SIE – THIRTEENTH SIMULATION

#1. Which of the following is the primary purpose of FINRA?

To insure customer bank deposits

To set federal income tax rates

To guarantee mutual fund performance

To regulate broker-dealers and their registered representatives

#2. Which of the following regulators was created by the Securities Exchange Act of 1934?

The Municipal Securities Rulemaking Board (MSRB)

The Securities and Exchange Commission (SEC)

The Federal Reserve Board (FRB)

The Federal Deposit Insurance Corporation (FDIC)

#3. Which of the following is required for a security to trade on a national securities exchange?

It must be exempt from SEC registration

It must be a fixed-income security

It must be listed on that exchange

It must be sold only to institutions

#4. Which of the following statements best describes the over-the-counter (OTC) market?

An auction market with a physical trading floor

A market reserved only for new issues

A market only for government securities

A negotiated market where broker-dealers trade via electronic networks

#5. Which of the following is a characteristic of a self-regulatory organization (SRO)?

It sets monetary policy for the U.S.

It writes and enforces rules for its member firms

It issues Treasury securities

It guarantees investor profits

#6. Which of the following accounts may be opened without the customer’s signature under FINRA rules?

Cash account

Discretionary margin account

Joint tenants with rights of survivorship account

Options trading account

#7. Which of the following documents is used to verify that a corporation has authorized an account to be opened?

Prospectus

Partnership agreement

Customer margin agreement

Corporate resolution

#8. Which of the following is TRUE regarding beneficial ownership in a street-name account?

The transfer agent becomes the beneficial owner

The customer is the beneficial owner while the broker-dealer is the nominal owner

FINRA is the beneficial owner for regulatory purposes

The issuer is the beneficial owner of all shares

#9. Which of the following statements about a transfer on death (TOD) registration is TRUE?

It allows assets to pass directly to a named beneficiary, avoiding probate

It can only be used for retirement accounts

It requires a trust document

It eliminates all estate taxes

#10. Which of the following trades requires prior principal approval?

An unsolicited trade in a cash account

A market order to liquidate at the close

A customer-initiated mutual fund sale

A transaction in a discretionary account

#11. Which of the following securities is most likely to be quoted in yield rather than in price?

Municipal bond

Right

Common stock

Warrant

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

Trading for its own account at a markup

Guaranteeing a minimum return to customers

Underwriting a new issue for an issuer

Executing customer orders and charging a commission

#13. A dealer that is willing to buy and sell from inventory at quoted prices is acting as a:

Custodian bank

Transfer agent

Market maker

Agent

#14. Which of the following is TRUE regarding bid and ask prices for a security?

The ask is lower than the bid in normal markets

The bid is the highest price a dealer is willing to pay

The spread narrows when a security is illiquid

The bid is the lowest price a dealer will accept

#15. Which of the following statements about common stock ownership is TRUE?

They have priority over bondholders in liquidation

They have a fixed redemption value at maturity

Common stockholders are residual owners of a corporation

They are always guaranteed quarterly dividends

#16. Which of the following is typically associated with preferred stock but not common stock?

Unlimited capital appreciation potential

Participation in stock splits

Preference in dividend payments

Voting rights for directors

#17. Participating preferred stock may allow shareholders to:

Receive guaranteed returns above market rates

Vote on all corporate issues

Receive additional dividends if common dividends exceed a specified amount

Convert shares to bonds at any time

#18. Which of the following accurately describes rights issued in a rights offering?

They are long-term instruments with no expiration

They are only issued to bondholders

They are short-term privileges allowing existing shareholders to buy new shares at a discount

They are federal guarantees of principal

#19. Which of the following terms describes the price at which holders of rights may purchase new shares?

Par value

Market price

Offer price in the secondary market

Subscription price

#20. The primary reason a corporation might attach warrants to a bond offering is to:

Guarantee a higher credit rating

Make the bond more attractive to investors

Avoid SEC registration requirements

Eliminate interest-rate risk for the issuer

#21. Which of the following is TRUE about the taxation of cash dividends received from common stock?

They are always tax-free

They are taxed as long-term capital gains automatically

They are taxed only when shares are sold

They are generally taxable in the year they are received

#22. Which of the following describes an advantage of investing in blue-chip stocks?

They are entirely free of market risk

They tend to have stable earnings and regular dividends

They offer the highest possible growth potential

They are guaranteed never to decline in value

#23. Which of the following best describes a defensive stock?

Stock that always rises in a bull market

Stock that only pays variable dividends

Stock of companies in highly cyclical industries

Stock of a company whose earnings are less sensitive to economic cycles

#24. Which of the following securities would be MOST appropriate to reduce the impact of interest-rate risk in a bond portfolio?

Long-term fixed-rate debentures

Long-term zero-coupon bonds

Shorter-maturity bonds

Illiquid private placements

#25. Which of the following statements about municipal revenue bonds is TRUE?

They are secured by revenues from a specific project or facility

They are always insured by SIPC

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

They are supported by general tax revenues of the issuer

#26. Which of the following municipal securities would be MOST suitable for funding a short-term cash flow deficit caused by delayed property tax receipts?

Industrial development bond

Double-barreled bond

Special assessment bond

Tax anticipation note

#27. Which of the following is the primary source of repayment for an industrial development bond?

State sales tax revenues

Federal income tax receipts

Lease payments from the corporation using the facility

Ad valorem property taxes

#28. Which of the following is TRUE regarding U.S. Treasury bills?

They have maturities of 10 to 30 years

They are sold at a discount and mature at par

They pay semiannual coupon interest

They are issued only to institutional investors

#29. Which of the following is a characteristic shared by Treasury notes and Treasury bonds?

They both are sold at a deep discount with no coupons

They both are considered money market instruments

They both mature in one year or less

They both pay semiannual interest

#30. Which of the following accurately describes a Treasury STRIP?

A floating-rate note with semiannual adjustments

A zero-coupon security created by separating interest and principal of a Treasury bond

A Treasury note that pays monthly coupons

A Treasury bill sold only to foreign investors

#31. Which of the following is a primary objective of investing in money market instruments?

Capital preservation and liquidity

Tax-free interest in all cases

High current income with high risk

Maximum long-term growth

#32. Which of the following securities would likely be found in a money market mutual fund portfolio?

Commercial paper and Treasury bills

Common stocks and warrants

Long-term municipal bonds

30-year corporate debentures

#33. Which of the following best describes a growth stock mutual fund investor’s primary objective?

Tax-free interest only

Principal protection in the short term

Long-term capital appreciation

Current income with low volatility

#34. Which of the following statements regarding an income fund is TRUE?

It avoids bonds and preferred stocks

It focuses primarily on securities that pay regular dividends or interest

It invests only in zero-coupon bonds

It invests only in small-cap growth stocks

#35. Which of the following is TRUE about an index mutual fund?

It seeks to mirror the performance of a specific market index

It is not subject to market risk

It can be bought and sold intraday like a stock

It aims to outperform the market through active trading

#36. Which of the following mutual fund share classes typically has a back-end load that declines over time?

No-load shares

Class B shares

Class A shares

Class C shares

#37. Which of the following is a primary advantage of a no-load mutual fund?

The fund guarantees a minimum return

The fund is not subject to market risk

No sales charge is imposed on purchases

The fund has no operating expenses

#38. Which of the following statements regarding 12b-1 fees is TRUE?

They are front-end sales loads charged at purchase

They are redemption fees charged when shares are sold

They are underwriting concessions for new issues

They are used to pay for a mutual fund’s marketing and distribution costs

#39. Which of the following BEST describes a variable annuity separate account?

An investment portfolio that determines the contract’s value and performance

A money market account with guaranteed yield

A fixed-rate general account insured by the FDIC

A reserve account that guarantees principal

#40. During the accumulation phase of a variable annuity, the contract owner:

Cannot change investment options

Is guaranteed a fixed rate of return

Purchases accumulation units with contributions

Receives fixed annuity unit payments

#41. Which of the following describes the taxation of earnings in a nonqualified variable annuity?

Earnings are taxed only when the contract annuitizes

Earnings are always tax-free

Earnings are taxed each year as capital gains

Earnings grow tax-deferred until withdrawn

#42. Which of the following clients would be most appropriate for a variable annuity recommendation?

A client needing short-term liquidity for living expenses

A client whose primary goal is immediate income

A client who cannot tolerate any investment risk

A client with a long time horizon seeking tax-deferred growth

#43. Which of the following is TRUE regarding a defined contribution plan?

Benefits are insured by SIPC

The retirement benefit depends on contributions and investment performance

Employees make no contributions

The employer guarantees a specific benefit amount

#44. Which of the following describes the main advantage of a 401(k) plan for employees?

Unlimited government insurance on assets

Tax-free withdrawals in retirement in all cases

Guaranteed investment returns by the employer

Pretax contributions with tax-deferred growth

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

They are always nondeductible

They are always matched by an employer

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

They cannot be made after age 50

#46. Which of the following is a benefit of a Roth IRA compared with a traditional IRA?

Contributions are always deductible

Required minimum distributions begin at age 73

Qualified distributions may be entirely tax-free

Contributions can only come from employer funds

#47. Which of the following accounts is specifically designed to help individuals with disabilities save on a tax-advantaged basis?

ABLE account

457 governmental plan

UGMA custodial account

401(k) rollover account

#48. Which of the following is a key feature of a Coverdell Education Savings Account (ESA)?

Contributions are deductible on federal tax returns

Funds may only be used for college tuition

There is no limit on beneficiary age

Earnings may be withdrawn tax-free for qualified education expenses

#49. Which of the following is considered a money laundering red flag?

Customer asks about SIPC coverage

Customer updates address after moving

Customer diversifies holdings across asset classes

Customer is reluctant to provide identifying information and requests cash transactions

#50. Which of the following is a requirement of a firm’s Customer Identification Program (CIP)?

Share all customer data with other firms

Obtain and verify information that identifies each new customer

Check customer credit scores monthly

Guarantee customer investment results

#51. Which of the following best describes the purpose of Regulation SP?

To establish margin requirements for options

To set minimum capital requirements for broker-dealers

To protect the privacy of customer financial information

To regulate insider trading penalties

#52. Which of the following is TRUE regarding a firm’s privacy notice under Regulation SP?

It is required only upon account closure

It must be filed with FINRA quarterly

It must be provided when an account is opened and annually thereafter

It is required only for institutional customers

#53. Which of the following is considered correspondence under FINRA rules?

A research report delivered to 500 retail investors

An email sent to 15 retail clients in a 30-day period

A website available to the general public

A television commercial aired nationally

#54. Which of the following customers is considered an institutional investor under FINRA rules?

An individual investor with a large account balance

A couple with a joint brokerage account

A bank trust department investing client assets

A sole proprietor day trader

#55. Which of the following is TRUE regarding retail communication?

It does not include social media posts

It includes only in-person conversations

It includes written communications distributed to more than 25 retail investors in 30 days

It applies only to communications with institutions

#56. Which of the following is a primary goal of asset allocation in portfolio construction?

To maximize short-term trading profits

To balance risk and return by diversifying across asset classes

To concentrate holdings in a single sector

To eliminate all market risk

#57. Which of the following clients is MOST appropriate for an aggressive growth strategy?

A young investor with high risk tolerance and long time horizon

An investor with a short-term goal of buying a house

A retiree who depends on investment income for living expenses

An investor who cannot tolerate any principal fluctuation

#58. Which of the following is MOST appropriate for a client saving for a down payment on a home in 12 months?

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

Long-term high-yield bonds

Illiquid limited partnership interests

Small-cap aggressive growth stocks

#59. Which of the following describes the main risk of concentrating a portfolio in a single sector?

Increased exposure to sector-specific downturns

Reduction of volatility in all conditions

Elimination of all market risk

Guaranteed outperformance of the market

#60. Which of the following investors would be MOST suitable for a municipal bond fund?

An investor needing immediate access to cash

An investor seeking speculative short-term gains

An investor with no federal tax liability

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

#61. Which of the following describes a key risk of investing in high-yield bonds?

No exposure to interest-rate changes

Guaranteed higher returns than stocks

Elimination of market risk

Higher probability of issuer default

#62. Which of the following statements regarding exchange-traded funds (ETFs) is TRUE?

They can be bought and sold throughout the trading day at market prices

They guarantee principal protection

They are priced once per day at NAV only

They can only be purchased directly from the issuer

#63. Which of the following is a key difference between mutual funds and ETFs?

ETFs are not subject to market risk

Mutual funds can be traded intraday, ETFs cannot

Mutual funds are redeemed with the fund at NAV, while ETFs trade on exchanges

Mutual funds never pay dividends

#64. Which of the following is TRUE regarding diversification across asset classes?

It guarantees positive returns each year

It can help reduce portfolio volatility over time

It is unnecessary for long-term investors

It eliminates all types of risk

#65. Which of the following would be LEAST appropriate in an emergency fund?

High-quality money market fund

Bank savings account

Thinly traded microcap stocks

Short-term Treasury bills

#66. Which of the following is a valid reason to rebalance an investment portfolio?

The investor wishes to increase concentration risk

Market values have remained unchanged

Asset allocations have drifted significantly from the target mix

The investor’s objectives have not changed

#67. Which of the following is TRUE regarding inflation risk?

It has no impact on long-term investors

It reduces purchasing power of cash by increasing interest rates

It can erode the real value of fixed-income investment returns

It only affects equity investments

#68. Which of the following investments is MOST vulnerable to inflation risk?

Common stock of a growth company

Long-term fixed-rate bond

Treasury Inflation-Protected Security

Floating-rate note

#69. Which of the following is TRUE about interest received from Treasury securities?

It is tax-free at all levels

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

It is taxed only when the security is sold

It is subject only to state tax

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

The risk that the overall market will fall

The risk that securities cannot be traded

The risk that an issuer will be unable to pay interest or principal when due

The risk that interest rates will decline

#71. Which of the following is an example of a suitable investment for a client seeking income and willing to accept moderate risk?

Leveraged emerging markets ETF

Cryptocurrency fund

Aggressive options trading strategy

Investment-grade corporate bond fund

#72. Which of the following is MOST appropriate for a young investor saving for retirement in 30 years with high risk tolerance?

Portfolio heavily weighted toward equities

Portfolio entirely in Treasury bills

Portfolio entirely in money market funds

Portfolio entirely in bank CDs

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

They are required only if the account holds equities

Failure to take RMDs can result in significant tax penalties

They never apply after age 80

They apply equally to Roth IRAs

#74. Which of the following correctly describes a leading economic indicator?

A statistic that tends to change before the overall economy moves

A measure that changes after the economy moves

A measure that confirms long-term past trends

A measure with no predictive value

#75. During a period of economic expansion, which of the following is MOST likely?

Falling GDP and rising unemployment

Declining consumer spending

Rising corporate profits and decreasing unemployment

High inflation with stagnant growth

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