Hi everyone not quite understanding these questions can someone please help ?
282C9-Y2K4T
MVK4H-3KGB3
Also I have to prep for my test in 1 week? any suggestions ?Thank you !
1 Like
Hi @Erika! Thanks for reaching out. Let’s look at those questions:
282C9-Y2K4T
FYI - mutliple versions of this question exist, so the numbers quoted below may be a bit different. However, the question format is the same.
ABC Company $50 par, 7% preferred shares are trading in the market at $53. Which of the following statements is true?
A) The current yield is 6.60%
B) The 7% dividend rate is based on the $53 market value
C) An investor will receive $3.50 per dividend payment
D) All of these choices
Let’s break down the three wrong answers, then discuss the correct one. Answer choice B is incorrect because the 7% dividend rate (coupon) is always based on par. These shares pay 7% of the $50 par value annually, which equates $3.50 per year. Keep in mind that preferred stock typically pays semi-annual dividends, which is why answer choice C is incorrect. $3.50 paid over two dividend payments will equal $1.75 per dividend payment. With answer choices B and C incorrect, obviously D cannot be true.
To find the current yield for these shares, we’ll divide the annual income ($3.50) by the market price ($53), which equals 6.60%. Therefore, A is our correct answer.
The trick to this question is knowing how preferred shares work, and it tests their characteristics from multiple angles. Here are the big points in summary form:
- CY = annual income / market price
- The dividend rate of preferred shares is always based on par (not market value)
- Preferred shares typically make semi-annual (twice a year) payments
MVK4H-3KGB3
Same thing with this question as the previous one - the numbers will probably be different, but the overall question structure will be the same.
A customer, age 35, purchases a 10.00% $100 par preferred stock with a current yield of 11.09%. Which of the following is the market price for the preferred stock?
A) $83.83
B) $90.19
C) $94.76
D) $97.68
This question tests your knowledge of current yield. Let’s restate the formula:
CY = Annual income / market price
The tricky part about this question is that we’re given the current yield (11.09%) and can find the annual income, but do not have the market price. The annual income can be found by multiplying the dividend rate (10%) by the par value ($100). Therefore, this preferred stock pays $10 in dividends annually per share. With that being said, let’s restate the formula:
11.09% = $10 / market price
The easiest way to get the answer is to plug in each answer choice into the formula to see if we get 11.09%. Let’s do that:
A) $10 annual income / $83.83 = 11.93%
B) $10 annual income / $90.19 = 11.09%
C) $10 annual income / $94.76 = 10.55%
D) $10 annual income / $97.68 = 10.24%
The answer is B because it’s the only one that matches up with the provided current yield. I hope this helps!
3 Likes
To answer your question on how to approach your exam in the next 7 days, I recommend reading over our Wrapping up chapter. Here’s a quick summary of what I’d recommend to anyone about to take the exam:
- Finish up your reading if not complete
- Catch up on your reviews
- Take and review as many practice exams as possible
- Take the FINRA SIE practice exam with at least 3-4 days to spare (just in case you score low and make some improvements)
If your scores on are consistently above a 70%, you’re likely going to pass. To be safe, try to build a buffer and get to the mid-high 70s (or higher) if possible.
I hope this helps!
2 Likes
Thank you so much ! I really appreciate the break down of the questions and all the tips !
2 Likes