SIE Exam Dumps - Securities Industry Essentials Exam (SIE)

Step by Step Explanation:

Warrants: Are often issued alongside fixed-income securities, such as bonds, to enhance their appeal to investors. Warrants give the holder the right to purchase company stock at a specific price in the future.

Incorrect Options:

Options: Not typically bundled with fixed-income securities.

Common and Preferred Stock: Usually issued separately, not as part of a package with bonds.

SEC Guide on Warrants: SEC Warrants Information.

Certificates of Deposit (CDs) are time deposit accounts issued by banks, offering fixed interest rates for a specified term. CDs are insured by the FDIC up to $250,000 per depositor, but the issuing entity is the bank itself.

B is correct because banks issue CDs.

A is incorrect because the FDIC insures CDs but does not issue them.

C is incorrect because broker-dealers may facilitate the purchase of CDs but do not issue them.

D is incorrect because the Federal Reserve does not issue CDs; it manages monetary policy.

Redeemable securities are those that can be sold back to the issuer.

D is correct because unit investment trusts (UITs) issue redeemable securities.

C is incorrect because closed-end fund shares are traded on secondary markets, not redeemable.

A and B do not meet the definition of redeemable securities.

Among the choices, closed-end mutual funds generally provide the highest liquidity because their shares typically trade on an exchange in the secondary market, allowing investors to buy or sell during market hours at the prevailing market price. That exchange trading feature gives investors a practical “exit” mechanism that is often much more accessible than the redemption limitations found in private pooled vehicles. Therefore, C is correct.

Hedge funds (choice A) are commonly subject to lock-up periods, limited redemption windows (monthly/quarterly), and other restrictions such as gates, so investors often cannot access their money on demand. Private equity funds (choice B) are typically among the least liquid investments, as capital is committed for long periods (often years), with distributions occurring as investments are sold; early exit may be difficult or only possible through limited secondary markets at a discount. Distressed securities funds (choice D) can also be illiquid because the underlying holdings may be thinly traded, complex, or subject to restructuring processes, and such funds may impose additional redemption restrictions depending on structure.

A key SIE point: “liquidity” is not only about the underlying portfolio but also about the investor’s ability to sell or redeem the investment. Closed-end funds offer a market-traded mechanism that generally provides more immediate liquidity than private funds, even though closed-end funds can trade at discounts/premiums and may have varying trading volumes. Still, compared with hedge funds/private equity, closed-end fund shares are typically the most liquid option listed.

Passive ETFs track an index and require minimal management, leading to lower expenses compared to actively managed ETFs.

D is correct because passive ETFs are cost-efficient and have lower fees.

A is incorrect because index ETFs have low turnover since they replicate an index.

B is incorrect because ETFs are priced continuously throughout the trading day.

C is incorrect as ETFs aim to match, not outperform, the index.