operating in the industry.
Question with client giving RR a particular stock and Rr about finding a portfolio that look at the business and its fundamental along with surrounding economy…with answer choices about bottom-up, top-down, technical analysis, and sector analysis.
The answer to this one is either bottom-up or top-down, depending on how they phrased the question. Interesting you’re seeing this tested on the SIE, as it is already a tested topic on other financial exams. I’ll add a section to the Economic Factors chapter on this topics, plus add a handful of practice and exam questions ASAP.
Thanks for the feedback, @FoxMcCloud. You can get this done on your retake - stay focused and you’ll pass with flying colors in 30 days!
and get back to it, I suppose. Shoots!