FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 321:

  An investor owns 200 shares of ABC common stock and sells four ABC calls.

  How many of those calls, if any, are covered by the ABC common stock position?

  A. None of the calls
  B. 1 call
  C. 2 calls
  D. 4 calls
  C. 2 calls

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  Explanation

  A call option is considered covered when the seller (writer) owns the underlying security in sufficient quantity to meet the delivery obligation if the option is exercised. In listed equity options, one options contract typically represents 100 shares of the underlying stock. Here, the investor owns 200 shares of ABC stock. That means the investor can cover two call contracts (2 x 100 shares = 200 shares). Since the investor sold four calls, only two of them are covered; the remaining two calls are uncovered (naked). Therefore, the correct answer is C. This question tests a fundamental options concept that is heavily emphasized on the SIE: understanding contract size, delivery obligations, and the risk difference between covered and uncovered strategies. If the covered calls are assigned, the investor can deliver the shares they already own, limiting the risk profile on those contracts. For the uncovered calls, if assigned, the investor would need to purchase shares in the market to deliver (or otherwise acquire them), which exposes the investor to potentially unlimited loss if the stock rises substantially above the strike price. The mechanics are straightforward: Shares owned: 200 Shares required per call contract: 100 Covered contracts = 200 100 = 2 This is also a subtle suitability/risk topic: selling uncovered calls is generally far riskier than selling covered calls, and firms often require higher options approval levels for uncovered writing. Understanding what makes an option "covered" is essential for evaluating both strategy intent and risk exposure.

• Question 322:

  Which of the following characteristics is associated with joint tenants with rights of survivorship (JTWROS) accounts?

  A. Realized gains are not taxable.
  B. Accounts are limited to two owners.
  C. Accounts are not subject to probate.
  D. Owners are subject to required minimum distributions.
  C. Accounts are not subject to probate.

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  Explanation

  A defining characteristic of joint tenants with rights of survivorship (JTWROS) is that when one owner dies, the deceased owner's interest passes automatically to the surviving owner(s) by operation of law. Because ownership transfers directly to the survivors, the assets in a JTWROS account are generally not subject to probate with respect to the deceased owner's interest. That is why C is correct. This feature is often a key motivation for choosing JTWROS registration: it can simplify transfer of assets at death and provide continuity of account ownership. Choice A is incorrect because realized gains in a taxable account are generally taxable regardless of registration type; JTWROS does not create a special exemption from taxation on realized gains.

  Choice B is incorrect because JTWROS is not limited to two owners; while many joint accounts have two owners, JTWROS can exist with multiple joint tenants depending on firm policy and state law.

  Choice D is incorrect because required minimum distributions (RMDs) apply to certain retirement accounts (like traditional IRAs and qualified plans), not to standard taxable joint brokerage registrations. JTWROS is an ownership /registration form, not a retirement account type.

  For SIE purposes, know the core registration effects:

  JTWROS: survivorship feature, bypasses probate for the deceased owner's share. Tenants in common (TIC): no survivorship; decedent's share passes via will/estate (probate). This question tests those basic estate-transfer and account registration distinctions that matter in customer account setup and expectations.

• Question 323:

  Which of the following securities entitles the holder to exercise control of the company?

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

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  Explanation

  The correct answer is A, Common stock. Common stockholders are the true owners of a corporation and have voting rights, which allow them to exercise control over the company. These voting rights typically include electing the board of directors and voting on major corporate matters such as mergers, acquisitions, and other significant policy decisions. This ability to influence corporate governance is what gives common stockholders control. In contrast, preferred stockholders generally do not have voting rights. While they have priority over common shareholders in receiving dividends and in liquidation, they do not participate in management decisions under normal circumstances. Corporate bondholders are creditors, not owners. They lend money to the corporation and receive interest payments, but they have no ownership or voting rights, and therefore no control over company decisions. Convertible bondholders also begin as creditors. Although they have the option to convert their bonds into common stock, they only gain voting rights after conversion. Until that point, they do not have control over the company. Therefore, only common stock provides direct ownership and voting power, making it the security that entitles the holder to exercise control of the company.

• Question 324:

  A customer and his two brothers want to Invest $30,000 to start an equity portfolio. Two of the brothers will Invest $7,500 each, and the other brother will invest S15,000 to start the account. In the event of death, each of them agrees that the assets should be passed on to their heirs proportionately.

  Which of the following types of accounts should the registered representative recommend to the customers?

  A. Tenants by the entirety
  B. Transfer-on-death (TOD)
  C. Joint tenants in common
  D. Joint tenants with right of survivorship (JTWROS)
  C. Joint tenants in common

• Question 325:

  A registered representative (RR) has a referral relationship with a family friend who is not affiliated with the financial industry.

  In the absence of a formal agreement, which of the following ways is the RR permitted to compensate the family friend for referrals?

  A. The RR is permitted to split commissions with the family friend.
  B. The RR is permitted to pay a flat-rate referral fee to the family friend.
  C. The RR is permitted to take the family friend out to dinner as a way to say thank you.
  D. The RR is permitted to give the family friend prepaid credit cards equal to 50% of the commissions earned on the referrals.
  C. The RR is permitted to take the family friend out to dinner as a way to say thank you.

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  Explanation

  FINRA prohibits the payment of referral fees or splitting of commissions with individuals who are not registered with a broker-dealer. However, taking a friend out to dinner as a gesture of gratitude is allowed, as it does not involve cash or monetary compensation directly tied to the referral. C is correct because non-monetary expressions of gratitude (like a dinner) are permitted under FINRA rules.

  A is incorrect because commission splitting with unregistered individuals is prohibited.

  B is incorrect because paying referral fees is also prohibited without registration. D is incorrect because giving prepaid credit cards tied to commission income violates compensation rules.

  References:

  FINRA Rule 2040 (Payment of Commissions to Unregistered Persons)

• Question 326:

  Which of the following is considered a defensive sector?

  A. Technology
  B. Consumer discretionary
  C. Utilities
  D. Industrials
  C. Utilities

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  Explanation

  Defensive Sectors: Utilities provide essential services and are less sensitive to economic cycles.

  Incorrect Options:

  A, B, and D: More cyclical sectors.

• Question 327:

  Which of the following statements is permissible for a registered representative (RR) to say to their customer?

  A. "This stock has a beta coefficient of 2.0; therefore, it will outperform the market."
  B. "Based on the firm's most recent 'Buy' recommendation, the firm will reimburse you in the unlikely event of a loss."
  C. "Having considered your risk tolerance, investment objectives and liquidity needs, I believe that an investment in Company XYZ is the best choice for you at this time."
  D. "Since your investment objective is preservation of capital, you should look at low-risk investments to minimize the chances of losing money. Considering the low-risk nature of investing in Company ABC, my firm has decided that it will guarantee against any downside, which makes this the best choice for you at this time."
  C. "Having considered your risk tolerance, investment objectives and liquidity needs, I believe that an investment in Company XYZ is the best choice for you at this time."

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  Explanation

  The permissible statement is C because it reflects a suitability-style recommendation that is grounded in the customer's investment profile-risk tolerance, objectives, and liquidity needs-without making improper guarantees or misleading claims. FINRA standards for communications and conduct require that recommendations be based on a reasonable basis and customer-specific suitability considerations. Statement C is framed as a professional recommendation after considering relevant customer factors, which is consistent with expected RR behavior. Statement A is not permissible as written because it makes a misleading inference: a beta of 2.0 indicates higher volatility relative to the market, not guaranteed outperformance. Beta measures sensitivity to market movements; it does not promise superior returns. Claiming it "therefore will outperform" is unjustified and could be misleading. Statement B is impermissible because it promises reimbursement in the event of a loss-this is effectively a guarantee against loss, which is prohibited. Broker-dealers and associated persons cannot guarantee investment results or reimburse losses as part of sales communications.

  Statement D is also impermissible because it contains an explicit guarantee against any downside and implies that a particular investment is "low-risk" in a way that can be misleading. Guarantees against loss (outside of very limited contexts like certain insurance guarantees within the contract terms of specific products) are prohibited in broker-dealer sales practice communications. On the SIE, this is tested under communications with the public, prohibited practices, and ethical standards: RRs must avoid guarantees and misleading performance assertions, while basing recommendations on customer needs and suitability considerations.

• Question 328:

  The use of company-specific financial and operating information that typically spans longer periods of time to evaluate an investment opportunity is known as which of the following types of analyses?

  A. Technical
  B. Economic
  C. Quantitative
  D. Fundamental
  D. Fundamental

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  Explanation

  The correct answer is D, Fundamental analysis. Fundamental analysis involves evaluating a company's financial statements, earnings, revenues, management quality, competitive position, and overall economic conditions to determine the intrinsic value of a security. This approach typically focuses on long-term investment horizons, as it seeks to identify whether a stock is undervalued or overvalued based on its underlying business performance. Fundamental analysts examine key financial metrics such as price-to-earnings (P/E) ratios, earnings growth, debt levels, and cash flow. They also consider broader factors like industry trends and macroeconomic conditions. Because it relies on detailed financial and operational data over time, it is best suited for investors looking to make long-term investment decisions. Choice A, Technical analysis, focuses instead on price patterns, charts, and trading volume, typically over shorter time frames, without regard to a company's financial health.

  Choice B, Economic analysis looks at broad macroeconomic factors like GDP, inflation, and interest rates, not individual companies.

  Choice C, Quantitative analysis uses mathematical and statistical models, often algorithm-driven, rather than company-specific qualitative and financial evaluation. Thus, the description clearly aligns with fundamental analysis, making choice

  D the correct answer.

• Question 329:

  A registered representative recommends an investment inconsistent with a customer's risk tolerance. This would most likely be a violation of:

  A. Registration requirements
  B. Suitability obligations
  C. Advertising rules
  D. Margin requirements
  B. Suitability obligations

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  Explanation

  FINRA suitability rules require recommendations to align with a customer's financial situation, objectives, and risk tolerance. Unsuitable recommendations violate these obligations.

  References:

  FINRA Suitability Rules

  SIE Study Guide

• Question 330:

  A customer is considering investing in a real estate investment trust (REIT).

  Which of the following is a key characteristic of REITs?

  A. They invest only in government securities
  B. They must distribute most of their income to shareholders
  C. They are exempt from all taxation
  D. They are only available to institutional investors
  B. They must distribute most of their income to shareholders

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  Explanation

  REIT Structure: REITs are required to distribute at least 90% of their taxable income to shareholders to maintain favorable tax treatment.

  Incorrect Options:

  A: REITs invest in real estate-related assets.

  C: They receive tax benefits but are not fully exempt.

  D: Available to retail investors.