SIE – SIXTH SIMULATION

#1. Which of the following best describes a broker-dealer acting in an agency capacity?

It underwrites new issues for an issuer

It guarantees principal and interest to investors

It buys and sells securities for its own account

It arranges trades for customers and charges a commission

#2. Which of the following best describes a broker-dealer acting as a market maker?

It trades securities only at the closing price

It acts solely as an agent for institutional investors

It executes trades only on foreign exchanges

It stands ready to buy and sell a security from its own inventory

#3. Which of the following securities represents an unsecured corporate debt obligation?

Debenture

Common share

Preferred share

Mortgage bond

#4. Which of the following securities is backed by a specific corporate asset such as real estate or equipment?

Rights offering

Debenture

Mortgage bond

Commercial paper

#5. Which type of stock is typically most sensitive to changes in the economy and business cycle?

Money market fund

Defensive stock

Preferred stock

Cyclical stock

#6. Utility company shares that tend to maintain demand during recessions are often considered:

Penny stocks

Cyclical stocks

Growth stocks

Defensive stocks

#7. Which of the following terms refers to low-priced, speculative securities of small issuers?

Preferred stocks

Blue-chip stocks

Defensive stocks

Penny stocks

#8. Which federal law primarily regulates trading activities and fraud in the secondary market?

Securities Exchange Act of 1934

Bank Secrecy Act

Securities Act of 1933

Investment Advisers Act of 1940

#9. Which of the following statements regarding SIPC coverage is TRUE?

It insures bank savings accounts up to $250,000

It protects against losses from market decline

It guarantees the performance of mutual funds

It protects against the loss of securities if a broker-dealer fails

#10. The MSRB writes rules for:

Broker-dealers and banks that underwrite and trade municipal securities

Open-end mutual funds only

Investment advisers only

Issuers of corporate bonds only

#11. Which of the following investors may NOT purchase shares in an IPO of a common stock under FINRA rules?

A small business owner with no industry ties

An unaffiliated bank customer

A retired teacher investing retirement savings

An employee of a broker-dealer firm purchasing for their own account

#12. Rule 144 provides a safe harbor for the resale of:

Restricted and control securities

Exchange-traded funds bought in the secondary market

New issues sold in an IPO

Treasury securities issued by the U.S. government

#13. Which of the following best describes restricted stock under Rule 144?

Securities purchased on a national exchange

Securities issued only by foreign governments

Securities acquired in an unregistered, private transaction

Securities held in a margin account

#14. A control person of a publicly traded company is typically defined as:

An officer, director, or large shareholder of the issuer

Only employees in nonmanagement positions

Only bondholders of the company

Any retail investor holding fewer than 100 shares

#15. Which of the following investments exposes an investor to both market risk and currency risk?

International equity fund

Domestic Treasury bill

FDIC-insured bank CD

Money market mutual fund investing only in U.S. instruments

#16. Which of the following is a characteristic of Eurodollar bonds?

They are euro-denominated bonds issued in the U.S.

They are always issued by European governments

They must be registered with the SEC

They are dollar-denominated bonds issued outside the United States

#17. Which of the following statements about ADRs is TRUE?

They eliminate all exchange-rate risk

They allow U.S. investors to invest in foreign companies in U.S. dollars

They are exempt from market risk

They are issued only by the foreign government

#18. Which of the following best describes a bond’s current yield?

Annual coupon payment divided by current market price

Annual interest plus principal divided by years to maturity

Difference between market price and par value

Annual coupon payment divided by par value

#19. A corporate bond trading at 110 is selling:

At book value

At a discount

At a premium

At par

#20. Which of the following is an example of interest-rate risk?

A foreign government imposes currency controls

An investor cannot sell a small-cap stock quickly

Bond prices fall when market interest rates rise

A company fails to make bond interest payments

#21. Which of the following best describes credit risk?

The risk that securities cannot be sold quickly

The risk that inflation will erode purchasing power

The risk that an issuer may be unable to meet interest or principal payments

The risk that interest rates will rise

#22. Which type of municipal bond is primarily secured by the revenues from facilities such as toll roads or airports?

Revenue bond

Moral obligation bond

General obligation bond

Special assessment bond

#23. Industrial development bonds (IDBs) are typically backed by:

The FDIC

Lease payments from a corporation using the facility

The full taxing authority of the municipality

The personal guarantee of the mayor

#24. Which of the following is a common feature of money market instruments?

Issued only by foreign governments

Short-term maturities and high liquidity

Long maturities and low liquidity

Guaranteed high returns with no risk

#25. Which of the following securities is LEAST suitable for an investor needing principal back in six months?

Treasury bill

Long-term zero-coupon bond

Money market fund

Bank CD maturing in six months

#26. Which of the following statements about options is TRUE?

An option must always be exercised at expiration

A put option gives the holder the right to buy the underlying security

A call option obligates the holder to sell the underlying security

A call option gives the holder the right to buy the underlying security

#27. Which of the following describes a put option?

A contract granting the right to buy a security at a specified price

A contract that guarantees dividends

A contract granting the right to sell a security at a specified price

A contract obligating the holder to buy at market price

#28. Which of the following is TRUE about the buyer of an option?

The buyer guarantees performance of the option writer

The buyer has the right, but not the obligation, to exercise the contract

The buyer must exercise the contract if it is in the money

The buyer collects the premium up front

#29. Which of the following orders would an investor place to sell stock only if it rises to a specified price?

Buy stop order

Sell stop order

Market order

Sell limit order

#30. A buy stop order placed above the current market price is generally used to:

Guarantee a specific purchase price

Generate income from a long position

Open a new long position at a lower price

Limit a loss or protect a profit on a short position

#31. Regular-way settlement for most corporate securities is:

Three business days after trade date

One business day after trade date

Two business days after the trade date

Same day as the trade date

#32. Which of the following is set by the issuer’s board of directors?

Settlement date

Declaration date of a dividend

Trade date

Ex-dividend date

#33. Which of the following best describes the ex-dividend date?

The first day on which a stock trades without the dividend

The day the dividend is declared

The last day a trade settles for dividend eligibility

The day the dividend is paid

#34. Which of the following documents confirms a customer’s trade, including price and number of shares, after execution?

Account statement

Trade confirmation

Prospectus

New account form

#35. Customer account statements for active accounts must be sent:

Only annually

At least quarterly

Every week

Only upon customer request

#36. Which of the following is typically required to open a margin account?

Options agreement only

Power of attorney from the customer

Signed margin agreement and credit disclosure

Evidence of employment with a broker-dealer

#37. Hypothecation in a margin account refers to:

Pledging customer securities to secure a loan from the broker-dealer

Insuring the account with SIPC

Transferring ownership of securities to the issuer

Pledging broker-dealer assets to a customer

#38. Rehypothecation allows the broker-dealer to:

Transfer customer securities to another customer

Pledge customer securities to a bank to obtain a loan

Guarantee the customer against loss

Sell customer securities without consent

#39. Which of the following is a key suitability consideration for recommending a variable annuity?

The customer’s preference for fixed interest payments

The customer’s desire for FDIC insurance

The customer’s need for short-term liquidity

The customer’s long-term investment objective and risk tolerance

#40. Which of the following best describes market risk?

The risk a single issuer will default

The risk that the overall market declines affecting most securities

The risk that inflation will be lower than expected

The risk that an investor cannot sell quickly

#41. Which of the following is a primary purpose of diversification?

To guarantee a minimum rate of return

To eliminate all risk from the portfolio

To maximize trading frequency

To reduce exposure to any single issuer or sector

#42. Which of the following investments is MOST appropriate for an investor with a high risk tolerance seeking growth?

Bank savings account

Aggressive small-cap equity fund

Treasury money market fund

Short-term investment-grade bond fund

#43. Which of the following clients would be best suited for a municipal bond fund?

An investor saving for a short-term home purchase

A day trader seeking short-term speculation

A low-income investor with no tax liability

A high-income investor in a high tax bracket seeking tax-exempt interest

#44. Which of the following is a distinguishing feature of a Roth IRA?

Qualified distributions are tax-free

Earnings are taxed annually as ordinary income

Contributions are always tax-deductible

Required minimum distributions apply at age 73

#45. Which of the following statements about traditional IRA contributions is TRUE?

They can only be made with employer funds

They are taxable as capital gains in the year contributed

They are always nondeductible

They may be tax-deductible depending on income and plan coverage

#46. Which of the following plans allows employees to make pretax contributions that grow tax-deferred until withdrawal?

529 plan

Roth IRA

UTMA custodial account

401(k) plan

#47. Which of the following is a requirement for opening an options account?

Minimum account balance of $1 million

Customer residency in the state of issue

SEC approval for each options trade

Delivery of the options disclosure document before or at account approval

#48. An options account must be approved by:

The SEC directly

Only the clearing corporation

Any registered representative

A registered options principal or general principal

#49. Which of the following is TRUE regarding correspondence under FINRA rules?

It is the same as retail communication

It includes only communications to institutional investors

It must always be preapproved by FINRA

It includes written or electronic messages to 25 or fewer retail investors in 30 days

#50. A research report sent to 500 retail customers is considered:

Internal memorandum

Retail communication

Correspondence

Institutional communication

#51. Which of the following is generally TRUE about institutional communication?

It may be freely redistributed to the general public

It must be filed with the SEC for approval

It is exempt from all supervision requirements

It is directed only to institutional investors, not to retail customers

#52. Private securities transactions executed without firm knowledge or approval are known as:

Selling away

Front-running

Churning

Marking the close

#53. Front-running occurs when a registered representative:

Executes trades only during normal market hours

Trades ahead of a large customer order for personal gain

Places an unsolicited order for a customer

Rebalances a customer’s portfolio annually

#54. Which of the following is an example of a prohibited guarantee?

Providing a prospectus that outlines risks

Discussing historical performance with disclaimers

Explaining that investments involve risk

Assuring a customer they will not lose money on a recommended stock

#55. Under the USA PATRIOT Act, a firm’s Customer Identification Program (CIP) is designed to:

Verify the identity of customers opening new accounts

Set margin rates for the firm

Guarantee investment performance

Determine the customer’s tax bracket

#56. A suspicious activity report (SAR) must be kept confidential and:

Must be posted on the firm’s website

Must not be disclosed to the subject of the report

Must be forwarded to all other broker-dealers

Must be given to the customer for signature

#57. Which of the following best describes fiscal policy?

Regulation of securities markets by FINRA

Use of government spending and taxation to influence the economy

Setting margin requirements by the Fed

Central bank control of the money supply

#58. Which of the following is a lagging economic indicator?

New orders for consumer goods

Building permits

Average duration of unemployment

Stock prices

#59. Which of the following describes stagflation?

Deflation with falling unemployment

High inflation combined with slow economic growth and high unemployment

Low inflation with strong growth

Rapid growth with falling prices

#60. Which of the following best describes a defensive investment strategy?

Focusing on securities that tend to be less affected by economic cycles

Investing solely in speculative penny stocks

Concentrating in cyclical sectors

Using leverage to magnify returns

#61. Which of the following is the most liquid type of investment listed?

Direct ownership of real estate

Shares of a large-cap stock traded on an exchange

Limited partnership interests

Thinly traded over-the-counter stock

#62. Which of the following is typically considered the safest investment choice for a very conservative investor?

Leveraged ETF

U.S. Treasury bill

High-yield corporate bond

Emerging markets equity fund

#63. Which of the following types of risks can be reduced by diversification?

Market risk affecting all stocks

Interest-rate risk on long-term bonds

Business risk specific to a single company

Systematic risk of the overall economy

#64. Which of the following is MOST appropriate for a client seeking current income and willing to accept some credit risk?

Investment-grade corporate bond fund

Speculative options strategies

Nondividend-paying growth stocks

Treasury money market fund

#65. Which of the following types of accounts allows assets to pass directly to the surviving owner upon death?

Corporate account

Individual account

Tenants in common

Joint tenants with rights of survivorship

#66. In a tenants in common account, upon the death of an owner, that owner’s share:

Reverts to the broker-dealer

Automatically transfers to the surviving owners

Is donated to a charity by default

Passes to the deceased owner’s estate

#67. Which type of account is established for minors with an adult acting as fiduciary owner?

Individual margin account

Joint tenants account

401(k) account

UGMA/UTMA custodial account

#68. Which of the following products is NOT suitable for a customer who needs immediate access to funds without market risk?

Money market mutual fund

Short-term Treasury bill

Equity mutual fund

Bank savings account

#69. Which of the following is the BEST reason for a firm to maintain a business continuity plan (BCP)?

To address emergencies and ensure customers have access to funds and securities

To determine appropriate sales loads for mutual funds

To set margin requirements for customers

To guarantee positive returns in volatile markets

#70. Which of the following statements about ERISA-covered retirement plans is TRUE?

They must be operated for the exclusive benefit of plan participants and beneficiaries

They are insured by SIPC against market losses

They must provide the same investment option to all employees

They may invest only in U.S. Treasury securities

#71. A hedge fund would MOST likely be suitable for which type of investor?

Minor investing through a custodial account

Accredited investor willing to accept higher risk and illiquidity

Retiree needing guaranteed income and safety

Small retail investor seeking capital preservation

#72. Which of the following is TRUE regarding no-load mutual funds?

They can only be purchased in retirement accounts

They do not charge a front-end or back-end sales load

They have no operating expenses or management fees

They are available only to institutional investors

#73. Which of the following describes an index fund’s typical investment objective?

To replicate the performance of a specified market index

To outperform the market through active management

To deliver returns unrelated to market movements

To provide guaranteed principal protection

#74. Which of the following is generally considered an advantage of ETFs over mutual funds?

Ability to avoid any capital gains taxes

Exemption from commissions and bid-ask spreads

Intraday trading and typically lower expense ratios

Guaranteed returns and no market risk

#75. Which of the following is a potential disadvantage of investing in a direct participation program (DPP)?

Limited liquidity and difficulty selling interests

Guaranteed fixed income payments

FDIC insurance limit on deposits

Requirement to pay front-end sales loads only

ARE YOU READY?

LET’S PRACTICE!

Results