Securities Industry Essentials Exam Preparation , the SIE Exam is for prospective securities industry professionals.

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75 SIE Practice Exam Questions with Correct Answers 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 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 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 Which act created the SEC and empowered it with broad authority over all aspects of the securities industry? >>>Securities Exchange Act of 1934 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 The Federal Reserve Board performs what actions? >>>It sets monetary policy, but does not set tax policy An offering of shares to existing stockholders on a pro-rata basis is called a >>>Rights offering The difference between a bond's price and the conversion parity price is referred to as >>>conversion premium An individual who meets what criteria must register as an investment adviser? >>>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 A type of preferred stock that gives the investor the right to receive dividends equal to the normally specified rate, as well as an additional dividend based on a specific predetermined condition is called a >>>participating preferred stock Profit sharing plans have what characteristic? >>>they can be invested entirely in company stock 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 systemIts computerized database contains the licensing and disciplinary histories on more than 650,000 securities professionals and 5,200 securities firms Who is responsible for maintaining fair and orderly markets for an assigned 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 If real GDP declined the last 3 quarters, how many more consecutive quarters of decline would be needed to be classified as an economic depression? >>>3 quarters 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 inflation 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 A trade surplus results from >>>a country exporting more than it imports 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 Match the state of the business cycle with the description that follows for questions 19- 22 A. Trough B. Expansion C. Contraction D. Peak _______ Recession >>>contraction _________ Utilization at its lowest level >>>Trough _______ Recovery >>>Expansion ________ GDP at its highest point >>>Peak All are characteristics of a REIT EXCEPT >>>it is a publicly traded open-end investment company (it is closed-end) What can an investor sign which allows him or her to receive breakpoint discounts based upon a commitment to buy a specified number of mutual fund shares over a period of time, usually 13 months >>>Letter of intentWhat is a type of exchange rate system in which a country ties its currency to a basket of other currencies or to another measure of value, such as gold? >>>Fixed exchange rate system What will result if money distributed from a 529 plan is not used to pay for qualifying education expenses? >>>The gain is taxed as ordinary income, and a 10% penalty is applied An investor who believes that an economic recession is imminent should purchase which type of stock? >>>Defensive stock because they tend to outperform during economic downturns What is true regarding dividends paid by growth stock

85 SIE Practice Exam Questions with Correct Answers The Sierra Verde Coffee Company recently developed a new flavor, jasmine chili salted mocha. Unfortunately, the coffee has a horrible taste, and the company discontinues the flavor. The costs involved in bringing the new product to market combined with the drop in sales and a reputational hit have translated into a significant drop in the price of the stock. This is an example of what type of risk? A) Market risk B) Interest rate risk C) Business risk D) Default risk >>> C) Business risk Risk that arises out of a poor business decision is business risk. Interest rate risk and default risk impact bond values. Market risk impacts the entire market. Which of the following is an example of systematic risk? A) Interest rate risk B) Default risk C) Call risk D) Business risk >>> A) Interest rate risk Interest rate risk affects all fixed-income investments in a similar way due to the inverse relationship. Business and default risk are issuer specific. Call risk is issue specific, and is generally seen as unsystematic. In the event of a corporate bankruptcy, which of the following is true? A) A shareholder's liability is limited to the amount invested when shares were purchased. B) A shareholder has unlimited liability as an owner of the corporation. C) A shareholder can be obligated to liquidate personal assets to meet the liabilities of the corporation. D) A shareholder can be required to rebate all dividends received during ownership to meet the liabilities of the corporation. >>> A) A shareholder's liability is limited to the amount invested when shares were purchased. Shareholders have limited liability and are personally at risk only for the amount that was invested. Which of the following is not reported on Form U4? A) Aliases B) Marital status C) Employment historyD) Residency history >>> B) Marital status Marital status is not on Form U4. The form requires a 5-year residency history, 10-year employment history, and any aliases you use. Risk that is difficult to reduce by diversification within an asset class is called which of these? A) Financial risk B) Unsystematic risk C) Nonsystematic risk D) Systematic risk >>> D) Systematic risk Systematic risk affects an entire asset class in the same way, so diversification does little to reduce systematic risks. Market and interest rate risk are examples. Unsystematic and nonsystematic risk are different terms for the same class of risk. Financial risk is a specific nonsystematic risk. An investor with no other positions in LMN stock purchases 600 shares at the market. This investor is: A) short LMN stock and bullish. B) short LMN stock and bearish. C) long LMN stock and bullish. D) long LMN stock and bearish. >>> C) long LMN stock and bullish. With no other positions in LMN stock, the purchase was an opening transaction. Having purchased the stock in an opening transaction, the investor now has a long position in LMN stock and is bullish—wanting to see the stock rise in value. An IRA can be funded using all of the following except: A) stocks and bonds. B) an investment company. C) securities. D) works of art. >>> D) works of art. IRAs can be funded with stocks, bonds, investment company securities (open- and closed-end funds), U.S.-minted gold and silver coins, and many other securities. There are, however, certain investments that are ineligible in an IRA such as collectibles, antiques works of art, and others. As participants in a firm commitment underwriting agreement, the underwriters know that:A) they, the underwriters, will not be at risk for any securities left unsold. B) they, the underwriters, will be acting as principals buying the securities from the issuer. C) if shares cannot be sold to the public, the issuer will not be able to raise all of the capital needed as an agent. D) for the issuer, they are only committing to making their best effort to sell securities for them. >>> B) they, the underwriters, will be acting as principals buying the securities from the issuer. In a firm commitment, the underwriters contract with the issuer to buy the securities from them and thus are acting as principals rather than agents. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately all of the securities will be sold and all of the capital needed will be raised. Achieving a Better Life Experience (ABLE) accounts may be opened for beneficiaries at what age? A) Before the beneficiary's 26th birthday B) On or after the beneficiary's 26th birthday C) Any age D) Before the beneficiary reaches the age of majority in their home state >>> C) Any age The age limit for ABLE accounts is based on the onset of disability, not their current age. The onset must be before they turn 26 years old. For common shareholders, which of the following true? A) Dividends declared by the board of directors represent neither income nor growth. B) An increase in the value of shares owned represents growth or capital appreciation. C) An increase in the value of shares owned represents income. D) Dividends declared by the board of directors represent growth or capital appreciation. >>> B) An increase in the value of shares owned represents growth or capital appreciation.For shareholders, an increase in the value of shares owned represents growth or capital appreciation, while any dividends paid represent income. If Edna moves $50,000 from a maturing certificate of deposit to her checking account, which of the following measures of money supply would change? A) All of these B) M2 C) M3 D) M1 >>> D) M1 This move would only impact M1. M1 is a component of M2 and M3, so the funds never leave those measurements. The only change would be an increase in M1. The Windmill Alternative Energy Fund offers its shares to the public at the fund's net asset value (NAV) based on the next calculation of that figure. Based on this, you can say that the fund is A) a no-load fund. B) a closed-end fund. C) a front-end load fund. D) a hedge fund. >>> A) a no-load fund. Offering shares at the next NAV calculation is a characteristic of mutual funds and other open-end management companies (called forward pricing). If a mutual fund has a public offering price equal to its NAV, it has no sales charge and is therefore a no-load fund. Details surrounding a termination must be included with a Form U-5 filing for all of the reasons below except: A) other. B) discharged. C) death. D) permitted to resign. >>> C) death. Death is self-explanatory. All of the others require a full explanation as to the circumstances of the termination. An investor owns a municipal bond fund. What is the tax status of distributions from the fund? A) Income is tax free, but capital gains distributions are taxable. B) Income is taxable, but capital gains distributions are tax free.C) Both income and capital gains distributions are taxable. D) Both income and capital gains distributions are tax free. >>> A) Income is tax free, but capital gains distributions are taxable. Interest income distributed from municipal bond funds is normally tax free to an investor. Trading profits from portfolio adjustments, however, are taxable at capital gains rates. An investor is selling shares of Rule 144 restricted stock after holding it the required length of time. The buyers of these shares are purchasing shares of stock that: A) are now considered registered but will still be subject to a holding period. B) will still be unregistered and will still be subject to a holding period. C) will still be unregistered but no longer subject to a holding period. D) are now considered registered and no longer held to a holding period. >>> D) are now considered registered and no longer held to a holding period. Shares being sold subject to Rule 144 after having met the required holding period are now effectively considered registered. These registered shares are being purchased unencumbered and no longer require that any holding period be met. A registered representative (RR) wants to give employees of another broker-dealer located in the same office building $20 boxes of chocolates for the holiday season. Which of the following is true? A) The gifts are permitted if no condition of sales or reciprocal business is expected, and the RR's employing firm gives prior approval. B) The gifts do not violate the annual dollar gift limit threshold and are therefore permitted in all circumstances with no approval required. C) The gifts would not be permitted, as all gifts to other member firm employees are strictly prohibited. D)Because the gifts are not conditional on sales or reciprocal business from the other member firm, no permission is needed from the RR's employing firm to give the gifts. >>> A) The gifts are permitted if no condition of sales or reciprocal business is expected, and the RR's employing firm gives prior approval. Broker-dealers or their associated persons may not distribute business-related gifts or gratuities to the employees of other member firms. However, a broker-dealer may give other firms' employees gratuities without violating the rules, provided the compensation is not conditional on sales or promises of sales, the employing member has given priorapproval, and the compensation's value given to any one person does not exceed the annual limit set by the regulatory bodies (currently $100 per year). Your customer, Rodrigo, is 40 years old. He is married and has four sons. Five years ago, he purchased a nonqualified variable annuity for $20,000. It has grown to $25,000 by the time he withdraws $10,000 to pay for his oldest son's college tuition. How will the withdrawal be taxed? A) $5,000 tax free and ordinary income, plus a 10% penalty on the other $5,000 B) No taxes on the withdrawal if customer specifies it is from principal only C) Ordinary income on $10,000 D) Ordinary income and a 10% penalty on the entire amount of the withdrawal >>> A) $5,000 tax free and ordinary income, plus a 10% penalty on the other $5,000 Any withdrawal from a variable annuity must first come from any growth in the portfolio. All growth is taxed as ordinary income in the year it is withdrawn. If the owner is under 59½ at the time of withdrawal, there is a 10% penalty on the taxable portion of the withdrawal. Once any growth has been exhausted, what remains is principal. There are no taxes on the return of principal. A registered representative is introducing options terminology to a client. Of the following, which explanation regarding owners and writers of listed equity option call contracts would be true? A) The owner of a call has the right to exercise the contract, and the writer would then be assigned the obligation to buy shares from the owner at the strike price. B) The owner of a call has the right to exercise the contract, and the writer would then have the right to buy shares from the owner at the strike price. C) The owner of a call has the right to exercise the contract, and the writer would then be assigned and obligated to sell shares to the owner at the strike price. D) The owner of a call is obligated to exercise the contract to sell shares to the writer, who may choose to purchase them or not. >>> C) The owner of a call has the right to exercise the contract, and the writer would then be assigned and obligated to sell shares to the owner at the strike price. Owners of option contracts have the right to exercise, and writers are obligated to perform when they are assigned.In the case of an equity call contract, the owner has the right to exercise the contract to purchase shares at the strike price, and the writer would then be assigned and obligated to sell the shares at the strike price. Your customer, Cecelia, is 40 years old. She is married and has four sons. Her third child, age 13, has committed to going to college at the prestigious Bookworm Institute of Los Angeles in Southern California. Cecelia and her spouse have noted the rapid increase in the school's tuition over the past few years and are worried about their savings keeping pace with tuition costs. They also express discomfort with the uncertainties in market returns. Which of the following is the most suitable recommendation for the customer? A) A Coverdell ESA account B) A 529 college savings plan C) A 529 prepaid tuition plan D) A custodial account in the name of the minor >>> C) A 529 prepaid tuition plan 529 prepaid tuition plans are designed to protect against inflation in tuition costs. Both the college savings and ESA are likely exposed to market risk, as is the custodial account. Additionally, the custodial account is not earmarked for education, and the minor may take control of the account when she reaches the age of majority. Joshua, a registered representative, calls a prospect at 7:00 pm only to be told that the caller is in a different time zone, where it is 10:00 pm. Joshua has done which of these? A) Not a violation because the rule is no longer valid due to emerging mobile technology B) Violated the TCPA because it is after 9:00 pm the prospect's time C) Not a violation because the area code was local to Joshua's location D) Not violated the TCPA because it is still within the allowed time at his location >>> B) Violated the TCPA because it is after 9:00 pm the prospect's time This is still a violation. The rule clearly states that the time requirements are based on the prospective customer's time. The existence of cell phones does not invalidate the law. A broker-dealer must make a reasonable effort to obtain the name and contact information for a trusted contact person for a senior customer when doing which of these? A) Opening an account and annually thereafter B) Opening an account or when updating account information C) Opening an account and every two years thereafterD) Opening an account and on the customer's birthday every third year >>> B) Opening an account or when updating account information The requirement is to attempt to obtain this information when opening the account and whenever updating existing account information. Supply-side economists believe that the government should: A) use taxation to increase or decrease the money supply. B) use fiscal policy to control the demand for goods and services. C) allow market forces to determine prices of all goods. D) manipulate the money supply to bring about stability in prices. >>> C) allow market forces to determine prices of all goods. Supply-side economics holds that the government should allow market forces to determine prices of all goods. Monetarists believe the quantity of money—the money supply—is the major determinant of price levels and according to Keynes, a government's fiscal policies determine the country's economic health. Fiscal policy involves adjusting the level of taxation and government spending. You are recommending the purchase of the XYZ Growth Fund to one of your clients, and you explain that the fund operates pursuant to a 12b-1 plan. Under the terms described in the prospectus, the fee is: A) reduced on purchases that reach or exceed specified breakpoints. B) included in the sales charge when shares are purchased. C) a part of the fee paid to the fund's investment manager. D) part of the expense ratio of the fund. >>> D) part of the expense ratio of the fund. A 12b-1 fee is deducted each quarter from a mutual fund's assets to cover the costs of marketing and distributing the fund to investors. A company's net worth belongs to its owners (shareholders). The net worth for a company is computed as: A) assets divided by liabilities. B) liabilities plus assets. C) fixed assets less liabilities. D) assets less liabilities. >>> D) assets less liabilities. The basic net worth computation is business assets minus the company's liabilities.A common shareholder's preemptive right is the right to: A) share in earnings of the corporation via dividends when declared. B) any increase in share value between the time purchased and sold. C) vote for board members when vacancies arise. D) maintain a proportionate share of ownership in the corporation. >>> D) maintain a proportionate share of ownership in the corporation. A shareholder's preemptive right is the right to maintain a proportionate share of ownership in the corporation. If a corporation wants to issue additional shares, existing shareholders have the right to purchase those shares in an amount that would keep their proportionate ownership in the corporation unchanged. For tax purposes, which of the following is not associated with being reportable as ordinary income? A) Rent or lease payments received B) Interest received from debt securities C) Gains from securities transactions D) Wages earned >>> C) Gains from securities transactions Ordinary income can be defined as the income earned from interest, wages, rents, royalties, and similar income streams. Capital gains are usually associated with the sale or exchange of property, including securities. If a representative possesses material inside information about a publicly traded company, under which of the following circumstances may he communicate this information to a customer? A) If the customer knows it is inside information B) Under no circumstances C) If the customer enters an unsolicited order D) If the information will be made public the next day >>> B) Under no circumstances Inside information may never be divulged to a client. Violations are punishable with both civil and criminal penalties. The Securities Exchange Act of 1934 covers all of the following except: A) issuance of corporate securities. B) broker-dealers and associated persons. C) trading of corporate securities.D) manipulative, deceptive devices. >>> A) issuance of corporate securities The Securities Exchange Act of 1934 (the People and Places Act) regulates the secondary market, including strict prohibitions from using manipulative, deceptive, or other fraudulent tactics. The Securities Act of 1933 (the Paper Act) regulates the primary market. Rob takes a job with Seacoast Securities, a FINRA member broker-dealer firm, as a receptionist in a branch. Which of the following activities may violate the rules concerning activities of registered persons? A) Providing a prospectus in response to the customer request B) Directing a customer to a flyer for a specific mutual fund that Rob really likes C) Directing a customer to the restroom D) Directing a customer to a deli Rob really likes >>> B) Directing a customer to a flyer for a specific mutual fund that Rob really likes Nonregistered persons may not engage in investment banking activities. Giving a customer information on an investment without their prior request is likely to be seen as a recommendation. Member Bank A wants to borrow from the Federal Reserve Bank's window. What would be the interest rate on this loan? A) The federal funds rate B) The prime rate C) The discount rate D) Zero percent, since members are prohibited from charging other members interest >>> C) The discount rate Member banks borrow from the Federal Reserve Bank's "discount window" at the discount rate. Member-to-member borrowing and lending is made at the federal funds rate. The prime rate is set by individual banks and is the rate of interest charged to a bank's best customers. A client and her spouse own shares in the ACE Fund as tenants in common. If each has a 50% ownership interest in the account, and the client dies, what happens to the shares in the account? A) Her spouse would automatically own all the shares. B) Half of the shares would belong to her spouse, and the remaining half would be distributed to her estate. C) Ownership of the shares would be determined by probate court.D) The account would be liquidated. >>> B) Half of the shares would belong to her spouse, and the remaining half would be distributed to her estate. In a TIC account, securities pass to the deceased owner's estate. If consumer prices are steadily dropping from month to month, this is known as what? A) Disinflation B) Stagflation C) Deflation D) Inflation >>> C) Deflation Deflation is a steady drop in consumer prices. Inflation is a steady increase in those process.

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