FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 381:

  Which of the following types of stock refers to the maximum number of shares a corporation is legally permitted to issue, as specified in its articles of incorporation?

  A. Issued stock
  B. Treasury stock
  C. Restricted stock
  D. Authorized stock
  D. Authorized stock

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  Explanation

  Authorized stock is the maximum number of shares a corporation is legally permitted to issue under its corporate charter (articles of incorporation). That is why choice D is correct. The authorized share count is established when the company is formed and can typically be changed later only through proper corporate procedures (often requiring board approval and shareholder approval, depending on jurisdiction and governing documents). The purpose is to define the company's legal capacity to issue shares for capital raising, compensation plans, acquisitions, and other corporate needs. Choice A, issued stock, refers to shares that have actually been sold/issued by the corporation to shareholders. Issued shares are always less than or equal to authorized shares.

  Choice B, treasury stock, refers to shares that were previously issued and outstanding but have been repurchased by the corporation and are held in the company's treasury; treasury shares are not outstanding and typically have no voting rights or dividend rights while held by the issuer.

  Choice C, restricted stock, refers to shares subject to resale restrictions (often associated with Rule 144 or insider/control stock concepts), not the legal maximum number of shares. This question is a straightforward corporate equity definition commonly tested on the SIE because it links to shareholder rights, corporate actions, and capitalization structure. Candidates should clearly distinguish: Authorized = legal limit the company may issue Issued = shares the company has sold/issued Outstanding = issued minus treasury (shares held by public) Treasury = repurchased shares held by the issuer Understanding these terms helps when analyzing corporate filings, dilution, and equity financing decisions.

• Question 382:

  The FINRA Suitability Rule obligations apply to:

  A. recommendations to hold a specific security position.
  B. descriptive information about an employer-sponsored retirement or benefit plan.
  C. asset allocation models that are based on generally accepted investment theories.
  D. general financial and investment information, including basic investment concepts.
  A. recommendations to hold a specific security position.

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  Explanation

  FINRA's suitability obligations apply when there is a recommendation-including a recommendation to hold a specific security or investment strategy-so A is correct. Suitability is triggered not by general education, but by advice that can reasonably be viewed as urging a customer to take action (buy, sell, or hold) regarding a particular security, account type, or strategy. A "hold" recommendation matters because it can influence a customer's decision to maintain exposure and forgo alternative actions; therefore, it carries the same expectation that the recommendation aligns with the customer's investment profile. Choices B, C, and D are generally framed as non-recommendation communications when presented as purely educational or broadly informational. Descriptive information about an employer plan (choice B) can be educational and may not be a recommendation if it's factual and not individualized. Asset allocation models based on generally accepted theories (choice C) can be non-recommendation tools when generic and not tailored; however, if a model is personalized or used to steer a specific customer into specific investments, it can become a recommendation. General financial information and basic concepts (choice

  D. are classic examples of communications that, by themselves, do not typically trigger suitability because they do not direct a customer to a specific action or security. On the SIE, the key test point is "what constitutes a recommendation." Once the communication crosses into recommending a specific action (including holding) tied to the customer, suitability obligations apply, including knowing the customer and ensuring the recommendation fits objectives, risk tolerance, time horizon, and liquidity needs.

• Question 383:

  Which of the following responses describes a warrant?

  A. An interest-paying security
  B. Redemption rights for a debt instrument
  C. The right to purchase a specified amount of shares
  D. A fixed-income security issued by a state or municipality
  C. The right to purchase a specified amount of shares

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  Explanation

  Warrants: These are long-term options issued by a company that give the holder the right to buy shares at a specific price before expiration. They are typically attached to bond or stock offerings to make them more attractive.

  Incorrect Options:

  A: Warrants do not pay interest.

  B: Refers to callable bonds, not warrants.

  D: Describes municipal bonds, not warrants.

  SEC Guide to Warrants and Options: SEC Warrants Information.

• Question 384:

  If a bond is selling at a premium, which of the following statements is true?

  A. Current value is less than par value.
  B. Coupon rate is less than current yield.
  C. Coupon rate is less than yield to maturity (YTM).
  D. YTM is less than coupon rate.
  D. YTM is less than coupon rate.

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  Explanation

  The correct answer is D, YTM is less than coupon rate. When a bond is selling at a premium, it means the bond's market price is above its par value. This occurs when the bond's coupon rate is higher than prevailing market interest rates, making the bond more attractive to investors. Step-by-step, premium bond relationships follow a consistent pattern: Coupon rate > Current yield > Yield to maturity (YTM) This happens because investors are paying more than par value for the bond but will only receive par at maturity. The excess paid (premium) reduces the overall return, causing the YTM to be the lowest yield measure. Choice A is incorrect because a premium bond has a market value greater than par, not less.

  Choice B is incorrect because the coupon rate is always higher than current yield for premium bonds.

  Choice C is incorrect because the coupon rate is also higher than YTM, not lower. Thus, the defining characteristic of a premium bond is that its yield to maturity is less than its coupon rate, making Answer D correct.

• Question 385:

  Which of the following responses describes treasury stock?

  A. Authorized but unissued stock
  B. Restricted stock owned by officers
  C. Stock subsequently reacquired by the issuer
  D. U.S. government securities held by a corporation
  C. Stock subsequently reacquired by the issuer

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  Explanation

  Treasury stock refers to shares that were issued by a company and subsequently repurchased by the company. These shares are held in the company's treasury and are not considered outstanding. C is correct because treasury stock is stock reacquired by the issuer. A is incorrect because authorized but unissued stock has never been issued. B is incorrect because restricted stock refers to shares issued with restrictions on transferability, not reacquired stock. D is incorrect because it incorrectly refers to government securities, not corporate stock.

  References:

  SIE Study Guide, Chapter 5: Corporate Securities

• Question 386:

  The civil penalty for an individual who is convicted of an insider trading violation is permitted to be an amount up to how many times the profit gained or loss avoided?

  A. 1 time
  B. 3 times
  C. 6 times
  D. 10 times
  B. 3 times

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  Explanation

  Under the Insider Trading and Securities Fraud Enforcement Act of 1988, the SEC may impose a civil penalty of up to three times the profit gained or loss avoided (referred to as "treble damages") on individuals found guilty of insider trading.

  B is correct because treble damages equal three times the profit or avoided loss. A is incorrect because the penalty is not limited to one time the profit. C and D are incorrect because the penalty is capped at three times, not six or ten times.

  References:

  Insider Trading and Securities Fraud Enforcement Act of 1988

• Question 387:

  Which of the following products is the most appropriate class of investments for a customer looking for income and capital gains?

  A. A growth stock
  B. A money market account
  C. A blue-chip stock mutual fund
  D. Treasury Separate Trading of Registered Interest and Principal of Securities (STRIPS)
  C. A blue-chip stock mutual fund

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  Explanation

  Blue-Chip Stock Mutual Funds: Invest in large, established companies that typically provide stable dividend income and potential for capital appreciation.

  Incorrect Options:

  A: Growth stocks prioritize capital appreciation, not income.

  B: Money market accounts focus on safety and liquidity, not capital gains.

  D: STRIPS provide fixed income without capital gains potential.

  FINRA Investment Product Education: FINRA Investment Guidance.