Master Finra SIE Exam with Reliable Practice Questions
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Which of the following characteristics is true of open-end mutual fund shares?
Correct : D
Open-end mutual funds do not trade on secondary markets. Instead, shares are continuously issued or redeemed by the fund at the net asset value (NAV), calculated at the market close.
D is correct because investors purchase and redeem shares directly through the fund or authorized brokers.
A is incorrect because mutual funds do not have a predetermined dissolution date.
B is incorrect because mutual fund shares are priced at the NAV calculated once daily after the market closes.
C is incorrect because secondary market trading applies to closed-end funds and ETFs, not open-end mutual funds.
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Which of the following responses best describes the primary strategy that an investor uses when selling a covered call?
Correct : D
A covered call involves selling a call option on a stock the investor already owns. The strategy generates income in the form of the premium collected for selling the call, providing additional returns on the stock position.
D is correct because the primary goal of a covered call is to generate income.
A is incorrect because covered calls do not hedge against large declines in the stock price.
B is incorrect because speculation involves taking higher risks, not a covered call's conservative strategy.
C is incorrect because no strategy guarantees a profit.
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A customer writes a call for XYZ stock with a strike price of $35 and receives a premium of $7. The stock is currently trading at $40. What is the time value of this option?
Correct : B
An option's premium consists of intrinsic value and time value:
Intrinsic value = Current stock price - Strike price = $40 - $35 = $5.
Time value = Total premium - Intrinsic value = $7 - $5 = $2.
B is correct because $2 represents the time value.
A, C, and D are incorrect because they miscalculate the time value based on the option's total premium.
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Which of the following transactions is most profitable if executed prior to a significant rise in a company's stock price?
Correct : B
Buying a call option gives the investor the right to purchase the stock at a fixed price (strike price). If the stock's price rises significantly, the value of the call option increases, allowing the investor to profit.
B is correct because a call option profits directly from a stock price increase.
A is incorrect because a put option profits from a stock price decline.
C and D are incorrect because selling options limits profit potential and exposes the seller to significant risk if the stock moves unfavorably.
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Which of the following statements describes a characteristic of Treasury securities?
Correct : A
Treasury securities are among the most liquid investments, as they are backed by the U.S. government and trade actively in large volumes.
A is correct because Treasuries are highly liquid, making them easy to buy and sell.
B is incorrect because most Treasury securities are not callable.
C is incorrect because FDIC insurance applies to bank deposits, not Treasuries.
D is incorrect because U.S. government securities have negligible default risk.
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