SIE – SEVENTH SIMULATION

#1. Which of the following BEST describes the primary purpose of the Securities Investor Protection Corporation (SIPC)?

To protect customers if a broker-dealer becomes insolvent

To insure deposits at commercial banks

To regulate mutual fund advertising

To guarantee customers against market losses

#2. Which of the following individuals is required to register with FINRA as an associated person?

A customer who trades through an online platform

A person who solicits securities transactions for a broker-dealer

An employee of a bank branch with no securities activities

A clerical worker who only files records

#3. Which of the following entities has the authority to suspend or revoke a broker-dealer’s registration?

SIPC

The Federal Reserve Board

The Securities and Exchange Commission (SEC)

The Municipal Securities Rulemaking Board

#4. Which of the following is TRUE regarding a statutory disqualification?

It may occur if an individual is convicted of certain securities-related felonies or misdemeanors

It applies only to customers who lose money

It can be imposed only by SIPC

It automatically expires after one year

#5. Which of the following actions requires a firm to file a Form U4 amendment for a registered representative?

Switching a mutual fund share class

Change in residential address

Customer’s change in investment objective

Placing a market order instead of a limit order

#6. Form U5 is used to:

Terminate a registered representative’s association with a firm

Report a suspicious transaction

Register a new broker-dealer

Open a new customer margin account

#7. Which of the following is TRUE concerning the carrying firm in a fully disclosed clearing arrangement?

It is prohibited from maintaining customer records

It is responsible for clearing and settling trades and safekeeping of assets

It only introduces accounts to another firm

It may not send confirmations to customers

#8. Which of the following best describes an introducing broker-dealer?

A firm that deals only in municipal securities

A firm that trades only for its own account

A firm that accepts customer orders but uses another firm to clear and settle trades

A firm that clears and carries customer accounts

#9. Under the Know Your Customer (KYC) rule, a broker-dealer must:

Recommend only government securities to new clients

Use reasonable diligence to learn essential facts about each customer

Guarantee all customer investments are profitable

Refuse service to customers who decline to share any financial information

#10. Which of the following documents is used to establish who is authorized to trade in a corporate account?

Corporate resolution

Partnership agreement

Customer margin agreement

New account form

#11. A customer who is an officer of a publicly traded company must be identified on which document when opening an account?

Form CRS

Prospectus

New account form

Trade confirmation

#12. Which of the following statements about day trading risk disclosure is TRUE?

Day trading is only allowed in IRA accounts

Firms promoting day trading must provide a specific risk disclosure document to customers

Day trading is prohibited in cash accounts

Day traders are exempt from margin calls

#13. A pattern day trader is generally defined as a customer who executes:

Four or more day trades in five business days

Two or more trades per month

Ten or more trades in any calendar year

At least one trade per day for a calendar month

#14. Which of the following best describes market manipulation?

Recommending diversified mutual funds

Providing full disclosure of investment risks

Engaging in practices intended to deceive investors by distorting market prices

Obtaining best execution for a customer order

#15. Painting the tape is a form of manipulation that involves:

Reporting trades promptly to the tape

Rebalancing a portfolio at quarter-end

Switching customers from one mutual fund to another

Executing trades solely to create the appearance of active trading

#16. The term backing away refers to a market maker who:

Executes trades at the inside market

Narrows the bid-ask spread

Routs orders to the best market

Fails to honor a firm quote

#17. Which of the following is a violation related to mutual funds known as switching?

Exchanging fund shares within the same family without fees

Rebalancing among asset classes annually

Automatically reinvesting dividends

Unnecessarily moving a customer between funds to generate commissions

#18. Breakpoint sales are prohibited because they involve:

Failing to inform investors about available sales charge discounts

Reinvesting mutual fund dividends and capital gains

Selling mutual fund shares below NAV

Offering sales charge discounts to large investors

#19. Which of the following is TRUE about letters of intent (LOIs) for mutual funds?

They may only be used by institutional clients

They allow investors to receive a reduced sales charge based on a future investment commitment

They guarantee a specific fund performance

They cannot be backdated under any circumstances

#20. Which of the following is a characteristic of Class A mutual fund shares?

They carry no sales loads of any kind

They typically have a front-end sales charge and breakpoints

They charge a level load for a limited time only

They always have a deferred sales charge

#21. Which of the following is an advantage of investing in mutual funds for small investors?

Elimination of market risk

Professional management and diversification with a relatively small investment

Guaranteed returns and principal protection

Ability to trade intraday like stocks on margin

#22. A unit investment trust (UIT) differs from a mutual fund in that a UIT:

Continuously changes its portfolio to seek higher returns

Has a fixed portfolio that is not actively managed

Is insured by the FDIC

Issues common stock instead of units

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

They are unsecured debt securities linked to a benchmark

They represent equity ownership in a portfolio

They are guaranteed by the U.S. Treasury

They are insured by SIPC against issuer default

#24. Which of the following investment vehicles typically has the highest liquidity for retail investors?

Direct real estate investments

Private placements in start-up businesses

Limited partnership interests

Listed common stock of a large-cap company

#25. Which of the following is a key characteristic of an illiquid investment?

It trades actively on a national exchange

It is always free of market risk

It can always be sold at NAV

It may be difficult to sell quickly without a substantial price concession

#26. Which of the following risks is MOST associated with mortgage-backed securities?

Prepayment and extension risk

Political coup risk

Blue-sky law risk

Guaranteed interest rate risk only

#27. A collateralized mortgage obligation (CMO) can be described as:

A single mortgage issued by a homeowner

A corporate bond with a fixed coupon and maturity

A pool of mortgages divided into tranches with varying prepayment risk

A government bond with zero default risk

#28. Which of the following investors would most likely be suitable for a CMO investment?

An investor who understands prepayment risk and seeks income

An investor who needs guaranteed principal at maturity

An investor needing daily access to principal

An investor with no tolerance for any risk

#29. Which of the following mutual fund features allows an investor to convert from one fund to another in the same family at NAV?

Forward pricing

Exchange privilege

Rights offering

Breakpoints

#30. The public offering price (POP) of a mutual fund is equal to:

Net asset value plus any applicable sales charge

Net asset value minus any 12b-1 fees

Par value plus accrued interest

Bid price plus spread

#31. Which of the following best describes forward pricing for mutual funds?

Orders are executed at the next computed NAV after the order is received

Orders are filled at the previous day’s closing price

Orders are held until the end of the month

Orders may be executed at any intraday price

#32. An investor who wants tax-deferred growth and lifetime income payments might consider:

Short-term municipal note

A U.S. savings bond held in a cash account

A checking account

A variable annuity

#33. Which of the following retirement accounts is available to employees of state and local governments and certain nonprofits?

401(k) plan

SEP IRA

457 plan

529 ABLE account

#34. Which of the following is TRUE regarding required minimum distributions (RMDs) from traditional IRAs?

RMDs may be skipped without penalty if the market is down

Failure to take RMDs may result in a significant tax penalty

RMDs apply equally to Roth IRAs

RMDs must be taken only in years with capital gains

#35. Which of the following types of communications is NOT considered retail communication by FINRA?

A mass email sent to 200 retail investors

A television commercial aimed at the general public

A communication distributed only to institutional investors

A brochure mailed to prospective retail clients

#36. Which of the following statements about institutional investors is TRUE?

They never require suitability determinations

They are exempt from anti-fraud provisions

They include all retail investors with more than $100,000

They include banks, insurance companies, and registered investment companies

#37. Which of the following is a primary purpose of a firm’s written supervisory procedures (WSPs)?

To replace federal securities laws

To set national margin requirements

To guarantee firm profitability

To establish policies for supervising the activities of associated persons

#38. A firm’s anti-money laundering (AML) program must be approved by:

Each registered representative individually

The customer’s attorney

Only the SEC

A member of senior management

#39. The Office of Foreign Assets Control (OFAC) maintains:

A list of all registered representatives

A list of individuals and entities with whom U.S. persons may not do business

Daily margin call lists

Customer suitability profiles

#40. Under AML rules, firms must verify customer identity:

Within a reasonable time before or after the account is opened

Only when the customer executes their first trade

Only for non-U.S. citizens

Only if the customer deposits more than $10,000

#41. The term over-the-counter (OTC) market generally refers to:

Only trades executed on registered exchanges

Only foreign currency markets

Only new issue markets

A decentralized market where securities are traded via broker-dealer networks

#42. A customer’s investment objective of preservation of capital suggests:

Illiquid limited partnerships

Investments such as Treasury securities and high-grade short-term instruments

Aggressive option strategies

High-yield bond funds and speculative stocks

#43. An investor whose primary objective is speculation is MOST likely to invest in:

Investment-grade municipal bonds

Leveraged or inverse ETFs and options

FDIC-insured CDs only

Treasury bills and government money market funds

#44. Which of the following is TRUE regarding a growth-and-income mutual fund?

It invests only in fixed-income securities

It seeks both capital appreciation and current income

It seeks income only, with no growth objective

It is limited to government bond holdings

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

New building permits

Employees on nonagricultural payrolls

Average prime rate

Stock prices

#46. A leading economic indicator is BEST described as data that:

Is not useful for economic forecasting

Tends to change before the overall economy moves in a new direction

Always lags behind economic changes

Moves in the same direction as the economy at the same time

#47. During a recession, which of the following is most likely to occur?

Rapid growth in corporate profits

Declining GDP and rising unemployment

Significant increase in consumer confidence

Falling unemployment and rising wages

#48. Which of the following taxes is used primarily to fund Social Security and Medicare?

Estate tax

Payroll (FICA) tax

Excise tax

Capital gains tax

#49. Which of the following is TRUE regarding progressive taxes?

They apply only to capital gains

They impose the same percentage rate on all income

They are used only at the state level

They impose higher tax rates on higher levels of income

#50. Which of the following investors would be MOST appropriate for a sector fund?

An investor seeking maximum diversification

An investor who wants only government-guaranteed securities

An investor needing capital preservation in the short term

An investor who understands and accepts concentration risk in one industry

#51. Which of the following is the BEST example of interest-rate risk?

A real estate project fails to generate expected income

A company declares bankruptcy and cannot pay its debts

A government imposes currency controls

Prices of existing bonds decline when new bonds are issued at higher yields

#52. Which of the following describes reinvestment risk?

The risk that a bond’s issuer will default

The risk of changes in foreign exchange rates

The risk that interest or dividends will be reinvested at lower rates

The risk that an investor cannot find a buyer

#53. Which of the following is a primary benefit of using asset allocation in portfolio construction?

It eliminates the need to monitor investments

It removes the impact of economic cycles

It guarantees outperformance of market indexes

It balances risk and return by spreading investments across asset classes

#54. Which of the following clients is MOST suitable for a balanced fund?

An investor seeking a mix of stocks and bonds for growth and income

An investor who wants only tax-exempt interest

An investor who needs daily cash for living expenses

An investor seeking only speculative growth

#55. Which of the following is TRUE about a 529 ABLE account?

It must be closed when the beneficiary turns age 18

It is available only to students attending private universities

It is a retirement account available to all workers

It is designed to provide tax-advantaged savings for individuals with disabilities

#56. Which of the following describes the tax treatment of qualified withdrawals from a Roth IRA?

Withdrawals of earnings are tax-free if certain conditions are met

Withdrawals are subject only to capital gains tax

Withdrawals are always taxed as ordinary income

Withdrawals are tax-free only for beneficiaries, not owners

#57. Which of the following is TRUE about the taxation of interest on corporate bonds?

It is exempt from federal income tax

It is generally taxable at the federal, state, and local levels

It is taxable only when the bond is sold

It is tax-free to investors in the highest bracket

#58. Municipal bond interest is generally:

Fully taxable at all levels in every state

Taxed only when bonds are sold at a profit

Exempt from federal income tax but may be taxable at the state level

Exempt from state tax regardless of residency

#59. Which of the following statements about U.S. Treasury securities is TRUE?

They can only be purchased by institutional investors

They are insured by SIPC

They are backed by the full faith and credit of the U.S. government

They are considered speculative high-yield instruments

#60. Which of the following is a distinguishing feature of Treasury notes compared to Treasury bills?

Treasury notes are issued only to foreign governments

Treasury notes always mature in less than one year

Treasury notes pay semiannual interest and have maturities from 2 to 10 years

Treasury notes are issued at a discount and pay no interest

#61. Treasury STRIPS are created by:

Separating the interest and principal components of Treasury securities

Combining multiple corporate bonds into a single security

Issuing only the interest payments as a new bond

Pooling mortgages into a pass-through certificate

#62. Which of the following is an advantage of zero-coupon bonds?

They are always exempt from taxes

They eliminate interest-rate risk

They provide regular income throughout the life of the bond

They allow investors to lock in a lump-sum payment at maturity

#63. Which of the following investors may be most attracted to zero-coupon bonds?

A retiree needing immediate income

An investor saving for a long-term goal such as college in 15 years

An investor requiring monthly interest payments

A trader seeking short-term price movements

#64. Which of the following is TRUE about income from U.S. Treasury securities?

It is tax-free at all levels

It is only taxable when the security matures

It is exempt from federal tax but taxable at the state level

It is subject to federal income tax but exempt from most state and local taxes

#65. Which of the following is considered an advantage of investing in exchange-traded funds (ETFs)?

They offer diversification and trade throughout the day at market prices

They are always sold at NAV with no commissions

They are exempt from market volatility

They guarantee principal repayment by the government

#66. Which of the following is TRUE about closed-end fund shares?

They cannot be purchased on margin

They may trade at a premium or discount to NAV in the secondary market

They are issued and redeemed at NAV each business day

They are always priced at exactly NAV

#67. Which of the following is an example of an equity security that can be used as a sweetener in a bond offering?

Treasury note

Commercial paper

Warrant

Debenture

#68. Which of the following best describes a rights offering?

Shareholders must tender shares to the issuer

Existing shareholders receive the opportunity to purchase additional shares, usually at a discount

New investors receive free shares with bond purchases

Employees receive shares as part of a compensation plan

#69. Which of the following statements about American Depositary Receipts (ADRs) is TRUE?

They represent debt obligations of the foreign government

They can only be purchased by foreign investors

They are fully protected from foreign risk by the U.S. government

They are subject to foreign political and economic risk

#70. Which of the following customers is MOST suitable for a high-yield bond fund?

An investor seeking higher income and willing to accept increased default risk

An investor needing tax-free income only

An investor with no tolerance for fluctuations in value

An investor seeking principal protection for a short-term goal

#71. Which of the following best describes an investor’s time horizon?

The investor’s age at account opening only

The expected length of time the investor plans to hold an investment

The investor’s federal tax bracket

The number of trades executed each year

#72. Which of the following customer details is MOST relevant when assessing suitability for long-term growth investments?

Age and time horizon

Number of dependents only

Employer’s industry

Favorite investment newsletter

#73. Which of the following is TRUE about a client with a short time horizon and low risk tolerance?

They must invest only in options

They should focus solely on emerging markets funds

They are ideal candidates for leveraged ETFs

They are generally unsuitable for aggressive equity strategies

#74. Which of the following practices would MOST likely violate the suitability rule?

Recommending a money market fund for short-term cash needs

Recommending complex options strategies to an inexperienced investor

Recommending diversification to reduce concentration

Recommending a government bond fund to a conservative investor

#75. Which of the following is TRUE regarding joint tenants with rights of survivorship (JTWROS) accounts?

Only one owner may enter orders in the account

Ownership passes automatically to the surviving tenant upon death of one owner

The deceased owner’s share passes to their estate

They are available only to married couples

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