FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 61:

  Which of the following account registration types is subject to probate upon the death of the account owner?

  A. Individual
  B. Irrevocable trust
  C. Transfer-on-death (TOD)
  D. Joint tenants with right of survivorship (JTWROS)
  A. Individual

  ---

  Explanation

  Accounts held individually are subject to probate, which is the legal process of administering the decedent's estate. Probate determines the distribution of assets according to the deceased's will or state intestacy laws. A is correct because individual accounts require probate to transfer assets. B is incorrect because irrevocable trusts bypass probate. C is incorrect because TOD accounts allow direct transfer of assets to named beneficiaries without probate. D is incorrect because JTWROS accounts transfer ownership to the surviving account holder automatically.

  References:

  SIE Study Guide, Chapter 9: Account Ownership and Beneficiary Designations

• Question 62:

  Which of the following securities receives the highest priority in case of a bankruptcy?

  A. Rights
  B. Common stock
  C. Preferred stock
  D. American Depositary Receipts (ADRs)
  C. Preferred stock

• Question 63:

  A customer purchases 100 shares of stock on Thursday, August 2. This transaction must settle regular way no later than:

  A. Friday, August 3
  B. Monday, August 6
  C. Tuesday, August 7
  D. Wednesday, August 8
  B. Monday, August 6

  ---

  Explanation

  Regular-Way Settlement: For equity securities, settlement occurs on a T+2 basis, meaning two business days after the trade date.

  Calculation:

  Trade Date (T): Thursday, August 2.

  T+2 Settlement: Excludes weekends, so settlement falls on Monday, August 6.

  A: Reflects T+1, not the correct settlement cycle.

  C & D: Extend beyond the standard T+2 cycle.

  FINRA and SEC Settlement Rules: SEC Settlement Rules.

• Question 64:

  What is the current yield of a bond trading at $1,100 with a par value of $1,000 and coupon of 8.00%?

  A. 7.00%
  B. 7.27%
  C. 7.77%
  D. 8.00%
  B. 7.27%

  ---

  Explanation

  The correct answer is B, 7.27%. Current yield measures the annual income (coupon interest) relative to the bond's current market price, not its par value. Step-by-step calculation: First, determine the annual interest payment (coupon):Coupon rate x Par value = 8% x $1,000 = $80 annual interest Next, divide the annual interest by the current market price:Current yield = Annual interest / Market price= $80 / $1,100 Perform the calculation:$80 $1,100 = 0.0727, or 7.27% This result shows that when a bond trades at a premium (above par), its current yield is lower than the coupon rate. This is because investors are paying more than $1,000 but still only receiving $80 annually. Choice A (7.00%) is incorrect because it underestimates the yield.

  Choice C (7.77%) is incorrect and does not match the formula.

  Choice D (8.00%) represents the coupon rate, not the current yield. Thus, the correct current yield is 7.27%, making Answer B correct.

• Question 65:

  An investor sells a bond prior to maturity at a price higher than purchase price. This gain is classified as:

  A. Interest income
  B. Dividend income
  C. Capital gain
  D. Return of capital
  C. Capital gain

  ---

  Explanation

  Capital Gain: Occurs when a security is sold for more than its purchase price.

  Incorrect Options:

  A: From bond interest payments.

  B: From stock dividends.

  D: Not applicable.

• Question 66:

  If an investor is bullish on ABC, which of the following actions will he most likely take?

  A. Buy ABC puts
  B. Buy ABC stock
  C. Sell ABC calls
  D. Sell ABC stock short
  B. Buy ABC stock

  ---

  Explanation

  the investor to profit.

  Incorrect Options:

  A: Buying puts is a bearish strategy.

  C: Selling calls benefits from stable or declining prices.

  D: Selling short is a bearish strategy anticipating a price drop.

  FINRA Guidance on Market Strategies: FINRA Trading Basics.

• Question 67:

  Assuming yields are held constant, which of the following statements describes what will occur as a discount bond reaches maturity?

  A. Its price increases.
  B. Its price decreases.
  C. Its par value increases.
  D. Its par value decreases.
  A. Its price increases.

  ---

  Explanation

  Discount Bonds: These are issued or traded below par value. Over time, their price moves closer to par as they approach maturity, assuming yields remain constant.

  Other Options:

  Par Value Changes: The par value of a bond does not change over time; only its price fluctuates.

  SEC and FINRA Bond Basics: SEC Discount Bonds.

• Question 68:

  Which of the following agencies publishes the list used by broker-dealers to verify that customers are not known money launderers, terrorists or others deemed ineligible to open an account at a financial institution?

  A. The SEC
  B. The IRS
  C. The FBI
  D. The Office of Foreign Assets Control (OFAC)
  D. The Office of Foreign Assets Control (OFAC)

• Question 69:

  Which of the following responses describes a collateralized mortgage obligation (CMO) tranche?

  A. The yield a customer should expect if the CMO is held to maturity
  B. The estimated average life of the CMO expressed in years and months
  C. A slice of the investment representing a coupon rate, maturity date, and credit rating
  D. The method of underwriting used by the issuer to securitize the loans in the portfolio
  C. A slice of the investment representing a coupon rate, maturity date, and credit rating

  ---

  Explanation

  CMOs are divided into tranches, which are portions of the pool of mortgage-backed securities. Each tranche has its own characteristics, including coupon rate, maturity date, and credit rating, tailored to meet the needs of different investors. C is correct because tranches represent slices of the investment with specific terms. A is incorrect because the yield depends on prepayment rates and interest rate changes. B is incorrect as average life is an estimate, not a defining characteristic of a tranche. D is incorrect because underwriting is unrelated to the definition of a tranche.

  References:

  SIE Study Guide, Chapter 3: Collateralized Mortgage Obligations (CMOs)

• Question 70:

  The primary function of a mutual fund custodian is to:

  A. manage the fund ' s investments.
  B. buy and sell securities for the fund.
  C. hold the fund ' s cash and securities.
  D. act as transfer agent for the fund shares.
  C. hold the fund ' s cash and securities.

  ---

  Explanation

  The correct answer is C, hold the fund's cash and securities. A mutual fund custodian is a financial institution, typically a bank, responsible for the safekeeping of the fund's assets. This includes maintaining custody of the fund's securities (such as stocks and bonds) as well as holding its cash. The custodian ensures that assets are secure, properly recorded, and protected from theft or misuse. It is important to distinguish the custodian's role from other service providers. The investment adviser or portfolio manager (choice

  A. is responsible for making investment decisions and managing the portfolio. The broker-dealer (choice

  B. executes trades by buying and selling securities on behalf of the fund. The transfer agent (choice

  D. handles recordkeeping functions related to shareholder accounts, such as processing purchases, redemptions, and maintaining ownership records. The custodian plays a critical oversight and control function, helping ensure compliance with regulatory requirements and protecting investors' assets. This separation of duties is a key safeguard in the mutual fund industry, reducing the risk of fraud or mismanagement. Thus, the primary role of the custodian is safekeeping, making choice C the correct answer.