20 free SIE practice questions

Correct answer: C · $450,000: all $200,000 in securities and $250,000 of the cash

SIPC states that its protection limit is $500,000 per customer, which includes a $250,000 limit for cash. Step 1: the $200,000 in securities is within the overall limit. Step 2: the $300,000 in cash is capped at $250,000. Step 3: $200,000 + $250,000 = $450,000, and the remaining $50,000 of cash is not covered by SIPC. Calling the whole $500,000 covered ignores the separate cash cap, even though the account total equals the overall limit. SIPC does not protect cash ahead of securities, and its cash limit is not an FDIC deposit limit; FDIC insures bank deposits, not brokerage accounts. SIPC also does not protect against a decline in the market value of securities.

Look for this next time: SIPC covers up to $500,000 per customer, of which no more than $250,000 can be cash.

Correct answer: A · Earned $230,000 in each of the last two years and expects the same this year

The SEC's accredited investor definition for natural persons includes income above $200,000 individually (or $300,000 with a spouse or spousal equivalent) in each of the two most recent years with a reasonable expectation of the same this year, a net worth above $1 million excluding the primary residence, or holding a Series 7, 65, or 82 license in good standing. $230,000 in each of two years with the same expected meets the income test. The second person's net worth without her home equity is $800,000, below $1 million. Joint income must exceed $300,000 in each of the two years, not just one. The Series 63 is not among the qualifying licenses.

Look for this next time: Accredited investor: income over $200,000 ($300,000 joint) for two years, net worth over $1 million excluding home, or Series 7, 65, or 82.

Correct answer: D · The Federal Reserve buys Treasury securities in the open market

Monetary policy is the central bank's management of money and credit conditions; in the United States, the Federal Reserve conducts it through tools such as open market operations, interest on reserve balances, and the discount rate. When the Fed buys Treasury securities in the open market, it adds reserves to the banking system, which tends to push short-term interest rates down and ease credit. Fiscal policy is government taxing and spending, decided by Congress and the President, so a tax cut and new highway spending are fiscal actions. Issuing Treasury bonds to fund a deficit is how the government finances its fiscal choices, not a Federal Reserve policy action. The SIE outline lists monetary versus fiscal policy and open market activities under economic factors.

Look for this next time: Monetary policy belongs to the Federal Reserve; fiscal policy is taxing and spending by Congress and the President.

Correct answer: B · 6.25%, the annual interest divided by the current price

Current yield is the annual interest payment divided by the bond's current market price. Step 1: the annual interest is 6% of the $1,000 par value, or $60. Step 2: $60 ÷ $960 = 0.0625, or 6.25%. Because the bond trades at a discount, its current yield is above the 6% coupon rate; a bond trading at a premium would have a current yield below its coupon. The coupon rate stays fixed at 6% no matter what the price does, so it is not the current yield. Multiplying the coupon by 0.96 has no meaning as a yield. The $40 discount divided by par is just the size of the discount, not a return measure. The SIE outline lists coupon, par value, and yield among the debt concepts tested.

Look for this next time: Current yield = annual interest ÷ current market price; a discount bond's current yield exceeds its coupon.

Correct answer: A · A 30-year bond with a 2% coupon

Bond prices move opposite to interest rates, and the size of the move depends mostly on how long the investor waits to receive the bond's cash flows. Longer maturities and lower coupons both push more of the payments far into the future, so their prices are more sensitive to a change in rates. The 30-year bond with a 2% coupon has both features, so it has the most interest rate risk of the four. The 2-year bond with a 6% coupon returns its money soonest and is the least sensitive. The 10-year 5% bond and the 5-year 2% bond fall in between. The SIE outline lists the relationship between price and interest rate and short-term versus long-term characteristics among debt concepts.

Look for this next time: Longer maturity and lower coupon mean more interest rate risk: such bonds fall the most when rates rise.

Correct answer: C · $12, last year's missed dividend plus this year's dividend

A cumulative preferred stock keeps track of any dividends the issuer skips; the missed amounts are called dividends in arrears, and they must be paid in full before the company pays anything on its common stock. Step 1: the annual preferred dividend is 6% × $100 = $6. Step 2: one year is in arrears ($6) and the current year is due ($6). Step 3: $6 + $6 = $12 per share. Paying only $6 would ignore the arrears. A skipped dividend is lost only on noncumulative preferred, which is the feature this stock lacks. No rule adds a penalty year. The SIE outline lists preferred stock and stockholder ownership rights among the equity topics tested.

Look for this next time: Cumulative preferred dividends in arrears must be paid in full before any common dividend.

Correct answer: B · Breakeven $53; the maximum loss is $300

A long call breaks even when the stock price equals the strike price plus the premium paid: $50 + $3 = $53. The most a call buyer can lose is the premium, because the buyer can simply let the option expire unexercised; with a standard contract covering 100 shares, that is $3 × 100 = $300. Subtracting the premium from the strike ($47) is the breakeven for a long put, not a call. Unlimited loss describes an uncovered (naked) call writer, not a buyer. The strike price times 100 shares, $5,000, is what the buyer would pay if he exercised, not a loss, and $5,300 adds the premium to that cost. The SIE outline lists strike price, premium, and long and short strategies among option topics.

Look for this next time: Long call: breakeven = strike + premium; maximum loss = the premium paid.

Correct answer: D · Rule 2342, because it is a sale just below a breakpoint

FINRA Rule 2342 ("Breakpoint" Sales) says no member shall sell investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity purchases so as to share in the higher sales charge that applies below the breakpoint. A $48,000 purchase suggested without telling the customer that $50,000 earns a lower charge fits that description. The representative should explain the breakpoint, and features such as rights of accumulation and letters of intent that can help a customer reach it. Rule 2210 covers communications with the public. Rule 3270 covers outside business activities, and selling the firm's products is not one. Rule 4210 sets margin requirements and has nothing to do with sales-charge discounts.

Look for this next time: Selling fund shares just below a breakpoint to earn a higher sales charge violates FINRA Rule 2342.

Correct answer: A · She controls the funds; earnings used for qualified education costs are untaxed

The IRS's 529 plan questions and answers say that whoever purchases the 529 plan controls the funds until they are withdrawn, and that the designated beneficiary is usually the student or future student the plan is meant to benefit. The same page says contributions are not deductible, and that earnings are not subject to federal tax, and generally not state tax, when used for the designated beneficiary's qualified education expenses. So the grandmother, as account owner, keeps control, and earnings spent on qualified costs are untaxed. The granddaughter does not take control just because she is the beneficiary. Federal law gives no deduction for contributions. Earnings are not taxed each year inside the plan. The SIE outline lists owner versus beneficiary and tax advantages under municipal fund securities.

Look for this next time: In a 529 plan the account owner keeps control; earnings used for qualified education expenses are federally untaxed.

Correct answer: B · Revenue bonds, repaid from the bridge's tolls rather than taxes

The MSRB explains that general obligation bonds are backed by the full faith and credit of an issuer that has the power to tax residents to pay bondholders, while revenue bonds are backed by revenues from specific projects, such as toll roads or bridges, airports, utilities, and hospitals. Because these bonds are repaid only from tolls and the city's taxing power is not pledged, they are revenue bonds, and their safety depends on the bridge collecting enough tolls. Calling them general obligation bonds would overstate their backing. A public purpose does not make a municipal bond a Treasury obligation, which is issued by the U.S. government. No federal agency guarantees these bonds. The SIE outline lists GO bonds and revenue bonds under municipal securities.

Look for this next time: Revenue bonds are repaid from a specific project's revenues; GO bonds are backed by the issuer's taxing power.

Correct answer: C · Reinvestment risk, since the money must be reinvested at lower rates

Reinvestment risk is the chance that cash flows, such as coupons or a bond's principal returned early, must be reinvested at lower rates than the original investment paid. Issuers tend to call bonds when rates fall, because they can refinance more cheaply, so a call usually arrives at exactly the moment reinvestment rates are low. This customer loses a 7% income stream and must reinvest near 4%. Nothing in the scenario says the bonds were hard to sell, so this is not liquidity risk. No foreign currency is involved. The issuer did not default; calling bonds at par under their terms is the opposite of failing to pay. The SIE outline lists interest rate and reinvestment risk, and callable features, among the investment risks tested.

Look for this next time: A bond called when rates fall exposes the holder to reinvestment risk: the money must be reinvested at lower rates.

Correct answer: D · A REIT generally must distribute at least 90% of its taxable income

The SEC's investor bulletin on REITs explains that a company that qualifies as a REIT must distribute at least 90 percent of its taxable income to shareholders each year, which is why REITs are often bought for income. Retaining 90% reverses the rule. The bulletin also contrasts the two types: publicly traded REIT shares are listed and trade on an exchange, while shares of a non-traded REIT are not listed, so they can be hard to sell, and an investor may have to wait for a limited redemption program, a listing, or a liquidation to get money out. Because REITs pass most income through to shareholders, the dividends are generally taxable to the shareholder, not tax-free.

Look for this next time: A REIT generally distributes at least 90% of taxable income; non-traded REIT shares are not listed and can be hard to sell.

Correct answer: B · Tuesday, one business day after the trade date

The SEC adopted rules that shortened the standard settlement cycle for most broker-dealer transactions in securities from two business days after the trade date (T+2) to one (T+1), with a compliance date of May 28, 2024. A regular-way trade on Monday therefore settles on Tuesday, one business day later, when the buyer's payment and the seller's shares are exchanged. Same-day settlement is possible for some cash trades by agreement but is not the standard regular-way cycle. Wednesday was the T+2 settlement date used before May 2024, so study materials written earlier may still show it. Friday corresponds to the even older T+3 cycle. The SIE outline lists settlement time frames, including T and T+1, under trade settlement.

Look for this next time: Since May 28, 2024, most regular-way securities trades settle T+1: one business day after the trade date.

Correct answer: A · A buy stop order at $45

A short seller loses money as the price rises, so protection means buying the shares back if the stock climbs. A buy stop order is placed above the current market price and becomes a market order to buy when the stock trades at or through the stop price, here $45. That caps her loss near $5 a share, although in a fast market the fill can be worse than the stop price. A sell stop is placed below the market and protects a long position, not a short one. A buy limit at $35 would buy only if the price fell, which is when she is already making money. A sell limit at $45 would add to her short position rather than close it. The SIE outline lists order types, including stop and limit orders, and long and short positions.

Look for this next time: A buy stop above the market protects a short position; a sell stop below the market protects a long one.

Correct answer: D · $15,000, which is 50% of the purchase

FINRA explains that Regulation T allows a firm to lend a customer up to 50 percent of the total purchase price of a margin equity security for new purchases, so the customer must deposit the other 50 percent. Step 1: 50% of $30,000 is $15,000. Step 2: the firm can lend the remaining $15,000. Twenty-five percent is the minimum maintenance level FINRA Rule 4210 sets for equity after the purchase, not the initial requirement. A minimum equity of $2,000 is also part of FINRA's margin rules, but here the Regulation T requirement is the larger amount, so it controls. Margin can be used on a first purchase once the account is approved. Firms may set stricter house requirements than these minimums.

Look for this next time: Regulation T initial margin is 50% of the purchase: a $30,000 buy needs a $15,000 deposit.

Correct answer: C · Escalate it to the firm's AML compliance staff as possible structuring

FinCEN's CTR guide explains that financial institutions must report cash transactions over $10,000, including multiple cash transactions that total over $10,000 in a single day, and that breaking transactions into smaller amounts to evade the report is a federal crime called structuring. Her own words show the purpose, so the representative should escalate promptly to the firm's anti-money laundering compliance staff, who decide whether a Suspicious Activity Report is needed; firms must keep such reports confidential and must not tell the customer one is being considered. Doing nothing ignores an obvious red flag. Asking her to redo the deposit misses the problem. Coaching her to stay under the threshold would help her structure. The SIE outline lists structuring, SARs, and CTRs under anti-money laundering.

Look for this next time: Splitting cash deposits to avoid a CTR is structuring; escalate it to AML compliance and do not tip off the customer.

Correct answer: A · Not trade or recommend the stock, and contact the firm's compliance staff

An unannounced acquisition at a large premium is material nonpublic information. Under the antifraud provisions of the Securities Exchange Act of 1934, including Rule 10b-5, trading on such information, or passing it to others who trade, can be insider trading; a tippee who knows the tip came from an insider in breach of duty can be liable too. The safe course is not to trade, not to recommend the stock, not to pass the information on, and to tell the firm's compliance department so it can restrict trading if needed. Trading only in a personal account is still insider trading. Information does not become public by waiting a day; it becomes public when it is disclosed to the market. Tipping clients spreads the violation. The SIE outline covers insider trading and its penalties.

Look for this next time: Do not trade on, recommend, or pass along material nonpublic information; report it to compliance.

Correct answer: B · The shares belong to the minor; he manages them for the minor's benefit

Under the Uniform Transfers to Minors Act as adopted in the states, a gift to a custodial account is irrevocable: the assets belong to the minor, and the custodian manages them for the minor's benefit until the minor reaches the age set by state law, when the property is turned over. The grandfather therefore cannot take the shares back for his own use. He did not keep ownership when he made the gift, so withdrawing them for any reason is wrong. A custodial account is not a joint account; the minor is the owner and the custodian is a fiduciary, and an UTMA account has one minor as beneficial owner. Ownership does not wait for the custodian's death. The SIE outline lists custodial accounts (UTMA) among account registrations.

Look for this next time: UTMA gifts are irrevocable: the minor owns the assets, and the custodian manages them for the minor.

Correct answer: D · Not later than 30 days after termination, with a copy to her

Article V, Section 3 of FINRA's By-Laws requires a member to give FINRA notice of the termination of an associated person, on the form FINRA designates (the Form U5), not later than 30 days after the termination, and to provide a copy to the person concurrently. That applies whether the person resigned, retired, or was discharged, and whether or not she stays in the industry. Ten days and a for-cause condition are not the rule; the reason for leaving is reported on the form, but notice is required either way. Sixty days, or waiting for commissions to be paid, would make the filing late. Leaving the industry voluntarily does not excuse it. The SIE outline lists Forms U4 and U5 and when to update them under employee conduct.

Look for this next time: A firm must file the termination notice (Form U5) within 30 days and give the departing person a copy.

Correct answer: C · She still needs a firm and a qualification exam; her SIE result lasts four years

FINRA's SIE page explains that anyone 18 or older can take the SIE without firm association, but passing it alone does not allow registration: a candidate must also pass a qualification exam, such as the Series 7, and must be associated with a member firm to take that exam. FINRA also states that SIE results are valid for four years. Her June 2026 pass would still be valid at a 2028 hire, so she would not need to retake it, but she cannot act as a registered representative now. Being hired does not make the SIE expire. Passing the SIE does not by itself let her register with a state regulator; state registration involves its own requirements. The SIE outline covers qualification and registration requirements.

Look for this next time: The SIE is valid for four years, but registration also needs firm association and a qualification exam.