FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 271:

  An investor purchases 100 shares of a no-load mutual fund at $20 per share. Three months later, the investor receives a $1 per share dividend that is reinvested at $25 per share.

  What is the investor ' s cost basis for the mutual fund shares after the reinvestment?

  A. $2,000
  B. $2,100
  C. $2,250
  D. $2,500
  B. $2,100

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  Explanation

  The correct answer is B, $2,100. Cost basis represents the total amount invested in a security, including reinvested dividends. It is critical for determining capital gains or losses when the investment is eventually sold. Step 1: Calculate the initial investment. The investor buys 100 shares at $20, resulting in: 100 x $20 = $2,000 Step 2: Calculate the dividend received. The investor receives a $1 per share dividend on 100 shares: 100 x $1 = $100 Step 3: Determine reinvestment.

  The $100 dividend is reinvested at $25 per share. This purchases: $100 $25 = 4 additional shares Step 4: Adjust cost basis. Even though the investor now owns more shares (104 total), the key point is that reinvested dividends are added to the cost basis because they are treated as new investments.

  Therefore: $2,000 (original investment) + $100 (reinvested dividend) = $2,100 The reinvestment price does not change the total cost basis amount-only the number of shares acquired. Thus, the investor's total cost basis after reinvestment is $2,100, making choice B correct.

• Question 272:

  A customer places a limit order to buy a stock at $25 when the current market price is $27.

  Which of the following statements is true?

  A. The order will be executed immediately at $27.
  B. The order will only execute if the price rises above $27.
  C. The order will execute at $25 or better.
  D. The order guarantees execution.
  C. The order will execute at $25 or better.

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  Explanation

  Limit Orders: A buy limit order is executed only at the specified price or lower, ensuring price control but not execution.

  Incorrect Options:

  A: That describes a market order.

  B: Incorrect direction.

  D: Limit orders do not guarantee execution.

• Question 273:

  Company XYZ files a registration statement for its initial public offering (IPO). XYZ is permitted to communicate all of the following information about the offering in writing to investors except that:

  A. The IPO is expected to price in early February.
  B. The IPO is being underwritten by Bank ABC and Bank DEF.
  C. A recent industry report supports the company's valuation.
  D. The road show will be held February 6?0 in New York and Boston.
  C. A recent industry report supports the company's valuation.

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  Explanation

  During the "quiet period" after filing the registration statement, issuers are restricted in what they can communicate to the public to avoid influencing the market. C is correct because promotional statements, such as those supporting the company's valuation, are prohibited during this time. A, B, and D are factual, non-promotional statements and are permitted.

  References:

  Securities Act of 1933, Section 5

  SEC Regulation S-K

• Question 274:

  After a customer purchases bonds at a yield of 5.00%, the current yield at market price increases to 5.25% .

  Which of the following statements is true regarding the value of the bonds?

  A. The value of the bonds has increased.
  B. The value of the bonds has decreased.
  C. The face value of the bonds has decreased.
  D. There is no change in the value of the bonds.
  B. The value of the bonds has decreased.

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  Explanation

  When bond yields rise, the price of existing bonds falls. This inverse relationship exists because the fixed coupon payments of the bonds become less attractive compared to new bonds issued at higher yields. B is correct because the bond's market value decreases as its yield increases. A is incorrect because bond values decrease, not increase, with rising yields. C is incorrect because the face value (par value) remains unchanged. D is incorrect because changes in yield directly affect the bond's market price.

  References:

  SIE Study Guide, Chapter 3: Bond Pricing and Yields

• Question 275:

  Corporate bonds are most impacted by which of the following types of risk?

  A. Credit risk
  B. Political risk
  C. Liquidity risk
  D. Currency risk
  A. Credit risk

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  Explanation

  Corporate bonds are most directly impacted by credit risk, making A the correct answer. Credit risk is the risk that the issuer will be unable to meet its promised obligations-specifically, the ability to make timely interest payments and repay principal at maturity. Because corporate issuers are private-sector entities, they carry a meaningful possibility of financial distress, earnings deterioration, increased leverage, or bankruptcy-factors that can widen credit spreads and push bond prices down. While interest rate risk affects all fixed-income securities, corporate bonds have an added layer of valuation sensitivity: changes in the issuer's perceived creditworthiness can significantly change the bond's yield and market price, even if Treasury yields are stable. This is why corporate bonds are commonly evaluated using credit ratings, spreads versus Treasuries, and issuer financial strength metrics.

  Choice B (political risk) may affect certain industries more than others, but it is not the defining risk type for corporate bonds overall.

  Choice C (liquidity risk) can matter-some corporate issues trade less frequently than Treasuries-but liquidity is typically not the primary driver compared with the issuer's credit profile.

  Choice D (currency risk) is relevant mainly when investing in bonds denominated in foreign currencies or when the investor's base currency differs from the bond's currency. Standard U.S. corporate bonds denominated in dollars generally do not expose a U.S. investor to currency risk. On the SIE, this is a foundational comparison: Treasuries = lowest credit risk, municipals depend on issuer /tax base or revenue pledge, and corporates = higher credit risk, often compensated by higher yields.

• Question 276:

  A customer buys stock and holds it for many years without selling.

  Which risk is most relevant over time?

  A. Inflation risk
  B. Settlement risk
  C. Call risk
  D. Prepayment risk
  A. Inflation risk

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  Explanation

  Inflation Risk: Over long periods, inflation can erode the real value of investment returns.

  Incorrect Options:

  B: Short-term process risk.

  C & D: Apply to bonds.

• Question 277:

  The provision that allows a bond issuer to purchase bonds from customers prior to the maturity date on the bond is known as a:

  A. Put
  B. Call
  C. Conversion
  D. Defeasement
  B. Call

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  Explanation

  Call Provision: This allows the issuer to redeem bonds before their maturity date, usually at a premium to the par value, which benefits the issuer in a declining interest rate environment.

  Put Provision: Allows bondholders, not issuers, to sell the bond back to the issuer.

  Conversion: Relates to convertible bonds that can be converted into equity.

  Defeasement: Refers to the removal of a bond issuer's obligation by setting aside cash or securities to

  cover the debt.

  SEC Guide on Callable Bonds: SEC Callable Bonds.

• Question 278:

  Which of the following statements is true of an index exchange-traded fund (ETF)?

  A. It has a high portfolio turnover ratio.
  B. It is priced once daily, generally at the market close.
  C. It offers an opportunity to outperform the index it tracks.
  D. Passive ETFs will typically have lower fees than those associated with actively managed ETFs.
  D. Passive ETFs will typically have lower fees than those associated with actively managed ETFs.

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  Explanation

  Passive ETFs track an index and require minimal management, leading to lower expenses compared to actively managed ETFs. D is correct because passive ETFs are cost-efficient and have lower fees. A is incorrect because index ETFs have low turnover since they replicate an index. B is incorrect because ETFs are priced continuously throughout the trading day. C is incorrect as ETFs aim to match, not outperform, the index.

  References:

  SIE Study Guide, Chapter 7: Exchange-Traded Funds

• Question 279:

  When are registered persons required to fulfill their Continuing Education (CE) Regulatory Element requirement?

  A. Annually
  B. Semiannually
  C. After the initial three-year requirement and then every two years
  D. Upon the receipt of a customer complaint
  C. After the initial three-year requirement and then every two years

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  Explanation

  FINRA's Continuing Education (CE) requirements include the Regulatory Element, which must be completed: Within 120 days of the second anniversary of a registered representative's initial registration. Every three years thereafter (changed to every two years as of 2023). C is correct because registered persons must complete the CE Regulatory Element after their initial requirement and then every two years. A and B are incorrect because CE is not required annually or semiannually. D is incorrect because CE is not tied to customer complaints.

  References:

  FINRA Rule 1240 (Continuing Education Requirements)

• Question 280:

  Which of the following account types should two people use if they want to maintain control over their portion of the investment without needing the other owner ' s consent?

  A. Trust
  B. Tenants in common
  C. Tenants by the entirety
  D. Joint tenants with right of survivorship (JTWROS)
  B. Tenants in common

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  Explanation

  The correct answer is B, Tenants in common. This type of account allows multiple owners to hold separate and distinct ownership interests in the same account. Each owner can control, sell, or transfer their individual portion without requiring consent from the other co-owner(s). Additionally, ownership percentages do not need to be equal, and each owner's interest can be passed to their heirs upon death. In contrast, Joint Tenants with Right of Survivorship (JTWROS) (choice

  D. requires equal ownership interests, and when one owner dies, their share automatically passes to the surviving owner(s). Importantly, actions in the account generally require joint participation, limiting independent control. Tenants by the entirety (choice

  C. is similar to JTWROS but is limited to married couples and also does not allow unilateral control over a portion of the account. A trust account (choice

  A. involves a trustee managing assets on behalf of beneficiaries and does not provide individual ownership control in the same sense as joint accounts. Therefore, for investors who want independent control over their respective shares without needing approval from the other owner, a tenants in common account is the most appropriate choice, making answer B correct.