SIE Practice-2025 Prep test Questions
and Complete Solutions.
What is an investment company? - Answer An entity that pools investors' money to purchase
securities on their behalf
What is the main purpose of a mutual fund? - Answer To pool money from investors and
invest in a diversified portfolio of securities
What type of investment company issues redeemable securities? - Answer Open-end
investment companies (mutual funds)
Which type of investment company is actively traded on an exchange? - Answer Closed-end
investment company
What is an ETF? - Answer An exchange-traded fund that trades like a stock but represents a
diversified portfolio
What does NAV stand for? - Answer Net Asset Value
How often is NAV calculated for a mutual fund? - Answer Once per business day, typically at
market close
What is a load in mutual fund terms? - Answer A sales charge on mutual funds paid by the
investor
What is a no-load fund? - Answer A mutual fund with no sales charge
What is a front-end load? - Answer A sales charge applied at the time of purchase
What is an expense ratio? - Answer The percentage of assets used to cover operating
expenses in a mutual fund
What is a 12b-1 fee? - Answer A fee for marketing and distribution expenses of a mutual fund
What does DPP stand for? - Answer Direct Participation Program
,What is the main purpose of a DPP? - Answer To pass income, losses, and tax benefits directly
to investors
What is a REIT? - Answer A Real Estate Investment Trust that invests in real estate or real
estate mortgages
How are REITs typically taxed? - Answer They must distribute at least 90% of income to avoid
corporate tax
What is a closed-end investment company? - Answer An investment company that issues a
fixed number of shares that trade on an exchange
What is the main difference between open-end and closed-end investment companies? -
Answer Open-end companies issue new shares as investors buy, while closed-end companies
have a fixed number of shares
Do UITs trade on the secondary market? - Answer No, they are redeemable securities
What is a money market fund? - Answer A type of mutual fund that invests in short-term,
high-quality debt securities
What is the primary risk of a money market fund? - Answer Inflation risk
What type of mutual fund charges a higher 12b-1 fee? - Answer Class C shares
What is the minimum percent of assets a mutual fund must invest in securities to maintain its
status? - Answer 75%
What is the maximum limit on a mutual fund's 12b-1 fee? - Answer 0.75% for no-load funds,
up to 1% for load funds
What is a growth fund? - Answer A mutual fund that primarily seeks capital appreciation by
investing in stocks
What is a balanced fund? - Answer A mutual fund that includes a mix of stocks and bonds
What type of securities do municipal bond funds invest in? - Answer Municipal bonds for tax-
exempt income
, What does a high expense ratio indicate about a mutual fund? - Answer It has higher
operating expenses
How is a mutual fund's NAV per share calculated? - Answer By dividing total assets minus
liabilities by the number of shares outstanding
What is a capital gain distribution in a mutual fund? - Answer Profit from securities sold by the
fund, distributed to shareholders
How are capital gain distributions from a mutual fund taxed? - Answer As capital gains,
depending on the holding period of the fund's assets
What type of income do bond fund dividends represent? - Answer Interest income
What does it mean for a fund to be actively managed? - Answer The manager makes regular
buy/sell decisions to try and outperform the market
Are municipal bond funds suitable for retirement accounts? - Answer No, because their tax-
exempt status is irrelevant in tax-deferred accounts
Can REITs pass losses through to investors like a DPP? - Answer No, only income is passed
through
What is a target-date fund? - Answer A mutual fund that adjusts its asset mix as the target
date approaches
What type of mutual fund fees are asset-based? - Answer 12b-1 fees
What is the primary difference between a growth and income fund? - Answer Growth funds
focus on capital appreciation, while income funds focus on generating dividends
Can mutual funds charge both a front-end and back-end load? - Answer No, they typically
charge one or the other, not both
What type of fund would be most appropriate for an investor seeking income and stability? -
Answer Bond fund or income fund
and Complete Solutions.
What is an investment company? - Answer An entity that pools investors' money to purchase
securities on their behalf
What is the main purpose of a mutual fund? - Answer To pool money from investors and
invest in a diversified portfolio of securities
What type of investment company issues redeemable securities? - Answer Open-end
investment companies (mutual funds)
Which type of investment company is actively traded on an exchange? - Answer Closed-end
investment company
What is an ETF? - Answer An exchange-traded fund that trades like a stock but represents a
diversified portfolio
What does NAV stand for? - Answer Net Asset Value
How often is NAV calculated for a mutual fund? - Answer Once per business day, typically at
market close
What is a load in mutual fund terms? - Answer A sales charge on mutual funds paid by the
investor
What is a no-load fund? - Answer A mutual fund with no sales charge
What is a front-end load? - Answer A sales charge applied at the time of purchase
What is an expense ratio? - Answer The percentage of assets used to cover operating
expenses in a mutual fund
What is a 12b-1 fee? - Answer A fee for marketing and distribution expenses of a mutual fund
What does DPP stand for? - Answer Direct Participation Program
,What is the main purpose of a DPP? - Answer To pass income, losses, and tax benefits directly
to investors
What is a REIT? - Answer A Real Estate Investment Trust that invests in real estate or real
estate mortgages
How are REITs typically taxed? - Answer They must distribute at least 90% of income to avoid
corporate tax
What is a closed-end investment company? - Answer An investment company that issues a
fixed number of shares that trade on an exchange
What is the main difference between open-end and closed-end investment companies? -
Answer Open-end companies issue new shares as investors buy, while closed-end companies
have a fixed number of shares
Do UITs trade on the secondary market? - Answer No, they are redeemable securities
What is a money market fund? - Answer A type of mutual fund that invests in short-term,
high-quality debt securities
What is the primary risk of a money market fund? - Answer Inflation risk
What type of mutual fund charges a higher 12b-1 fee? - Answer Class C shares
What is the minimum percent of assets a mutual fund must invest in securities to maintain its
status? - Answer 75%
What is the maximum limit on a mutual fund's 12b-1 fee? - Answer 0.75% for no-load funds,
up to 1% for load funds
What is a growth fund? - Answer A mutual fund that primarily seeks capital appreciation by
investing in stocks
What is a balanced fund? - Answer A mutual fund that includes a mix of stocks and bonds
What type of securities do municipal bond funds invest in? - Answer Municipal bonds for tax-
exempt income
, What does a high expense ratio indicate about a mutual fund? - Answer It has higher
operating expenses
How is a mutual fund's NAV per share calculated? - Answer By dividing total assets minus
liabilities by the number of shares outstanding
What is a capital gain distribution in a mutual fund? - Answer Profit from securities sold by the
fund, distributed to shareholders
How are capital gain distributions from a mutual fund taxed? - Answer As capital gains,
depending on the holding period of the fund's assets
What type of income do bond fund dividends represent? - Answer Interest income
What does it mean for a fund to be actively managed? - Answer The manager makes regular
buy/sell decisions to try and outperform the market
Are municipal bond funds suitable for retirement accounts? - Answer No, because their tax-
exempt status is irrelevant in tax-deferred accounts
Can REITs pass losses through to investors like a DPP? - Answer No, only income is passed
through
What is a target-date fund? - Answer A mutual fund that adjusts its asset mix as the target
date approaches
What type of mutual fund fees are asset-based? - Answer 12b-1 fees
What is the primary difference between a growth and income fund? - Answer Growth funds
focus on capital appreciation, while income funds focus on generating dividends
Can mutual funds charge both a front-end and back-end load? - Answer No, they typically
charge one or the other, not both
What type of fund would be most appropriate for an investor seeking income and stability? -
Answer Bond fund or income fund
