SIE Practice Exam

13%

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1. Which one of the following would be used by an investor practicing fundamental analysis?

A. Head and shoulders chart.

B. Current ratio.

C. Dow theory.

D. Moving averages.

2. Rummy Industries is planning to raise capital by offering its shares to the public via an Initial Public Offering (IPO). Burke, a registered representative, will provide access to some of these IPO shares to customers. Which one of the following is restricted from purchasing shares of this IPO?

A. Maggie, an employee in the accounting department of Rummy Industries.

B. Valerie, one of Burke’s friends.

C. Steven, Burke’s brother.

D. Fred, an independent contractor that supplies raw materials to Rummy Industries.

3. Which one of the following statements is correct regarding cumulative preferred stock?

A. The stock must receive accrued unpaid dividends before dividends can be paid to common stockholders.

B. The stock likely carries voting rights allowing the owners to elect the company’s board of directors.

C. The stock is more susceptible to a decline in value than common stock of the same company.

D. The stock can be converted into common stock of the same company.

4. Val, age 60, is nearing retirement. He is interested in purchasing an investment that will provide him with a steady income stream. Which one of the following investments would be most appropriate to satisfy his income objective?

A. Preferred stock.

B. Common stock.

C. Growth mutual fund.

D. Hedge fund.

5. Which one of the following correctly represents a difference between a direct participation program and a real estate investment trust (REIT)?

A. A REIT can only be purchased by an accredited investor, while any investor can purchase an interest in a DPP.

B. A REIT is only permitted to invest in residential real estate, while a DPP can invest in non-residential real estate.

C. A REIT is generally required to distribute most of its income to investors annually, while a DPP has no such requirement.

D. A REIT is generally illiquid, while a DPP is a liquid investment.

6. A Treasury bill pays interest:

A. Monthly.

B. Quarterly.

C. Semi-annually.

D. At maturity.

7. Which one of the following would be considered a security?

A. Exchange-traded fund.

B. Foreign currency.

C. Fixed annuity.

D. Gold coins.

8. Mutual funds impose various fees and charges. Which one of the following would not be considered a mutual fund sales charge?

A. Contingent deferred sales charge.

B. Wrap fee.

C. Front-end load.

D. Back-end load.

9. If the SEC brings a civil action against an individual for violating insider trading rules, the amount the individual can be fined can be up to:

A. The amount of profits gained or losses avoided.

B. Three times the amount of profits gained or losses avoided.

C. Five times the amount of profits gained or losses avoided.

D. $100,000.

10. Which one of the following types of information is available to the public on the BrokerCheck website?

A. Investment-related misdemeanors committed by an individual.

B. The compensation received by a broker/dealer.

C. Whether a person is registered to sell securities.

D. A person’s educational history.

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11. Charlie had a brokerage account with a brokerage firm that failed. Prior to the failure, Charlie’s account contained:
• Stocks and bonds - $110,000 value.
• Cash - $175,000 value.
The broker was an SIPC-member brokerage firm. How much of the loss will be covered by SIPC insurance?

A. $210,000.

B. $250,000.

C. $275,000.

D. $285,000.

12. Tara opened a Section 529 plan three years ago with a contribution of $40,000. The account is now worth $45,000. Tara can take a full $45,000 distribution from the account completely tax free under which of the following situations?

A. She is age 59½ or older.

B. She uses the funds to pay for medical expenses.

C. She uses the funds to purchase a new home.

D. She uses the funds to pay the college tuition for her son.

13. Form U4 is used for the:

A. Registration of a broker/dealer.

B. Registration of an agent.

C. Termination of the registration of a broker/dealer.

D. Termination of the registration of an agent.

14. Kris sold a May 22.50 put option, receiving a $3 premium on the sale. The stock is currently trading for $24.50 per share. Kris will break even on this transaction if the stock price on the option expiration date is:

A. $19.50

B. $21.50

C. $22.50

D. $25.50

15. Which one of the following would be covered by FDIC insurance?

A. Commercial paper.

B. Certificate of deposit.

C. Treasury bond.

D. Fixed annuity.

16. When does interest begin accruing on a newly issued municipal bond?

A. Transaction date.

B. Settlement date.

C. Dated date.

D. Maturity date.

17. Which one of the following is reflected on a company’s balance sheet?

A. Components of capital.

B. Cost of goods sold.

C. Net change in cash flow.

D. Salary expense.

18. Which one of the following represents a lagging economic indicator?

A. New housing starts.

B. Producer Price Index.

C. Gross domestic product.

D. Stock market.

19. Which one of the following represents the best definition of an RIA?

A. An individual or firm in the business of buying and selling securities for its own account or on behalf of its customers.

B. An individual or firm in the business of giving investment advice in return for compensation.

C. An individual or firm in the business of buying and selling securities on behalf of its customers.

D. An individual or firm in the business of buying and selling securities for its own account.

20. Which one of the following investments has the most liquidity risk?

A. Precious metals mutual fund.

B. Limited partnership interest.

C. Publicly traded stock.

D. Treasury bond.

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21. Of the following investors, who is usually allowed to vote on corporate matters?

A. Common shareholders.

B. Preferred shareholders.

C. Bondholders.

D. Debenture holders.

22. Stacy owned 500 shares of preferred stock of Super Company. Super Company declared a 3-for-2 stock dividend on its common shares. As a result of this transaction, Stacy now owns:

A. 500 shares of preferred stock of Super Company.

B. 750 shares of preferred stock of Super Company.

C. 500 shares of common stock of Super Company.

D. 750 shares of common stock of Super Company.

23. If an investor purchases shares of a mutual fund on Monday, July 10, under regular way settlement rules, the transaction will settle on:

A. Monday, July 10.

B. Tuesday, July 11

C. Wednesday, July 12.

D. Monday, July 17.

24. A closed-end fund has a net asset value of $19.50. Currently, the bid price is $19.95 and the ask price is $20. Gina invested $20,000 into the fund today. How many shares of the fund did Gina receive in return for her $20,000 investment?

A. 995.

B. 1,000.

C. 1,002.5.

D. 1,025.6.

25. Which one of the following debt securities is most sensitive to interest rate risk?

A. 1-year Treasury bill.

B. 30-year zero coupon bond.

C. 20-year floating rate bond.

D. 20-year bond callable after 5 years.

26. Which one of the following represents a category of information that would be contained in a mutual fund prospectus?

A. Fund fees and expenses.

B. Fund manager tenure.

C. Top 10 holdings.

D. Morningstar rating.

27. A broker/dealer would like to reach out via telephone to prospective clients. When is an impermissible time for a broker/dealer to call a prospective client?

A. Wednesday, April 7, at 6:00pm.

B. Sunday, June 20, at 8:30am.

C. Thursday, June 3, at 9:15pm.

D. Saturday, December 11, at 4:00pm.

28. In the case of a corporation’s liquidation, holders of which one of the following investments would be the first to receive any liquidation proceeds?

A. Convertible bonds.

B. Preferred stock.

C. Common stock.

D. Senior corporate bonds.

29. James has two children, Jack (age 17) and Diane (age 16). James contributed $20,000 to an UTMA account for Jack five years ago. He contributed $22,000 into an UTMA account for Diane four years ago. James now feels that Jack is not very responsible, so James asks his registered representative, Manny, to move the funds out of Jack’s UTMA account into Diane’s UTMA account. What action should Manny take regarding this request?

A. Speak to his broker/dealer’s compliance officer.

B. Inform James that he cannot transfer the money.

C. Move the amounts from Jack’s UTMA account to Diane’s UTMA account as requested.

D. Issue a check from Jack’s UTMA account, made payable to James.

30. Which one of the following represents the greatest advantage of shelf registration?

A. It protects companies that are initiating IPOs by guaranteeing a minimum purchase price of the stock.

B. It allows smaller companies to raise capital without needing to register their securities with the SEC.

C. It enables an issuer to access markets quickly when market conditions are optimal for the issuer.

D. It gives a company up to four years to sell stock after the stock’s initial registration with the SEC.

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31. Which one of the following represents the best description of a municipal note?

A. A long-term debt security that is backed entirely by the issuer’s creditworthiness and ability to levy taxes on its residents.

B. An unsecured, short-term debt instrument issued by a corporation, used for the financing of payroll and inventories.

C. A short-term debt security issued by a state or local government to finance specific capital expenditures, such as construction projects.

D. A long-term debt security issued by the Department of the Treasury to finance the U.S. government’s spending activities.

32. Which one of the following represents a characteristic of a variable annuity?

A. Provides for a guaranteed minimum death benefit.

B. Must be funded with a single premium.

C. Offers a fixed rate of return on the cash value.

D. Unrealized gains have no effect on the value of accumulation units.

33. A correct statement regarding Treasury bonds is that they:

A. Have a maturity of one year or less.

B. Are not required to be registered with SEC.

C. Pay interest that is exempt from federal income taxation.

D. Pay interest to investors on a quarterly basis.

34. Charlie, a registered representative, overhears another registered representative on the phone with a customer. The customer is selling a significant stake in ABC Company. Charlie immediately sells all ABC Company stock in his own clients’ accounts. This is an example of:

A. Money laundering.

B. Freeriding.

C. Churning.

D. Front running.

35. Which one of the following investments has the largest amount of prepayment risk?

A. Treasury note.

B. Municipal bond.

C. Non-callable corporate bond.

D. Mortgage-backed security.

36. XYZ Company is a publicly traded company. Currently, call options on XYZ Company common stock are available for purchase for a $4 premium. Luke purchased two options on XYZ Company stock. Which one of the following statements is correct regarding this purchase?

A. Luke paid $400 in total for the options, and he now has the right to purchase 800 shares of XYZ common stock.

B. Luke paid $800 in total for the options, and he now has the right to purchase 200 shares of XYZ common stock.

C. Luke paid $400 in total for the options, and he now has the right to purchase 200 shares of XYZ common stock.

D. Luke paid $800 in total for the options, and he now has the right to purchase 800 shares of XYZ common stock.

37. An index exchange-traded fund is considered what type of investment?

A. Aggressive.

B. Illiquid.

C. Passive.

D. Actively managed.

38. Which type of dividend does a company typically pay to investors?

A. Liquidating dividend.

B. Cash dividend

C. Scrip dividend.

D. Stock dividend.

39. Which one of the following types of investments issues a fixed number of shares to investors?

A. Closed-end fund.

B. Open-end fund.

C. Fixed annuity.

D. Index mutual fund.

40. Valerie opened a non-discretionary traditional IRA with a broker/dealer. She tells the broker/dealer to purchase shares of stock of a publicly traded company for her traditional IRA. What can the broker/dealer decide with respect to Valerie’s request?

A. Whether or not the shares will be purchased on margin.

B. The specific stock to purchase.

C. The price at which the stock will be purchased.

D. The number of shares to be purchased.

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41. Mena, age 35, just received an inheritance of $500,000. She has decided to use the funds to purchase shares of a mutual fund. She plans on holding the shares for more than 20 years. What is best mutual fund share class for her to purchase?

A. Class A

B. Class B.

C. Class C.

D. Class I.

42. A corporate bond has a coupon rate of 6%. The bond has a 7% yield basis value. The bond is trading at:

A. Par value.

B. A discount.

C. Net asset value.

D. A premium.

43. Which one of the following represents a risk associated with general obligation bonds?

A. The issuer may postpone the maturity date of the bond.

B. The investor may be unable to find an active market to trade the bond.

C. The interest income may be subject to federal income tax.

D. The issuer may fail to make interest or principal payments when due.

44. A stock option may be in-the-money, at-the-money, or out-of-the-money. This determination is based on:

A. Whether the option has been held for a long-term or short-term holding period.

B. The premium paid to acquire the option.

C. The exercise price of the option.

D. The current market interest rate.

45. Which one of the following statements is correct regarding a traditional IRA?

A. There is a penalty for excess contributions.

B. A joint IRA can be established for a husband and wife.

C. Minimum distributions are not required during the account owner’s lifetime.

D. Life insurance is a permitted investment.

46. A correct statement regarding variable life insurance is that it:

A. Is not considered an investment product.

B. Has a cash value that is not guaranteed.

C. Does not offer a guaranteed death benefit.

D. Can only be purchased with a single premium.

47. An investor that opens a margin account must receive a margin risk disclosure statement:

A. Within 90 days of the account being opened.

B. After the account is opened but prior to the first margin trade.

C. Within 10 days of the first margin trade.

D. Prior to the account being opened.

48. Which one of the following represents a responsibility of a bond rating agency?

A. Predict future patterns of market interest rates.

B. Calculate the yield to maturity for non-governmental debt issues.

C. Evaluate creditworthiness of debt securities and their issuers.

D. Provide insight into the board of directors of issuers.

49. An investment-grade bond with a par value of $1,000 is currently selling for $900. The bond’s coupon rate is 6% and the yield to maturity is 8.5%. What is the current yield of the bond?

A. 6.00%.

B. 6.67%.

C. 8.50%.

D. 9.44%.

50. A group of investors purchased the debt securities of a foreign government. The foreign government was overthrown and most of its assets were seized. The investors only received 10 cents on the dollar for their investments. This is an example of which one of the following types of risks?

A. Political risk.

B. Exchange rate risk.

C. Liquidity risk.

D. Reinvestment risk.

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51. Kathy, a registered representative, has an unsatisfied tax lien of $11,000 on her houseboat. Is this required to be reported on Form U4?

A. No, because only investment adviser representatives are required to complete Form U4.

B. No, because the lien is not business related.

C. Yes, because she has debt in excess of $10,000.

D. Yes, because all unsatisfied liens must be disclosed.

52. Which one of the following statements is correct regarding a firm commitment underwriting?

A. The underwriter attempts to sell all the securities offered by the issuer but is not obligated to purchase the securities for its own account.

B. The underwriter commits to buy and sell an entire issue of stock and assumes all responsibility for unsold shares.

C. It is a type of best efforts underwriting that does not become effective until a minimum amount of securities is sold.

D. The securities issue is too big for a single underwriter, so underwriters join together to underwrite an issue.

53. Which one of the following represents the best definition of a market maker?

A. A person that engages in the business of providing investment advice to others for a fee.

B. A legal entity that develops, registers, and sells securities to finance its operations.

C. A person that stands ready to buy or sell a security from his or her own account to provide liquidity to financial markets.

D. An institution that holds customers’ securities for safekeeping to minimize the risk of misuse, theft, or loss.

54. Which one of the following statements is correct regarding unit investment trusts?

B. They invest primarily in commercial real estate.

C. They are actively managed, sometimes resulting in high management and 12b-1 fees.

D. They have an active secondary market.

A. They are self liquidating, with shares being redeemed by the issuer at the termination date.

55. Craig is a registered representative for a broker/dealer. Which one of the following actions by Craig would likely be a prohibited activity?

A. Borrowing $4,000 from his client to make a down payment on a home.

B. Borrowing $5,000 from his sister, who is also a client, to fund a vacation.

C. Paying for a $100 lunch with his largest client.

D. Giving a client a $100 gift card as a thank you for being a client for several years.

56. Which one of the following bonds is refundable?

A. Debenture.

B. Corporate bond.

C. Municipal bond.

D. Treasury bond.

57. If a company believes their stock is currently undervalued, which one of the following represents a strategy that can be implemented to increase the share price of the stock?

A. Pay a cash dividend to existing shareholders of the company.

B. Implement a 2-for-1 stock split.

C. Repurchase their own shares from the secondary market.

D. Initiate a short sale on the stock.

58. Hector purchased a single-premium deferred annuity in June 2019. In August 2022, the account value was $200,000, and he withdrew $50,000 from the annuity to purchase a car. The annuity had the following surrender charge schedule:

Year Surrender Charge Percent

1 10% penalty

2 9% penalty

3 8% penalty

4 7% penalty

5 6% penalty

Assuming the annuity contract has no provisions for surrender-charge-free withdrawals, what percentage of the annuity account balance will be charged as a surrender charge?

A. 1.5%.

B. 1.75%.

C. 2%.

D. 2.25%.

59. A retail investor placed a good-’til-canceled/do not reduce buy order for stock of TAC Company at $45. This generally means:

A. The order will remain in effect for 30 days, and the $45 price will not be adjusted for any dividends paid by TAC Company.

B. The order will remain in effect for 30 days, and the $45 price will be adjusted downward for any dividends paid by TAC Company.

C. The order will remain in effect indefinitely, and the $45 price will not be adjusted for any dividends paid by TAC Company.

D. The order will remain in effect indefinitely, and the $45 price will be adjusted downward for any dividends paid by TAC Company.

60. Which one of the following actions can be performed by a non-registered person?

A. Inviting a client to an investments educational event.

B. Asking a client if they are satisfied with their current investments.

C. Selling an accredited client an interest in a hedge fund.

D. Creating and implementing an asset allocation for a client.

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61. Ross, a registered representative, heard that MedCo, a pharmaceutical company, just discovered a cure for cancer. He ascertained this information from his cousin, who is the CEO of MedCo. This information is not available outside the company. If Ron purchases shares of MedCo for his clients’ accounts, is this a permissible action?

A. Yes, because information obtained from immediate family members is not considered insider information.

B. Yes, because Ron is not providing any performance guarantees with respect to MedCo stock.

C. No, because Ron possesses information that is material and is not available to the public.

D. No, because Ron initiated an unsolicited trade for his clients.

62. Which one of the following represents a responsibility of the Federal Reserve?

A. Overseeing the financial services industry.

B. Assisting the U.S. Treasury in the enforcement of tax laws.

C. Implementing fiscal policy measures.

D. Setting the federal funds interest rate.

63. Under FinCENs Customer Due Diligence Rule, a broker/dealer must:

A. Have a reasonable basis to believe a recommended investment is suitable for a customer.

B. Create and maintain a written Business Continuity Plan.

C. Collect customer fingerprints at the time a new account is opened.

D. Conduct ongoing monitoring to identify and report suspicious transactions.

64. Steve, an investment adviser, promises to reimburse Mary, his client, for her investment cost plus 4.5% if her investments earn less than 4.5% in the first year. Is this a permissible promise?

A. No, because this represents a type of market manipulation.

B. No, because this represents a prohibited performance guarantee.

C. Yes, because broker/dealers are permitted to reimburse clients for transaction losses.

D. Yes, because the guaranteed rate of return was less than 5%.

65. The estimated yield on a collateralized mortgage obligation (CMO) is based on the:

A. Federal funds rate.

B. Average maturity of the underlying mortgages.

C. Fixed 15-year maturity of the underlying mortgages.

D. Prime rate.

66. ABC Company stock has an ex-dividend date of Tuesday, September 15. When is the last day an investor can purchase the stock and receive the dividend?

A. Friday, September 11.

B. Monday, September 14.

C. Tuesday, September 15.

D. Wednesday, September 16.

67. An investor plans on purchasing $5,000 of ABC Mutual Fund each month for the next 13 months. The fund offers a breakpoint discount at $50,000. Which one of the following statements is correct?

A. He will receive the breakpoint discount upon making his first purchase, even if he takes no further action.

B. He will receive the breakpoint discount upon making his first purchase, provided he has rights of accumulation.

C. He will receive the breakpoint discount upon making his first purchase, provided he signs a letter of intent.

D. He cannot qualify for any breakpoint discount until he has purchased $50,000 of ABC Mutual Fund.

68. The primary backer of a municipal industrial revenue bond is a:

A. Private company.

B. Municipal government agency.

C. Private company and a municipal government agency jointly.

D. Bank.

69. Which one of the following statements is correct regarding anti-money laundering regulations?

A. Broker/dealers must provide appropriate training of internal employees from a third-party educator outside of the company.

B. Broker/dealers must develop and implement a written anti-money laundering program that must be approved, in writing, by the state Comptroller.

C. Broker/dealers must retain records of all of the identification information obtained from the customer for two years after the account is closed.

D. Broker/dealers are required to file a Currency Transaction Report (CTR) with FinCEN for single transactions involving currency that exceed $10,000.

70. Which one of the following statements is correct regarding the privacy rules of Regulation S-P?

A. They apply to state governments.

B. They guard a consumer’s public personal information.

C. They are designed to protect individuals who obtain financial products primarily for business purposes.

D. They require an institution to give all customers a notice of its privacy policies and practices.

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71. Jim is a registered representative that has a bank as a customer. The bank’s President, Gus, offered Jim a significant interest rate discount on a loan to purchase a home. Is Jim permitted to enter into this loan?

A. No, because registered representatives are prohibited from borrowing money from or lending money to customers.

B. No, because the terms of the loan were not the same as those offered to the public.

C. Yes, because the loan is for the purchase of a primary residence.

D. Yes, because the bank is in the business of lending money.

72. William, a registered representative, was just approached by Sara, the CEO of Amalgamated Corporation, a start-up company. Sara asked William if he would be interested in a position on Amalgamated’s board of directors. Assuming William is interested in the board position, does William need to obtain approval?

A. No, because approval of a board position is never required.

B. No, because Amalgamated Corporation is a start-up company.

C. Yes, approval must be obtained prior to serving on the board of directors.

D. Yes, approval must be obtained within 10 days of beginning to serve on the board of directors.

73. Aaron, a broker/dealer, has a client, Tammy, who is running for city council in the upcoming election. Tammy is Aaron’s neighbor. Tammy reached out to Aaron, asking for a political contribution of $750 to aid in her campaign. What is the best course of action for Aaron to take regarding this request?

A. Aaron should give $250 to Tammy’s campaign.

B. Aaron should give $250 to Tammy’s campaign and direct his wife to give $500 to Tammy’s campaign.

C. Aaron should give $750 to Tammy’s campaign.

D. Aaron should direct his wife to give $750 to Tammy’s campaign.

74. Which one of the following statements is correct regarding powers of attorney?

A. A durable power of attorney is automatically revoked if the client becomes physically or mentally incapacitated.

B. A portfolio manager with a limited power of attorney is usually permitted to make cash withdrawals from clients’ accounts.

C. A springing power of attorney is no longer effective after the death of the principal.

D. A registered representative with a general power of attorney is usually only permitted to initiate buy and sell transactions.

75. Sally, a registered representative, had a Schedule C business that filed for bankruptcy several years ago. She intentionally did not report this on her Form U4. What will happen?

A. Sally is not required to take any additional action because bankruptcies are never required to be reported on Form U4.

B. Sally is not required to take any additional action because bankruptcies are only required to be reported on Form U4 if they are investment related.

C. Sally must update her Form U4 within 120 days to avoid fraud charges.

D. Sally is subject to a statutory disqualification for failing to report the bankruptcy.

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