Free Practice Questions for FINRA SIE Exam

The annual interest on a bond is calculated based on thecoupon rateand the bond’s par value.

Coupon rate = 4.0%.

Annual interest = $10,000 (par value) × 4.0% =$400.

A is correctbecause the coupon rate determines the annual interest.

B,C, andDare incorrect because they reflect incorrect calculations. The current yield, YTM, and tax-equivalent yield do not affect the bond’s fixed coupon payments.

Step by Step Explanation:

Escalation Requirement: The RR must promptly notify their supervisor or compliance department about the customer’s complaint as required by FINRA rules. Supervisors handle customer complaints according to firm procedures.

Incorrect Options:

B: Reimbursing the customer is not permissible without firm approval and may create compliance issues.

C: Complaints requiring Form U4 updates involve specific allegations such as fraud, not general dissatisfaction.

D: The RR should not contact FINRA directly; the firm will handle communications.

References:

FINRA Rule 4530 (Reporting Requirements): FINRA Rule 4530.

The Options Clearing Corporation (OCC) is responsible for issuing and guaranteeing the performance of listed options contracts, including Long-term Equity Anticipation Securities (LEAPS), which are long-term options.

D is correctbecause LEAPS are a type of listed options contract cleared by the OCC.

Ais incorrect because listed stocks are not options contracts.

Bis incorrect because over-the-counter bonds are not cleared by the OCC.

Cis incorrect because ETFs are not options, though ETF options may be cleared by the OCC.

Step by Step Explanation:

Blue-Chip Stock Mutual Funds: Invest in large, established companies that typically provide stable dividend income and potential for capital appreciation.

Incorrect Options:

A: Growth stocks prioritize capital appreciation, not income.

B: Money market accounts focus on safety and liquidity, not capital gains.

D: STRIPS provide fixed income without capital gains potential.

References:

FINRA Investment Product Education: FINRA Investment Guidance.

Step by Step Explanation:

403(b) Accounts: These tax-advantaged retirement plans are specifically for employees of public schools, tax-exempt organizations, and certain other nonprofit employers, such ashospitals.

Incorrect Options:

Volunteer Workers: Ineligible unless they are also employees.

Small Business Owners and Military Personnel: These groups typically qualify for other retirement plans, not 403(b).

References:

IRS Publication 571 (403(b) Plans): IRS 403(b) Guidance.

Regulation S-P mandates that broker-dealers disclose how they collect, protect, and share customers’ nonpublic personal information. The privacy notice must include:

The categories of information collected.

The firm’s policies for safeguarding data.

Opt-out rights for sharing information with unaffiliated third parties.

D is correctbecause privacy notices must describe policies for protecting customer information.

A,B, andCare incorrect because they do not relate to the required elements of Regulation S-P privacy notices.

Step by Step Explanation:

Short Sale Definition: Involves selling borrowed securities with the expectation of repurchasing them at a lower price.

Investor Ownership: Short sales do not involve securities already owned by the seller.

Other Options: None of the other choices accurately define a short sale.

References:

SEC Regulation SHO (Short Selling): SEC Short Sales.

Step by Step Explanation:

Call Option Writer: When writing (selling) a call option, the writer has the obligation to sell the underlying stock at the strike price if the buyer exercises the option.

Incorrect Options:

A & B: Only the option buyer has rights, not the writer.

D: Obligations to buy stock apply to put option writers, not call option writers.

References:

Options Clearing Corporation (OCC) Options Education:OCC Options Education.

Step by Step Explanation:

Equity Index Options: These are cash-settled because the underlying asset is not a physical security but a theoretical value representing the index.

Incorrect Options:

Preferred Stock, Master Limited Partnerships, and ETFs: These involve physical delivery of the underlying asset upon exercise.

References:

Options Clearing Corporation (OCC) Guidelines:OCC Cash-Settled Options.

An unrealized gain occurs when the value of an asset increases but has not yet been sold. If the customer sells the stock, the unrealized gain becomes a realized gain.

B is correctbecause the increase in value without selling the stock is an unrealized gain.

Ais incorrect because interest income refers to earnings from fixed-income securities.

Cis incorrect because operating profit relates to a company’s earnings, not an investor’s portfolio.

Dis incorrect because "out of the money" is a term used for options, not stocks.