Free Practice Questions for FINRA SIE Exam

The correct answer is A, Tax deferral. Both qualified and nonqualified retirement plans share the feature of tax-deferred growth, meaning that earnings within the account are not taxed until they are withdrawn.

Step-by-step, in qualified plans (such as 401(k)s), contributions are often made with pre-tax dollars, and taxes are deferred until distribution. In nonqualified plans (such as annuities or certain deferred compensation plans), contributions are typically made with after-tax dollars, but the earnings still grow tax-deferred. This shared feature is the key similarity between the two types of plans.

Choice B, tax deduction, applies mainly to qualified plans, where contributions may be tax-deductible. Nonqualified plans generally do not offer this benefit. Choice C, nondiscrimination, is a requirement only for qualified plans to ensure fairness among employees and prevent favoring highly compensated individuals. Choice D, creditor protection, is typically stronger in qualified plans under ERISA, but not consistently available in nonqualified plans.

Therefore, the only characteristic common to both qualified and nonqualified retirement plans is tax-deferred growth, making Answer A correct.

A marketing piece claiming FINRA “endorses” a broker-dealer is not permissible, so A is correct. FINRA is a self-regulatory organization that oversees broker-dealers; it does not “endorse” member firms as a marketing claim. Communications with the public must be fair and not misleading. Suggesting FINRA endorsement could mislead customers into thinking the regulator has approved the firm’s quality, products, or services, which conflicts with the disclosure-based framework and the principle that regulators do not provide merit-based approval of market participants.

Choice B is incorrect because principal approval does not make a misleading statement permissible. Principal approval is an internal supervisory step; it cannot legalize a false or misleading representation. Choice C is incorrect because FINRA does not provide written approvals to allow firms to claim endorsement; the concept itself is improper. Choice D is incorrect because the issue is not whether specific investments are mentioned; the misrepresentation is the claim of regulatory endorsement, which is misleading regardless of content.

SIE exam questions in this area test your ability to spot prohibited or misleading marketing language—especially anything implying government or regulator “approval,” “guarantee,” or “endorsement.” Similar logic applies to claims that the SEC approves a prospectus or the merits of an offering. The correct approach in communications is accurate, balanced disclosure—not implying that a regulator supports or recommends the firm.

The correct answer is A, Long. When an investor sells shares that they already own in their account, this is referred to as selling a long position or simply a long sale. A long position means the investor previously purchased and owns the securities, so when they sell, they are delivering shares they already possess.

In contrast, a short sale (choice B) occurs when an investor sells shares they do not own, typically borrowing them from a broker-dealer with the intention of buying them back later at a lower price. This is fundamentally different from selling owned shares.

Choice C, Covered, and D, Uncovered, are terms more commonly associated with options trading, not stock transactions. For example, a covered call involves owning the underlying stock while selling call options against it. These terms are not used to describe straightforward stock sales.

Because the investor in this scenario is selling shares already held in her account, the transaction is clearly a long sale, making choice A the correct answer.

Both hedge funds and mutual funds pool investor money and invest that capital with the objective of generating investment returns. That broad structural similarity makes choice D correct. However, the two products are very different in regulation, disclosure, liquidity, eligibility, and operating flexibility. Mutual funds are registered investment companies, typically offered broadly to the public, priced at net asset value, and subject to detailed disclosure and regulatory requirements. Hedge funds are generally privately offered pooled investment vehicles, commonly structured as limited partnerships or similar entities, and are often available only to accredited or qualified investors. They may use leverage, short selling, derivatives, concentrated positions, and less liquid strategies. Choices A, B, and C are incorrect because hedge funds and mutual funds are not generally subject to the same valuation, registration, or disclosure requirements. The SIE outline separately identifies open-end investment companies under packaged products and hedge funds as products requiring knowledge of “minimum investment,” “partnership structure,” “private equity,” and “generally illiquid.” This contrast supports the answer while preserving the one shared feature: pooled investment for return. Reference: Section 2.1.4 Packaged Products; Section 2.1.8 Hedge Funds.

Nonqualified deferred compensation (NQDC) plans allow employees to defer income until a future date.

D is correct because NQDC funds remain part of the company’s general assets, which creditors may claim if the company goes bankrupt.

A is incorrect as NQDC plans are not subject to ERISA rules.

B is incorrect because these plans do not require IRS review.

C is incorrect as NQDC assets are not required to be held in escrow.

The sales load is calculated as a percentage of the POP, using the formula:

Sales load = (POP − NAV) ÷ POP × 100

POP = $15.50, NAV = $14.35.

Sales load = ($15.50 − $14.35) ÷ $15.50 × 100 = 8.50%.

C is correct because the calculation results in an 8.50% load.

A, B, and D are incorrect due to incorrect calculations.

Step by Step Explanation:

Summary Prospectus Content: Must include key information such as the fund’s investment objectives, risks, fees, and past performance. This helps investors make informed decisions.

Incorrect Options:

A: Projected returns are speculative and not included in the prospectus.

C & D: Detailed portfolio holdings and control persons are included in the full prospectus, not the summary.

SEC Rule 498 (Summary Prospectuses): SEC Prospectus Requirements.

A bullish investor expects the price of the underlying security to rise. Selling a put is a bullish options strategy because the put seller has the obligation to buy the stock if assigned. The strategy profits if the stock remains above the strike price and the option expires worthless, allowing the seller to keep the premium. Therefore, choice A is correct. Selling calls is generally a neutral-to-bearish strategy because the call writer benefits if the stock does not rise above the strike price. Selling stock reflects reducing or eliminating ownership and is not a bullish action. Selling stock short is bearish because the investor profits if the stock declines and can repurchase the shares at a lower price. The SIE outline requires knowledge of “puts and calls,” “hedging or speculation,” “covered vs. uncovered,” “exercise and assignment,” and “varying strategies.” It also includes “bearish and bullish” under trading strategies. This question integrates options directionality with investor market outlook. Reference: Section 2.1.3 Options; Section 3.1.1 Orders and Strategies.

Step by Step Explanation:

Outside Business Activity Definition: Per FINRA Rule 3270, an OBA involves compensated business activities outside the scope of the RR’s role at their firm. Passive investments are excluded because they do not require active involvement.

Incorrect Options:

A, B, and C: Selling real estate, selling insurance, and refereeing are considered OBAs as they involve active participation and compensation.

FINRA Rule 3270 (Outside Business Activities): FINRA Rule 3270.

The correct answer is A, It remains the same as it was prior to the split. A reverse stock split changes the number of shares outstanding and the stock price proportionally, but it does not affect the overall market capitalization of the company.

Step-by-step, market capitalization is calculated as:

Market Cap = Shares Outstanding × Price per Share

In a 1-for-25 reverse split, every 25 shares are consolidated into 1 share. This means the number of shares outstanding is reduced to 1/25th of the original amount. At the same time, the stock price increases by a factor of 25.

For example, if a company had 25,000 shares at $4 per share (market cap = $100,000), after the reverse split it would have 1,000 shares at $100 per share. The new market cap is still $100,000.

Choice B is incorrect because although the price increases, the number of shares decreases proportionally. Choice C is incorrect because shares actually decrease, not increase. Choice D is incorrect because the decrease in shares is offset by the increase in price.

Thus, a reverse stock split has no impact on total market capitalization, making Answer A correct.

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