Free SIE Practice Questions

Question 1

Whitfield Grocers raises money by selling two million newly issued shares to investors through an underwriting syndicate, with the sale proceeds going to the company. This transaction takes place in the:

Accepted Answer

Primary market

Answer

Secondary market

Answer

Third market

Answer

Fourth market

Question 2

Congress passes a bill cutting federal income tax rates to stimulate a slowing economy. This is an example of:

Accepted Answer

Fiscal policy

Answer

Monetary policy

Answer

An open-market operation

Answer

A change in the discount rate

Question 3

Ridgemont Analytics goes public through a firm-commitment underwriting. Weak demand leaves part of the issue unsold. Who bears the loss on the unsold shares?

Accepted Answer

The underwriting syndicate, which already bought the entire issue as principal

Answer

Ridgemont Analytics, which takes the unsold shares back

Answer

The investors who purchased shares in the offering

Answer

No one; the offering simply stays open until every share sells

Question 4

An economist wants an early signal of where the economy is likely to be six months from now. Which indicator should she watch?

Accepted Answer

Building permits for new private homes

Answer

Average duration of unemployment

Answer

The average prime rate charged by banks

Answer

Industrial production

Question 5

An investor wants regular income with the lowest possible credit risk. Which investment best fits?

Accepted Answer

A 10-year Treasury note

Answer

An investment-grade corporate bond

Answer

A high-yield corporate bond

Answer

A preferred stock from a regional bank

Question 6

Shortly after an investor buys a 20-year bond with a 5% coupon, market interest rates rise. The bond's market price will:

Accepted Answer

Fall

Answer

Rise, because the coupon is now more attractive

Answer

Stay the same, because the coupon rate is fixed

Answer

Rise or fall depending on the issuer's credit rating

Question 7

A company plans to raise capital by issuing new common shares. Preemptive rights entitle its existing shareholders to:

Accepted Answer

Buy new shares before the public, in proportion to what they already own

Answer

Receive the new shares at no cost

Answer

Exchange their common shares for preferred shares

Answer

Vote on whether the new shares may be issued at all

Question 8

Cash ran tight at Kestrel Industries last year, and the company paid nothing on its cumulative preferred stock, which carries a $2 annual dividend. This year the board wants to resume dividends on the common. Before any common dividend is paid, each preferred share must receive:

Accepted Answer

$4, last year's skipped dividend plus this year's

Answer

$2, covering this year only

Answer

Nothing, because skipped preferred dividends are permanently lost

Answer

Interest on the missed dividend at the stated rate

Question 9

An investor enters an order to buy shares of an open-end mutual fund at 2:00 pm Eastern. The price the investor pays is based on:

Accepted Answer

The next NAV the fund computes after the order, normally that day's 4:00 pm close

Answer

The fund's NAV computed at the previous day's close

Answer

The average of the fund's bid and ask prices during the afternoon

Answer

A price negotiated between the investor and the fund sponsor

Question 10

Which feature distinguishes an ETF from a traditional open-end mutual fund?

Accepted Answer

Its shares trade on an exchange all day at market prices

Answer

It holds a diversified portfolio of securities

Answer

It is professionally managed

Answer

It is regulated under the Investment Company Act of 1940

Question 11

Which statement about a corporate zero-coupon bond is TRUE?

Accepted Answer

It is bought at a discount and pays its face value at maturity, with no interim payments

Answer

It pays semiannual interest at a reduced rate

Answer

It always trades at par value

Answer

Its holder owes no tax until the bond matures

Question 12

A municipal bond that will be repaid from tolls collected on the highway it financed is a:

Accepted Answer

Revenue bond

Answer

General obligation bond

Answer

Double-barreled bond

Answer

Pre-refunded bond

Question 13

An investor pays $9,750 for a 26-week Treasury bill with a $10,000 face value. Her return on this investment comes from:

Accepted Answer

Receiving the full $10,000 at maturity, $250 more than she paid

Answer

Semiannual coupon payments at the bill's stated rate

Answer

Quarterly dividend distributions

Answer

Selling the bill above face value once interest rates rise

Question 14

Marisol buys one WXY 50 call option at a premium of 3. Her maximum possible loss on the position is:

Accepted Answer

$300

Answer

$500

Answer

$4,700

Answer

Unlimited

Question 15

Dolores owns a variable annuity that is still in its accumulation phase. A market decline cuts the value of her subaccounts by 15%. Who absorbs that loss?

Accepted Answer

Dolores, because her payments bought accumulation units in a separate account

Answer

The insurance company, out of its general account

Answer

The broker-dealer that sold her the contract

Answer

The state insurance guaranty association

Question 16

A customer buys 100 shares of a listed stock on Tuesday. Under regular-way settlement, when must the trade settle?

Accepted Answer

Wednesday

Answer

Tuesday, the same day

Answer

Thursday

Answer

Friday

Question 17

A customer enters an order to buy 200 shares with a limit of $40. Which statement is TRUE?

Accepted Answer

If it executes, the price will be $40 or better, but execution is not guaranteed

Answer

The order is guaranteed to execute by the end of the day

Answer

It becomes a market order the moment the stock touches $40

Answer

It will execute at whatever price the stock opens at tomorrow

Question 18

An investor with a long stock position enters a sell stop order at 45. When the stock trades at 45, the order:

Accepted Answer

Becomes a market order and executes at the next available price

Answer

Executes at exactly 45

Answer

Cancels automatically at the end of the day

Answer

Becomes a limit order to sell at 45 or better

Question 19

Under Regulation T, the initial margin requirement for purchasing stock in a margin account is:

Accepted Answer

50%

Answer

25%

Answer

75%

Answer

100%

Question 20

A registered representative with discretion over a customer's account trades it far more often than the customer's objectives could justify, generating substantial commissions. This practice is called:

Accepted Answer

Churning

Answer

Front-running

Answer

Marking the close

Answer

Free-riding

Question 21

An employee of a public company tells his neighbor about an unannounced merger, and the neighbor buys the stock before the news breaks. Which statement is TRUE?

Accepted Answer

Both the tipper and the tippee can be held liable

Answer

Only the neighbor who traded violated insider trading rules

Answer

Only the employee who talked violated insider trading rules

Answer

Neither violated the rules, because no money changed hands for the tip

Question 22

Two unrelated business partners want a joint account in which, when one dies, the deceased's share passes to his own estate rather than to the surviving partner. They should open a:

Accepted Answer

Joint account as tenants in common

Answer

Joint account with rights of survivorship

Answer

Custodial account

Answer

Discretionary account

Question 23

Which of the following is TRUE of an UGMA custodial account?

Accepted Answer

Gifts into the account are irrevocable, and the account has one custodian and one minor

Answer

The minor can direct trades in the account after age 14

Answer

The account is registered directly in the minor's own name

Answer

The custodian may borrow from the account for personal use if repaid with interest

Question 24

A brokerage firm fails, and a customer's account holds $300,000 in stocks and $200,000 in cash. What does SIPC cover?

Accepted Answer

The full $500,000

Answer

$300,000 in stocks but only $150,000 of the cash

Answer

$250,000 total

Answer

Nothing, because SIPC only covers market losses

Question 25

Regulation Best Interest applies when a broker-dealer:

Accepted Answer

Recommends a securities transaction or investment strategy to a retail customer

Answer

Executes an unsolicited order for an institutional client

Answer

Extends margin credit to an existing account

Answer

Publishes general market commentary on its website

25 free SIE practice questions, graded as you go.