SIE – FIFTEENTH SIMULATION

#1. Which of the following is the primary objective of the Securities Investor Protection Corporation (SIPC)?

To regulate securities markets and exchanges

To insure deposits held at commercial banks

To guarantee investment returns against market loss

To protect customers if a broker-dealer fails financially

#2. Which of the following accounts is covered by SIPC protection?

Customer margin account at a broker-dealer

Directly held Treasury securities at the U.S. Treasury

Insurance policy cash value

Checking account at a commercial bank

#3. Which of the following is NOT protected by SIPC?

Missing cash held at a failed broker-dealer

Missing securities from a failed broker-dealer

Short securities differences caused by insolvency

Losses due to a decline in market value of securities

#4. Which of the following statements correctly describes the Securities Act of 1933?

It created self-regulatory organizations such as FINRA

It regulates securities trading in the secondary market

It established SIPC to protect customer accounts

It requires registration of nonexempt new issues with the SEC before public sale

#5. Which of the following securities is generally exempt from registration under the Securities Act of 1933?

Publicly offered corporate stock

U.S. Treasury note

Corporate debenture sold to the public

Closed-end fund IPO

#6. Which of the following offerings is conducted under Regulation D as a private placement?

An intrastate offering under Rule 147

An offering made only to foreign institutional investors

An unregistered sale of securities to accredited investors and a limited number of non-accredited investors

A fully registered public offering on an exchange

#7. Which of the following is TRUE about a tombstone advertisement?

It may be used to accept customer orders

It may include predictions of future performance

It is considered a final prospectus under the 1933 Act

It may include basic information such as the issuer, underwriter, and type of security

#8. During the cooling-off period for a new issue, a registered representative may:

Quote the final public offering price to customers

Accept payment for new issue shares

Confirm final allocations to retail customers

Distribute a preliminary prospectus to interested investors

#9. Which of the following market participants acts as principal when trading securities?

Broker acting as agent for a customer

Dealer trading for its own account

Transfer agent maintaining ownership records

Custodian bank holding assets for safekeeping

#10. Which of the following best describes the fourth market?

Retail trading in over-the-counter markets

Trading of listed securities on an exchange floor

Direct trading of securities between institutions without broker-dealers

Trading of new issues in the primary market

#11. Which of the following is TRUE regarding a firm quote made by a market maker?

The quote is for informational purposes only

The market maker may cancel the quote after execution

The market maker is obligated to buy or sell the stated amount at the quoted price

The quote applies only to institutional customers

#12. Which of the following orders is triggered when a stock price falls to or below a specified price?

Sell limit order

Sell stop order

Buy limit order

Buy stop order

#13. A buy stop order is most often used to:

Limit a loss or protect a short position if the market rises

Purchase stock at the lowest possible price

Guarantee execution at a specific price

Protect a long position from declining prices

#14. Which of the following describes a limit order?

An order that converts to a market order when triggered

An order that must be executed immediately at the market

An order to buy or sell at a specified price or better

An order used only for options, not stocks

#15. Which of the following orders ensures immediate execution but not price?

Stop order

Limit order

Good-til-canceled order

Market order

#16. Regular-way settlement for U.S. Treasury notes and bonds occurs:

One business day after the trade date

Three business days after the trade date

Two business days after the trade date

On the trade date

#17. Regular-way settlement for corporate stocks and bonds occurs:

Five business days after the trade date

One business day after the trade date

Two business days after the trade date

On the trade date

#18. Which date is set by the issuer’s board of directors when declaring a cash dividend?

Settlement date

Ex-dividend date

Record date

Trade date

#19. Which of the following is TRUE regarding the ex-dividend date for a regular-way cash dividend on a stock?

It is always 30 days after the record date

It is established by the issuer’s board of directors

It is typically one business day before the record date

It is the same as the payment date

#20. Which of the following correctly describes the trade date on which a buyer must own stock to receive a declared dividend?

The trade must settle on or before the record date

The trade must occur after the payment date

The trade must occur on the ex-dividend date

The trade must be marked as a cash trade only

#21. A stock trades ex-dividend on Monday. Which of the following statements is TRUE?

The payment date is always the same week

A customer who sells on Monday will forfeit the dividend

The record date must also be Monday

A customer who buys the stock on Monday will not receive the upcoming dividend

#22. Which of the following statements about a cash account is TRUE?

The customer must pay in full for purchases by the settlement date

The customer may borrow part of the purchase price from the firm

The account must always maintain minimum equity of $2,000

The account can be used only to trade options

#23. Which of the following securities may NOT be purchased on margin under Regulation T?

Closed-end fund shares traded in the secondary market

Listed options on stocks

Exchange-listed common stocks

New issues of mutual fund shares

#24. Which of the following is TRUE about a margin account?

The customer pledges securities as collateral for a loan from the broker-dealer

The firm must fully insure any losses in the account

All securities are held directly in the customer’s name

The customer may not use short sales in a margin account

#25. The agreement that allows a broker-dealer to pledge customer margin securities as collateral for its own borrowing is called the:

Loan consent agreement

Subordination agreement

Hypothecation agreement

Credit agreement

#26. Which of the following best describes maintenance margin?

The maximum amount that can be borrowed from a firm

The initial deposit required to open a cash account

The amount of interest charged on margin loans

The minimum equity that must be maintained in a margin account

#27. Which of the following situations generally triggers a margin call?

Customer receives a stock dividend

Customer buys additional securities using cash only

Customer sells securities at a profit and leaves cash idle

Equity in a margin account falls below required maintenance levels

#28. Which of the following customers would be permitted to purchase securities on margin?

An IRA account investing for retirement

A 529 college savings plan

An individual investor opening a margin account subject to Regulation T

A UGMA custodial account for a minor

#29. Which of the following statements best describes selling short?

Selling owned shares to realize a profit

Selling borrowed shares in anticipation of a price decline

Selling mutual fund shares back to the fund

Selling options contracts at a credit

#30. Which of the following is TRUE regarding short sales of stock?

They require no collateral

They must be executed in a margin account

They may be executed in a cash account

They guarantee limited risk to the seller

#31. Which of the following is the maximum potential loss for an uncovered short call position?

Limited to the premium received

Unlimited, because the stock price could rise indefinitely

Limited to the strike price

Limited to the stock declining to zero

#32. Which of the following option strategies is considered the MOST conservative for an investor who owns stock?

Writing a covered call against the stock position

Writing an uncovered put

Buying an additional call on the same stock

Writing an uncovered call

#33. Which of the following positions benefits if a stock price experiences large volatility in either direction?

Buy-and-hold stock with no options

Short stock position

Covered call write

Long straddle

#34. A customer who buys 1 XYZ 50 call and sells 1 XYZ 60 call has created:

A short straddle

A long straddle

A bear call spread

A bull call spread

#35. Which of the following customers must receive and sign an options agreement within a specified time after account approval?

Only institutional customers trading options

Only customers trading index options

Only customers trading uncovered options

Any customer opening an options trading account

#36. Which of the following documents must a customer receive at or before approval of an options account?

SIPC coverage brochure

Options disclosure document (ODD)

Margin call notice

Final mutual fund prospectus

#37. Which of the following describes a key risk for investors in options?

Assurance of fixed income payments

Exemption from market volatility

Potential for total loss of premium paid if options expire worthless

Guaranteed recovery of original principal

#38. Which of the following is TRUE about open-end mutual fund shares?

They are issued and redeemed by the fund at NAV-related prices

They are sold at par value only

They trade in the secondary market at negotiated prices

They may be sold short in margin accounts

#39. Which of the following best describes a closed-end fund?

It redeems shares directly from investors at NAV

It issues a fixed number of shares that trade on an exchange or OTC

It may not invest in equities

It continuously issues new shares at NAV

#40. The price of a closed-end fund share in the secondary market is determined by:

The fund’s board setting a daily fixed price

Pricing by the SEC at month-end

Always trading exactly at NAV

Supply and demand, and may differ from NAV

#41. Which of the following is a potential advantage of investing in an ETF instead of a mutual fund?

Protection from market risk by regulation

Guaranteed outperformance of market indexes

Exemption from all commissions and bid-ask spreads

Ability to trade intraday and potentially lower expense ratios

#42. Which of the following is TRUE regarding the taxation of mutual fund capital gains distributions?

They are taxable only when shares are sold

They are tax-free if reinvested in more shares

They are taxable to shareholders in the year distributed, even if reinvested

They are taxed only at ordinary income rates

#43. Which of the following investors would be MOST suitable for a balanced mutual fund?

An investor seeking only maximum current income

An investor seeking purely speculative gains

An investor seeking both income and moderate capital appreciation

An investor requiring complete principal protection

#44. Which of the following is the primary investment objective of a money market mutual fund?

Speculative capital gains

Tax-free interest in all cases

Preservation of capital with current income and liquidity

Maximum long-term growth

#45. Which of the following is a typical investment held by a money market mutual fund?

Long-term corporate debentures

Illiquid private equity investments

Common stock of small-cap companies

Short-term Treasury bills and high-quality commercial paper

#46. Which of the following describes a direct participation program (DPP)?

A government-guaranteed certificate of deposit

A registered investment company owning only bonds

A closed-end fund investing in large-cap stocks

An investment that passes income, gains, and losses directly to investors

#47. Which of the following is a major disadvantage of many DPPs for retail investors?

Exemption from suitability requirements

Guaranteed fixed return regardless of performance

Limited liquidity and difficulty finding buyers in the secondary market

FDIC insurance limiting potential returns

#48. Which of the following investors would be MOST appropriate for a limited partnership DPP?

An investor with high income seeking tax advantages and who can tolerate illiquidity

An investor saving for a short-term purchase in six months

An investor needing guaranteed principal protection

An investor who refuses to accept any possibility of loss

#49. Which of the following accounts is governed by ERISA standards?

Individual taxable brokerage account

Traditional IRA established outside an employer plan

Corporate pension plan for employees

529 college savings account

#50. Which of the following is a fiduciary duty under ERISA for plan trustees?

Investing only in the employer’s stock

Ensuring all investments avoid any market risk

Maximizing commissions for the plan’s broker

Acting solely in the interest of plan participants and beneficiaries

#51. Which of the following statements about a 403(b) plan is TRUE?

It is available only to employees of for-profit corporations

It must invest solely in bank CDs

It is a tax-advantaged retirement plan for employees of public schools and certain nonprofits

It does not permit elective salary deferrals

#52. Which of the following is TRUE about a 457 plan?

It is a college savings plan for minors

It is an insurance product sold only by banks

It is a retirement plan used only by C corporations

It is a deferred compensation plan often used by state and local government employees

#53. Which of the following is a potential benefit of a traditional IRA?

Withdrawals are always tax-free

Earnings are taxed each year at capital gains rates

Contributions may be made with pre-tax employer money only

Contributions may be tax-deductible and earnings grow tax-deferred

#54. Which of the following is TRUE regarding qualified withdrawals from a Roth IRA?

They are taxed only at long-term capital gains rates

They are always taxed as ordinary income

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

They are subject to mandatory withholding taxes

#55. Which of the following investors would benefit MOST from investing in tax-exempt municipal bonds?

A short-term trader seeking rapid capital gains

An investor with no taxable income

A tax-exempt charitable foundation

An investor in a high federal tax bracket seeking income

#56. Which of the following best describes capital risk?

The risk of not receiving timely interest payments

The risk that interest rates will rise

The risk of losing some or all of the original investment

The risk that securities cannot be sold quickly

#57. Which of the following investments is generally LEAST appropriate for a preservation-of-capital objective?

Speculative small-cap stock fund

Government money market fund

FDIC-insured bank savings account

Short-term Treasury bills

#58. Which of the following best describes liquidity risk?

Risk that purchasing power will decline over time

Risk that an issuer will default on its obligations

Risk that an investment cannot be sold quickly at a fair price

Risk that interest income will fluctuate

#59. Which of the following is TRUE of non-systematic risk?

It applies only to government securities

It can be reduced by diversifying across different issuers and industries

It affects all securities and cannot be diversified away

It is eliminated by investing in only one strong company

#60. Which of the following is typically the MOST suitable investment for a client with a short time horizon and low risk tolerance?

Leveraged international equity ETF

High-yield bond mutual fund

Aggressive sector rotation strategy

High-quality money market mutual fund

#61. Which of the following portfolios would be MOST appropriate for a young investor with a long time horizon and high risk tolerance?

Portfolio entirely in short-term Treasury bills

Portfolio entirely in bank CDs and savings accounts

Portfolio heavily allocated to diversified equities with some international exposure

Portfolio entirely in stable value funds

#62. Which of the following investors is MOST appropriate for a speculative objective?

An investor nearing retirement who relies on portfolio income

An investor with no experience and low risk tolerance

An experienced investor who can afford potential losses and seeks high returns

An investor saving for a child’s tuition next year

#63. Which of the following portfolios would be MOST appropriate for an investor who seeks current income and moderate growth?

Portfolio invested entirely in small-cap speculative stocks

Portfolio invested only in cryptocurrencies

Portfolio limited to cash and short-term CDs

Mix of high-quality bonds and large-cap dividend-paying stocks

#64. Which of the following is a key reason to rebalance a portfolio?

To avoid paying any taxes on gains

To guarantee higher returns each year

To increase concentration in the best-performing sector

To realign investments with the investor’s target asset allocation

#65. Which of the following investments is MOST exposed to purchasing power risk?

Long-term fixed annuity with level payments

Real estate investment trust

Equity growth mutual fund

Treasury Inflation-Protected Security

#66. Which of the following is TRUE regarding an investor’s time horizon?

Long time horizons require only fixed-income investments

Time horizon has no impact on suitable investments

Shorter time horizons always justify speculative strategies

Longer time horizons typically support higher equity allocations

#67. Which of the following is MOST suitable for an investor who needs funds for a down payment on a home in one year?

Illiquid direct participation program

Short-term, high-quality fixed-income or money market investments

Long-term zero-coupon bonds

Aggressive emerging markets equity fund

#68. Which of the following is TRUE about dollar-cost averaging?

It can lower the average cost per share by investing a fixed amount regularly

It guarantees profits over time

It requires investing only when prices are rising

It eliminates all market risk

#69. Which of the following BEST describes the purpose of diversification in a portfolio?

To reduce the impact of any single investment’s poor performance

To concentrate investments in one strong sector

To eliminate inflation risk entirely

To guarantee a minimum rate of return

#70. Which of the following is a primary benefit of using asset allocation strategies?

Avoiding the need for periodic portfolio review

Maximizing short-term speculative gains

Ensuring no losses occur during market declines

Balancing risk and reward by spreading investments among different asset classes

#71. Which of the following is MOST consistent with a capital preservation objective?

Trading options with uncovered positions

Concentrating in high-yield corporate bonds

Investing mainly in Treasury bills and insured bank products

Buying leveraged small-cap growth ETFs

#72. Which of the following is TRUE regarding systematic risk?

It applies only to foreign securities

It includes risks like recessions that affect the entire market

It can be eliminated through diversification

It is unique to individual companies

#73. Which of the following is the BEST example of business risk?

Interest rates rise across the economy

A company’s competitor releases a superior product, hurting earnings

Inflation increases for all consumers

A foreign currency declines versus the dollar

#74. Which of the following investors would be MOST suitable for a high-yield bond fund?

Investor who cannot tolerate any fluctuation in account value

Investor saving for a near-term purchase in three months

Investor seeking higher income and willing to accept increased credit risk

Investor seeking guaranteed principal protection

#75. Which of the following is TRUE about long-term capital gains on securities?

They are always tax-free at the federal level

They apply only to interest income from bonds

They are taxed at higher rates than ordinary income

They are realized on securities held more than one year and may receive favorable tax rates

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