Free Practice Questions for FINRA SIE Exam

Step by Step Explanation:

Regular-Way Settlement: For equity securities, settlement occurs on a T+2 basis, meaning two business days after the trade date.

Calculation:

Trade Date (T): Thursday, August 2.

T+2 Settlement: Excludes weekends, so settlement falls on Monday, August 6.

Incorrect Options:

A: Reflects T+1, not the correct settlement cycle.

C & D: Extend beyond the standard T+2 cycle.

FINRA and SEC Settlement Rules: SEC Settlement Rules.

Treasury bills (T-bills) are short-term debt securities issued at a discount to par value. The difference between the purchase price and the par value represents the investor’s interest income, which is realized when the T-bill matures.

C is correct because T-bills are issued at a discount and mature at par.

A is incorrect because T-bills are not sold at par value.

B and D are incorrect because T-bills do not pay periodic interest; the return is based on the discount.

Step by Step Explanation:

Rule 144 Holding Period: Restricted securities held by affiliates require a six-month holding period before sale, provided the issuer is subject to SEC reporting requirements.

Other Options:

Notification to FINRA (C) is incorrect; Form 144 is submitted to the SEC, not FINRA.

The 10% ADTV limitation (D) applies to the volume of shares sold, not the conditions for sale.

SEC Rule 144 (Selling Restricted Securities): SEC Rule 144.

Step by Step Explanation:

Hypothecation Agreement: Required for margin accounts, it authorizes the broker-dealer to use the customer's margin securities as collateral to secure loans for funding customer transactions.

Incorrect Options:

A: Sharing customer information is regulated under privacy rules (Regulation S-P).

B: Unauthorized trading violates securities laws.

C: Selling unpaid securities in cash accounts pertains to Regulation T, not hypothecation agreements.

FINRA Margin Account Rules: FINRA Rule 4210.

Preferred stock may include convertible features that allow holders to exchange the preferred shares for another security of the issuing company—most commonly common stock—at a specified conversion ratio. That is why choice B is correct. Convertible preferred combines characteristics of equity income (a stated dividend) with the potential upside participation of common stock through the conversion privilege. The conversion feature is set by the issuer and described in the security’s terms at issuance.

Choice A is not the best answer because “common stock” itself is not typically described as “convertible” into other company issues; conversion features are commonly attached to preferred stock or bonds (convertible debentures), not standard common shares. Choice C, commercial paper, is a short-term unsecured corporate money market instrument; it is not typically issued with conversion features—its hallmark is short maturity and credit quality, not embedded equity options. Choice D, an ETF, is an investment company product whose shares represent an interest in a portfolio; ETFs are not typically “convertible” into other issues of the company in the way convertible preferred is.

This is a product-knowledge question aimed at understanding embedded features and how issuers structure securities. For SIE purposes, remember: convertibility is most commonly associated with preferred stock and certain corporate bonds, and it provides investors with an option-like feature that can change the security’s risk/return profile (income plus potential appreciation).

An equity REIT owns and operates income-producing real estate, and its value is closely tied to property fundamentals such as rent levels, occupancy, operating costs, and the balance of supply and demand in the markets where it owns properties. Overbuilding increases supply of available real estate (e.g., more apartments, office space, retail capacity) relative to demand, which typically puts downward pressure on rents, increases vacancy risk, and reduces property-level cash flows. Lower expected cash flow and weaker pricing power generally reduce the value of the REIT’s properties and can lead to lower REIT share valuations. That is why A is correct.

Choice B is generally positive, not negative: low mortgage rates can support real estate values by reducing financing costs, increasing affordability, and improving the economics of acquisitions and development (though effects can vary). Choice C—increasing property values—is typically positive for equity REITs because it can raise the value of the underlying real estate portfolio and improve net asset value. Choice D—higher occupancy rates—is also generally positive because it means more leased space, steadier rental income, and improved cash flow stability.

This question is testing a fundamental real estate cycle concept often included in SIE product/risk discussions: real estate is sensitive to economic activity and supply/demand imbalances. Overbuilding is a classic negative driver because it can persistently compress revenues and margins until excess supply is absorbed. Equity REIT investors must consider these sector dynamics, alongside interest-rate sensitivity, leverage, and property-type exposure.

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.

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

Open-end mutual funds do not trade on secondary markets. Instead, shares are continuously issued or redeemed by the fund at the net asset value (NAV), calculated at the market close.

D is correct because investors purchase and redeem shares directly through the fund or authorized brokers.

A is incorrect because mutual funds do not have a predetermined dissolution date.

B is incorrect because mutual fund shares are priced at the NAV calculated once daily after the market closes.

C is incorrect because secondary market trading applies to closed-end funds and ETFs, not open-end mutual funds.

A general obligation (GO) municipal bond is backed by the full faith and credit of the issuing municipality or governmental unit, which is why choice C is correct. In practical terms, this means the issuer pledges its general taxing power and overall resources to meet debt service—interest and principal payments. GO bonds are typically supported by the issuer’s ability to levy taxes (often property taxes, subject to legal limits), making their repayment source broader than that of revenue bonds.

Choice D describes a revenue bond, which is payable only from a specific revenue stream (e.g., tolls from a bridge, fees from a water/sewer system, or revenues from an airport). Revenue bonds do not rely on the issuer’s general taxing power; instead, bondholders depend on the project’s or enterprise’s revenues. That is a key GO vs. revenue distinction tested heavily on the SIE.

Choice A is incorrect because municipal securities customarily include a legal opinion addressing validity and tax status, especially for tax-exempt issues; the presence of a legal opinion is not something GO bonds uniquely lack. Choice B is incorrect because many municipal bonds, including many GO bonds, are federally tax-exempt on interest (and may also be state/local tax-exempt for in-state residents), though there are exceptions such as taxable munis and AMT considerations in certain cases. The question’s best, universally correct feature of a GO bond is the backing by the issuing jurisdiction’s full faith and credit.

This question aligns with SIE product knowledge of municipal securities, including repayment sources and how those sources affect credit considerations.

Treasury securities are among the most liquid investments, as they are backed by the U.S. government and trade actively in large volumes.

A is correct because Treasuries are highly liquid, making them easy to buy and sell.

B is incorrect because most Treasury securities are not callable.

C is incorrect because FDIC insurance applies to bank deposits, not Treasuries.

D is incorrect because U.S. government securities have negligible default risk.