SIE – ELEVENTH SIMULATION

#1. Which of the following is the primary purpose of the Securities Exchange Act of 1934?

To establish tax rules for retirement plans

To regulate trading of securities in the secondary market

To regulate investment companies

To register new issues of securities

#2. Which of the following BEST describes a private placement under Regulation D?

An offering sold only to foreign investors

An offering sold without registration to accredited and limited non-accredited investors

An intrastate offering limited to one state

An IPO sold on a national exchange

#3. Rule 144 most commonly applies to the sale of:

Municipal general obligation bonds

Treasury securities

New issues in an IPO

Restricted and control securities

#4. During the cooling-off period for a new issue, which of the following is permitted?

Quoting a final public offering price

Confirming sales to retail customers

Accepting firm orders to purchase shares

Distributing a preliminary prospectus to potential investors

#5. A tombstone advertisement for a new issue may include which of the following?

Projected future performance

An offer to sell the security

Personal recommendations by registered representatives

The name of the issuer and type of security

#6. Which type of underwriting does NOT require the investment banker to purchase unsold shares?

Standby

Best efforts

Bought deal

Firm commitment

#7. Which of the following statements about shelf registration is TRUE?

It is available only to foreign issuers

It requires a separate prospectus for each investor

It can only be used for municipal securities

It allows an issuer to sell securities over a period, typically up to three years

#8. A market where listed securities are traded over the counter rather than on the exchange is called the:

Gray market

Third market

Fourth market

Primary market

#9. Which of the following securities is considered an equity security?

Common stock

Treasury note

Commercial paper

Debenture

#10. Which of the following occurs when a corporation distributes additional shares to existing shareholders without receiving payment?

Tender offer

Rights offering

Bond exchange offer

Stock dividend

#11. Which of the following statements about cumulative voting for common shareholders is TRUE?

It eliminates minority shareholder influence

It gives each share one vote per director position only

It allows shareholders to concentrate their votes for fewer board candidates

It guarantees that all nominees are elected

#12. Which of the following is most accurate regarding preemptive rights?

They guarantee dividend payments

They allow bondholders to convert to stock

They eliminate dilution of bondholders

They allow existing shareholders to maintain their proportionate ownership

#13. Which type of stock is issued by a company that pays out most of its earnings as dividends?

Cyclical stock

Speculative stock

Income stock

Growth stock

#14. Which of the following is a characteristic of cyclical stocks?

They are primarily issued by utilities

They provide stable earnings in recessions

They tend to perform well when the economy is expanding

They are unaffected by economic conditions

#15. Which of the following best describes a blue-chip stock?

Stock of a large, well-established company with a history of stable earnings

Stock of a financially distressed firm

Stock of a new speculative company

Stock trading below $1 per share

#16. Which of the following statements about subordinated debentures is TRUE?

They are backed by specific collateral

They are exempt from default risk

They have a higher claim than secured bonds

They have a lower claim on assets than other corporate bonds in liquidation

#17. Which of the following securities is backed by real property such as plants or real estate?

Eurodollar bond

Debenture

Mortgage bond

Commercial paper

#18. Which of the following is TRUE regarding equipment trust certificates?

They are issued only by municipalities

They provide equity ownership in a corporation

They are secured by specific equipment such as rolling stock or airplanes

They are unsecured corporate obligations

#19. Which of the following best describes a Eurobond?

A bond that pays interest in multiple currencies

A bond issued only in Europe in euros

A bond issued outside the country of the currency in which it is denominated

A bond issued by the European Union

#20. Which of the following municipal securities is issued at a discount and redeemed at par, with the difference representing interest?

Revenue bond

Municipal note

Industrial development bond

General obligation bond

#21. In a bond quote of 101.50 for a corporate bond, the dollar price is:

$1,010

$1,500

$1,015

$1,050

#22. Which of the following BEST describes duration?

A measure of a bond’s price sensitivity to interest-rate changes

The annual coupon divided by par value

The time until the next coupon payment

The number of years remaining to maturity

#23. Which type of risk is MOST associated with long-term, low-coupon bonds?

Exchange-rate risk

Interest-rate risk

Liquidity risk

Political risk

#24. Which of the following is the primary risk for investors in mortgage-backed securities?

Prepayment and extension risk

Only currency risk

No credit risk

No market risk

#25. Treasury Inflation-Protected Securities (TIPS) provide protection primarily against:

Default risk

Inflation risk

Political risk

Reinvestment risk

#26. Which of the following BEST describes an equity security issued by a real estate investment trust (REIT)?

A share representing an interest in a pool of real estate investments

A government-guaranteed mortgage

A direct ownership of a single property

A bond secured by mortgages

#27. Which of the following must a REIT do to avoid corporate-level taxation on distributed income?

Guarantee a dividend each quarter

Invest only in government securities

Distribute at least 90% of its taxable income to shareholders

Limit its debt to equity to 1:1

#28. Which of the following investors would be MOST interested in an equity REIT?

Investor seeking income from rents and potential appreciation

Investor requiring principal guarantee

Investor seeking only fixed coupon payments

Investor seeking only tax-free municipal income

#29. Which of the following statements regarding mutual fund breakpoints is TRUE?

They apply only to Class C shares

They are guaranteed by federal law for all funds

They are available only to institutional accounts

They offer reduced sales charges for larger investments in the same fund family

#30. An investor who signs a letter of intent (LOI) agrees to:

Hold shares for a minimum of 10 years

Invest enough within a period to receive a reduced sales charge

Receive a guaranteed rate of return

Avoid all redemption fees

#31. Rights of accumulation (ROA) allow a mutual fund shareholder to:

Combine holdings with unrelated investors

Use the current value of holdings to reach breakpoints for reduced sales charges

Avoid all fund expenses

Accumulate interest in a separate high-yield account

#32. Which of the following investors would be MOST interested in a municipal bond unit investment trust (UIT)?

Investor seeking a fixed portfolio of tax-exempt bonds

Investor wanting direct ownership of real estate

Investor seeking actively traded growth stocks

Investor requiring daily changes in portfolio holdings

#33. Which of the following is TRUE of open-end investment companies?

They trade only on national exchanges

They continuously issue and redeem shares at NAV-related prices

They issue a fixed number of shares in an IPO

They cannot pay dividends

#34. Which of the following is TRUE about exchange-traded notes (ETNs)?

They are equity shares in a portfolio

They are unsecured debt instruments subject to issuer credit risk

They are exempt from market risk

They are guaranteed by the U.S. government

#35. Which of the following is a distinguishing feature of a variable annuity compared to a fixed annuity?

Returns are not affected by market performance

Principal is guaranteed and cannot decline

Investment risk is borne by the insurer

Investment risk is borne by the contract owner

#36. During the annuity phase of a variable annuity, the number of annuity units:

Is fixed, but the value of each unit fluctuates

Is reset monthly by the insurer

Changes every year based on inflation

Is variable, but the value per unit is fixed

#37. Which of the following describes the primary objective of a money market mutual fund?

Provide aggressive speculative returns

Provide tax-free capital gains only

Provide current income with capital preservation

Provide long-term capital growth

#38. Which of the following accounts is most likely to be subject to ERISA rules?

529 college savings plan

Corporate defined benefit pension plan

Traditional IRA held at a bank

Individual brokerage margin account

#39. Which of the following retirement plans is designed for employees of public education and certain nonprofit organizations?

Roth IRA

403(b) plan

457 governmental plan

401(k) plan

#40. An investor withdraws funds from a traditional IRA before age 59½ without an exception. In addition to ordinary income tax, the investor is generally subject to:

A 25% excise tax

No additional tax

A 10% early withdrawal penalty

A long-term capital gains tax

#41. Which of the following statements is TRUE about SIPC protection limits?

It insures all investment losses caused by fraud

It covers unlimited amounts of commodities

It protects up to a certain amount of securities and cash per customer if a broker-dealer fails

It guarantees against market declines

#42. Which of the following is TRUE regarding FDIC insurance?

It insures securities at broker-dealers

It guarantees municipal bond interest

It covers losses in mutual funds

It protects bank deposits up to applicable limits per depositor

#43. Which of the following would be considered correspondence under FINRA rules?

A brochure mailed to 200 prospects

A billboard advertisement on a highway

A television commercial aired nationally

An email sent to 10 retail customers over 30 days

#44. Which of the following customers is considered institutional for communications purposes?

An individual investing $1 million

A trust for a single family

A couple opening a joint account

An insurance company investing its general account

#45. Which of the following is an example of retail communication requiring a principal’s review?

Internal memo to firm employees only

A mass email promoting a new mutual fund to 100 prospects

Unsolicited order ticket entered by a customer

Report sent exclusively to banks and pension funds

#46. Which of the following describes a key requirement of a firm’s anti-money laundering program?

It eliminates the need for customer identification

It must be approved in writing by a member of senior management

It must guarantee detection of all suspicious activity

It is required only for firms with more than 100 employees

#47. Which of the following is TRUE regarding a Suspicious Activity Report (SAR)?

It must be shared with the customer’s attorney

It must be given to all counterparties

It must not be disclosed to the subject of the report

It must be posted on the firm’s website

#48. Which of the following describes the purpose of OFAC’s Specially Designated Nationals (SDN) list?

Identifies persons with whom U.S. firms are prohibited from doing business

Lists all registered representatives in the U.S.

Lists only domestic political candidates

Lists firms that failed recent audits

#49. Which of the following is a typical red flag for potential money laundering?

Customer requests monthly account statements

Customer frequently deposits just under $10,000 in cash repeatedly

Customer asks about SIPC coverage limits

Customer reinvests mutual fund distributions

#50. Which economic phase is typically characterized by declining GDP and rising unemployment?

Recession

Peak

Recovery

Expansion

#51. Which of the following is a coincident economic indicator?

Building permits

Stock prices

Industrial production

Average duration of unemployment

#52. Which of the following best describes deflation?

Increase in wages only

A general decline in prices across the economy

Stable prices with no change

A rise in prices

#53. Stagflation is best described as:

Low inflation with high growth

High inflation combined with stagnant economic growth and high unemployment

High growth with falling unemployment

Deflation with rising GDP

#54. Which of the following is a potential outcome of a tightening monetary policy by the Federal Reserve?

Automatic decline in unemployment

Higher interest rates and reduced borrowing

Immediate increase in GDP

Lower interest rates and stimulus to borrowing

#55. Which of the following is a feature of a progressive tax system?

Higher earners pay a higher percentage of their income in tax

All earners pay the same percentage regardless of income

All earners pay the same dollar amount

Only capital gains are taxed

#56. Which of the following is an example of a regressive tax?

Estate tax

Sales tax on consumer goods

Federal income tax

Corporate income tax

#57. Which of the following investors would be MOST appropriate for a conservative asset allocation model?

Investor nearing retirement who prioritizes capital preservation and income

Investor with no concern for short-term losses

Speculative investor trading options daily

Young investor seeking maximum long-term growth

#58. Which type of mutual fund is MOST suitable for an investor seeking both current income and moderate growth?

Precious metals fund

Sector fund focused on technology

Balanced fund

Money market fund

#59. Which portfolio is MOST appropriate for an investor with a high risk tolerance and a long time horizon?

All cash equivalents and T-bills

All short-term CDs

Primarily equities with a small allocation to bonds

All fixed annuities

#60. Which of the following investments would be LEAST appropriate for a client needing funds for a home purchase in one year?

Aggressive growth stock fund

Short-term Treasury bill ladder

High-quality money market fund

Bank savings account

#61. Which of the following BEST describes capital risk?

The risk that interest rates will fall

The risk that an issuer will default

The risk of losing some or all of the original investment

The risk of inflation eroding purchasing power

#62. Which of the following investments is MOST susceptible to purchasing power risk?

Fixed-rate corporate bond

Real estate investment trust

Floating-rate note

Common stock of a growth company

#63. Liquidity risk is best described as the risk that:

Interest rates will move against the investor

An issuer will miss interest payments

An investment cannot be sold quickly at a fair price

The overall market will decline

#64. Which of the following investors is MOST exposed to currency risk?

Investor in a domestic Treasury bond fund

Investor in FDIC-insured CDs in U.S. dollars

Investor in a money market fund holding only T-bills

Investor in an international bond fund

#65. Which of the following best describes a speculative investor?

One who holds only Treasury bills

One who will accept no risk of loss

One who is willing to accept substantial risk for the potential of high returns

One who invests only in insured bank products

#66. Which of the following is MOST suitable for an investor whose primary objective is capital preservation?

Leveraged equity ETF

Short-term U.S. Treasury securities

High-yield bond fund

Emerging markets stock fund

#67. Which of the following investors would be BEST suited for a growth and income mutual fund?

An investor seeking only maximum speculation

An investor seeking only tax-free income

An investor seeking only capital preservation

An investor seeking both dividend income and some capital appreciation

#68. Which of the following statements regarding diversification is TRUE?

It can reduce the impact of any single investment’s poor performance

It is unnecessary for long-term investors

It guarantees a positive return

It eliminates all market risk

#69. Which of the following client characteristics is LEAST relevant when determining suitability?

Favorite vacation destination

Risk tolerance

Investment experience

Time horizon

#70. A customer with moderate risk tolerance and a goal of retirement in 25 years would MOST likely be recommended:

A portfolio entirely in high-yield bonds

A portfolio entirely in short-term CDs

A diversified portfolio with a heavier weighting in equities

An all-cash portfolio

#71. Which of the following is MOST appropriate as a core holding for a long-term retirement account?

Single speculative penny stock position

Broad-based stock index fund

Inverse leveraged ETF

Short-term trading account

#72. Which of the following investors should most strongly consider tax-exempt municipal bonds?

An investor saving for a short-term purchase next month

An investor in a high federal tax bracket seeking income

A low-income investor with no federal tax liability

A corporation needing working capital cash

#73. Which of the following is a primary advantage of using a 529 college savings plan over a taxable account?

Assets are guaranteed by the federal government

Earnings may grow tax-free if used for qualified education expenses

There are no limits on contribution amounts

Contributions are always deductible on federal returns

#74. Which of the following is TRUE regarding required minimum distributions (RMDs) from a traditional IRA?

They are mandatory after reaching the applicable age or a penalty may apply

They are required only if the account holds mutual funds

They are optional if the account owner is still working

They never apply to spouses

#75. Which of the following is generally TRUE about qualified distributions from a Roth IRA?

They are tax-free if certain holding period and age requirements are met

They are subject to the 10% early withdrawal penalty in all cases

They are always taxed at ordinary income rates

They are taxed only at capital gains rates

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