The SIE isn’t a math-heavy exam, but a handful of calculations come up, mostly in Understanding Products and Their Risks (44% of the exam). Here are the formulas to know, followed by free practice questions.
Bonds
What
Formula
Annual interest
Par value × coupon rate (bonds usually have a $1,000 par value)
Current yield
Annual interest ÷ current market price
Price and yield
Move in opposite directions: when market interest rates rise, bond prices fall
A bond trading below par is at a discount; above par is at a premium. For a discount bond, the current yield is higher than the coupon rate. For a premium bond, it’s lower.
Options (one contract = 100 shares)
Position
Breakeven
Maximum gain
Maximum loss
Buy a call
Strike + premium
Unlimited
Premium paid
Buy a put
Strike − premium
Strike − premium (stock falls to zero)
Premium paid
Sell a call (uncovered)
Strike + premium
Premium received
Unlimited
Sell a put
Strike − premium
Premium received
Strike − premium
Mutual funds
What
Formula
Net asset value (NAV) per share
(Fund assets − liabilities) ÷ shares outstanding
Sales charge %
(Public offering price − NAV) ÷ public offering price
Other
What
Formula
Taxable equivalent yield
Municipal bond yield ÷ (1 − investor’s tax rate)
Dividend yield
Annual dividends per share ÷ current share price
Free SIE calculation practice questions
A bond with a $1,000 par value and a 6% coupon is trading at $800. What is its current yield?
Answer: CAnnual interest = $1,000 × 6% = $60. Current yield = $60 ÷ $800 = 7.5%. Because the bond trades at a discount, its current yield is above the coupon rate.
An investor buys one XYZ 50 call at a premium of $3. What is the breakeven price for XYZ?
Answer: CFor a long call, breakeven = strike + premium = $50 + $3 = $53.
An investor buys one ABC 40 put for a premium of $2. What is the maximum loss?
Answer: AA buyer's maximum loss is the premium paid: $2 × 100 shares = $200.
Market interest rates rise. What generally happens to the prices of existing bonds?
Answer: BBond prices and interest rates move in opposite directions. When rates rise, existing bonds with lower coupons become less valuable, so their prices fall.
An investor in the 30% tax bracket is considering a municipal bond yielding 3.5%. What is the taxable equivalent yield?