FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 261:

  An investor is bullish on the technology sector and heavily invests in microchip companies. Impactful regulatory changes are announced that will negatively affect microchip manufacturing. In order to mitigate the risk to his portfolio, the investor should:

  A. Purchase holdings uncorrelated to the technology sector.
  B. Purchase shares of other microchip companies in the technology sector.
  C. Sell holdings that are unaffected by the regulatory changes.
  D. Buy more shares of the microchip companies already in his portfolio.
  A. Purchase holdings uncorrelated to the technology sector.

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  Explanation

  The announcement of negative regulatory changes introduces unsystematic risk, specific to the technology sector. Diversification into unrelated sectors can reduce exposure to this risk. A is correct because uncorrelated holdings reduce portfolio risk. B is incorrect because adding more microchip companies increases exposure to sector-specific risk.

  D is the opposite of mitigating risk.

  References:

  SIE Study Guide, Chapter 6: Risk Management

• Question 262:

  Which of the following best describes a primary market transaction?

  A. Trading between two investors on an exchange
  B. A corporation issuing new shares to investors
  C. A broker-dealer matching buy and sell orders
  D. An investor selling shares through a market maker
  B. A corporation issuing new shares to investors

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  Explanation

  Primary Market: Involves the issuance of new securities directly from the issuer to investors, allowing the issuer to raise capital.

  Incorrect Options:

  A, C, and D: These describe secondary market transactions where securities are traded between investors.

• Question 263:

  Which of the following securities issued by a corporation allows the owner to vote on matters of the corporation?

  A. Warrant
  B. Common stock
  C. Preferred stock
  D. Corporate bond
  B. Common stock

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  Explanation

  Common stock typically provides the owner with voting rights on key corporate matters, making answer B correct. Common shareholders generally vote to elect the board of directors and may vote on significant corporate actions such as mergers, major reorganizations, or other proposals submitted for shareholder approval. Voting rights are a core distinguishing feature of common stock and are frequently tested on the SIE as part of understanding equity ownership and shareholder rights. A warrant (choice A) is a derivative-like security that gives the holder the right to purchase the issuer's stock at a specified price before expiration. Warrant holders do not have voting rights unless and until they exercise the warrant and become stockholders. Preferred stock (choice C) typically has characteristics closer to a hybrid: it pays a stated dividend and often has priority over common stock in dividends and liquidation, but it usually does not carry voting rights (though preferred may gain voting rights in special situations, such as when dividends are in arrears, depending on the issue terms). A corporate bond (choice

  D. is debt; bondholders are creditors, not owners, and generally do not vote on corporate governance matters (though bond covenants may provide protections and certain consent rights in specific restructuring situations). The SIE emphasizes the relationship between security type and investor rights: equity ownership (common stock) comes with participation in corporate governance through voting, while debt instruments provide contractual cash flows and creditor protections but not ownership voting rights.

• Question 264:

  A corporation declares a stock dividend.

  Which of the following is the effect on shareholders?

  A. Shareholders receive cash
  B. Total shares outstanding increase
  C. Market value per share increases
  D. Company liabilities increase
  B. Total shares outstanding increase

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  Explanation

  Stock Dividend: Increases the number of shares outstanding while reducing price per share proportionally.

  Incorrect Options:

  A: Cash dividends.

  C: Price typically decreases.

  D: No change in liabilities.

• Question 265:

  What is the frequency of interest payments for a Treasury bond?

  A. Monthly
  B. Quarterly
  C. Semiannually
  D. Annually
  C. Semiannually

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  Explanation

  The correct answer is C, Semiannually. U.S. Treasury bonds, along with Treasury notes, pay interest twice a year, which is referred to as semiannual payments. Step-by-step, Treasury securities are debt obligations issued by the U.S. government. For Treasury bonds (long-term maturities of more than 10 years), the stated coupon rate determines the annual interest amount. However, this annual interest is divided into two equal payments, paid every six months to bondholders. For example, if a Treasury bond has a $1,000 par value and a 6% coupon rate, it pays $60 annually. Instead of paying $60 once per year, the investor receives $30 every six months. Choice A (monthly) and Choice B (quarterly) are incorrect because Treasury securities do not pay interest that frequently.

  Choice D (annually) is incorrect because, although the rate is quoted annually, the actual payments are split into two installments. It is important to distinguish that Treasury bills (T-bills) do not pay periodic interest at all-they are issued at a discount and mature at par. In contrast, Treasury notes and bonds both pay semiannual interest, making Answer C correct.

• Question 266:

  A customer has a stock position that has increased in value since the time he purchased it.

  Which of the following terms describes his current situation?

  A. Interest income
  B. Unrealized gain
  C. Operating profit
  D. Out of the money
  B. Unrealized gain

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  Explanation

  An unrealized gain occurs when the value of an asset increases but has not yet been sold. If the customer sells the stock, the unrealized gain becomes a realized gain. B is correct because the increase in value without selling the stock is an unrealized gain. A is incorrect because interest income refers to earnings from fixed-income securities. C is incorrect because operating profit relates to a company's earnings, not an investor's portfolio. D is incorrect because "out of the money" is a term used for options, not stocks. ce:

  SIE Study Guide, Chapter 6: Stock Valuations

• Question 267:

  Which of the following activities engaged in by a registered person is considered a private securities transaction?

  A. Soliciting donations to a charity
  B. Helping a friend raise money for a startup company they founded
  C. Working for an insurance company selling term life insurance policies
  D. Investing personal money in shares of a listed security in a brokerage account
  B. Helping a friend raise money for a startup company they founded

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  Explanation

  A private securities transaction involves the sale of securities outside the scope of a registered representative's employment with their member firm. Such transactions must be disclosed to and approved by the firm under FINRA Rule 3280. B is correct because raising money for a startup involves the sale of securities and must be reported as a private securities transaction.

  A is incorrect because soliciting charitable donations does not involve securities.

  C is incorrect because selling term life insurance policies is not a securities transaction. D is incorrect because investing personal money does not involve soliciting or selling securities to others.

  References:

  FINRA Rule 3280 (Private Securities Transactions)

• Question 268:

  Under FINRA rules, which of the following communications would be considered retail communication?

  A. An internal memo between employees
  B. A message sent to 30 retail investors
  C. A communication sent to 10 institutional investors
  D. A private email between two registered representatives
  B. A message sent to 30 retail investors

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  Explanation

  Retail Communication: Any communication distributed to more than 25 retail investors within a 30-day period.

  Incorrect Options:

  A & D: Internal communications.

  C: Institutional communication.

• Question 269:

  Which of the following entities settles broker-to-broker equity, listed corporate and municipal bond, and unit investment trust (UIT) transactions in the U.S.

  equities markets?

  A. SEC
  B. FINRA
  C. Federal Reserve
  D. National Securities Clearing Corporation (NSCC)
  D. National Securities Clearing Corporation (NSCC)

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  Explanation

  National Securities Clearing Corporation (NSCC): A subsidiary of the Depository Trust & Clearing Corporation (DTCC), the NSCC handles the clearance and settlement of broker-to-broker equity, corporate bond, municipal bond, and UIT transactions.

  Incorrect Options:

  A: The SEC oversees regulatory compliance but does not settle trades.

  B: FINRA is a self-regulatory organization, not a clearing entity.

  C: The Federal Reserve manages monetary policy and banking but is not involved in securities settlement.

  DTCC Overview of NSCC: DTCC NSCC.

• Question 270:

  Which of the following entities is responsible for enforcing rules related to broker-dealers?

  A. Federal Reserve
  B. FINRA
  C. FDIC
  D. Treasury Department
  B. FINRA

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  Explanation

  FINRA: A self-regulatory organization responsible for regulating broker-dealers and their associated persons.

  Incorrect Options:

  A, C, and D: Have different regulatory roles unrelated to broker-dealer oversight.