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SIE Practice Exam Questions with Solution
1.Which corporate voting procedures entitles a shareholder to one vote per share, and votes must be divided
evenly among the candidates being voted on?: Statutory voting
2.What market refers to the trading of exchange-listed securities in the over-the-counter market? These
trades allow institutional investors to trade blocks of securities directly, rather than through an exchange, providing liquidity and anonymity to buyers.: Third market
3.An investor sells a naked call on Omikron for a $250 premium. What is true regarding the investors position?:
The investor's potential loss is unlimited
4.Which act created the SEC and empowered it with broad authority over all aspects of the securities
industry?: Securities Exchange Act of 1934
5.A free tool provided by FINRA that is intended to help consumers research the professional backgrounds of
brokers and brokerage firms, as well as investment advisor firms and advisors?: BrokerCheck
6.The Federal Reserve Board performs what actions?: It sets monetary policy, but does not set tax policy
7.An offering of shares to existing stockholders on a pro-rata basis is called a: Rights offering
8.The difference between a bond's price and the conversion parity price is referred to as: conversion premium
9.An individual who meets what criteria must register as an investment advis- er?: The individual provides advice
or analyses concerning securities The individual is in the business of providing investment advice The individual provides investment advice for compensation
10.A type of preferred stock that gives the investor the right to receive divi- dends equal to the normally
specified rate, as well as an additional dividend based on a specific predetermined condition is called a:
2 / participating preferred stock
11.Profit sharing plans have what characteristic?: they can be invested entirely in company stock
12.What is true regarding the Central Registration Depository (CRD)?: It was developed by NASAA and the
NASD
It consolidated a multiple paper-based state licensing and regulatory process into a single, nationwide computer system Its computerized database contains the licensing and disciplinary histories on more than 650,000 securities professionals and 5,200 securities firms
13.Who is responsible for maintaining fair and orderly markets for an as- signed set of listed firms? They
operate both manually and electronically to facilitate price discovery during market opens, closes, and during periods of trading imbalances and instability.: Designated Market Makers
14.If real GDP declined the last 3 quarters, how many more consecutive quarters of decline would be needed to
be classified as an economic depres- sion?: 3 quarters
15.What is a correct reason to purchase a particular investment for a client's portfolio?: Blue chip common
stocks because they provide a hedge against infla- tion
16.An unconditional promise to pay a sum of money to a payee, either at a fixed or determinable future time,
under specific terms is called a: Promissory note
17.A trade surplus results from: a country exporting more than it imports
18.William, age 56, recently retired from Epsilon Inc., and would like to take a distribution from a retirement
plan to pay for medical expenses. What plan would allow William to take a penalty free withdrawal?: 401(k) from Epsilon Inc
19.Match the state of the business cycle with the description that follows for questions 19-
4 /
28.What is true regarding dividends paid by growth stocks and value stocks?-
: Because they are growing and expanding, growth stocks typically do not pay large dividends
29.What is a type of broker that acts as a liaison between an investor and a clearing corporation by helping to
ensure that trades are settled appropriately and transactions are successfully completed?: Clearing broker
30.What form must broker-dealers, investment advisers, or issuers of se- curities fill out in order to terminate
the registration of an individual in the appropriate jurisdiction? It is also known as the Uniform Termination Notice for Securities Industry Registration.: U
31.An order to sell a stock at a price below the current market price is called a: sell stop order
32.What regulation was adopted to update short sale regulations and to ad- dress concerns regarding
potentially abusive naked short selling?: Regulation SHO
33.A fraudulent investment operation where the operator provides fabricated reports and generates investment
returns for older investors through revenue paid by new investors, rather than from legitimate business activities or profits of financial trading is called a: Ponzi scheme
34.What is a self-regulatory organization (SRO)?: FINRA NYSE
SIPC
35.Which is the largest options exchange in the US, and focuses on options contracts for individual equities and
indexes?: CBOE (Chicago Board Options Exchange)
36.What is the formula to calculate an investment's real return?: Real return = Nominal return - inflation
37.A currency transaction report is a report that US financial institutions are required to file with: FinCEN
(Financial Crime Exchange Network)
38.Investment advisors that have custody of client assets or require prepay- ment of advisory fees
5 / or more in advance, and in excess of for each client, must file an audited balance sheet with the SEC as of the end of the investment adviser's fiscal year: 6 months; $
39.The three categories of firm communications that are defined and regulat- ed by FINRA Rule 2210 are:
Correspondence Institutional communication Retail communication
40.The right to demand the repayment of monies paid if there has been a bad delivery of a stock or security is
called: Reclamation
41.An advertisement used by register investment companies that advise readers to obtain a full
prospectus is called It is not permitted to include an application to invest, and it must contain specific caveats pursuant to SEC Rule 482: Omitting prospectus
42.A note issued in which the government borrows money to finance a project and then repays lenders with
revenue generated by the same project is called: RAN (Revenue Anticipation Note)
43.A type of public offering auction in which the price of the offering is set after taking in all bids to determine
the highest price at which the total offering can be sold is called the: Dutch Auction
44.In addition to the federal securities laws, each state has its own set of se- curities laws, commonly referred to
as , which are designed to protect investors against fraudulent sales practices and activities: Blue Sky Laws
45.What passes capital gains, dividends, and interest earned on fund invest- ments directly to shareholders so
that it is taxed only at the personal level, and double taxation is avoided?: Regulated investment company
46.In any single life private annuity transaction, if the seller outlives his or her actuarial life expectancy, the
7 / reinvestment risk
56.Diversification smooths price volatility, historical above-inflation return, can preserve purchasing power
in a portfolio: Mutual Fund
57.Liquid, easily converted to cash, low default risk, low real return: Money market fund
58.Fixed return, may lose value if not held until maturity, fixed interest pay- ments: corporate bond
59.Not liquid, generally adequate inflation hedge: Real estate
60.Used to generate income and growth, marketable, historical above-infla- tion return, can preserve
purchasing power in a portfolio: common stock
61.Rob owns 200 shares of Epsilon stock, which recently announced that it will pay a 4% stock dividend. How
many shares will Rob have after the dividend has been paid?: 208 shares (200 * 4%) = 8 200+8 = 208
62.All but which of the following are correct regarding stock market bench- marks and indexes?: the S&P 500
is a price-weighted index (The NASDAQ Composite, Russell 2000, S&P 500, and the Wilshire 5000 are all value-weighted indexes)
63.An unconditional contract between a bond issuer and a bond holder that specifies the terms of the bond is
called a: indenture
64.What is true regarding the capital structure of open-end mutual funds?: - open-end mutual funds issue new
shares and redeem existing shares from share- holders
65.What refers to sing property to secure payment of a loan, which includes mortgages, pledges, and putting
8 / up collateral, but the borrower retains pos- session?: Hypothecate
66.What is correct regarding Coverdell Education Savings Accounts (ESAs)?-
: private elementary school expenses are permitted to be paid from an ESA
67.The standard expiration period for a put or call option is .___Long-term equity anticipation securities (LEAPS)
have an expiration period__________________________________________________________________________ 9 months, longer than 1 year
68.A large interest rate change has the most significant effect on a
bond: low coupon
69.What is true regarding the Federal Reserve?: It derives its authority from Congress
It operates and oversees the US payment system It supervises and regulates banks
70.A mutual fund that invests in securities both inside and outside the US is known as: Global fund
71.What is true regarding the taxation of TIPS?: TIPS are taxed at the federal level only
72.in 2017, the SEC adopted an amendment to the Settlement Cycle Rule under the Securities Exchange Act of
1934 that changed the standard set- tlement cycle for most broker-dealer transactions in what way?: The standard settlement cycle was shortened from 3 business days after the trade (T+3) to 2 business days after the trade (T+2)
73.What are examples of funds that are permitted investments in an IRA?: -
Real estate money market funds common stock bond funds
74.What is correct regarding stock splits and reverse stock splits?: A 3-for-1 stock split will decrease a stock's
market price per share
