SIE Practice Exam - Questions

1. When a broker­dealer acts on an agency basis to 5. When comparing rights and warrants, which of
help a customer complete trades, the firm the following statements is TRUE?
normally is compensated through
A. Warrants have shorter expiration periods
A. commissions. than rights
B. mark­ups. B The exercise price of a right is generally
C. asset­based fees. below the price of the stock when the right
D. transaction surcharges. is issued; the exercise price of the warrant is
generally above the price of the stock when
2. Investment company financial statements are it is issued.
sent to shareholders C. Rights are often added to bond issues as
sweeteners; warrants are offered to existing
A. monthly. shareholders to permit them to maintain
B. quarterly. their proportionate interest in the company
semiannually. when additional shares are issued
C.
D. Warrants protect shareholders against
D. annually.
dilution, rights do not
3. The credit quality of an exchange­traded note is
6. A registered representative located in California
makes a 7:30pm cold call to a potential customer
A. primarily connected to the strength of the
in New Jersey. This is
underlying security.
B. based on the credit worthiness of the issuer,
A. permitted as long as the potential customer
typically the investment bank that structures
is not on the do­not­call­list.
the note.
B. permitted as long as the registered rep had
C. usually very strong, since they are commonly
prior verbal consent from the potential
sold by broker­dealers who must meet
customer.
minimum capital standards.
C. permitted because the call occurred
D. always difficult to determine owing to the
between the hours of 8am and 9pm.
lack of disclosure required when selling
D. prohibited because cold calls can only be
these products to the public.
made between 8am and 9pm in the
potential customer's time zone.
4. When opening a margin account, the agreement
that customers sign to pledge their securities as
7. Investors whose bonds have been called as
collateral for a loan from the broker­dealer is the
interest rates have fallen are now facing
A. margin agreement.
A. credit risk.
B. hypothecation agreement.
B. inflation risk.
C. re­hypothecation agreement.
C. reinvestment rate risk.
D. loan agreement.
D. capital risk.

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8. Helen opened a Roth IRA last year and wants to 12. A customer requests in writing that his account
know what part of this year’s contributions she statements be held by the firm while he spends
can deduct. The answer is the winter in Florida. In response to the
customer's request, the firm is permitted to
A. she can deduct 100%. honor the request
B. it depends on her income.
C. it depends on her age. A. for the time period specified by the
D. she can’t deduct any amount. customer.
B. for a maximum of one month.
9. During the accumulation phase of a variable C. for a maximum of two months.
annuity, dividends, interest, and capital gains D. for a maximum of three months.

A. may be withdrawn with no tax implications. 13. Which of the following is not an example of a
B. are taxed as ordinary income if the contract restricted person under FINRA rules?
is non­qualified.
C. are taxed as capital gains if the contract is A. The spouse of a restricted person
non­qualified. B. The uncle of a restricted person
D. may be reinvested without any current tax C. The brother­in­law of a restricted person
liability. D. The child of a restricted person

10. Dollar limits on 529 plan contributions per 14. The order of liquidation in a limited partnership
beneficiary are set by is

A. the federal government. A. general partner, limited partner, unsecured

B. the Municipal Securities Rulemaking Board. bondholder, secured bondholder.
C. various states. B. secured bondholder, general partner,
D. the College Board. unsecured bondholder, limited partner.
C. secured bondholder, unsecured
11. With regard to the price of closed­end fund bondholder, limited partner, general
shares held by investors which of the following partner.
statements is TRUE? D. general partner, secured bondholder,
limited partner, unsecured bondholder.
A. The price is set by formula each business day
B. Shares may be sold at a discount or premium 15. All of the following sectors are considered
to their NAV cyclical EXCEPT
C. Shares are sold at the price calculated at the
close of business on that day A. healthcare.
D. Shares are sold at a discount when the B. hotel.
securities in the fund have increased in value C. steel.
relative to their NAV D. furniture.

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16. Which of the following interest rates is 19. Noreen and her husband Jeff, residents of New
established by the Federal Reserve Board? York City, have just had their first child Ali. They
are interested in opening a 529 Plan for Ali in
A. Prime rate order to save for her future college education. As
B. Fed Funds rate a registered representative, it would be most
C. Money Market rate appropriate to tell them
D. Discount rate
A. to invest in a New York state 529 as there
17. Pursuant to Regulation S­P, a broker­dealer must may be certain tax advantages at the federal
provide a privacy notice to a customer level.
B. to invest in a New York state 529 as there
A. at the time a solicitation is made to purchase may be certain tax advantages at the state
a security. level.
B. when a confirmation of a trade is sent. C. to invest in a 529 Plan outside of New
C. when a statement of account is sent. York state as there may be certain tax
D. prior to engaging in any securities business advantages at the federal level.
with that customer. D. it does not matter which state they open up
a 529 Plan in as the distributions will be
18. Which of the following events would subject an treated the same regardless.
individual to a statutory disqualification?
20. Which of the following regulators enforce the
A. A felony conviction 11 years ago MSRB rules for securities firms?
B. An indictment for a securities related felony
A. FINRA
3 years ago
C. A conviction for a non­securities related B. Federal Reserve
misdemeanor six months ago C. Comptroller of the Currency
D. A conviction for a securities related D. FDIC
misdemeanor 9 years ago
21. A primary difference between Ginnie Mae and
Fannie Mae/Freddie Mac is that Ginnie Mae

A. only finances commercial mortgages,

whereas the others finance home
mortgages.
B. mortgages are only available for
government subsidized housing, while the
others are available for all real estate
purchases.
C. is a publicly held company while the others
are privately held.
D. is a government agency that has the explicit
backing of the US government, while the
others do not.

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22. Trader R hears news from an underwriter that his 26. Preferred stock includes which of the following
firm will be buying a large block of XYZ Co features?
stock. If R buys shares of the stock before the
news is made public, he is engaged in I. Voting rights
II. Dividends if declared by the Board of
A. bid­rigging. Directors
B. insider trading. III. Priority over debentures in a corporate
C. rumoring. liquidation
D. front­running.
A. I only
23. The theory that says the economy is best B. II only
controlled through taxation and government C. III only
spending is known as D. I, II and III

A. Classical economic theory. 27. Which of the following organizations guarantees

B. Monetarist economic theory. the performance of standardized options
C. Open market operations. contracts?
D. Keynesian economic theory.
A. OCC
24. If a customer wishes to open a short margin B. CBOE
account and sell short 100 shares of stock at $15 C. FINRA
per share, the customer must deposit D. SEC

A. $750. 28. When opening a minor’s account, the social

B. $1,000. security number to be used is that of the
C. $1,000.
D. $2,000. A. parent.
B. minor.
25. An investor sells short 100 shares of XYZ stock C. custodian.
at 61 and buys 1 XYZ 65 call for 1.50 When the D. registered rep.
market price of ABC is 62. What is the
investor’s breakeven on the combined positions? 29. A municipal finance professional at
JoeBrokerDealer made a contribution of $500 to
A. 59.5 candidate in a local election that resulted in a ban
B. 60.5 on underwriting activity. A month later the
C. 62.5 MFP joined a new municipal securities firm,
D. 63.5 JaneBrokerDealer. The remainder of the two­
year ban will apply to

A. neither JoeBrokerDealer or
JaneBrokerDealer.
B. both JoeBrokerDealer and
JaneBrokerDealer.
C. JoeBrokerDealer only.
D. JaneBrokerDealer only.

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30. In order to receive a dividend, a shareholder 34. A communication made available to 20
must own stock as of the institutional clients and 20 retail clients is
classified as
A. declaration date.
B. ex­dividend date. A. retail communication.
C. record date. B. correspondence.
D. payable date. C. institutional communication.
D. a blog post.
31. When calculating total return on a bond,
35. Bonds that are issued by state and local
A. interest earned is added to any capital gain, governments but benefit a private corporate are
and this result is then divided by the initial
purchase price. A. double­barreled bonds.
B. interest earned is subtracted from any capital B. industrial revenue bonds.
gain, and this result is then divided by the C. special assessment bonds.
initial purchase price. D. moral obligation bonds.
C. interest earned is divided by the redemption
value of the bond. 36. The threshold to qualify for a sales charge
D. interest earned is subtracted from the discount on a mutual fund is $75,000. An
redemption value of the bond. investor places an order for $72,500 of this fund
and is not informed by the registered rep that he
32. A representative's personal account has been would be entitled to a sales charge discount if he
identified for review because of account activity invests an additional $2,500. This is an example
in which securities were bought and quickly sold, of a
often on the following day. This may be evidence
of the prohibited practice called A. breakpoint.
B. letter of intent.
A. commingling. breakpoint sale.
C.
B. freeriding. value investor.
D.
C. front­running.
D. selling away. 37. Accrued interest is calculated from the
33. All the following are exempt from the A. dated date and continues to the settlement
registration requirements of the Securities Act of date.
1933 except B. last coupon date and continues to the day
prior to the settlement date.
A. A rated municipal bonds. C. last coupon date and continues through the
B. AAA rated corporate bonds. settlement date.
C. US Treasury bonds. D. dated date to the next coupon date.
D. domestic bank securities.

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38. An upward sloping yield curve indicates
43. A company "reverse splits" its stock on a 1­for­
A. that bond prices are increasing. 10 basis. If an investor holds 800 shares before
B. that yields are falling. the event, what will be the impact of the split, if
C. that long­term interest rates are higher that any, on the total value of the investors' shares?
short­term interest rates.
D. the Federal Reserve Board is pursuing a A. Total value will decline by 10%
tight monetary policy. B. Total value will decline by 90%
C. Total value will increase by 10 times
39. Penny stocks present added risk to customers D. Total value will not change
because of
44. Joe is a registered rep currently employed by
A. their potential lack of liquidity. MidWest Broker­Dealer, a St. Louis based firm.
B. their high surrender charges. Joe likes to leave downtown and drive through
C. their low potential for return. the rural fields of the Midwest on the weekends.
D. their potential for exposure to adverse tax He so enjoys the open plains that he chats with
consequences. his 12 closest family members to borrow
$200,000 and open his very own farm. Which of
40. Which of the following terms describes a broker­ the following is true regarding this action?
dealer's practice of interjecting another broker­
dealer into the middle of a trade, resulting in an A. Joe must notify MidWest that he is
increase in commission at the customer's borrowing money from family members
expense? B. Joe must notify MidWest that he is
engaging in outside business activity
A. Interpositioning C. Joe must notify MidWest that he is
B. Front­running engaging in an outside business activity and
C. Churning must await permission from his firm before
D. Collaboration moving forward
D. This type of outside business activity is
41. Commercial paper, bankers’ acceptances and large prohibited by FINRA rules
time deposits are part of what segment of the
fixed income market? 45. A corporate bond that is currently trading at 95
pays a semi­annual coupon of $25. What is the
A. Corporate bonds current yield?
B. Municipal
A. 0.025
C. Asset­backed
B. 0.0263
D. Money market
C. 0.05
42. For existing customer accounts, how often do D. 0.0526
broker­dealers required to send a written notice
to the customer for verification of account 46. Which of the bonds listed below would have the
information? greatest price volatility?

A. Annually A. A variable rate bond

B. Every two years B. A short­term investment grade bond
C. Every 3 years C. A long­term zero­coupon bond
D. Every 5 years D. A Treasury note

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47. Investors purchase common stock primarily for 52. A husband and wife wish to open a brokerage
account in which the husband will own 60% and
A. the income stream it generates. the wife 40%. At either owner's death, the
B. its appreciation potential. owner's portion will be liquidated and distributed
C. its relative safety. to his/her beneficiary. What type of account
D. its resistance to business risk. should they open?

48. The Nasdaq market is a(n) A. Tenancy in common

B. Joint Tenancy with Rights of Survivorship
A. negotiated market. C. Partnership
B. auction market. D. Tenancy by the Entirety
C. transfer market.
D. double­auction market. 53. When the market price of a bond is lower than
its par value,
49. A customer deposits $2,000 of cash into a
brokerage account in the morning and $10,000 in A. its nominal yield is higher than its YTM.
cash into the same account that afternoon. The B. its current yield is lower than its nominal
firm is required to file yield.
C. its YTM is higher than its current yield.
A. a SAR. D. its nominal yield and its YTM are the same.
B. a CMIR.
C. a CTR. 54. What tax benefit do municipal bonds offer to
D. nothing at this time, but this suspicious individual U.S. investors?
activity should be monitored.
A. Low tax rates on capital gains
50. To avoid double taxation on dividends paid to B. Investment tax credits
shareholders, REITs must invest what portion of C. Tax­exempt interest
their total assets in real estate? D. Avoidance of Alternative Minimum Tax

A. Substantially all 55. Which of the following options positions

B. At least 90% obligates an investor to purchase stock?
C. At least 75%
D. At least 51% A. Long call
B. Long put
51. As part of Rule 144A, the SEC created another C. Short call
category of financially sophisticated investors D. Short put
known as
56. All of the following are features of ETFs
A. accredited investors. EXCEPT
B. qualified institutional buyers.
C. qualified asset managers. A. typically lower fees than closed­end
D. sophisticated wealthy individuals. company shares.
B. redeemed by the issuer.
C. often track an index or other benchmark.
D. initially capitalized through a public IPO.

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57. XYZ Inc. declares a $0.30 dividend payable on 61. An unsecured bond is also known as a(n)
Monday, August 15, to all shareholders of record
as of Monday, August 8. When is the ex­dividend A. indenture.
date for a regular way trade in the stock? B. collateral trust bond.
C. debenture.
A. Tuesday, August 2 D. private activity bond.
B. Wednesday, August 3
C. Thursday, August 4 62. The SEC has declared a new public offering
D. Friday, August 5 effective. This indicates that

58. An investor has 100 shares of XYZ stock at $90 A. the SEC approves of the new issue.
per share. After a 3­for­1 split, the investor can B. the SEC has verified the issuer's
expect to own information.
A. 100 shares at $30 per share. C. the SEC has cleared the issuance for public
B. 100 shares at $90 per share. sale.
C. 300 shares at $30 per share. D. the SEC recommends the issuer's securities
D. 300 shares at $90 per share. for purchase.

59. In a 401(k) with a Roth account option, how are 63. A customer must sign and return the options
employer matching contributions allocated? account agreement

A. To either the regular 401(k) or Roth account, A. at or prior to the approval of the account.
at the employee's option B. at or prior to placing the initial trade in the
B. To either the regular 401(k) or Roth account.
account, at the employer’s option C. within 15 calendar days of placing the
C. To the regular 401(k) only initial trade.
D. To the Roth account only D. within 15 calendar days of account
approval.
60. Which of the following is a key difference
between a Traditional IRA and a Roth IRA? 64. The Securities Investor Protection Corporation
(SIPC) protects customers from
A. The annual contribution deadline is
different A. market loss.
B. Annual contribution limits are higher in B. issuer bankruptcy.
Traditional IRAs C. broker­dealer financial failure.
C. Roth IRAs are not available to everyone D. identity theft compromising customer
with earned income, but Traditional IRAs accounts or the broker­dealer.
are.
D. A 10% penalty for withdrawals before age
59 ½ exists only in a Traditional IRA, not a
Roth IRA

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65. Henry and Jennifer, a married couple, have a net 69. The “third market” is a marketplace where
worth of $800,000, excluding home equity. Their
income has been about $250,000 for several years. A. listed securities trade in their primary listing
Are they eligible to participate in a private venue.
placement of securities as accredited investors? B. OTC securities trade on a stock exchange.
C. listed securities trade in the OTC market.
A. Yes, because they meet the income test D. OTC securities trade in a foreign market.
B. Yes, because they meet the net worth test
C. Yes, because they meet both tests 70. Investors that purchase high quality fixed income
D. No, because they meet neither test investments for retirement income are most
concerned with
66. An 80 ­year­old individual would be least likely to
purchase a A. credit risk.
B. principal risk.
A. hedge fund. C. inflation risk.
B. treasury bond. D. economic risk.
C. bank CD.
D. money market fund. 71. What type of order should Martin enter if his
objective is to buy 500 shares of Cisco stock as
67. Passive losses generated by a limited partnership soon as possible at the best price available?
may be used to reduce which of the following?
A. Market
A. Ordinary income only B. Limit
B. Passive income only C. Good­til­cancelled
C. Both ordinary income and passive income D. Trailing stop
D. Capital gains from the sale of appreciated
investments only 72. The money supply will tighten based on which of
these techniques of monetary policy?
68. Which of the following statements is TRUE
regarding the value of variable contract annuity A. The Federal Reserve purchases government
units? securities from primary dealers
B. The Federal Reserve reduces the reserve
A. It is determined by a formula specified in requirement
the annuity contract C. The Federal Reserve increases the discount
B. It is linked to the performance of the rate
insurance company’s general account D. The U.S. Government decreases
C. It is fixed at the time of the contract’s government spending
annuitization
D. It fluctuates based on the performance of 73. When must the brokerage firm deliver a
separate account assets customer confirmation to the customer?

A. At or before completion of each transaction

B. When an order is placed
C. Upon the customer’s request
D. Within three days of trade date

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74. The regulatory element of continuing education
must be completed on the

A. first anniversary of initial registration, and

every two years thereafter.
B. second anniversary of initial registration,
and every two years thereafter.
C. second anniversary of initial registration,
and every third year thereafter.
D. third anniversary of initial registration, and
every second year thereafter.

75. An individual contacts her financial

representative to sell her mutual fund shares.
The price she will receive is

A. the market price at the time the order is

entered.
B. the next calculated NAV price.
C. the asked price at the close of the trading
day.
D. the next calculated POP price.

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