Free Practice Questions for FINRA SIE Exam

Step by Step Explanation:

Dividend Reinvestment Plans (DRIPs): These allow investors to automatically reinvest income distributed by the mutual fund to purchase additional shares.

Dollar Cost Averaging: Refers to systematic investments over time, not directly tied to income distributions.

Capital Gains Reinvestment: Involves reinvesting profits from the sale of fund holdings, which is distinct from dividend reinvestment.

References:

FINRA Mutual Fund Features: FINRA Mutual Funds.

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 correctbecause the calculation results in an 8.50% load.

A,B, andDare incorrect due to incorrect calculations.

FINRA Rule 3260 requires that discretionary trades be approved by the customer in writing and reviewed by the supervising firm. The order ticket must indicate that discretion was exercised to ensure proper oversight.

B is correctbecause marking the order ticket ensures compliance with supervisory requirements.

Ais incorrect because discretionary authority is not limited to market orders.

Cis incorrect as discretionary trades do not require pre-approval for each trade but require prior written authorization.

Dis incorrect because discretionary authority allows the RR to decide on price and timing without specific customer instructions.

The cost basis of a stock represents the purchase price and does not include dividends received. Taxes paid on dividends also do not affect the cost basis.

Original purchase price per share =$20.00.

Dividends and taxes on dividends do not adjust the stock’s cost basis.

A is correctbecause the cost basis remains $20.00.

B,C, andDincorrectly assume that dividends or taxes change the cost basis.

Step by Step Explanation:

Diversification: Spreads investments across multiple securities, industries, or asset classes to reduce exposure to a single security or sector.

Other Options:

Use of Leverage: Increases, not decreases, portfolio risk.

Dollar-Cost Averaging: Reduces timing risk but does not address concentration.

Dividend Reinvestment: Enhances returns but does not mitigate concentration risk.

References:

SEC Guidance on Diversification: SEC Diversification.

Step by Step Explanation:

FINRA Rule 3220: This rule limits gifts to $100 per person annually to prevent conflicts of interest.

Aggregate Limit: There is no provision for exceeding the $100 annual limit, regardless of the number of gifts.

Purpose: The rule ensures that gifts do not influence decisions or create unethical relationships.

References:

FINRA Rule 3220 (Influencing or Rewarding Employees of Others): FINRA Rule 3220.

Step by Step Explanation:

Low Liquidity: Hedge funds often impose lock-up periods and restrict redemptions, leading to low liquidity for investors.

Incorrect Options:

B: Hedge funds typically have high minimum investment requirements, often $1 million or more.

C: Hedge funds employ diverse strategies, not just fixed income.

D: Hedge funds are generally opaque about their strategies and holdings to protect their competitive advantage.

References:

SEC Investor Bulletin on Hedge Funds: SEC Hedge Funds.

A limit order to buy allows the investor to specify the maximum price he is willing to pay for the stock. The order will only execute if the stock price falls to or below the specified price.

B is correctbecause a limit order to buy aligns with the investor’s desire to secure a better price.

Ais incorrect because a limit order to sell is used when an investor wants to sell at a minimum price.

CandDare incorrect because market orders execute at the current market price, not at a preferred price.

Step by Step Explanation:

REIT Requirements: REITs must invest at least 75% of their total assets in real estate to qualify for favorable tax treatment under IRS regulations.

90% Rule: Refers to the distribution requirement for taxable income, not asset allocation.

100% Rule: There is no requirement to allocate 100% of assets to real estate.

References:

IRS Publication 542 (Real Estate Investment Trusts):IRS REIT Guidelines.