FINRA SIE Practice Test| 75 Questions| With
Complete Solutions
Course
SIE
1. Which of the following is a characteristic of a common stockholder?
A. Guaranteed dividends
B. Higher claim than bondholders in liquidation
C. Voting rights in corporate elections
D. Fixed interest payments
✅ Correct Answer: C. Voting rights in corporate elections
Rationale: Common shareholders can vote on major corporate decisions, such as board
elections. They are last in line during liquidation and dividends are not guaranteed.
2. A bond is trading at 102. What does this mean?
A. The bond is trading at $1,020
B. The bond has 102 years to maturity
C. The bond’s interest rate is 10.2%
D. The bond pays $102 annually
✅ Correct Answer: A. The bond is trading at $1,020
Rationale: Bonds are priced as a percentage of par (usually $1,000). 102 = 102% of $1,000 =
$1,020.
3. Which of the following securities is most susceptible to inflation risk?
A. Treasury Inflation-Protected Securities (TIPS)
B. Common stock
C. Treasury bonds
D. Floating rate notes
✅ Correct Answer: C. Treasury bonds
Rationale: Fixed-income securities like Treasury bonds lose purchasing power during inflation.
TIPS adjust for inflation.
4. What is the primary role of the Federal Reserve’s open market operations?
,A. Set corporate interest rates
B. Lend money to the IMF
C. Influence short-term interest rates and money supply
D. Regulate public offerings
✅ Correct Answer: C. Influence short-term interest rates and money supply
Rationale: The Fed buys/sells Treasury securities in the open market to manage liquidity and
interest rates.
5. Which of the following entities enforces securities laws in the United States?
A. FINRA
B. SIPC
C. Federal Reserve
D. SEC
✅ Correct Answer: D. SEC
Rationale: The Securities and Exchange Commission (SEC) is the primary federal agency
enforcing U.S. securities laws.
6. Which of the following is not a self-regulatory organization (SRO)?
A. FINRA
B. MSRB
C. SEC
D. CBOE
✅ Correct Answer: C. SEC
Rationale: The SEC is a government agency. FINRA, MSRB, and CBOE are SROs that regulate
specific market participants.
7. Which investment product is most appropriate for a conservative investor
seeking regular income?
A. Options
B. Growth stocks
C. High-yield bonds
D. Investment-grade bonds
, ✅ Correct Answer: D. Investment-grade bonds
Rationale: These offer lower risk and provide regular interest income, suitable for conservative
investors.
8. What happens in a firm commitment underwriting?
A. The underwriter acts as agent only
B. The underwriter guarantees to purchase all securities
C. Securities are sold directly to investors
D. It’s a best-efforts offering
✅ Correct Answer: B. The underwriter guarantees to purchase all securities
Rationale: In a firm commitment, the underwriter buys the entire issue from the issuer,
assuming full risk.
9. What is the primary purpose of the Securities Investor Protection Corporation
(SIPC)?
A. Insure against losses due to market decline
B. Guarantee profits to investors
C. Protect customer securities/cash in case a brokerage firm fails
D. Prevent insider trading
✅ Correct Answer: C. Protect customer securities/cash in case a brokerage firm fails
Rationale: SIPC covers up to $500,000 (including $250,000 in cash) if a broker-dealer becomes
insolvent.
10. What is the effect of a stock split on a company’s market capitalization?
A. Increases it
B. Decreases it
C. No change
D. Doubles it
✅ Correct Answer: C. No change
Rationale: A stock split increases the number of shares and reduces price per share, but total
market value stays the same.
11. Which of the following is an example of a derivative security?
Complete Solutions
Course
SIE
1. Which of the following is a characteristic of a common stockholder?
A. Guaranteed dividends
B. Higher claim than bondholders in liquidation
C. Voting rights in corporate elections
D. Fixed interest payments
✅ Correct Answer: C. Voting rights in corporate elections
Rationale: Common shareholders can vote on major corporate decisions, such as board
elections. They are last in line during liquidation and dividends are not guaranteed.
2. A bond is trading at 102. What does this mean?
A. The bond is trading at $1,020
B. The bond has 102 years to maturity
C. The bond’s interest rate is 10.2%
D. The bond pays $102 annually
✅ Correct Answer: A. The bond is trading at $1,020
Rationale: Bonds are priced as a percentage of par (usually $1,000). 102 = 102% of $1,000 =
$1,020.
3. Which of the following securities is most susceptible to inflation risk?
A. Treasury Inflation-Protected Securities (TIPS)
B. Common stock
C. Treasury bonds
D. Floating rate notes
✅ Correct Answer: C. Treasury bonds
Rationale: Fixed-income securities like Treasury bonds lose purchasing power during inflation.
TIPS adjust for inflation.
4. What is the primary role of the Federal Reserve’s open market operations?
,A. Set corporate interest rates
B. Lend money to the IMF
C. Influence short-term interest rates and money supply
D. Regulate public offerings
✅ Correct Answer: C. Influence short-term interest rates and money supply
Rationale: The Fed buys/sells Treasury securities in the open market to manage liquidity and
interest rates.
5. Which of the following entities enforces securities laws in the United States?
A. FINRA
B. SIPC
C. Federal Reserve
D. SEC
✅ Correct Answer: D. SEC
Rationale: The Securities and Exchange Commission (SEC) is the primary federal agency
enforcing U.S. securities laws.
6. Which of the following is not a self-regulatory organization (SRO)?
A. FINRA
B. MSRB
C. SEC
D. CBOE
✅ Correct Answer: C. SEC
Rationale: The SEC is a government agency. FINRA, MSRB, and CBOE are SROs that regulate
specific market participants.
7. Which investment product is most appropriate for a conservative investor
seeking regular income?
A. Options
B. Growth stocks
C. High-yield bonds
D. Investment-grade bonds
, ✅ Correct Answer: D. Investment-grade bonds
Rationale: These offer lower risk and provide regular interest income, suitable for conservative
investors.
8. What happens in a firm commitment underwriting?
A. The underwriter acts as agent only
B. The underwriter guarantees to purchase all securities
C. Securities are sold directly to investors
D. It’s a best-efforts offering
✅ Correct Answer: B. The underwriter guarantees to purchase all securities
Rationale: In a firm commitment, the underwriter buys the entire issue from the issuer,
assuming full risk.
9. What is the primary purpose of the Securities Investor Protection Corporation
(SIPC)?
A. Insure against losses due to market decline
B. Guarantee profits to investors
C. Protect customer securities/cash in case a brokerage firm fails
D. Prevent insider trading
✅ Correct Answer: C. Protect customer securities/cash in case a brokerage firm fails
Rationale: SIPC covers up to $500,000 (including $250,000 in cash) if a broker-dealer becomes
insolvent.
10. What is the effect of a stock split on a company’s market capitalization?
A. Increases it
B. Decreases it
C. No change
D. Doubles it
✅ Correct Answer: C. No change
Rationale: A stock split increases the number of shares and reduces price per share, but total
market value stays the same.
11. Which of the following is an example of a derivative security?
