Free Practice Questions for FINRA SIE Exam

In a tenants in common account, each owner has a distinct percentage of ownership. Upon the death of one owner, their share does not transfer to the surviving owner(s); instead, it becomes part of the deceased’s estate.

C is correct because ownership is divided, and the deceased’s share passes to their estate.

A is incorrect because partnerships have different agreements governing ownership transitions.

B is incorrect because trust corporations are governed by trust agreements, not estate processes.

D is incorrect because JTWROS accounts pass ownership directly to the surviving account holder(s).

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.

An introducing broker-dealer is primarily responsible for customer-facing activities, which includes opening accounts, communicating with customers, and accepting customer orders. Introducing firms “introduce” the business to a clearing firm, which provides the back-office infrastructure. The clearing firm typically handles functions like trade confirmation processing, clearance and settlement mechanics, custody of customer securities and funds, margin processing, and issuance of account statements and confirmations. That division of responsibilities is why “accepting customer orders” is the best match for an introducing broker.

Choice B is generally associated with a clearing broker, not an introducing broker. Custody and safeguarding customer assets is a key clearing function, supported by recordkeeping, possession-or-control requirements, and operational systems that most introducing firms do not maintain independently. Choice C also aligns more with a clearing firm’s role, since “helping ensure trades are settled appropriately” describes the clearing/settlement process (e.g., reconciliation, delivery versus payment mechanics, coordination with clearing agencies). Introducing firms may interact with customers about trade status, but the operational responsibility for settlement is typically the clearing broker’s domain.

Choice D is incorrect because clearing brokers generally have higher net capital requirements than introducing brokers due to their greater financial and operational responsibilities (e.g., carrying customer accounts, maintaining custody, financing margin). Introducing brokers typically operate with lower net capital requirements relative to clearing firms because they outsource many back-office and custody functions through a fully disclosed or omnibus clearing arrangement.

This distinction fits the SIE focus on market participants and their roles, including broker-dealer business models (introducing vs. clearing) and how customer orders flow through the marketplace.

A stock’s price is generally adjusted downward by the amount of the declared cash dividend on the ex-dividend date, so B is correct. The ex-dividend date is the first day the stock trades without the right to receive the upcoming dividend. Investors who purchase on or after the ex-dividend date are not entitled to that declared dividend; the seller retains the right to receive it. Because new buyers are no longer receiving that cash distribution, the market typically reflects this by reducing the stock’s price by approximately the dividend amount (all else equal). This is a standard SIE-tested dividend timing concept.

The record date (choice C) is the date on which the company reviews its shareholder records to determine who is entitled to receive the dividend. It is a corporate bookkeeping cutoff and is not the date the market typically adjusts the price. The payment date (choice D) is when the company actually pays the dividend to shareholders of record; again, this is not when the stock generally drops by the dividend amount. Choice A is incorrect because “redemption date” applies to instruments like bonds, CDs, or redeemable fund shares—not common stock dividends.

This topic sits under corporate actions and dividend mechanics, and the SIE expects you to connect the sequence: declaration date (announced), ex-dividend date (price adjustment / eligibility cutoff for buyers), record date (company records), and payable/payment date (cash distributed). Understanding the ex-dividend date is crucial for customer communication, trade timing, and explaining why price may appear to “drop” even without negative news.

The correct answer is C, A unit investment trust (UIT). Under the Investment Company Act of 1940, an investment company is defined as a company that pools investor funds to invest in securities portfolios. UITs are one of the three types of registered investment companies, along with mutual funds (open-end) and closed-end funds.

Step-by-step, a UIT is a fixed portfolio of securities that is professionally selected but not actively managed. Once created, the portfolio generally remains unchanged for the life of the trust. Investors purchase units representing an ownership interest in that portfolio.

Choice A, a variable annuity, is an insurance product, although it may invest in subaccounts that resemble mutual funds. Choice B, a private equity fund, is typically privately offered and exempt from registration under the Investment Company Act, so it is not considered a registered investment company. Choice D, a REIT, is a company that invests in real estate and is not classified as an investment company under the Act.

Thus, among the choices, only a UIT qualifies as a registered investment company, making Answer C correct.

The correct answer is B, Tenants in common. This type of account allows multiple owners to hold separate and distinct ownership interests in the same account. Each owner can control, sell, or transfer their individual portion without requiring consent from the other co-owner(s). Additionally, ownership percentages do not need to be equal, and each owner’s interest can be passed to their heirs upon death.

In contrast, Joint Tenants with Right of Survivorship (JTWROS) (choice D) requires equal ownership interests, and when one owner dies, their share automatically passes to the surviving owner(s). Importantly, actions in the account generally require joint participation, limiting independent control.

Tenants by the entirety (choice C) is similar to JTWROS but is limited to married couples and also does not allow unilateral control over a portion of the account.

A trust account (choice A) involves a trustee managing assets on behalf of beneficiaries and does not provide individual ownership control in the same sense as joint accounts.

Therefore, for investors who want independent control over their respective shares without needing approval from the other owner, a tenants in common account is the most appropriate choice, making answer B correct.

Comparative performance statistics—especially across competing mutual funds—are most commonly obtained from independent fund rating services, making C correct. These services compile standardized fund performance data, risk metrics, category comparisons, peer rankings, and sometimes risk-adjusted measures, allowing investors to compare funds across managers and fund families. Because they are designed specifically for cross-fund comparisons, they are the best source among the choices.

A fund’s prospectus (choice A) contains important disclosures about that specific fund—objectives, strategies, risks, fees, and past performance—but it is not primarily a comparative document across multiple competing funds. Shareholder reports (choice B) provide periodic information about a specific fund (financial statements, portfolio holdings summaries, management discussion), and while they include performance figures, they typically do not provide broad comparisons of “competing mutual funds.” The statement of additional information (choice D) supplements the prospectus with expanded technical details about that particular fund; it is not meant to be a comparative performance source across the market.

For SIE purposes, recognize the roles of fund documents: prospectus/SAI/shareholder reports are issuer-specific disclosure documents, while independent rating services are built for industry-wide comparisons. This distinction helps you answer questions about where an investor would go for peer group performance, ranking, and objective comparative data rather than reading each fund’s disclosures individually.

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).

The correct answer is B, 25%. The minimum maintenance requirement for a long margin account holding common stock is established by FINRA Rule 4210, which requires that investors maintain at least 25% equity in the account relative to the current market value of the securities.

This requirement is different from the initial margin requirement, which is set by Regulation T of the Federal Reserve and is typically 50% for purchasing securities. Once the position is established, the maintenance requirement ensures that the investor continues to have sufficient equity in the account to support the borrowed funds.

If the equity in the account falls below 25% due to a decline in the value of the securities, the investor will receive a maintenance (margin) call, requiring them to deposit additional funds or securities to bring the account back into compliance.

Choice A (5%) is far too low and not a regulatory standard. Choice C (50%) refers to initial margin, not maintenance. Choice D (75%) is not a recognized requirement.

Thus, the correct minimum maintenance requirement for long margin accounts with common stock is 25%, making choice B correct.

Step by Step Explanation:

529 Savings Plans: These plans allow tax-advantaged savings for education expenses. They can be used for both undergraduate and graduate studies, as well as certain K-12 expenses.

Contribution Limits: Contributions are subject to gift tax limits but have no specific statutory maximum under federal law.

Tax Treatment: Earnings grow tax-deferred and are tax-free if used for qualified education expenses.

IRS Section 529 Guidance: IRS 529 Plans.