FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 341:

  If a company with a single outstanding bond issue chooses to extinguish this debt through refunding, which of the following actions will occur?

  A. The company will issue stock to replace the bonds. The company will retire one debt with the proceeds from another issue.
  B. The company will buy back the bonds, at a discount, from the bondholders.
  C. The company will establish a sinking fund for use in making regular open-market purchases of the bonds.
  B. The company will buy back the bonds, at a discount, from the bondholders.

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  Explanation

  Refunding involves replacing existing debt with new debt, usually to take advantage of lower interest rates. B is correct because the company issues new bonds to pay off the existing debt. A is incorrect as refunding involves issuing debt, not equity. C is incorrect because the company is not obligated to buy back bonds at a discount. D is incorrect because a sinking fund is used for gradual repayment, not refunding.

  References:

  SIE Study Guide, Chapter 3: Corporate Bonds

• Question 342:

  A market maker quotes the market on an NMS equity security as 39.05 - 39.15 [5x10].

  Which of the following orders is the market maker required to fill?

  A. A sell stop order for 500 shares at $39.00
  B. A sell order for 300 shares at $39.05
  C. A buy order for 1,000 shares at $39.10
  D. A buy order for 2,000 shares at $39.15
  D. A buy order for 2,000 shares at $39.15

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  Explanation

  The quote indicates that the market maker is willing to buy 500 shares at $39.05 (bid) and sell 1,000 shares at $39.15 (ask). Market makers are required to honor their quoted size for orders that fall within their bid/ask prices. D is correct because the market maker is obligated to sell at least 1,000 shares at $39.15 as it falls within the quoted size and price. B is incorrect because the bid is at $39.05, not $39.00. C is incorrect because $39.10 does not match the ask price. A is invalid as a stop order would not activate at $39.00.

  References:

  Securities Exchange Act of 1934, Regulation NMS Rule 602

• Question 343:

  An investment company product that is actively managed and continuously offered is a description of which of the following products?

  A. Open-end fund
  B. Closed-end fund
  C. Variable annuity
  D. Unit investment trust (UIT)
  A. Open-end fund

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  Explanation

  The correct answer is A, Open-end fund. An open-end fund, commonly known as a mutual fund, is an investment company that is actively managed by a portfolio manager and continuously offers new shares to investors. This means that investors can buy shares directly from the fund at the fund's net asset value (NAV) at the end of each trading day, and the fund will issue new shares to meet demand. A key characteristic of open-end funds is that they are continuously offered, unlike closed-end funds, which issue a fixed number of shares in an initial public offering (IPO) and then trade on the secondary market like stocks. Additionally, open-end funds are typically actively managed, meaning the portfolio manager makes ongoing decisions to buy and sell securities in an effort to meet the fund's investment objectives. Choice B, Closed-end fund, is incorrect because these funds are not continuously offered and trade in the secondary market.

  Choice C, Variable annuity, is an insurance product, not an investment company under the Investment Company Act in the same way.

  Choice D, UIT, is not actively managed; it has a fixed portfolio. Thus, the description clearly matches an open-end fund, making choice A correct.

• Question 344:

  At which of the following prices does a 7% coupon bond have the highest current yield?

  A. 92
  B. 100
  C. 102
  D. 107
  A. 92

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  Explanation

  A bond's current yield is calculated as annual interest (coupon payment) divided by the bond's current market price. For a fixed-rate bond, the annual interest amount is based on the coupon rate times par value (typically $1,000 par). With a 7% coupon, annual interest is $70 per $1,000 of par value. Since the coupon payment is fixed, the current yield becomes higher when the purchase price is lower, because you are receiving the same $70 of annual interest while paying less for the bond. In this question, the possible market prices are 92, 100, 102, and 107 (quoted as percentages of par). A price of 92 means the bond costs $920 per $1,000 par. The current yield at 92 is $70 $920, which is higher than $70 $1,000 (at par), higher than $70 $1,020, and higher than $70 $1,070. Therefore, the bond has the highest current yield at the lowest price, which is 92. This question is testing a fundamental SIE relationship: for bonds, yield and price move inversely.

  While "current yield" is a simpler measure than yield to maturity (YTM) because it ignores time to maturity and any gain/loss if the bond is redeemed at par, it is still widely used as a quick comparison tool. The exam expects you to recognize that as price declines (discount), current yield rises; as price increases (premium), current yield falls-assuming the coupon rate is fixed. The SIE outline includes debt instrument basics such as coupon, par, yield, and price/yield relationships.

• Question 345:

  A real estate investment trust (REIT) is required to invest what percentage of total assets in real-estate-related assets to maintain favorable tax treatment?

  A. At least 50% of total assets
  B. At least 75% of total assets
  C. At least 90% of total assets
  D. 100% of assets
  B. At least 75% of total assets

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  Explanation

  REIT Requirements: REITs must invest at least 75% of their total assets in real estate to qualify for favorable tax treatment under IRS regulations. 90%

  Rule: Refers to the distribution requirement for taxable income, not asset allocation. 100%

  Rule: There is no requirement to allocate 100% of assets to real estate.

  IRS Publication 542 (Real Estate Investment Trusts): IRS REIT Guidelines.

• Question 346:

  Which of the following investments is least likely to provide an investor with funds within one business day of liquidation?

  A. A hedge fund
  B. Municipal bonds
  C. A money market fund
  D. An equity mutual fund
  A. A hedge fund

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  Explanation

  The correct answer is A, A hedge fund. Liquidity refers to how quickly an investor can convert an investment into cash. Hedge funds are known for being highly illiquid investments compared to traditional securities. They often impose lock-up periods, which restrict investors from withdrawing funds for a specified time (e.g., one year or more). Even after the lock-up period, withdrawals are typically only allowed at specific intervals (quarterly or annually), and advance notice is usually required. In contrast, the other choices offer significantly greater liquidity. Money market funds are among the most liquid investments, often allowing same-day or next-day access to funds. Equity mutual funds redeem shares at the end of the trading day (NAV), with proceeds typically available within one business day. Municipal bonds, while traded in the secondary market, can generally be sold and settled quickly (usually T+1), providing relatively prompt access to funds. Because hedge funds restrict redemptions and do not offer immediate liquidity, they are the least likely investment to provide funds within one business day. This makes them suitable only for investors who can tolerate limited access to their capital over extended periods.

• Question 347:

  Which of the following funds provides the highest liquidity for investors?

  A. Hedge funds
  B. Private equity funds
  C. Closed-end mutual funds
  D. Distressed securities funds
  C. Closed-end mutual funds

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  Explanation

  Among the choices, closed-end mutual funds generally provide the highest liquidity because their shares typically trade on an exchange in the secondary market, allowing investors to buy or sell during market hours at the prevailing market price. That exchange trading feature gives investors a practical "exit" mechanism that is often much more accessible than the redemption limitations found in private pooled vehicles. Therefore, C is correct. Hedge funds (choice A) are commonly subject to lock-up periods, limited redemption windows (monthly /quarterly), and other restrictions such as gates, so investors often cannot access their money on demand. Private equity funds (choice B) are typically among the least liquid investments, as capital is committed for long periods (often years), with distributions occurring as investments are sold; early exit may be difficult or only possible through limited secondary markets at a discount. Distressed securities funds (choice D) can also be illiquid because the underlying holdings may be thinly traded, complex, or subject to restructuring processes, and such funds may impose additional redemption restrictions depending on structure. A key SIE point: "liquidity" is not only about the underlying portfolio but also about the investor's ability to sell or redeem the investment. Closed-end funds offer a market-traded mechanism that generally provides more immediate liquidity than private funds, even though closed-end funds can trade at discounts/premiums and may have varying trading volumes. Still, compared with hedge funds/private equity, closed-end fund shares are typically the most liquid option listed.

• Question 348:

  Which of the following best describes a callable bond?

  A. The investor may demand early repayment
  B. The issuer may redeem the bond before maturity
  C. The bond converts into common stock
  D. The bond is backed by collateral
  B. The issuer may redeem the bond before maturity

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  Explanation

  Callable bonds allow the issuer to redeem the bond prior to maturity, typically when interest rates decline.

  References:

  SIE Study Guide, Bond Features

• Question 349:

  Under SEC Regulation D, which of the following parties is considered an accredited investor?

  A. A person whose joint income with their spouse exceeds $200,000 in each of the two most recent years and who has a reasonable expectation of reaching the same income level in the current year.
  B. A person whose net worth, excluding the net equity in their primary residence, exceeds $500,000 at the time of purchase.
  C. A person whose net worth, excluding the net equity in their primary residence, exceeds $1 million at the time of purchase.
  D. A charitable organization, partnership, or corporation whose assets exceed $2.5 million.
  C. A person whose net worth, excluding the net equity in their primary residence, exceeds $1 million at the time of purchase.

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  Explanation

  Definition of Accredited Investor: As per SEC Regulation D, Rule 501, an accredited investor includes: Individuals with a net worth exceeding $1 million (excluding primary residence equity). Individuals with an annual income exceeding $200,000 (or $300,000 jointly with a spouse) for the past two years. $500,000 threshold (option B) is too low to qualify under Regulation D. Option D is incorrect as it requires assets of $5 million, not $2.5 million.

  SEC Regulation D, Rule 501 (Accredited Investor Definition): SEC Regulation D.

• Question 350:

  Accrued bond interest at the time of sale is paid to the:

  A. buyer on the trade date.
  B. buyer, as it is deducted from the net proceeds.
  C. seller on the next payment date.
  D. seller, as it is added to the net proceeds.
  D. seller, as it is added to the net proceeds.

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  Explanation

  Bonds pay interest periodically (commonly semiannually). Between interest payment dates, interest accrues daily. When a bond is sold in the secondary market, the buyer will receive the full next interest payment from the issuer on the scheduled coupon date-even though the buyer did not hold the bond for the entire coupon period. To make this fair, the buyer compensates the seller for the portion of interest that accrued while the seller owned the bond. This compensation is called accrued interest, and it is paid by the buyer to the seller as part of the transaction's total cost. Operationally, in most bond trades the quoted price is "clean" (excluding accrued interest). The settlement amount is the "dirty" price: clean price + accrued interest. From the seller's perspective, accrued interest is added to the net proceeds of the sale, which is exactly what choice D states. Therefore, the correct answer is D.

  Choice A is incorrect because the buyer is not receiving accrued interest; the buyer is paying it.

  Choice B is incorrect because accrued interest is not deducted from the seller's proceeds; it is added.

  Choice C is incorrect because the seller does not wait until the next coupon date to receive their earned interest-accrued interest is settled in the trade. The bond issuer pays the coupon to the holder of record as of the relevant record date, which will be the buyer after settlement; the seller is compensated at settlement via accrued interest. This is a core SIE bond settlement concept: buyer pays seller accrued interest, and the seller's proceeds include it.