FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 161:

  ION NO: 30

  Which of the following risks are associated with Treasury securities?

  A. Credit risk
  B. Liquidity risk
  C. Prepayment risk
  D. Interest rate risk
  D. Interest rate risk

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  Explanation

  Interest Rate Risk: Treasury securities are sensitive to changes in interest rates. When rates rise, Treasury prices fall, exposing investors to price risk.

  Incorrect Options:

  Credit Risk: Virtually nonexistent for Treasuries, as they are backed by the U.S. government.

  Liquidity Risk: Treasuries are highly liquid.

  Prepayment Risk: Applies to mortgage-backed securities, not Treasuries.

  SEC Bond Risk Disclosures: SEC Treasury Risks.

• Question 162:

  A 529 savings plan investment is most appropriate for which of the following individuals?

  A. A retiree who needs tax-free income
  B. A college graduate who is starting to save for retirement
  C. A mid-career professional who wants to save for their graduate school education
  D. The parent of a child with a disability who wants to save for expenses related to the child's health care expenses
  C. A mid-career professional who wants to save for their graduate school education

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  Explanation

  A 529 savings plan is designed to help investors save for qualified education expenses. It offers potential tax advantages (e.g., tax-deferred growth and tax-free withdrawals for qualified expenses, subject to program rules), and the account owner controls the assets for the benefit of a designated beneficiary. Among the choices, the best match is a mid-career professional saving for their graduate school education, which is an education purpose squarely aligned with 529 plan usage. Therefore, C is correct. Choice A is incorrect because a 529 plan is not intended as a general "tax-free income" vehicle for retirees. Withdrawals not used for qualified education expenses can be subject to taxes and potential penalties on earnings, and the product is not designed primarily for retirement income.

  Choice B is incorrect because saving for retirement is better aligned with retirement plans such as IRAs, employer plans, or other long-term investment vehicles; while a 529 can technically be owned by anyone, "retirement" is not its primary purpose and would likely be inefficient and potentially penalized if not used for education.

  Choice D is incorrect because saving for health care expenses for a disabled child is more directly aligned with specialized programs such as ABLE accounts (for qualified disability expenses), which are specifically designed for disability-related costs-another municipal fund security category often tested alongside 529 plans.

  On the SIE, 529 plans fall under municipal fund securities and are tested for purpose, owner/beneficiary roles, permitted use of assets, and tax characteristics. The "best" suitability match is the choice that cleanly aligns with education expenses: graduate school savings.

• Question 163:

  An associated person at a member firm receives a complaint from a customer involving allegations of forgery.

  Once the complaint is received, which of the following actions is required?

  A. The member firm must report the event promptly to FINRA.
  B. The member firm is not required to report the event to FINRA but must maintain a file of the complaint for four years.
  C. The member firm must complete arbitration to resolve the complaint with the customer before filing a report with FINRA.
  D. The member firm must have a principal review the complaint and determine if the forgery occurred before filing a report with FINRA.
  A. The member firm must report the event promptly to FINRA.

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  Explanation

  FINRA Rule 4530: Requires member firms to report certain events, including allegations of forgery, to FINRA promptly.

  Incorrect Options:

  Option B: Maintaining a record does not substitute for required reporting.

  Option C: Arbitration isn't required before reporting.

  Option D: Reporting is mandatory irrespective of internal investigations.

  FINRA Rule 4530 (Reporting Requirements): FINRA Rule 4530.

• Question 164:

  An investor wants to make a $1,000 distribution from their mutual fund portfolio. They own two different mutual funds in this portfolio. Fund A has a high cost basis, and Fund B has a low cost basis.

  Which of the following strategies should they use if their only objective is to pay the least amount of taxes?

  A. Redeem $1,000 of Fund A
  B. Redeem $1,000 of Fund B
  C. Redeem $500 of Fund A and $500 of Fund B
  D. Redeem the fund that has the higher profit
  A. Redeem $1,000 of Fund A

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  Explanation

  If the investor's only goal is to minimize taxes from a sale, they generally want to realize the smallest taxable capital gain (or potentially realize a loss). Cost basis is central: capital gain = sale proceeds # cost basis. A higher cost basis means less gain (or a greater chance of a loss) for the same sale amount, leading to lower taxable impact. Therefore, redeeming $1,000 from Fund A (high cost basis) is the best strategy, making A correct. Redeeming $1,000 of Fund B (low cost basis) would typically produce a larger capital gain because the investor paid less (basis is lower) relative to current value. That larger gain increases taxable income (assuming the shares are held in a taxable account and not offset by losses). Splitting the redemption between A and B (choice C) would likely create more gain than redeeming solely from the higher-basis fund, so it is not optimal for tax minimization if a single-fund redemption is possible. Choice D is imprecise and potentially misleading. "Higher profit" informally means larger unrealized gain, which would generally produce more taxable gain, not less. The tax-minimizing approach focuses on tax lot selection and selling shares with the highest basis (or lowest gain) when the objective is to minimize taxes, subject to the investor's holding period (long-term vs short-term rates) and specific cost basis method used. This is a core SIE taxable-account concept: when choosing which holdings to sell, investors can manage taxes by selecting higher-basis positions (or specific lots) to reduce realized gains.

• Question 165:

  A registered representative (RR) opens a new account for a customer whose investment objectives are growth and income. She makes an initial deposit of $5,500 using a series of money orders drawn from different sources, and she makes no investments for the first 30 days the account is open. At the end of that time, the customer asks to have the funds wired to an account at a different firm as her needs have changed. The RR's first course of action should be to:

  A. Deny the request.
  B. Freeze the account.
  C. Report internally as a suspicious activity.
  D. Accept the instructions and wire the funds.
  C. Report internally as a suspicious activity.

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  Explanation

  Suspicious Activity: The use of multiple money orders, lack of investment activity, and request to wire funds to another firm raise red flags for potential money laundering.

  FINRA Rules: The RR should escalate the issue by reporting internally and potentially filing a Suspicious Activity Report (SAR).

  Incorrect Options:

  A: Denying the request without investigation may violate customer instructions.

  B: Freezing the account requires a valid legal or regulatory basis.

  D: Processing the request without investigation could facilitate illegal activity.

  FINRA Anti-Money Laundering (AML) Guidance: FINRA AML Rules.

• Question 166:

  An investor is long 100 shares of XYZ and sells a covered call with a strike price of $50. If XYZ closes at $45 on the day of expiration, the investor should expect:

  A. that the option to be exercised and the stock to be called away.
  B. that the covered call will expire and the investor will still be long 100 shares of XYZ.
  C. a margin call on the expiring contract requiring a deposit of additional funds.
  D. to receive an additional 100 shares since the contract expired out of the money.
  B. that the covered call will expire and the investor will still be long 100 shares of XYZ.

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  Explanation

  This scenario describes a covered call: the investor owns the underlying stock (long 100 shares) and has sold (written) a call option against it. A call option gives its holder the right to buy the stock at the strike price ($50) before expiration. On expiration day, the key question is whether the option is in the money (stock price above strike) or out of the money (stock price below strike). If XYZ closes at $45, the call option with a $50 strike is out of the money because exercising the right to buy at $50 makes no economic sense when the market price is $45. As a result, the call will typically expire worthless, and the writer keeps the premium collected. The investor remains long the original 100 shares, which is exactly

  choice B.

  Choice A is incorrect because assignment/exercise is most likely when the option is in the money at expiration (and sometimes slightly in the money intraday), not when it is out of the money.

  Choice C is incorrect because standard listed equity options do not create a "margin call on the expiring contract" simply because they expire; margin requirements are about risk exposure while positions are open, and here the position is covered by stock ownership.

  Choice D is incorrect because a call option expiring out of the money does not deliver shares to the writer; it simply expires and disappears. This tests core SIE options mechanics: moneyness, expiration outcomes, assignment likelihood, and covered vs. uncovered risk.

• Question 167:

  A municipal bond is quoted at 102-7/8.

  What amount should an investor expect to pay for 100 of these bonds?

  A. $10,278.00
  B. $10,287.50
  C. $102,780.00
  D. $102,875.00
  D. $102,875.00

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  Explanation

  The correct answer is D, $102,875.00. Municipal bonds are quoted as a percentage of par value, and par value is typically $1,000 per bond. Step-by-step calculation: Convert the quote 102-7/8 into a decimal: 7/8 = 0.875 So, 102-7/8 = 102.875% of par Apply this percentage to one bond: $1,000 x 102.875% = $1,028.75 per bond Multiply by the number of bonds (100 bonds): $1,028.75 x 100 = $102,875 Choice A and B are incorrect because they represent the price for 10 bonds, not 100.

  Choice C is close but incorrectly calculates the fractional portion. Understanding how to convert bond quotes (including fractions like 7/8) into dollar amounts is essential for pricing municipal securities on the SIE exam. Thus, the investor would pay $102,875.00, making Answer D correct.

• Question 168:

  A registered representative (RR) receives a mutual fund order from a customer at 4:10 p.m. ET.

  Which of the following statements is true regarding this order?

  A. It must be executed at the next closing price.
  B. It must be executed at the next day's opening price.
  C. It must be accepted as an "as/of" trade for today's price.
  D. It is not permitted to be accepted as it was received after the market close.
  A. It must be executed at the next closing price.

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  Explanation

  NAV calculated at the next market close.

  A is correct because it aligns with forward pricing rules. B, C, and D are incorrect as they do not follow mutual fund trade practices.

  References:

  Investment Company Act of 1940, Section 22

• Question 169:

  Which financial statement shows a company's revenues and expenses over a period of time?

  A. Balance sheet
  B. Cash flow statement
  C. Income statement
  D. Statement of net worth
  C. Income statement

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  Explanation

  The income statement summarizes revenues, expenses, and net income over a specific period.

  References:

  SIE Study Guide, Financial Statements

• Question 170:

  Which of the following government securities is issued with a 90-day maturity?

  A. Treasury bill
  B. Treasury note
  C. Treasury bond
  D. Series EE bond
  A. Treasury bill

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  Explanation

  The correct answer is A, Treasury bill. Treasury bills (T-bills) are short-term U.S. government debt instruments with maturities of one year or less, commonly issued in increments such as 4 weeks, 13 weeks (approximately 90 days), 26 weeks, and 52 weeks. Therefore, a 90-day maturity aligns directly with a 13-week Treasury bill. Treasury bills are issued at a discount to par value and do not pay periodic interest. Instead, the investor's return is the difference between the purchase price and the face value received at maturity. Because of their short duration and backing by the U.S. government, they are considered one of the safest and most liquid investments. Choice B, Treasury note, is incorrect because notes have maturities ranging from 2 to 10 years.

  Choice C, Treasury bond, refers to long-term securities with maturities of more than 10 years, typically 20 or 30 years.

  Choice D, Series EE bond is a savings bond intended for long-term investment and does not have a short-term fixed maturity like 90 days. Thus, the only government security with a 90-day maturity is a Treasury bill, making choice A correct.