FINRA FINRA-SIE Online Practice Questions and Exam Preparation

FINRA FINRA-SIE Online Questions & Answers

• Question 81:

  An investor generally purchases an open-end mutual fund from which of the following parties?

  A. The NYSE
  B. The fund's custodian
  C. The fund's underwriter
  D. An existing shareholder
  C. The fund's underwriter

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  Explanation

  Open-End Mutual Funds: Shares are purchased directly from the fund or its underwriter at the current Net Asset Value (NAV), plus any applicable sales charges.

  Custodian: Holds the fund's assets but does not sell shares.

  NYSE and Shareholders: Open-end funds do not trade on exchanges or between individual shareholders.

• Question 82:

  Which of the following is not a pass-through entity for tax purposes?

  A. A C corporation
  B. An S corporation
  C. A limited liability company (LLC)
  D. A real estate investment trust (REIT)
  A. A C corporation

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  Explanation

  A pass-through entity does not pay corporate income taxes; instead, income is passed to owners, who report it on their individual tax returns. A is correct because C corporations are not pass-through entities; they pay corporate taxes. B, C, and D are all pass-through entities for tax purposes.

  References:

  Internal Revenue Code, Subchapter S and REIT Taxation Rules

• Question 83:

  Company XYZ is a U.S.-based provider of domestic utility services. XYZ's noncallable bonds pay a coupon rate of 5% and are currently yielding 9%. Market interest rates are currently 5.5%.

  An investor who purchases XYZ bonds is most exposed to which of the following risks?

  A. Credit risk
  B. Political risk
  C. Currency risk
  D. Prepayment risk
  A. Credit risk

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  Explanation

  XYZ bonds have a yield higher than the coupon rate, indicating that their market price has decreased due to concerns about the issuer's creditworthiness. A is correct because the high yield suggests elevated credit risk. B is incorrect because domestic utility companies are unlikely to face political risk. C is irrelevant as the bonds are denominated in U.S. dollars. D is incorrect as prepayment risk is associated with callable bonds, not noncallable bonds.

  References:

  SIE Study Guide, Chapter 3: Fixed Income Securities

• Question 84:

  Under FINRA rules, which of the following events does not require a registered representative to update her Form U4 disclosure?

  A. Felony convictions
  B. Regulatory disciplinary actions
  C. Receipt of a deficiency letter after an internal compliance audit
  D. Any resolution of customer complaints involving payment of $15,000 or more
  C. Receipt of a deficiency letter after an internal compliance audit

• Question 85:

  When the index level and strike price of a listed index option are the same, the option is:

  A. In the money.
  B. At the money.
  C. Out of the money.
  D. Trading at intrinsic value only.
  B. At the money.

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  Explanation

  An option is considered "at the money" when the current price of the underlying asset (or index level) equals the option's strike price. B is correct because the index level equals the strike price. A is incorrect because "in the money" requires the option to have intrinsic value (e.g., for a call, the index level must be above the strike price). C is incorrect because "out of the money" applies when the index level is below the strike price (for calls) or above it (for puts). D is incorrect because "at the money" options have no intrinsic value.

  References:

  SIE Study Guide, Chapter 8: Options Fundamentals

• Question 86:

  Which of the following statements best describes the permissibility of a borrowing arrangement between a registered representative (RR) and a customer who is also the RR's grandfather?

  A. It is permissible subject to FINRA approval.
  B. It is permissible if the grandfather agrees in writing.
  C. It is permissible if the loan was made on commercially reasonable terms.
  D. It is permissible provided that the loan was made in accordance with the firm's policies.
  D. It is permissible provided that the loan was made in accordance with the firm's policies.

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  Explanation

  FINRA Rule 3240: Permits borrowing or lending arrangements between RRs and customers under specific conditions, including familial relationships, provided the arrangement complies with the firm's policies.

  Incorrect Options:

  A: FINRA approval is not required; firm approval is.

  B: A written agreement alone is insufficient without firm approval.

  C: Commercially reasonable terms are not the sole criterion for permissibility. FINRA Rule 3240 (Borrowing from or Lending to Customers): FINRA Rule 3240.

• Question 87:

  An increase in interest rates has which of the following effects on a municipal bond?

  A. A decrease in price
  B. An increase in price
  C. A decrease in the interest rate of the bond
  D. An increase in the interest rate of the bond
  A. A decrease in price

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  Explanation

  When interest rates rise, existing bond prices generally fall, and this relationship applies to municipal bonds just as it does to Treasuries and corporate bonds. The reason is competitive pricing in the market: newly issued bonds come to market offering higher yields (because prevailing rates are higher). To remain attractive, older bonds with lower coupon rates must trade at discounted prices so that their yield to an investor purchasing them today rises to a competitive level.

  Therefore, an increase in interest rates typically causes a decrease in the market price of an existing municipal bond, making

  choice A correct.

  Choice B is the opposite of the correct interest-rate/price relationship.

  Choice C and D are incorrect because the question asks about the effect on a municipal bond already issued. The bond's coupon rate (the stated interest rate on the bond) is fixed at issuance for most standard municipal bonds; market interest rates changing does not retroactively change the bond's coupon. What changes is the bond's market price and therefore its yield in the secondary market. This concept is core SIE bond math/relationships: price and yield move inversely, and bond sensitivity to rate changes increases with longer maturities and lower coupons (i.e., more duration). Municipal bonds also carry other risks (credit, call/prepayment features, liquidity), but the direct effect of a general rise in interest rates is a market-price decline due to the need to adjust yields to current levels. The SIE outline specifically expects understanding of debt instruments and the relationship between price and interest rates.

• Question 88:

  Which of the following statements is true about a corporation's balance sheet?

  A. It is also called a profit and loss statement.
  B. It summarizes a company's revenues and expenses for the firm's fiscal year.
  C. It lists a company's assets, liabilities, and net worth on the date the statement was prepared.
  D. It reports where a corporation's cash is being generated and where its cash is being spent for a specific period.
  C. It lists a company's assets, liabilities, and net worth on the date the statement was prepared.

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  Explanation

  Balance Sheet Definition: Shows a company's financial position at a specific point in time, listing assets, liabilities, and shareholders' equity (net worth).

  Other Financial Statements:

  Profit and Loss Statement: Summarizes revenues and expenses over a period.

  Cash Flow Statement: Tracks cash inflows and outflows.

  SEC Guide to Financial Statements: SEC Financials.

• Question 89:

  Under FINRA rules, which of the following events will prevent an individual from being eligible to register with a member firm?

  A. Credit score below 500
  B. Previous bankruptcy filing
  C. False statements on their Form U4
  D. More than 10 customer complaints
  C. False statements on their Form U4

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  Explanation

  The event that can prevent an individual from being eligible to register is making false statements on Form U4. Form U4 (Uniform Application for Securities Industry Registration or Transfer) is the foundational disclosure document used for registration and oversight of associated persons. FINRA and other regulators rely on the accuracy and completeness of U4 information to evaluate the applicant's background, disciplinary history, reportable events, and overall fitness.

  Submitting false information-or omitting required information-undermines the integrity of the registration process and can lead to denial of registration, disciplinary action, and, depending on the nature of the misstatement, potential statutory disqualification concerns. By contrast, a low credit score is not, by itself, a FINRA bright-line disqualifier for registration. Financial responsibility matters, but FINRA does not set a universal "minimum credit score" eligibility standard. A previous bankruptcy filing is a reportable event that may require disclosure and could trigger enhanced review or supervision; however, bankruptcy alone does not automatically make a person ineligible to register. Similarly, having more than 10 customer complaints is not automatically disqualifying without a determination of wrongdoing. Complaints can be reportable and may lead to investigations, but the number alone is not the key legal/registration barrier presented in this question. The SIE content emphasizes that misleading information or omissions in registration-related filings are serious compliance failures, because they directly impair regulators' ability to protect investors and supervise industry participants.

• Question 90:

  Which of the following responses describes an example of insider trading?

  A. A proprietary trader who trades in a security after an earnings announcement
  B. A company insider who sells their stock in the company on a predefined schedule
  C. A sales trader who violates firm policy by selling securities without receiving approval
  D. An attorney who trades based on information that he obtains in connection with providing services to a corporation
  D. An attorney who trades based on information that he obtains in connection with providing services to a corporation

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  Explanation

  The correct answer is D, An attorney who trades based on information obtained while providing services to a corporation. This is a classic example of insider trading, which involves trading securities based on material, nonpublic information (MNPI). Step-by-step, insider trading rules prohibit individuals from using confidential information that is not available to the public to gain an unfair advantage in the market. Attorneys, accountants, and consultants are considered temporary insiders when they have access to such information through their professional roles. Trading on that information violates securities laws and fiduciary duties. Choice A is not insider trading because the trade occurs after an earnings announcement, meaning the information is already public.

  Choice B is also not insider trading because trades made under a prearranged Rule 10b5-1 plan are permitted, even for insiders, as long as the plan was established when the insider did not possess MNPI.

  Choice C involves a violation of firm policy, but not insider trading, since it does not involve MNPI. Thus, using confidential, nonpublic information obtained through a professional relationship to trade securities is illegal insider trading, making Answer D correct.