Securities Industry Essentials (SIE) Exam — Questions and Answers

Question 1: Expansionary fiscal policy is best described as:

The Federal Reserve selling Treasury securities to reduce the money supply
Raising the federal funds rate to slow borrowing
Increasing taxes and reducing government spending to reduce deficits
Decreasing taxes and/or increasing government spending to stimulate the economy (Correct answer)

Correct answer: Decreasing taxes and/or increasing government spending to stimulate the economy

Expansionary fiscal policy uses lower taxes and/or higher government spending to inject money into the economy and stimulate growth, especially during recessions.

Question 2: What is a power of attorney (POA) in a brokerage account context?

A document allowing a minor to trade independently
A permission form for options trading
A written authorization for a third party to act on the account owner's behalf (Correct answer)
A court order to freeze an account

Correct answer: A written authorization for a third party to act on the account owner's behalf

A power of attorney authorizes a designated person to make investment decisions and transactions for another person's account.

Question 3: A corporation issues new shares directly to existing shareholders in proportion to their current holdings through a:

Stock split
Private placement
Secondary offering
Rights offering (Correct answer)

Correct answer: Rights offering

A rights offering gives existing shareholders the right to purchase additional shares at a set price, usually below market, proportional to their current holdings.

Question 4: Which document must be completed before a new brokerage account is opened?

Regulation T margin agreement
New Account Form (customer profile) (Correct answer)
SIPC membership form
Options Disclosure Document

Correct answer: New Account Form (customer profile)

A new account form collecting the customer's financial information, investment objectives, and risk tolerance must be completed before trading.

Question 5: Blue chip stocks are generally characterized by:

Small market capitalization and new companies
Penny stock pricing under $5
Large, well-established companies with stable earnings (Correct answer)
High volatility and high growth potential

Correct answer: Large, well-established companies with stable earnings

Blue chip stocks represent financially stable, large-cap companies with long track records of reliable performance.

Question 6: Which of the following is NOT a function of the Securities Investor Protection Corporation (SIPC)?

Insuring against investment losses from market declines (Correct answer)
Providing up to $500,000 in coverage per customer
Liquidating failed broker-dealers
Returning missing customer cash and securities

Correct answer: Insuring against investment losses from market declines

SIPC protects customers when a broker-dealer fails, but it does not protect against investment losses due to market fluctuations.

Question 7: A pattern day trader is defined as someone who executes how many or more day trades within five business days?

5
4 (Correct answer)
3
2

Correct answer: 4

FINRA Rule 4210 defines a pattern day trader as any customer who executes four or more day trades in five business days in a margin account.

Question 8: A bond that pays no periodic interest but is issued at a discount to face value is called a:

Callable bond
Convertible bond
Floating-rate bond
Zero-coupon bond (Correct answer)

Correct answer: Zero-coupon bond

Zero-coupon bonds make no periodic interest payments and are sold at a discount, with the investor earning the difference at maturity.

Question 9: Under Regulation T, the Federal Reserve sets the initial margin requirement for equity purchases at:

75%
50% (Correct answer)
100%
25%

Correct answer: 50%

Regulation T requires investors to deposit at least 50% of the purchase price when buying securities on margin.

Question 10: Diversification of a portfolio is most effective at reducing which type of risk?

Interest rate risk
Inflation risk
Systematic (market) risk
Non-systematic (unsystematic) risk (Correct answer)

Correct answer: Non-systematic (unsystematic) risk

Diversification reduces non-systematic risk — company or industry-specific risks — because losses in one holding tend to be offset by gains in others when risks are uncorrelated.

Question 11: Which of the following is NOT a characteristic of common stock?

Residual claim on assets
Guaranteed dividend payments (Correct answer)
Limited liability
Voting rights

Correct answer: Guaranteed dividend payments

Common stockholders are not guaranteed dividends; dividends are paid at the discretion of the board of directors.

Question 12: What is the maximum gain for a seller (writer) of a put option?

Unlimited
The strike price minus the premium
The put premium received (Correct answer)
The full value of the underlying stock

Correct answer: The put premium received

The maximum profit for a put writer is the premium collected upfront, achieved when the put expires worthless.

Question 13: Which phase of the business cycle is characterized by rising GDP, increasing employment, and growing consumer spending?

Expansion (Correct answer)
Contraction
Trough
Recession

Correct answer: Expansion

The expansion phase features increasing economic output, falling unemployment, and growing consumer and business spending as the economy grows.

Question 14: A joint tenancy with right of survivorship (JTWROS) account means:

Each owner can only access their proportional share
Owners can designate different beneficiaries for their share
Upon one owner's death, their share passes to the surviving owner(s) (Correct answer)
The account is subject to probate upon any owner's death

Correct answer: Upon one owner's death, their share passes to the surviving owner(s)

In a JTWROS account, when one owner dies, ownership automatically passes to the surviving account holder(s) outside of probate.

Question 15: Breakpoints in mutual fund investing refer to:

Fees charged when switching between funds in a family
Investment thresholds that qualify investors for reduced sales loads on Class A shares (Correct answer)
The point at which a fund closes to new investors
NAV levels that trigger automatic rebalancing

Correct answer: Investment thresholds that qualify investors for reduced sales loads on Class A shares

Breakpoints are investment levels at which Class A mutual fund sales loads are reduced as a reward for larger investments.

Question 16: A futures contract obligates the buyer to:

Have the option to buy at a fixed price
Pay a premium for the right to sell
Purchase the underlying asset at a specified price on a future date (Correct answer)
Sell the underlying asset immediately at market price

Correct answer: Purchase the underlying asset at a specified price on a future date

Unlike options, futures contracts create a binding obligation to buy the underlying asset at the agreed price on the delivery date.

Question 17: Which of the following is a characteristic of a Real Estate Investment Trust (REIT)?

REITs are exempt from all federal taxes
REITs must distribute at least 90% of taxable income to shareholders (Correct answer)
REITs cannot be traded on stock exchanges
REITs must invest at least 75% of assets in real estate

Correct answer: REITs must distribute at least 90% of taxable income to shareholders

To qualify as a REIT, the trust must distribute at least 90% of its taxable income to shareholders each year.

Question 18: What is a 12b-1 fee?

A penalty for early withdrawal from an annuity
An annual fee charged by mutual funds to cover marketing and distribution costs (Correct answer)
A transaction fee for buying ETF shares
A redemption fee charged when selling fund shares

Correct answer: An annual fee charged by mutual funds to cover marketing and distribution costs

A 12b-1 fee is an annual fund expense used for marketing and distribution, included in the fund's expense ratio.

Question 19: A callable bond gives the issuer the right to:

Adjust the coupon rate based on market rates
Redeem the bond before its maturity date (Correct answer)
Extend the bond's maturity date
Convert the bond into equity shares

Correct answer: Redeem the bond before its maturity date

A callable bond allows the issuer to repurchase and retire the bond before its stated maturity, typically when interest rates decline.

Question 20: Duration measures a bond's sensitivity to:

Credit risk changes
Inflation risk
Changes in interest rates (Correct answer)
Reinvestment risk

Correct answer: Changes in interest rates

Duration measures how much a bond's price will change in response to a 1% change in interest rates.

Question 21: A margin call is issued when:

A stock in the account pays a dividend
A customer exceeds the maximum position size
The equity in a margin account falls below the maintenance margin requirement (Correct answer)
A broker wants to promote additional trading

Correct answer: The equity in a margin account falls below the maintenance margin requirement

A maintenance margin call requires the customer to deposit additional funds when account equity drops below the maintenance requirement.

Question 22: Which type of investment risk cannot be eliminated through diversification because it affects the entire market?

Credit risk
Systematic risk (Correct answer)
Business risk
Liquidity risk

Correct answer: Systematic risk

Systematic (market) risk affects all securities in the market and cannot be diversified away because it stems from broad economic factors that impact all investments.

Question 23: SIPC (Securities Investor Protection Corporation) protects investors against:

Broker-dealer insolvency and missing customer assets (Correct answer)
Losses on options strategies
Market losses from bad investments
Fraud committed by the issuer of securities

Correct answer: Broker-dealer insolvency and missing customer assets

SIPC covers up to $500,000 (including $250,000 in cash) per customer if a member broker-dealer becomes insolvent.

Question 24: A limit order is an instruction to buy or sell a security:

Immediately at the best available market price
Only if trading volume exceeds a threshold
Only at the closing price
At a specific price or better (Correct answer)

Correct answer: At a specific price or better

A limit order specifies the maximum price a buyer will pay (or minimum price a seller will accept) and will only execute at that price or better.

Question 25: Reg BI (Regulation Best Interest) requires broker-dealers to:

Eliminate all sales commissions
Recommend only no-load mutual funds
Act in the best interest of retail customers when making recommendations (Correct answer)
Act only in a fiduciary capacity at all times

Correct answer: Act in the best interest of retail customers when making recommendations

Reg BI requires broker-dealers to place retail customers' best interests first when making investment recommendations.

Question 26: A firm commitment underwriting arrangement means the underwriter:

Purchases all unsold shares from the issuer (Correct answer)
Guarantees the sale price to retail investors
Sells shares only on a best-efforts basis
Shares profits equally with the issuer

Correct answer: Purchases all unsold shares from the issuer

In a firm commitment underwriting, the underwriter buys all securities from the issuer and assumes the risk of selling them to the public.

Question 27: The Securities Exchange Act of 1934 created the SEC and primarily regulates:

New securities issuances
Insurance products
Secondary market trading and broker-dealers (Correct answer)
Commodity futures markets

Correct answer: Secondary market trading and broker-dealers

The Securities Exchange Act of 1934 governs secondary market trading, broker-dealers, exchanges, and established the SEC.

Question 28: An all-or-none (AON) order instructs the broker to:

Execute the entire order at once or not at all (Correct answer)
Execute the order only at the opening price
Fill the order immediately or cancel it
Accept any price for the entire order

Correct answer: Execute the entire order at once or not at all

An AON order must be filled in its entirety at the specified price; partial fills are not accepted.

Question 29: What does Gross Domestic Product (GDP) measure?

The average income of all citizens in a country
The total market value of all goods and services produced in a country during a specific period (Correct answer)
The rate at which consumer prices are rising
The total amount of government debt outstanding

Correct answer: The total market value of all goods and services produced in a country during a specific period

GDP measures the total market value of all finished goods and services produced within a country's borders during a specific time period.

Question 30: Which type of bond is backed by the full faith and credit of the US government?

Corporate bonds
US Treasury securities (Correct answer)
Municipal bonds
Agency bonds

Correct answer: US Treasury securities

US Treasury securities are backed by the full faith and credit of the federal government, making them the safest bonds.

Question 31: Treasury Inflation-Protected Securities (TIPS) protect investors against inflation because their:

Maturity shortens during inflationary periods
Interest rate increases when inflation rises
Coupon payments are tax-free
Principal adjusts with changes in the Consumer Price Index (Correct answer)

Correct answer: Principal adjusts with changes in the Consumer Price Index

TIPS have their principal value adjusted based on changes in the CPI, so the interest paid and maturity value rise with inflation.

Question 32: What information is required on a new account form under FINRA rules?

Only financial information verified by an accountant
References from two existing brokerage clients
Customer's name, address, tax ID, investment objectives, financial situation, and risk tolerance (Correct answer)
Only the customer's name and tax ID

Correct answer: Customer's name, address, tax ID, investment objectives, financial situation, and risk tolerance

FINRA requires firms to collect comprehensive customer information including personal details, financial profile, and investment objectives for suitability purposes.

Question 33: Which bond rating is considered 'investment grade' by Moody's?

B1
Ba1
Baa3 (Correct answer)
Caa1

Correct answer: Baa3

Moody's ratings of Baa3 and above are considered investment grade, indicating adequate creditworthiness.

Question 34: When the Federal Reserve purchases government securities through open market operations, the effect on the money supply is:

The money supply remains unchanged
The money supply becomes more volatile but does not change in size
The money supply increases (Correct answer)
The money supply decreases

Correct answer: The money supply increases

When the Fed buys government securities, it pays for them by crediting bank accounts, injecting money into the banking system and increasing the money supply.

Question 35: During which phase of the business cycle does unemployment typically reach its highest level?

Peak
Trough (Correct answer)
Recovery
Expansion

Correct answer: Trough

Unemployment peaks at the trough of the business cycle, the lowest point of economic activity, before the economy begins to recover.

Question 36: The Municipal Securities Rulemaking Board (MSRB) has rulemaking authority over:

Municipal securities dealers and advisors (Correct answer)
Corporate bond underwriters only
Federal government bond dealers
All fixed-income securities markets

Correct answer: Municipal securities dealers and advisors

The MSRB creates rules for broker-dealers and municipal advisors who deal in municipal securities, though it relies on FINRA and the SEC for enforcement.

Question 37: Candidates must include information regarding their OBAs (also known as: ) on the Form U4.

accounts outside of brokerages
Other commercial endeavors
official commercial operations
Outside of the realm of business (Correct answer)

Correct answer: Outside of the realm of business

OBAs stand for 'Outside Business Activities.' FINRA requires registered representatives to disclose all outside business activities on their Form U4, which is the Uniform Application for Securities Industry Registration or Transfer. This disclosure allows the member firm to assess potential conflicts of interest, ensure compliance with regulations, and supervise the representative's activities adequately.

Question 38: What is the name of a stock order that won't be filled unless a stock hits or drops below a specific market price?

Order of market
Limitation of order (Correct answer)
Put an end to the order
Order cancellation

Correct answer: Limitation of order

A limit order is a type of stock order that specifies a maximum price an investor is willing to pay to buy a security or a minimum price they are willing to accept to sell a security. This means the order will only be filled if the stock reaches or drops below the specified buy limit price, or reaches or rises above the specified sell limit price. It provides price control but does not guarantee execution.

Question 39: A tenants in common (TIC) account differs from JTWROS in that:

Each TIC owner's share passes to their estate upon death, not to co-owners (Correct answer)
TIC owners must hold equal shares
TIC accounts cannot be held by more than two people
TIC accounts are only for retirement assets

Correct answer: Each TIC owner's share passes to their estate upon death, not to co-owners

In a TIC account, each owner's interest passes to their heirs through their estate, unlike JTWROS where it passes automatically to survivors.

Question 40: What is the role of a market maker?

To set the official closing price of securities
To regulate trading activity on exchanges
To provide liquidity by continuously quoting bid and ask prices (Correct answer)
To execute trades only for institutional investors

Correct answer: To provide liquidity by continuously quoting bid and ask prices

Market makers provide liquidity by posting continuous bid (buy) and ask (sell) prices, profiting from the bid-ask spread.

Question 41: A discretionary account allows a broker to:

Trade customer funds without prior approval for each transaction (Correct answer)
Open accounts for minors without custodian approval
Bypass suitability requirements
Charge higher commissions than standard accounts

Correct answer: Trade customer funds without prior approval for each transaction

Discretionary accounts grant the broker written authority to make trades without contacting the customer for each decision.

Question 42: In addition to the official in-house continuing education programs that all FINRA member companies must set up for their registered people, FINRA has standards for registered representatives regarding CE that are known as:

Lawful-element CE
Regulatory-element CE (Correct answer)
CE for Firm-Element
Required-component CE

Correct answer: Regulatory-element CE

FINRA's continuing education (CE) requirements include two components: the Firm Element and the Regulatory Element. The Regulatory Element is mandated by FINRA and requires registered representatives to complete computer-based training within 120 days of their second registration anniversary and every three years thereafter. This ensures that representatives stay updated on regulatory changes, ethical requirements, and product knowledge relevant to their roles.

Question 43: What must occur before a broker-dealer executes an options trade in a customer's account?

The trade must be approved by FINRA in advance
The customer must have a minimum of $100,000 in the account
Options agreement must be signed and account must be approved for options trading (Correct answer)
The customer must be an accredited investor

Correct answer: Options agreement must be signed and account must be approved for options trading

Options accounts require separate approval based on the customer's financial profile, and a signed options agreement before trading.

Question 44: What is the primary purpose of the USA PATRIOT Act requirement for customer identification programs (CIP)?

To verify customer identity and prevent money laundering (Correct answer)
To prevent tax evasion on investment gains
To ensure customers meet accredited investor standards
To prevent market manipulation

Correct answer: To verify customer identity and prevent money laundering

CIP requirements under the PATRIOT Act require firms to verify customer identity to combat money laundering and terrorist financing.

Question 45: Cumulative preferred stock means that if a dividend is missed, it must be:

Paid before any common dividends in the future (Correct answer)
Paid immediately by law
Converted to common stock
Waived permanently

Correct answer: Paid before any common dividends in the future

Cumulative preferred dividends that are skipped accumulate as arrears and must be paid before any common dividends.

Question 46: What does the term 'market capitalization' refer to?

The book value of a company's assets
The total value of a company's debt
The total value of a company's outstanding shares (Correct answer)
The company's annual revenue

Correct answer: The total value of a company's outstanding shares

Market capitalization equals the current share price multiplied by the total number of outstanding shares.

Question 47: Which term describes the difference between the bid and ask prices of a security?

Premium
Margin
Discount
Spread (Correct answer)

Correct answer: Spread

The bid-ask spread is the difference between the price a buyer will pay (bid) and the price a seller will accept (ask).

Question 48: Rule 144 governs the sale of:

Municipal bonds in the secondary market
Exchange-listed options
Foreign securities in US markets
Restricted and control securities (Correct answer)

Correct answer: Restricted and control securities

SEC Rule 144 establishes the conditions under which restricted and control securities can be publicly resold without registration.

Question 49: Which of the above scenarios demonstrates an unsystematic risk?

Due to poor demand, American Airlines announced route cancellations, which dropped the value of its stock. (Correct answer)
Oil businesses are impacted by the war in Ukraine, which lowers the value of their shares.
The COVID-19 outbreak drives down stock prices by forcing many businesses to close.
Stock values fall after a hurricane significantly affects the majority of the east coast.

Correct answer: Due to poor demand, American Airlines announced route cancellations, which dropped the value of its stock.

Unsystematic risk, also known as specific risk or diversifiable risk, is unique to a particular company or industry. It can be mitigated through diversification of investments. The scenario where American Airlines' stock value drops due to poor demand and route cancellations is an example of unsystematic risk because it specifically affects that company, rather than the entire market or a broad sector.

Question 50: A 529 plan is primarily used to save for:

Retirement income
First-time home purchases
Healthcare costs
Education expenses with tax-advantaged growth (Correct answer)

Correct answer: Education expenses with tax-advantaged growth

529 plans are state-sponsored education savings accounts where contributions grow tax-free and withdrawals for qualified education expenses are tax-free.

Question 51: The general relationship between risk and expected return in investments holds that:

Higher-risk investments must offer higher potential returns to attract investors (Correct answer)
Lower-risk investments always deliver the best long-term returns
Risk and expected return have no meaningful relationship
Higher-risk investments tend to offer lower potential returns to compensate investors

Correct answer: Higher-risk investments must offer higher potential returns to attract investors

Investors demand higher potential returns as compensation for accepting greater risk; without this risk premium, rational investors would choose safer alternatives.

Question 52: Which of the following is considered an equity security?

Mortgage-backed security
Common stock (Correct answer)
Corporate bond
Treasury note

Correct answer: Common stock

Common stock represents ownership (equity) in a corporation, making it an equity security as opposed to a debt security.

Question 53: Open market operations conducted by the Federal Reserve refer to:

The Fed's purchase or sale of U.S. government securities to influence the money supply (Correct answer)
Setting margin requirements for securities purchases
Issuing new U.S. Treasury bonds to fund the federal deficit
Regulating the hours that stock exchanges are open

Correct answer: The Fed's purchase or sale of U.S. government securities to influence the money supply

Open market operations involve the Federal Reserve buying or selling U.S. government securities to expand or contract the money supply and influence interest rates.

Question 54: What is a Uniform Gifts to Minors Act (UGMA) account?

A custodial account holding assets for a minor, managed by an adult custodian (Correct answer)
A trust account requiring court oversight
A college savings account with tax benefits
A retirement account for minors

Correct answer: A custodial account holding assets for a minor, managed by an adult custodian

A UGMA account is a custodial account where an adult manages assets on behalf of a minor until the minor reaches adulthood.

Question 55: Insider trading refers to buying or selling securities based on:

Tips from financial news channels
Technical analysis of price patterns
Information from publicly available analyst reports
Material nonpublic information in breach of a duty (Correct answer)

Correct answer: Material nonpublic information in breach of a duty

Insider trading is illegal trading based on material, nonpublic information that gives an unfair advantage over other investors.

Question 56: Which market is known as the secondary market for trading existing shares among investors?

Primary market
IPO market
New issue market
Over-the-counter market (Correct answer)

Correct answer: Over-the-counter market

The over-the-counter (OTC) market is a secondary market where existing securities are traded between investors.

Question 57: Which document must be provided to customers before or during the opening of an options account?

Options Disclosure Document (ODD) (Correct answer)
Proxy statement
Annual report
Prospectus

Correct answer: Options Disclosure Document (ODD)

The Options Disclosure Document (ODD), titled 'Characteristics and Risks of Standardized Options,' must be delivered to options account customers.

Question 58: The Securities Act of 1933 primarily regulates:

Secondary market trading
The issuance of new securities (Correct answer)
Broker-dealer conduct
Exchange operations

Correct answer: The issuance of new securities

The Securities Act of 1933 governs the primary market by requiring full disclosure in connection with the offer and sale of new securities.

Question 59: Which of the following is a lagging economic indicator?

Building permits
Average duration of unemployment (Correct answer)
Stock market prices
Manufacturer's new orders for consumer goods

Correct answer: Average duration of unemployment

Average duration of unemployment is a lagging indicator because it reflects the aftermath of economic changes rather than predicting them.

Question 60: An Initial Public Offering (IPO) occurs when a company:

Declares its first dividend
Issues bonds to the public for the first time
Buys back shares from the public
Lists its shares on a stock exchange for the first time (Correct answer)

Correct answer: Lists its shares on a stock exchange for the first time

An IPO is when a private company first offers its shares to the public on a stock exchange.

Question 61: Under Regulation T, the initial margin requirement for purchasing equity securities is:

100%
75%
25%
50% (Correct answer)

Correct answer: 50%

Regulation T, set by the Federal Reserve, requires customers to deposit at least 50% of the purchase price of marginable securities.

Question 62: Municipal bonds are issued by:

Federal agencies like Fannie Mae
The US federal government
State and local governments (Correct answer)
Foreign governments

Correct answer: State and local governments

Municipal bonds are issued by state, city, county, and other local government entities to fund public projects.

Question 63: An option is 'in the money' (ITM) when:

The time value exceeds the premium paid
Exercising the option would produce a positive intrinsic value (Correct answer)
The underlying stock pays a dividend
The holder has made a profit including the premium paid

Correct answer: Exercising the option would produce a positive intrinsic value

An option is in the money when exercising it would produce positive intrinsic value, regardless of the premium paid.

Question 64: Regulation NMS (National Market System) was designed primarily to:

Increase government control of stock exchanges
Promote fair competition and best execution across equity markets (Correct answer)
Restrict algorithmic trading
Limit the number of registered exchanges

Correct answer: Promote fair competition and best execution across equity markets

Regulation NMS modernized equity market rules to promote competition, transparency, and best execution by requiring orders be routed to the market with the best price.

Question 65: An Exchange-Traded Fund (ETF) differs from a mutual fund primarily because:

ETFs trade on exchanges throughout the day like stocks (Correct answer)
ETFs actively manage their portfolios
ETFs cannot hold stocks
ETFs are only available to institutional investors

Correct answer: ETFs trade on exchanges throughout the day like stocks

ETFs trade on exchanges continuously throughout the trading day at market prices, unlike mutual funds priced once at end of day.

Question 66: What is the 'suitability' obligation under FINRA rules?

Recommendations must be appropriate based on the customer's financial profile and objectives (Correct answer)
Firms must offer the lowest-cost products available
Brokers must guarantee a minimum return on recommendations
All customers must be offered the same investment options

Correct answer: Recommendations must be appropriate based on the customer's financial profile and objectives

FINRA's suitability rule requires that investment recommendations be appropriate for the specific customer based on their financial situation and goals.

Question 67: Which answer accurately sums up a margin account?

Traders need to understand the minimum balance requirements.
Investors make their stock portfolios more resilient.
Brokers lend money to investors, who use it for trading. (Correct answer)
Brokerage costs are not payable by investors.

Correct answer: Brokers lend money to investors, who use it for trading.

A margin account is a brokerage account that allows an investor to borrow money from their broker-dealer to purchase securities. The securities bought with the borrowed funds serve as collateral for the loan. This leverage can amplify returns but also increases potential losses, as investors are still responsible for repaying the loan plus interest, regardless of the investment's performance.

Question 68: What is the par value of a standard corporate bond?

$10,000
$1,000 (Correct answer)
$500
$100

Correct answer: $1,000

The standard par value (face value) for a corporate bond is $1,000, which is repaid at maturity.

Question 69: Net Asset Value (NAV) per share is calculated as:

Total liabilities divided by shares outstanding
Market price minus book value per share
(Total assets minus total liabilities) divided by shares outstanding (Correct answer)
Total assets divided by total shares outstanding

Correct answer: (Total assets minus total liabilities) divided by shares outstanding

NAV per share equals the fund's total assets minus its liabilities, divided by the number of outstanding shares.

Question 70: A bond trading at a premium means its price is:

Equal to its yield to maturity
Equal to par value
Below par value
Above par value (Correct answer)

Correct answer: Above par value

A bond trades at a premium when its price exceeds par value, typically because its coupon rate is above current market rates.

Question 71: At what price are open-end mutual fund shares bought and sold?

At the next calculated Net Asset Value (NAV) (Correct answer)
At a fixed price set at fund launch
At the current market trading price
At a price set by the broker

Correct answer: At the next calculated Net Asset Value (NAV)

Open-end mutual funds transact at the NAV calculated after the trading day ends (forward pricing rule).

Question 72: Convertible preferred stock can be exchanged for:

Cash at redemption value
A fixed number of common shares (Correct answer)
Corporate bonds at par
Government securities

Correct answer: A fixed number of common shares

Convertible preferred stock can be exchanged for a predetermined number of common shares at the holder's option.

Question 73: What is the 'time value' component of an option premium?

The strike price minus current stock price
The option's intrinsic value
The portion of premium beyond intrinsic value reflecting time until expiration (Correct answer)
The dividend expected before expiration

Correct answer: The portion of premium beyond intrinsic value reflecting time until expiration

Time value is the premium above intrinsic value, reflecting the probability the option will gain more value before expiration.

Question 74: The Consumer Price Index (CPI) is primarily used to measure:

The total value of goods and services exported by a country
Changes in the price level of a basket of consumer goods and services over time (Correct answer)
The interest rate that the Federal Reserve charges member banks
The total output of the manufacturing sector

Correct answer: Changes in the price level of a basket of consumer goods and services over time

The CPI tracks changes in the prices paid by urban consumers for a representative basket of goods and services, making it the primary measure of consumer inflation.

Question 75: What is a debenture?

An unsecured bond backed only by the issuer's creditworthiness (Correct answer)
A convertible preferred share
A bond secured by specific company assets
A government-issued savings bond

Correct answer: An unsecured bond backed only by the issuer's creditworthiness

A debenture is an unsecured debt instrument backed only by the general creditworthiness and reputation of the issuer.

Question 76: A churning violation occurs when a broker:

Recommends the same security to multiple customers
Delays execution of customer orders
Excessively trades a customer's account primarily to generate commissions (Correct answer)
Trades securities at a loss to generate tax benefits

Correct answer: Excessively trades a customer's account primarily to generate commissions

Churning is the unethical practice of excessive trading in a customer's account primarily to generate commissions for the broker.

Question 77: The Dow Jones Industrial Average (DJIA) is best described as a:

GDP-weighted index of global equities
Price-weighted index of 30 large U.S. companies (Correct answer)
Broad market index of 500 stocks weighted by market cap
Equal-weighted index of NYSE-listed stocks

Correct answer: Price-weighted index of 30 large U.S. companies

The DJIA is a price-weighted index that tracks 30 large, publicly traded U.S. companies and is one of the oldest and most-cited market benchmarks.

Question 78: Regular-way settlement for most equity securities occurs:

1 business day after the trade (T+1) (Correct answer)
2 business days after the trade (T+2)
Same day as the trade
3 business days after the trade (T+3)

Correct answer: 1 business day after the trade (T+1)

Following the SEC's 2024 transition to T+1 settlement, most equity securities must settle one business day after the trade date.

Question 79: The Securities Act of 1933 primarily regulates:

Investment adviser conduct
Secondary market trading and exchanges
Commodity futures trading
The issuance of new securities in the primary market (Correct answer)

Correct answer: The issuance of new securities in the primary market

The Securities Act of 1933 focuses on new securities offerings, requiring registration and disclosure of material information.

Question 80: JCB Company owns 5000 shares of issued stock in addition to 1000 shares of treasury stock. The right amount of common stock is represented by which of the following?

5000
4000 (Correct answer)
6000
1000

Correct answer: 4000

The amount of common stock outstanding refers to the shares currently held by investors, which are the shares that have been issued minus any shares the company has repurchased and holds as treasury stock. In this scenario, JCB Company has 5,000 shares of issued stock and 1,000 shares of treasury stock. Therefore, the number of outstanding common shares is 5,000 - 1,000 = 4,000 shares.

Question 81: Which of the following is considered a leading economic indicator?

Average duration of unemployment
Outstanding commercial loans
Prime interest rate
Building permits issued (Correct answer)

Correct answer: Building permits issued

Building permits are a leading indicator because they signal future construction activity and economic expansion before it occurs.

Question 82: What is the accumulation phase of an annuity?

The period during which premiums are paid and the account value grows (Correct answer)
The period during which the annuity makes payments to the annuitant
The period during which surrender charges apply only
The period after the annuitant's death when beneficiaries receive payments

Correct answer: The period during which premiums are paid and the account value grows

The accumulation phase is when the investor contributes money and the annuity value grows before distributions begin.

Question 83: Under FINRA's Best Execution rule, broker-dealers must:

Seek the most favorable terms reasonably available for customer orders (Correct answer)
Execute all trades on the NYSE
Execute large orders before small ones
Match any competitor's price

Correct answer: Seek the most favorable terms reasonably available for customer orders

Best execution requires broker-dealers to use reasonable diligence to find the most favorable terms for customer order execution.

Question 84: Which self-regulatory organization (SRO) has primary responsibility for overseeing broker-dealers in the United States?

FINRA (Correct answer)
MSRB
CFTC
SIPC

Correct answer: FINRA

FINRA (Financial Industry Regulatory Authority) is the primary SRO responsible for regulating broker-dealers under SEC oversight.

Question 85: Under the Bank Secrecy Act, currency transaction reports (CTRs) must be filed for cash transactions exceeding:

$25,000
$10,000 (Correct answer)
$5,000
$1,000

Correct answer: $10,000

Financial institutions must file a CTR for any single cash transaction or series of related transactions exceeding $10,000.

Securities Industry Essentials (SIE) Exam

The FINRA Securities Industry Essentials (SIE) exam assesses basic knowledge of the securities industry, including types of products and their risks, the structure of the securities industry markets, and regulatory agencies and their functions. It is a corequisite for most FINRA representative-level qualification exams.

Questions

105 min

Time Limit

70%

To Pass

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