FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 71:

  A customer purchased 100 shares of Company XYZ stock for $10 per share. The stock paid an annual cash dividend of $1 per share. The customer sells his 100 shares three years later for $15 per share.

  Which of the following amounts is the total pretax return on his investment?

  A. $300
  B. $500
  C. $800
  D. $1,800
  C. $800

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  Explanation

  The correct answer is C, $800. Total pretax return includes both capital gains and dividend income over the holding period. Step 1: Calculate the initial investment. 100 shares x $10 = $1,000 Step 2: Calculate the sale proceeds. 100 shares x

  $15 = $1,500 Step 3: Determine the capital gain.

  $1,500 # $1,000 = $500 capital gain Step 4: Calculate total dividends received. The stock pays $1 per share annually for 3 years: $1 x 100 shares x 3 years = $300 dividends Step 5: Add total return. $500 (capital gain) + $300 (dividends) =

  $800 total pretax return Choice A ($300) only reflects dividends.

  Choice B ($500) only reflects capital gain.

  Choice D ($1,800) incorrectly adds total proceeds instead of profit. For SIE exam purposes, always remember: Total return = Capital gain/loss + Income (dividends or interest) Thus, the investor's total pretax return is $800, making

  choice C correct.

• Question 72:

  Which of the following is the term for a filing for a distribution of securities in which the issuer has up to three years after the effective date of registration to sell the securities?

  A. Shelf registration
  B. Primary offering
  C. Standby underwriting
  D. Preliminary registration
  A. Shelf registration

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  Explanation

  A shelf registration allows an issuer to register securities with the SEC and then sell them over time-rather than all at once-after the registration statement becomes effective. Under shelf registration rules (commonly associated with SEC Rule 415 in practice), the issuer can generally offer and sell registered securities on a delayed or continuous basis within a permitted window (often tested as "up to three years" for exam purposes). That description exactly matches choice A.

  Choice B (primary offering) is too general; it refers to a sale of new securities by an issuer, but it does not specifically mean the issuer can sell them over time for up to three years.

  Choice C (standby underwriting) is a type of underwriting commitment often associated with rights offerings, where an underwriter agrees to purchase unsubscribed shares-again, not the filing mechanism described.

  Choice D (preliminary registration) is not the standard term for this process; while preliminary prospectuses exist, the shelf concept is a specific registration approach. Shelf registration is significant because it provides issuers flexibility to access capital markets when conditions are favorable-issuing debt or equity in tranches without repeating a full registration process for each sale. It can reduce time-to-market and administrative burdens, and it allows for strategic financing (e.g., issuing when rates drop or when valuation improves). On the SIE, the main expectation is recognizing the definition and purpose: register now, sell later, within the allowed period.

• Question 73:

  Which of the following corporate actions is voluntary for the investor?

  A. A stock split
  B. A full merger
  C. A tender offer
  D. A pre-refunding
  C. A tender offer

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  Explanation

  The correct answer is C, A tender offer. A tender offer is considered a voluntary corporate action because it gives shareholders the choice to participate or not. In a tender offer, a company or third party offers to purchase shares from existing shareholders at a specified price, usually at a premium to market value. Investors can decide whether to tender (sell) their shares. Step-by-step, voluntary corporate actions require active participation or decision-making by the investor. If the investor does nothing, no action is taken on their behalf. Choice A, a stock split, is a mandatory corporate action-all shareholders are automatically affected, and no decision is required.

  Choice B, a full merger, is also mandatory once approved, as shareholders are typically required to exchange their shares for new securities or cash.

  Choice D, pre-refunding, is related to municipal bonds and is not a voluntary action for investors; it involves the issuer setting aside funds to retire debt early. Thus, the only option where the investor has control and discretion to participate is a tender offer, making Answer C correct.

• Question 74:

  Which of the following is the primary risk of using asset allocation models without periodic rebalancing?

  A. Inflation
  B. Marketability
  C. Overweighting
  D. Interest rate risk
  C. Overweighting

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  Explanation

  Rebalancing: Ensures that a portfolio remains aligned with its target allocation. Without rebalancing, outperforming assets can become overweighted, increasing exposure to specific risks.

  Incorrect Options:

  Inflation: Impacts purchasing power but isn't tied to rebalancing.

  Marketability: Refers to liquidity and isn't linked to allocation models.

  Interest Rate Risk: Relates to fixed-income investments and isn't directly addressed by allocation models. :

  SEC Investor Bulletin on Asset Allocation: SEC Asset Allocation.

• Question 75:

  An investor wants to purchase mutual fund shares, but she is concerned about the tax efficiency of the fund.

  Which of the following disclosures required under industry regulations will help the investor make an informed decision?

  A. The fund's turnover ratio
  B. Sales charges and breakpoint discount opportunities
  C. The commissions that the fund pays on each transaction
  D. Projections of future dividend and capital gains distributions
  A. The fund's turnover ratio

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  Explanation

  Turnover Ratio: Indicates how frequently the fund manager buys and sells securities. A high turnover ratio may result in higher capital gains distributions, impacting tax efficiency.

  Incorrect Options:

  B: Sales charges affect cost but not tax efficiency.

  C: Commission details are unrelated to the fund's tax efficiency.

  D: Projections of distributions are speculative and not disclosed under regulations.

• Question 76:

  A bankers ' acceptance is a credit investment that is:

  A. a long-term investment.
  B. issued by a broker-dealer.
  C. not guaranteed by a bank.
  D. used in importing/exporting.
  D. used in importing/exporting.

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  Explanation

  The correct answer is D, used in importing/exporting. A banker's acceptance (BA) is a short-term credit instrument that is commonly used in international trade transactions to facilitate imports and exports. Step-by-step, a banker's acceptance is essentially a time draft (a promise to pay) that has been guaranteed by a bank. This guarantee makes the instrument highly secure and marketable. In a typical transaction, an importer's bank guarantees payment to an exporter at a future date, ensuring that the exporter will receive funds even if the importer defaults. Choice A is incorrect because banker's acceptances are short-term instruments, typically maturing in less than 270 days.

  Choice B is incorrect because they are issued and guaranteed by banks, not broker-dealers.

  Choice C is incorrect because the defining feature of a BA is that it is guaranteed by a bank, which enhances its credit quality. Because of this structure, banker's acceptances are widely used to reduce risk in international trade, providing assurance to both buyers and sellers across different countries. Thus, banker's acceptances are primarily used in import/export transactions, making Answer D correct

• Question 77:

  Rising economic activity is most likely to increase revenues of which of the following sectors?

  A. Utilities
  B. Healthcare
  C. Consumer staples
  D. Consumer discretionary
  D. Consumer discretionary

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  Explanation

  Consumer Discretionary Sector: Includes products and services that are not essential, such as luxury items, travel, and entertainment. Revenues increase as disposable income rises during economic expansion.

  Consumer Staples and Utilities: These sectors are defensive and less impacted by economic cycles.

  Healthcare: Also less correlated with economic cycles due to its essential nature.

  SEC and FINRA Guidance on Sectors: Investopedia Sector Overview.

• Question 78:

  What is the minimum maintenance requirement for a long margin account containing only common stock?

  A. 5%
  B. 25%
  C. 50%
  D. 75%
  B. 25%

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  Explanation

  The correct answer is B, 25%. The minimum maintenance requirement for a long margin account holding common stock is established by FINRA Rule 4210, which requires that investors maintain at least 25% equity in the account relative to the current market value of the securities. This requirement is different from the initial margin requirement, which is set by Regulation T of the Federal Reserve and is typically 50% for purchasing securities. Once the position is established, the maintenance requirement ensures that the investor continues to have sufficient equity in the account to support the borrowed funds. If the equity in the account falls below 25% due to a decline in the value of the securities, the investor will receive a maintenance (margin) call, requiring them to deposit additional funds or securities to bring the account back into compliance. Choice A (5%) is far too low and not a regulatory standard.

  Choice C (50%) refers to initial margin, not maintenance.

  Choice D (75%) is not a recognized requirement. Thus, the correct minimum maintenance requirement for long margin accounts with common stock is 25%, making

  choice B correct.

• Question 79:

  When exercised, an option written on which of the following items must be settled in cash?

  A. Equity index
  B. Preferred stock
  C. Master limited partnership
  D. Exchange-traded funds (ETFs)
  A. Equity index

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  Explanation

  Equity Index Options: These are cash-settled because the underlying asset is not a physical security but a theoretical value representing the index.

  Incorrect Options:

  Preferred Stock, Master Limited Partnerships, and ETFs: These involve physical delivery of the underlying asset upon exercise.

  Options Clearing Corporation (OCC) Guidelines: OCC Cash-Settled Options.

• Question 80:

  A confirmation indicates a 100-share purchase of Company ABC at $11.

  According to SEC rules, which of the following information is required to be stated on the confirmation?

  A. The firm's cost basis in the security
  B. The firm's inventory level at the time of trade execution
  C. That the firm did not act as a market maker in the security
  D. The capacity in which the firm acted when executing the trade
  D. The capacity in which the firm acted when executing the trade

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  Explanation

  SEC Rule 10b-10: Requires trade confirmations to disclose the capacity in which the firm acted (e.g., as agent or principal) and details like trade price, quantity, and commissions.

  Incorrect Options:

  A: Cost basis is not disclosed on trade confirmations.

  B: Inventory levels are not part of the required disclosures.

  C: Market maker status is not explicitly required in the confirmation.