Exactprep SIE Questions

A stock dividend increases the number of shares owned without affecting the total cost basis. The new cost basis per share is calculated by dividing the original total investment by the new number of shares:

Original total investment = 100 shares × $50.00 = $5,000

After a 10% stock dividend, the investor owns 110 shares.

New cost basis = $5,000 ÷ 110 shares = $45.45 per share.

B is correct because it reflects the adjusted cost basis per share.

Income investing is generally expected to hold up better as the economy worsens because it emphasizes securities that generate cash flow, such as dividend-paying stocks, bonds, preferred stock, or other income-producing investments. During economic weakness, investors often become more defensive and value predictable income more than aggressive capital appreciation. Choice A is therefore the best answer. Growth investing focuses on companies expected to increase earnings or revenues faster than the broader market; these securities can be more vulnerable when economic conditions deteriorate. Cyclical investing is tied to companies whose performance rises and falls with the business cycle, such as consumer discretionary, industrial, or durable goods firms. Cyclical stocks generally weaken during contractions. Momentum investing depends on continuing price trends and may reverse sharply in deteriorating markets. The SIE outline includes economic factors, the business cycle, contraction, trough, expansion, peak, and the basic effects on bond and equity markets, including cyclical, defensive, and growth classifications. This question tests how investment style aligns with the economic cycle. Reference: Section 1.3.2 Business Economic Factors; Section 2.2 Investment Risks.

Step by Step Explanation:

SEC Rule 10b-10: Requires trade confirmations to disclose the capacity in which the firm acted (e.g., as agent or principal) and details like trade price, quantity, and commissions.

Incorrect Options:

A: Cost basis is not disclosed on trade confirmations.

B: Inventory levels are not part of the required disclosures.

C: Market maker status is not explicitly required in the confirmation.

SEC Rule 10b-10 (Confirmation Requirements): SEC Rule 10b-10.