FINRA SIE Exam – 2026/2027 Edition – A+ Graded Page 1
FINRA SIE Exam Complete Q&A
Verified Questions and Correct Answers
A+ Graded – 2026/2027 Edition
A comprehensive 200-question certification examination aligned with the FINRA Securities Industry Essentials
(SIE) examination content outline. Each question includes a detailed rationale with securities industry reasoning,
integrating product characteristics, regulatory rules (SEC, FINRA, MSRB), and professional standards. Cognitive
levels: 25% recall, 50% application, 25% analysis. Format: 70% scenario-based, 30% direct recall. Updated for
2026/2027 with current T+1 settlement, Reg BI, SECURE Act 2.0 retirement provisions, and latest FINRA rules.
Section 1: Capital Markets and Securities Products
Market Structure, Equity Securities, Debt Securities, & Investment Products (Q1-Q50)
Q1: A biotechnology company files an S-1 registration statement with the SEC for its first public offering
of common stock. The offering will be underwritten by a syndicate led by Goldman Sachs. In this
transaction, Goldman Sachs is functioning in which market role, and what type of market activity is
occurring?
A. Secondary market role as a market maker facilitating trades among existing shareholders
B. Primary market role as an underwriter bringing newly issued securities to investors [CORRECT]
C. Tertiary market role as a block trader handling institutional cross trades
D. Fourth market role as an ECN matching institutional orders directly
Correct Answer: B
Rationale: An initial public offering (IPO) occurs in the primary market where new securities are issued and sold to
investors for the first time. The underwriter (Goldman Sachs as syndicate lead) purchases the shares from the issuer and
resells them to the public, functioning in a primary market role. Secondary markets (NYSE, Nasdaq) handle trading of
existing shares between investors. The third market refers to exchange-listed securities traded OTC, and the fourth market
involves institutional trades executed directly without broker-dealers. The S-1 is the registration statement required under
the Securities Act of 1933 for new public offerings.
FINRA Securities Industry Essentials – Verified Questions & Correct Answers
,FINRA SIE Exam – 2026/2027 Edition – A+ Graded Page 2
Q2: An investor purchases 100 shares of common stock in a company. Which of the following rights does
this investor typically receive as a common shareholder?
A. Guaranteed fixed dividends, preference over preferred shareholders in liquidation, and preemptive
subscription rights
B. Voting rights, the right to receive dividends if declared, residual claim on assets in liquidation, and
preemptive rights [CORRECT]
C. Cumulative dividends, conversion privilege, and seniority over bondholders
D. Fixed interest payments, no voting rights, and priority over unsecured creditors
Correct Answer: B
Rationale: Common shareholders have voting rights (electing directors and approving major corporate actions), the right to
receive dividends when declared by the board, a residual claim on assets in liquidation (after creditors and preferred
shareholders), and preemptive rights (the right to maintain proportional ownership in new offerings). Common stock
dividends are not guaranteed or fixed (eliminating option A). Common stock is junior to preferred stock and bondholders
(eliminating option C). Common stock does not pay fixed interest and is junior to creditors (eliminating option D).
Q3: A company has issued $100 par value, 5% cumulative preferred stock. The company suspends
dividend payments for three years due to financial difficulty, then resumes profitability. Before any
common stock dividend can be paid, how much must be paid to each preferred shareholder per share?
A. $5 (the current year dividend only, as arrearages are forfeited)
B. $15 (preferred dividends in arrears: 3 years x $5, plus current year must wait until next period)
C. $20 (3 years of arrearages plus the current year dividend: 4 x $5) [CORRECT]
D. $25 (3 years arrearages plus a 25% penalty as required by FINRA rules)
Correct Answer: C
Rationale: Cumulative preferred stock requires that all missed dividends (dividends in arrears) be paid before any dividend
can be paid to common shareholders. The current year dividend is also required before common dividends. With $100 par
and 5% dividend = $5 per share annually. Three years in arrears = $15, plus current year = $5, totaling $20 per share.
Non-cumulative preferred (option A) would forfeit arrearages. There is no FINRA penalty requirement (eliminates option
D). Option B omits the current year dividend which must also be paid before common.
Q4: An investor holds 1,000 shares of XYZ common stock when the company announces a rights
offering. The subscription price is $40 per share, and the terms are 5 rights plus $40 to subscribe for one
new share. The current market price is $50. What is the theoretical value of each right (ex-rights)?
A. $1.67 per right [CORRECT]
B. $2.00 per right
C. $10.00 per right
D. $0.83 per right
Correct Answer: A
Rationale: The theoretical value of a right (ex-rights) is calculated as: (Market Price - Subscription Price) / (Number of
rights needed + 1) = ($50 - $40) / (5 + 1) = $10/6 = $1.67. The +1 in the denominator accounts for the subscription price
payment. The cum-rights formula uses just the number of rights (without +1). The $2.00 figure (option B) would be incorrect
because it ignores the +1 adjustment. The $10 figure (option C) is the discount per share, not per right. The $0.83 (option D)
is the result of using an incorrect formula.
FINRA Securities Industry Essentials – Verified Questions & Correct Answers
,FINRA SIE Exam – 2026/2027 Edition – A+ Graded Page 3
Q5: Which of the following accurately describes a key difference between a stock right and a stock
warrant?
A. Rights are long-term (5-10 years) and issued directly to the public; warrants are short-term (30-60 days) and
distributed to existing shareholders
B. Rights are short-term (typically 30-45 days) and give existing shareholders the ability to maintain
proportional ownership; warrants are long-term (typically 2-5 years or more) and are usually issued
attached to bonds or preferred stock [CORRECT]
C. Rights and warrants are identical instruments with different names depending on the issuer
D. Rights trade on exchanges only; warrants trade OTC only
Correct Answer: B
Rationale: Rights are short-term instruments (typically 30-45 days) issued to existing shareholders to subscribe to new
shares at a discount, allowing them to maintain proportional ownership (preemptive rights). Warrants are long-term
instruments (typically 2-5 years, sometimes longer) usually issued attached to bonds or preferred stock as a 'sweetener' to
make the offering more attractive. Warrants are detachable and often trade separately. Options A, C, and D misrepresent the
characteristics. Rights and warrants have distinct purposes, lifespans, and issuance contexts.
Q6: A customer owns 500 shares of ABC common stock. ABC declares a 3-for-1 stock split. After the
split, how many shares will the customer own, and what is the approximate adjusted cost basis if the
original purchase was $120 per share?
A. 500 shares at $120 per share (no change in position)
B. 1,500 shares at $40 per share [CORRECT]
C. 166 shares at $360 per share
D. 1,500 shares at $120 per share
Correct Answer: B
Rationale: In a 3-for-1 stock split, the shareholder receives 3 shares for every 1 share held, so 500 shares becomes 1,500
shares. The cost basis is adjusted proportionally: $ = $40 per share. The total investment value remains the same (500
x $120 = 1,500 x $40 = $60,000). The market price per share would also adjust proportionally (one-third of pre-split price).
Option C describes a reverse split. Options A and D fail to adjust the share count or basis correctly.
Q7: Which type of dividend payment typically results in a tax liability for the shareholder in the year
received, even if the shareholder reinvests the dividend through a DRIP (Dividend Reinvestment Plan)?
A. Stock dividends and stock splits, since they increase the share count
B. Cash dividends, because reinvestment does not defer taxation; the dividend is taxable as ordinary
income or qualified dividend income in the year received [CORRECT]
C. Return of capital distributions, which always reduce basis to zero before becoming taxable
D. Special one-time distributions, which are tax-deferred until the stock is sold
Correct Answer: B
Rationale: Cash dividends are taxable in the year received, whether taken in cash or reinvested through a DRIP.
Reinvestment does not defer taxation. Qualified dividends (held for the required holding period of 61+ days during the
121-day period around the ex-dividend date) are taxed at long-term capital gains rates; non-qualified dividends are taxed as
ordinary income. Stock dividends and splits (option A) are generally not taxable events (basis is adjusted). Return of capital
(option C) reduces basis first, becoming taxable only after basis reaches zero. Special distributions (option D) are taxable as
dividends in the year received.
FINRA Securities Industry Essentials – Verified Questions & Correct Answers
, FINRA SIE Exam – 2026/2027 Edition – A+ Graded Page 4
Q8: An investor purchases a Treasury bond with a 4% coupon at par. Two years later, market interest
rates rise to 6%. Which of the following best describes the relationship between this bond's price and the
change in market interest rates?
A. The bond's price will rise because higher market rates make the existing 4% coupon more valuable
B. The bond's price will fall because the fixed 4% coupon is less attractive compared to new bonds paying
6%, creating an inverse relationship between bond prices and interest rates [CORRECT]
C. The bond's price will remain at par because Treasury bonds always trade at face value
D. The bond's price will rise because rising rates increase the bond's call protection
Correct Answer: B
Rationale: Bond prices and market interest rates have an inverse relationship. When market rates rise, existing bonds with
lower fixed coupons become less attractive, so their prices fall to provide a competitive yield to maturity. The bond would
trade at a discount. This interest rate risk is greater for longer-maturity and lower-coupon bonds (duration concept). Option
A reverses the relationship. Option C is incorrect; only at maturity does a bond necessarily return to par. Option D
misrepresents call protection, which is not relevant to non-callable Treasuries.
Q9: A municipal bond is rated AAA by Moody's and Standard & Poor's. The bond is issued by a state
and secured by the full faith, credit, and taxing power of the issuing municipality. This bond is best
described as:
A. A revenue bond backed by specific project revenues
B. A general obligation (GO) bond backed by the issuer's taxing authority [CORRECT]
C. A private activity bond backed by corporate lease payments
D. A moral obligation bond backed by the state legislature's intent to appropriate
Correct Answer: B
Rationale: A bond secured by the full faith, credit, and taxing power of the issuing municipality is a general obligation (GO)
bond. GO bonds are backed by the issuer's ability to levy taxes and are generally considered high-quality (often AAA).
Revenue bonds (option A) are backed by specific project revenues (toll roads, water utilities). Private activity bonds (option
C) are backed by private lease or loan payments. Moral obligation bonds (option D) involve a non-binding state intent to
appropriate funds if the issuer defaults.
Q10: Interest earned on which of the following securities is subject to federal income tax but exempt
from state and local income tax in most states?
A. Corporate bonds
B. Municipal bonds
C. U.S. Treasury bonds, notes, and bills (federal debt) [CORRECT]
D. Agency bonds issued by Fannie Mae
Correct Answer: C
Rationale: Interest on U.S. Treasury securities (bonds, notes, bills, and STRIPS) is subject to federal income tax but exempt
from state and local income tax under federal statute. This makes Treasuries attractive to investors in high-tax states like
California or New York. Corporate bond interest (option A) is taxable at all levels. Municipal bond interest (option B) is
generally exempt from federal tax (and state tax if issued in the investor's home state). Agency bonds (option D) like Fannie
Mae and Freddie Mac are fully taxable at all levels (only certain agency debt like GNMA has different treatment).
FINRA Securities Industry Essentials – Verified Questions & Correct Answers
FINRA SIE Exam Complete Q&A
Verified Questions and Correct Answers
A+ Graded – 2026/2027 Edition
A comprehensive 200-question certification examination aligned with the FINRA Securities Industry Essentials
(SIE) examination content outline. Each question includes a detailed rationale with securities industry reasoning,
integrating product characteristics, regulatory rules (SEC, FINRA, MSRB), and professional standards. Cognitive
levels: 25% recall, 50% application, 25% analysis. Format: 70% scenario-based, 30% direct recall. Updated for
2026/2027 with current T+1 settlement, Reg BI, SECURE Act 2.0 retirement provisions, and latest FINRA rules.
Section 1: Capital Markets and Securities Products
Market Structure, Equity Securities, Debt Securities, & Investment Products (Q1-Q50)
Q1: A biotechnology company files an S-1 registration statement with the SEC for its first public offering
of common stock. The offering will be underwritten by a syndicate led by Goldman Sachs. In this
transaction, Goldman Sachs is functioning in which market role, and what type of market activity is
occurring?
A. Secondary market role as a market maker facilitating trades among existing shareholders
B. Primary market role as an underwriter bringing newly issued securities to investors [CORRECT]
C. Tertiary market role as a block trader handling institutional cross trades
D. Fourth market role as an ECN matching institutional orders directly
Correct Answer: B
Rationale: An initial public offering (IPO) occurs in the primary market where new securities are issued and sold to
investors for the first time. The underwriter (Goldman Sachs as syndicate lead) purchases the shares from the issuer and
resells them to the public, functioning in a primary market role. Secondary markets (NYSE, Nasdaq) handle trading of
existing shares between investors. The third market refers to exchange-listed securities traded OTC, and the fourth market
involves institutional trades executed directly without broker-dealers. The S-1 is the registration statement required under
the Securities Act of 1933 for new public offerings.
FINRA Securities Industry Essentials – Verified Questions & Correct Answers
,FINRA SIE Exam – 2026/2027 Edition – A+ Graded Page 2
Q2: An investor purchases 100 shares of common stock in a company. Which of the following rights does
this investor typically receive as a common shareholder?
A. Guaranteed fixed dividends, preference over preferred shareholders in liquidation, and preemptive
subscription rights
B. Voting rights, the right to receive dividends if declared, residual claim on assets in liquidation, and
preemptive rights [CORRECT]
C. Cumulative dividends, conversion privilege, and seniority over bondholders
D. Fixed interest payments, no voting rights, and priority over unsecured creditors
Correct Answer: B
Rationale: Common shareholders have voting rights (electing directors and approving major corporate actions), the right to
receive dividends when declared by the board, a residual claim on assets in liquidation (after creditors and preferred
shareholders), and preemptive rights (the right to maintain proportional ownership in new offerings). Common stock
dividends are not guaranteed or fixed (eliminating option A). Common stock is junior to preferred stock and bondholders
(eliminating option C). Common stock does not pay fixed interest and is junior to creditors (eliminating option D).
Q3: A company has issued $100 par value, 5% cumulative preferred stock. The company suspends
dividend payments for three years due to financial difficulty, then resumes profitability. Before any
common stock dividend can be paid, how much must be paid to each preferred shareholder per share?
A. $5 (the current year dividend only, as arrearages are forfeited)
B. $15 (preferred dividends in arrears: 3 years x $5, plus current year must wait until next period)
C. $20 (3 years of arrearages plus the current year dividend: 4 x $5) [CORRECT]
D. $25 (3 years arrearages plus a 25% penalty as required by FINRA rules)
Correct Answer: C
Rationale: Cumulative preferred stock requires that all missed dividends (dividends in arrears) be paid before any dividend
can be paid to common shareholders. The current year dividend is also required before common dividends. With $100 par
and 5% dividend = $5 per share annually. Three years in arrears = $15, plus current year = $5, totaling $20 per share.
Non-cumulative preferred (option A) would forfeit arrearages. There is no FINRA penalty requirement (eliminates option
D). Option B omits the current year dividend which must also be paid before common.
Q4: An investor holds 1,000 shares of XYZ common stock when the company announces a rights
offering. The subscription price is $40 per share, and the terms are 5 rights plus $40 to subscribe for one
new share. The current market price is $50. What is the theoretical value of each right (ex-rights)?
A. $1.67 per right [CORRECT]
B. $2.00 per right
C. $10.00 per right
D. $0.83 per right
Correct Answer: A
Rationale: The theoretical value of a right (ex-rights) is calculated as: (Market Price - Subscription Price) / (Number of
rights needed + 1) = ($50 - $40) / (5 + 1) = $10/6 = $1.67. The +1 in the denominator accounts for the subscription price
payment. The cum-rights formula uses just the number of rights (without +1). The $2.00 figure (option B) would be incorrect
because it ignores the +1 adjustment. The $10 figure (option C) is the discount per share, not per right. The $0.83 (option D)
is the result of using an incorrect formula.
FINRA Securities Industry Essentials – Verified Questions & Correct Answers
,FINRA SIE Exam – 2026/2027 Edition – A+ Graded Page 3
Q5: Which of the following accurately describes a key difference between a stock right and a stock
warrant?
A. Rights are long-term (5-10 years) and issued directly to the public; warrants are short-term (30-60 days) and
distributed to existing shareholders
B. Rights are short-term (typically 30-45 days) and give existing shareholders the ability to maintain
proportional ownership; warrants are long-term (typically 2-5 years or more) and are usually issued
attached to bonds or preferred stock [CORRECT]
C. Rights and warrants are identical instruments with different names depending on the issuer
D. Rights trade on exchanges only; warrants trade OTC only
Correct Answer: B
Rationale: Rights are short-term instruments (typically 30-45 days) issued to existing shareholders to subscribe to new
shares at a discount, allowing them to maintain proportional ownership (preemptive rights). Warrants are long-term
instruments (typically 2-5 years, sometimes longer) usually issued attached to bonds or preferred stock as a 'sweetener' to
make the offering more attractive. Warrants are detachable and often trade separately. Options A, C, and D misrepresent the
characteristics. Rights and warrants have distinct purposes, lifespans, and issuance contexts.
Q6: A customer owns 500 shares of ABC common stock. ABC declares a 3-for-1 stock split. After the
split, how many shares will the customer own, and what is the approximate adjusted cost basis if the
original purchase was $120 per share?
A. 500 shares at $120 per share (no change in position)
B. 1,500 shares at $40 per share [CORRECT]
C. 166 shares at $360 per share
D. 1,500 shares at $120 per share
Correct Answer: B
Rationale: In a 3-for-1 stock split, the shareholder receives 3 shares for every 1 share held, so 500 shares becomes 1,500
shares. The cost basis is adjusted proportionally: $ = $40 per share. The total investment value remains the same (500
x $120 = 1,500 x $40 = $60,000). The market price per share would also adjust proportionally (one-third of pre-split price).
Option C describes a reverse split. Options A and D fail to adjust the share count or basis correctly.
Q7: Which type of dividend payment typically results in a tax liability for the shareholder in the year
received, even if the shareholder reinvests the dividend through a DRIP (Dividend Reinvestment Plan)?
A. Stock dividends and stock splits, since they increase the share count
B. Cash dividends, because reinvestment does not defer taxation; the dividend is taxable as ordinary
income or qualified dividend income in the year received [CORRECT]
C. Return of capital distributions, which always reduce basis to zero before becoming taxable
D. Special one-time distributions, which are tax-deferred until the stock is sold
Correct Answer: B
Rationale: Cash dividends are taxable in the year received, whether taken in cash or reinvested through a DRIP.
Reinvestment does not defer taxation. Qualified dividends (held for the required holding period of 61+ days during the
121-day period around the ex-dividend date) are taxed at long-term capital gains rates; non-qualified dividends are taxed as
ordinary income. Stock dividends and splits (option A) are generally not taxable events (basis is adjusted). Return of capital
(option C) reduces basis first, becoming taxable only after basis reaches zero. Special distributions (option D) are taxable as
dividends in the year received.
FINRA Securities Industry Essentials – Verified Questions & Correct Answers
, FINRA SIE Exam – 2026/2027 Edition – A+ Graded Page 4
Q8: An investor purchases a Treasury bond with a 4% coupon at par. Two years later, market interest
rates rise to 6%. Which of the following best describes the relationship between this bond's price and the
change in market interest rates?
A. The bond's price will rise because higher market rates make the existing 4% coupon more valuable
B. The bond's price will fall because the fixed 4% coupon is less attractive compared to new bonds paying
6%, creating an inverse relationship between bond prices and interest rates [CORRECT]
C. The bond's price will remain at par because Treasury bonds always trade at face value
D. The bond's price will rise because rising rates increase the bond's call protection
Correct Answer: B
Rationale: Bond prices and market interest rates have an inverse relationship. When market rates rise, existing bonds with
lower fixed coupons become less attractive, so their prices fall to provide a competitive yield to maturity. The bond would
trade at a discount. This interest rate risk is greater for longer-maturity and lower-coupon bonds (duration concept). Option
A reverses the relationship. Option C is incorrect; only at maturity does a bond necessarily return to par. Option D
misrepresents call protection, which is not relevant to non-callable Treasuries.
Q9: A municipal bond is rated AAA by Moody's and Standard & Poor's. The bond is issued by a state
and secured by the full faith, credit, and taxing power of the issuing municipality. This bond is best
described as:
A. A revenue bond backed by specific project revenues
B. A general obligation (GO) bond backed by the issuer's taxing authority [CORRECT]
C. A private activity bond backed by corporate lease payments
D. A moral obligation bond backed by the state legislature's intent to appropriate
Correct Answer: B
Rationale: A bond secured by the full faith, credit, and taxing power of the issuing municipality is a general obligation (GO)
bond. GO bonds are backed by the issuer's ability to levy taxes and are generally considered high-quality (often AAA).
Revenue bonds (option A) are backed by specific project revenues (toll roads, water utilities). Private activity bonds (option
C) are backed by private lease or loan payments. Moral obligation bonds (option D) involve a non-binding state intent to
appropriate funds if the issuer defaults.
Q10: Interest earned on which of the following securities is subject to federal income tax but exempt
from state and local income tax in most states?
A. Corporate bonds
B. Municipal bonds
C. U.S. Treasury bonds, notes, and bills (federal debt) [CORRECT]
D. Agency bonds issued by Fannie Mae
Correct Answer: C
Rationale: Interest on U.S. Treasury securities (bonds, notes, bills, and STRIPS) is subject to federal income tax but exempt
from state and local income tax under federal statute. This makes Treasuries attractive to investors in high-tax states like
California or New York. Corporate bond interest (option A) is taxable at all levels. Municipal bond interest (option B) is
generally exempt from federal tax (and state tax if issued in the investor's home state). Agency bonds (option D) like Fannie
Mae and Freddie Mac are fully taxable at all levels (only certain agency debt like GNMA has different treatment).
FINRA Securities Industry Essentials – Verified Questions & Correct Answers
