Free SIE practice exam
This free SIE practice exam has 75 original multiple-choice questions in FINRA's four sections and proportions. Exam mode gives you 1 hour 45 minutes, like the real SIE, and study mode is untimed. Every option is explained, calculations are worked step by step, and there is no sign-up.
- 75 questions
- Every option explained
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Show answer and explanation
Answer: B. The $5,000 she invested in the shares
Why B is correct
Common stockholders have limited liability: they own part of the corporation but are not personally responsible for its debts. The most a stockholder can lose is the amount paid for the shares, here $5,000.
Why the others are wrong
- A. Stockholders are not personally liable for corporate debts; that is the meaning of limited liability.
- C. Unpaid bond interest is owed by the corporation to its bondholders, not by its stockholders.
- D. There is no multiple of the investment that stockholders must cover; the loss is capped at the amount invested.
FINRA SIE Content Outline, 2.1.1
Show answer and explanation
Answer: B. $20.15
Why B is correct
The ask (offer) is the price at which a market maker will sell, so a customer buying at market pays the ask. The bid is the price at which the market maker will buy, which is what a customer selling at market receives. The difference between the two is the spread.
Why the others are wrong
- A. $20.10 is the bid, the price a customer would receive when selling.
- C. $20.125 is the midpoint of the quote. A market order against this quote fills at the ask, not halfway between.
- D. $20.05 is the bid minus the spread. It is not part of the quote.
FINRA SIE Content Outline, 3.1.1
Show answer and explanation
Answer: C. The Securities and Exchange Commission
Why C is correct
FINRA is a self-regulatory organization (SRO) that operates under SEC oversight. Under Section 19(b) of the Securities Exchange Act of 1934, an SRO must file proposed rule changes with the SEC, which publishes them for comment and approves or disapproves them (some routine changes take effect on filing).
Why the others are wrong
- A. The Federal Reserve sets monetary policy and supervises banks; it does not approve FINRA rules.
- B. NASAA is an association of state securities regulators and has no authority over FINRA's rulebook.
- D. Congress passes securities laws but does not review or approve individual SRO rule changes.
FINRA SIE Content Outline, 1.1.2 · Securities Exchange Act of 1934, Section 19(b)
Show answer and explanation
Answer: C. Common stockholders
Why C is correct
In a liquidation, creditors are paid before owners. Secured creditors come first, then unsecured creditors such as debenture holders, then preferred stockholders, and common stockholders last, receiving only what is left.
Why the others are wrong
- A. Secured bondholders have a claim on specific assets and are paid first, not last.
- B. Preferred stockholders rank ahead of common stockholders, which is part of what makes the stock preferred.
- D. General creditors are lenders, and all creditors rank ahead of any class of stockholder.
FINRA SIE Content Outline, 2.1.1
Show answer and explanation
Answer: C. A sell stop order at $46
Why C is correct
A sell stop order is placed below the current market price. When the stock trades at or below the stop price, the order becomes a market order to sell. This protects a long position against a further decline, so a sell stop at $46 matches the customer's goal.
Why the others are wrong
- A. A buy order would add shares, not sell the ones the customer owns.
- B. A sell limit order is placed above the market to sell at a target price or better. At $46, below the current price, it would fill right away instead of waiting for a decline.
- D. A buy stop is placed above the market, usually to protect a short position or to buy on a breakout.
FINRA SIE Content Outline, 3.1.1
Show answer and explanation
Answer: B. Priority over common stock for dividends
Why B is correct
Preferred stock usually pays a stated dividend that must be paid before any common dividend, and it ranks ahead of common stock in liquidation. In exchange, preferred holders usually have no regular voting rights and limited growth potential.
Why the others are wrong
- A. Preferred stock typically has limited or no voting rights; voting is a key feature of common stock.
- C. No stock guarantees price growth; preferred prices tend to move with interest rates.
- D. Bondholders are creditors and rank ahead of all stockholders, including preferred.
FINRA SIE Content Outline, 2.1.1
Show answer and explanation
Answer: C. The member firm
Why C is correct
The Firm Element is the firm-run part of continuing education. FINRA Rule 1240(b) requires each member firm to evaluate and prioritize its training needs at least annually and develop a written training plan; registered persons must take part in the training the firm requires.
Why the others are wrong
- A. FINRA delivers the Regulatory Element content, but the Firm Element plan is the member firm's job.
- B. Registered persons must participate in the program, but they do not design the firm's training plan.
- D. State administrators do not create a broker-dealer's Firm Element training plan.
FINRA SIE Content Outline, 4.1.1 · FINRA Rule 1240(b)
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: B. Investors accept less income for the chance to share in stock gains
Why B is correct
A conversion feature lets the holder exchange the preferred for a set number of common shares, so the holder can benefit if the common stock rises. Because that feature has value to the investor, the issuer can pay a lower fixed dividend than on otherwise similar non-convertible preferred.
Why the others are wrong
- A. Convertible preferred is still preferred stock and ranks ahead of common in liquidation.
- C. Preferred dividends are not tax-exempt just because the stock is convertible.
- D. There is no annual buyback requirement tied to a conversion feature.
FINRA SIE Content Outline, 2.1.1
Show answer and explanation
Answer: D. As time-and-price discretion valid only through the end of that day
Why D is correct
The customer chose the security, the action (buy) and the amount (500 shares), and left only the time and price to the representative. Under FINRA Rule 3260, this limited time-and-price discretion does not need written discretionary authorization, but it lasts only until the end of the business day it was given, unless the customer gives a signed, dated written instruction otherwise. Full discretion over which security, how much, or whether to buy or sell would need prior written authorization.
Why the others are wrong
- A. Written discretionary authorization is needed only when the representative chooses the security, amount or action. Time and price alone does not need it.
- B. The customer gave the representative leeway on timing, so the order need not be entered at once as a market order.
- C. Time-and-price discretion is permitted. Nothing in the order is prohibited.
FINRA SIE Content Outline, 3.1.1 · FINRA Rule 3260
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: D. An association of state and provincial regulators that develops model rules
Why D is correct
Each state enforces its own securities (blue-sky) laws through a state securities administrator. NASAA is the voluntary association of those state, provincial and territorial regulators; it drafts model rules and policies that states may adopt, but it does not itself register firms or enforce laws.
Why the others are wrong
- A. This describes the SEC, which is a federal agency.
- B. This describes an SRO such as FINRA; NASAA is not an SRO.
- C. This describes SIPC, which protects customer assets when a member broker-dealer fails.
FINRA SIE Content Outline, 1.1.3 · Uniform Securities Act (state blue-sky laws)
Show answer and explanation
Answer: A. A warrant
Why A is correct
A warrant gives the holder a long-term right to buy the issuer's stock at a set price that is usually above the market price when the warrant is issued. Issuers often attach warrants to bonds or preferred stock as a sweetener so they can offer a lower interest rate.
Why the others are wrong
- B. Subscription rights are short-term and usually priced below the market, not above it for several years.
- C. An ADR represents shares of a foreign company traded in the U.S.; it is not a purchase right.
- D. Convertible preferred is itself a stock that can be exchanged, not a separate purchase right attached to a bond.
FINRA SIE Content Outline, 2.1.1
Show answer and explanation
Answer: A. 15%
Why A is correct
Total return counts both income and the change in price, measured against the purchase price. The customer earned a $4 gain plus $2 in dividends, $6 in all, on a $40 investment. $6 divided by $40 is 15%.
Worked calculation
- Price gain = $44 − $40 = $4 per share.
- Income = $2 per share in dividends.
- Total return in dollars = $4 + $2 = $6.
- Total return = $6 / $40 = 0.15 = 15%.
Why the others are wrong
- B. 10% counts only the $4 price gain and leaves out the dividends.
- C. 5% counts only the $2 in dividends and leaves out the price gain.
- D. 13.6% divides the $6 total by the $44 sale price instead of the $40 purchase price.
FINRA SIE Content Outline, 3.1.2
Show answer and explanation
Answer: A. $10
Why A is correct
Cumulative preferred stock keeps unpaid dividends in arrears. Before any common dividend, the issuer must pay all missed preferred dividends plus the current one. That is $5 for last year plus $5 for this year, or $10 per share.
Worked calculation
- Annual dividend per share = 5% × $100 = $5
- Dividend in arrears from last year = $5
- Current year dividend = $5
- Total owed before common dividends = $5 + $5 = $10 per share
Why the others are wrong
- B. $5 covers only the current year and ignores the dividend in arrears that cumulative preferred must receive.
- C. Skipped dividends are lost only on non-cumulative preferred; cumulative preferred keeps the right to them.
- D. $15 counts three years of dividends, but only one year was skipped plus the current year.
FINRA SIE Content Outline, 2.1.1
Show answer and explanation
Answer: D. It is a statutory disqualification, so FINRA must approve the association.
Why D is correct
Under Section 3(a)(39) of the Securities Exchange Act of 1934, a felony conviction within the past 10 years is a statutory disqualification. A disqualified person may associate with a member only if the firm applies to FINRA and FINRA approves the association in an eligibility proceeding.
Why the others are wrong
- A. Completing a sentence does not remove the disqualification; the 10-year period runs from the conviction.
- B. Felony convictions must be disclosed on Form U4 regardless of what is asked in an interview.
- C. A statutory disqualification is not automatically permanent; the firm can seek approval through FINRA's eligibility process.
FINRA SIE Content Outline, 4.1.1 · Securities Exchange Act of 1934, Section 3(a)(39) · FINRA By-Laws, Article III
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: D. 6.25%
Why D is correct
Current yield is annual interest divided by the current market price. The bond pays 5% of $1,000, or $50 a year, and $50 / $800 = 6.25%. Because the bond trades at a discount, its current yield is higher than its coupon rate.
Worked calculation
- Annual interest = 5% × $1,000 = $50
- Market price = 80% of $1,000 = $800
- Current yield = $50 / $800 = 0.0625 = 6.25%
Why the others are wrong
- A. 5.00% is the coupon (nominal) yield, which is based on par, not on the market price.
- B. 4.00% applies the coupon to the price ($800 × 5% = $40) and divides by par, which reverses the formula.
- C. 62.50% divides $50 by the quote of 80 without converting the quote to $800.
FINRA SIE Content Outline, 2.1.2
Show answer and explanation
Answer: A. The fund trailed its benchmark by 3 percentage points
Why A is correct
A benchmark is an index that represents the market a fund invests in, so it shows how the fund did relative to that market. A large-company stock fund is measured against a large-company stock index. Here the fund returned 6% and the index 9%, so the fund underperformed by 3 percentage points even though its own return was positive.
Worked calculation
- Fund return − benchmark return = 6% − 9% = −3 percentage points
- A negative difference means the fund underperformed its benchmark
Why the others are wrong
- B. The fund gained 6%; the 3-point gap is relative to the index, not a loss in value.
- C. A positive return does not beat the benchmark; the fund earned less than the index.
- D. A stock fund is compared with a stock index that matches what it holds, not a bond index.
FINRA SIE Content Outline, 3.1.2 (benchmarks and indices)
Show answer and explanation
Answer: A. SIPC works to return the customer's securities and cash up to its limits, but not the lost market value.
Why A is correct
SIPC protects customers when a member broker-dealer fails financially, by working to return their securities and cash up to its limits. It does not protect against a decline in the value of securities, whatever the cause. FINRA Rule 2266 requires member firms to tell new customers how to get information about SIPC.
Why the others are wrong
- B. SIPC states that it does not protect against the decline in value of securities.
- C. FDIC insurance covers bank deposits, not securities held at a broker-dealer.
- D. SIPC protects customers of failed member broker-dealers, covering both securities and cash within its limits.
FINRA SIE Content Outline, 1.1.3 · FINRA Rule 2266 · Securities Investor Protection Act of 1970
Show answer and explanation
Answer: C. She buys it at a discount and receives face value at maturity
Why C is correct
Treasury bills are short-term Treasury securities with terms of one year or less. They pay no periodic coupon; they are sold at a discount (or at par) and pay face value at maturity, and the difference is the investor's interest.
Why the others are wrong
- A. Semiannual coupons are paid on Treasury notes and bonds, not bills.
- B. Inflation-linked adjustments describe TIPS, and Treasuries do not pay monthly interest.
- D. Treasury securities are debt; they pay interest, not dividends.
FINRA SIE Content Outline, 2.1.2 · TreasuryDirect, Treasury Bills
Show answer and explanation
Answer: B. Tuesday
Why B is correct
SEC Rule 15c6-1 sets the standard settlement cycle for most broker-dealer securities trades at one business day after the trade date (T+1). The SEC moved the cycle from T+2 to T+1 with a compliance date of May 28, 2024. A Monday trade therefore settles Tuesday.
Why the others are wrong
- A. Same-day (T+0) settlement is a cash settlement agreed to at the time of the trade, not regular way.
- C. Wednesday is T+2, the cycle that applied before May 2024.
- D. Thursday is T+3, a settlement cycle the SEC replaced years ago.
FINRA SIE Content Outline, 3.1.3 · SEC Rule 15c6-1
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: D. 35 basis points
Why D is correct
One basis point equals 0.01% (one hundredth of a percentage point), so 100 basis points equal 1%. The change is 4.60% − 4.25% = 0.35%, which is 35 basis points.
Worked calculation
- Change in yield = 4.60% − 4.25% = 0.35%
- 1% = 100 basis points
- 0.35 × 100 = 35 basis points
Why the others are wrong
- A. 0.35 is the change in percentage points, not basis points.
- B. 3.5 uses 10 basis points per 1%, but there are 100.
- C. 350 uses 1,000 basis points per 1%, which overstates the change tenfold.
FINRA SIE Content Outline, 2.1.2
Show answer and explanation
Answer: D. A tender offer
Why D is correct
A tender offer is a public offer to buy shares directly from holders at a stated price, usually a premium, for a limited time. When the issuer makes it for its own shares, it is a form of buyback. Shareholders decide whether to tender their shares before the deadline.
Why the others are wrong
- A. A rights offering lets existing holders buy new shares from the issuer. Here the issuer is buying shares back.
- B. An exchange offer gives holders other securities in exchange for their shares, not cash.
- C. A reverse split combines shares into fewer shares automatically. No offer or response is involved.
FINRA SIE Content Outline, 3.1.4
Show answer and explanation
Answer: C. The city's tax base and its ability to collect taxes
Why C is correct
General obligation bonds are repaid from the issuer's general taxing power, so analysis focuses on the tax base, tax collection rates, existing debt and the local economy. Revenue from a specific project matters most for revenue bonds.
Why the others are wrong
- A. Revenue from one project is the key test for a revenue bond, not a GO bond.
- B. User fees from a utility back revenue bonds, not GO bonds.
- D. Income from private property is not a source of repayment for a city's GO bonds.
FINRA SIE Content Outline, 2.1.2 · MSRB, Municipal Bond Basics
Show answer and explanation
Answer: C. An introducing broker-dealer
Why C is correct
An introducing broker-dealer deals with customers but relies on a clearing firm, under a clearing agreement, to settle trades and to carry customer cash and securities. The clearing firm usually also produces confirmations and statements.
Why the others are wrong
- A. The other firm, which settles trades and holds customer assets, is the clearing broker-dealer.
- B. A prime broker offers clearing, financing and custody to large clients such as hedge funds that trade through several executing brokers; that does not fit this small firm.
- D. A transfer agent keeps an issuer's shareholder records; it does not take customer orders.
FINRA SIE Content Outline, 1.1.4
Show answer and explanation
Answer: A. The bonds may be called, and the holder may have to reinvest at lower rates
Why A is correct
A call feature lets the issuer redeem bonds before maturity, and issuers tend to call when rates fall so they can refinance at lower cost. The holder then gets back principal and must reinvest at lower market rates. The call price also tends to cap how far the bond's price rises.
Why the others are wrong
- B. A fixed coupon does not change with market rates, and falling rates would not raise it.
- C. Conversion into stock is a convertible feature at the holder's choice, not a result of falling rates.
- D. The chance of a call tends to cap the price of a callable bond near its call price.
FINRA SIE Content Outline, 2.1.2
Show answer and explanation
Answer: B. The firm forwards proxy materials so the customer can give voting instructions
Why B is correct
With street-name shares, the broker-dealer is the holder of record, but the customer is the beneficial owner. The firm passes the issuer's proxy materials to the customer, who tells the firm how to vote. A proxy lets shareholders vote without attending the meeting.
Why the others are wrong
- A. The beneficial owner keeps the right to direct the vote. The firm forwards the materials rather than voting without asking.
- C. Street-name holders can vote through proxy instructions. No certificate is needed.
- D. Proxy voting exists so shareholders do not have to attend in person.
FINRA SIE Content Outline, 3.1.4
Show answer and explanation
Answer: B. A non-competitive bid
Why B is correct
Treasury securities are sold at auction, where the interest rate or yield is set by the bidding. A non-competitive bidder agrees to accept the rate set at the auction, while a competitive bidder names the yield it is willing to accept and may not be filled.
Why the others are wrong
- A. A competitive bid specifies the yield the bidder will accept, which the customer does not want to do.
- C. Negotiated sales are a method for some municipal and corporate offerings, not a Treasury auction bid.
- D. A stop order is a trading order type, not a way to bid in a Treasury auction.
FINRA SIE Content Outline, 2.1.2 · TreasuryDirect, Treasury Bills
Show answer and explanation
Answer: A. She generally must also be registered as an agent in the prospect's state.
Why A is correct
State securities (blue-sky) laws generally require a representative to be registered as an agent in the state where the customer or prospect is located before doing securities business with that person. FINRA registration does not replace state registration, and limited exemptions, such as for certain institutional clients, do not cover a new retail prospect.
Why the others are wrong
- B. FINRA registration is separate from state registration; each state requires its own agent registration.
- C. State laws require registration of both the broker-dealer and the individual agent.
- D. This reverses the rule; state exemptions are more likely for institutional investors, not retail individuals.
FINRA SIE Content Outline, 4.1.1 · Uniform Securities Act (state blue-sky laws)
Show answer and explanation
Answer: A. The customer may pay more in ongoing fees than commissions would cost
Why A is correct
A fee-based account charges an asset-based fee whether or not the customer trades, while a commission account charges per trade. For a customer who trades rarely, the yearly fee can cost much more than a few commissions. Under Regulation Best Interest, an account-type recommendation must be in the retail customer's best interest, so cost compared with expected activity matters.
Why the others are wrong
- B. Fee-based accounts can hold individual stocks. The issue is cost, not eligibility.
- C. Fee-based accounts are widely offered to retail customers.
- D. SIPC coverage depends on the firm being a SIPC member, not on how the account is priced.
FINRA SIE Content Outline, 3.2.1 · SEA Rule 15l-1 (Regulation Best Interest)
Show answer and explanation
Answer: C. A banker's acceptance
Why C is correct
A banker's acceptance is a short-term time draft, commonly used to finance international trade, that a bank has accepted and guaranteed. It trades at a discount in the money market and pays face value at maturity.
Why the others are wrong
- A. Commercial paper is unsecured short-term debt issued directly by a corporation, with no bank acceptance.
- B. A negotiable CD is a large time deposit issued by a bank, not a trade draft.
- D. Treasury bills are issued by the U.S. government, not created from trade drafts.
FINRA SIE Content Outline, 2.1.2
Show answer and explanation
Answer: A. Third market
Why A is correct
The third market is the over-the-counter trading of exchange-listed securities, typically between broker-dealers and large institutional investors. The trade is still a secondary-market trade, because the shares already exist and the issuer receives nothing.
Why the others are wrong
- B. The fourth market is trading directly between institutions without a broker-dealer in the middle; here a broker-dealer handled the trade.
- C. The primary market is the sale of new securities by the issuer; these are existing shares.
- D. The trade was done over the counter, not on an exchange trading floor.
FINRA SIE Content Outline, 1.2.1
Show answer and explanation
Answer: A. A covered call; if assigned, she delivers shares she already owns
Why A is correct
Selling a call while owning the underlying stock is a covered call. If the call is assigned, the writer delivers the shares already held, so there is no open-ended risk from a rising price; the trade-off is giving up gains above the strike. The premium received adds income and offsets a small part of any decline.
Why the others are wrong
- B. A call is uncovered (naked) only when the writer does not own the underlying shares or another qualifying cover.
- C. A short call gives only limited downside protection equal to the premium; it does not hedge a drop in the stock the way a long put does.
- D. She sold a call, not a put, and a call writer who is assigned must deliver shares, not buy them.
FINRA SIE Content Outline, 2.1.3 · FINRA Rule 2360(a) · FINRA Investor Insights: Options
Show answer and explanation
Answer: C. $14,000
Why C is correct
Regulation T sets initial margin at 50% of the purchase price for margin equity securities, so the customer deposits $10,000 and borrows $10,000 (the debit balance). Equity equals current market value minus the debit balance. At $60, the position is worth $24,000, so equity is $24,000 − $10,000 = $14,000.
Worked calculation
- Purchase cost = 400 × $50 = $20,000.
- Reg T deposit = 50% × $20,000 = $10,000, so the debit balance = $10,000.
- New market value = 400 × $60 = $24,000.
- Equity = $24,000 − $10,000 = $14,000.
Why the others are wrong
- A. $12,000 is 50% of the new market value. Equity is market value minus the debit, not a percentage of market value.
- B. $10,000 is the original deposit. It ignores the $4,000 rise in market value.
- D. $4,000 is only the price gain. It leaves out the customer's original $10,000 of equity.
FINRA SIE Content Outline, 3.2.1 · Regulation T, 12 CFR 220.12
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: B. 15 days
Why B is correct
FINRA Rule 2360(b)(16) requires the member to obtain the customer's written agreement, including the customer's agreement to follow position and exercise limits, within 15 days after the account has been approved for options trading. The account itself must be approved in writing by an authorized principal before the first trade.
Why the others are wrong
- A. Ten business days is the time for a Registered Options Principal to approve an account first approved by a branch manager who is not such a principal.
- C. Thirty days is not the Rule 2360 deadline for the signed options agreement.
- D. Sixty days is far longer than the rule allows.
FINRA SIE Content Outline, 2.1.3 · FINRA Rule 2360(b)(16)(D)
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: B. The rate banks charge each other for overnight loans of reserve balances
Why B is correct
The federal funds rate is the rate at which banks lend reserve balances to each other overnight. The FOMC sets a target range for it, and changes in that target ripple through to other short-term rates in the economy.
Why the others are wrong
- A. That is the discount rate, which the Fed itself charges banks.
- C. That is the prime rate, set by commercial banks.
- D. Treasury note yields are set by the market at auction and in trading, not by the FOMC.
FINRA SIE Content Outline, 1.3.1
Show answer and explanation
Answer: D. It passes to the surviving sibling
Why D is correct
In a JTWROS account, a deceased owner's interest passes automatically to the surviving owner or owners. It does not go through the estate, so the will does not control it. In a tenants-in-common account, by contrast, the deceased owner's share would go to the estate.
Why the others are wrong
- A. Passing the share to the estate describes tenants in common, not JTWROS.
- B. The right of survivorship transfers the interest without a court dividing the account.
- C. Survivorship overrides the will for assets held as JTWROS.
FINRA SIE Content Outline, 3.2.2
Show answer and explanation
Answer: C. $3,800
Why C is correct
A long put gains the most if the stock falls to zero. The put is then worth the full strike price, and the buyer subtracts the premium paid: (40 − 2) × 100 shares = $3,800. Because a stock cannot fall below zero, the gain on a long put is limited.
Worked calculation
- Maximum gain occurs if XYZ falls to $0
- Per share: strike 40 – premium 2 = 38
- Per contract: 38 × 100 shares = 3,800
- Maximum gain = $3,800
Why the others are wrong
- A. $200 is the premium paid (2 × 100), which is the buyer's maximum loss, not maximum gain.
- B. $4,000 is the strike times 100 and forgets to subtract the $200 premium.
- D. Unlimited gain applies to a long call, because a stock price has no upper limit; a stock can fall only to zero.
FINRA SIE Content Outline, 2.1.3 · FINRA Investor Insights: Options
Show answer and explanation
Answer: D. Form U4
Why D is correct
Form U4 (Uniform Application for Securities Industry Registration or Transfer) is used to register an individual with FINRA, other SROs and the states. It collects the person's employment history and disclosures such as criminal, regulatory and financial events, and it must be kept current.
Why the others are wrong
- A. Form U5 is filed when an individual's association with a firm ends, not to register a new hire.
- B. Form BD registers the broker-dealer firm itself, not an individual.
- C. Form ADV is used by investment advisers to register, not to register a broker-dealer's representative.
FINRA SIE Content Outline, 4.2.1 · FINRA By-Laws, Article V
Show answer and explanation
Answer: C. At or before the time the account is approved for options
Why C is correct
FINRA Rule 2360 requires a member to deliver the current Options Disclosure Document to a customer at or prior to the time the customer's account is approved for options trading. The document explains the characteristics and risks of standardized options, so the customer must have it before trading begins.
Why the others are wrong
- A. Fifteen days is the deadline for obtaining the customer's signed options agreement after approval, not for delivering the ODD.
- B. Delivery with a trade confirmation would be too late; the ODD must come before or at account approval.
- D. Delivery is required for every options customer, whether or not the customer asks.
FINRA SIE Content Outline, 2.1.3 · FINRA Rule 2360(b)(11) and (b)(16)
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: D. File a CTR, because the same-day total exceeded $10,000
Why D is correct
Financial institutions must file a Currency Transaction Report (CTR) for currency transactions of more than $10,000. Multiple cash transactions by or for the same person are added together when they total more than $10,000 in one business day. Here $6,000 plus $5,000 equals $11,000, so a CTR is required.
Why the others are wrong
- A. The rules require aggregating same-day cash transactions by the same person, so splitting the deposits does not avoid the CTR.
- B. The two deposits already total $11,000. No third deposit is needed to trigger the report.
- C. A SAR may also be needed if the firm suspects structuring, but it does not replace the required CTR.
FINRA SIE Content Outline, 3.2.3 · 31 CFR 1010.311 · 31 CFR 1010.313
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: A. $4,700
Why A is correct
The writer of a put can be required to buy the stock at the strike price. The worst case is that DEF falls to zero, so the writer pays $50 per share for worthless stock but keeps the $3 premium: (50 − 3) × 100 = $4,700. A short put has a large but limited risk; the unlimited risk belongs to an uncovered call writer.
Worked calculation
- Maximum loss for a short put occurs if DEF falls to $0
- Per share: strike 50 – premium 3 = 47
- Per contract: 47 × 100 shares = 4,700
- Maximum loss = $4,700
Why the others are wrong
- B. $5,000 is the full purchase cost at the strike and ignores the $300 premium the writer keeps.
- C. $300 is the premium received, which is the writer's maximum gain, not maximum loss.
- D. Unlimited loss describes an uncovered call; a put writer's loss stops when the stock reaches zero.
FINRA SIE Content Outline, 2.1.3 · FINRA Rule 2360
Show answer and explanation
Answer: B. Layering
Why B is correct
Layering is the middle stage of money laundering: the launderer moves funds through many transactions to break the trail back to the source. Placement is the first entry of illegal cash into the financial system. Integration is the final stage, when the money returns to the economy looking legitimate.
Why the others are wrong
- A. Placement is getting the cash into the financial system in the first place, not hiding its trail afterward.
- C. Integration is the last stage, when cleaned funds are used in apparently legitimate ways.
- D. Structuring is breaking cash deposits into smaller amounts to avoid reporting, a method used during placement.
FINRA SIE Content Outline, 3.2.3
Show answer and explanation
Answer: A. Bond prices fall, and the dollar tends to strengthen.
Why A is correct
Higher interest rates make existing bonds with lower fixed coupons less attractive, so their prices fall (prices and rates move in opposite directions). Higher U.S. rates also draw foreign capital into dollar investments, which raises demand for dollars and tends to strengthen the currency.
Why the others are wrong
- B. This describes the usual effect of a rate cut, not a rate increase.
- C. The bond effect is right, but higher U.S. rates usually attract foreign money and strengthen the dollar.
- D. The dollar effect is right, but existing bond prices fall when rates rise.
FINRA SIE Content Outline, 1.3.1 · FINRA SIE Content Outline, 1.3.3
Show answer and explanation
Answer: A. 6.00%
Why A is correct
The sales charge is the difference between the public offering price (POP) and the NAV, and it is expressed as a percentage of the POP. Here $10.00 − $9.40 = $0.60, and $0.60 / $10.00 = 6%. FINRA Rule 2341 also states its sales charge limits as a percentage of the offering price.
Worked calculation
- Sales charge in dollars = POP – NAV = 10.00 − 9.40 = 0.60
- Sales charge % = sales charge / POP = 0.60 / 10.00
- Sales charge = 6.00% of the public offering price
Why the others are wrong
- B. 6.38% divides the $0.60 charge by the NAV instead of by the public offering price.
- C. 0.60 is the sales charge in dollars per share, not a percentage.
- D. 94% is the NAV as a share of the POP, the part of each dollar that is actually invested.
FINRA SIE Content Outline, 2.1.4 · FINRA Rule 2341(d)
Show answer and explanation
Answer: C. Block them and report them to OFAC within 10 business days
Why C is correct
All U.S. persons, including broker-dealers, must comply with OFAC sanctions. Property of a person on the SDN list must be blocked (frozen), not returned or used, and may not be transferred without OFAC authorization. OFAC requires blocked property to be reported within 10 business days of being blocked.
Why the others are wrong
- A. Returning the funds would be a prohibited transfer of blocked property.
- B. Accepting the funds into a usable account would be dealing in blocked property. A SAR does not satisfy OFAC rules.
- D. Blocked property stays frozen until OFAC authorizes otherwise. There is no automatic release after 30 days.
FINRA SIE Content Outline, 3.2.3 · U.S. Treasury OFAC, Basic Information FAQs · 31 CFR 501.603
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: A. On an exchange at market price, which may be above or below NAV
Why A is correct
A closed-end fund issues a fixed number of shares in an offering and does not continuously sell or redeem them. After the offering, its shares trade on an exchange between investors, at market prices set by supply and demand. That price can be at a premium or a discount to the fund's NAV.
Why the others are wrong
- B. Buying from the fund at the next NAV plus any load describes an open-end (mutual) fund.
- C. Closed-end funds do not continuously offer shares at NAV after their initial offering.
- D. The IPO price applied only in the original offering; later buyers pay the current market price.
FINRA SIE Content Outline, 2.1.4 · Investor.gov: Publicly Traded Closed-End Funds
Show answer and explanation
Answer: D. Average duration of unemployment
Why D is correct
Lagging indicators confirm a trend after it has begun. The average length of time people stay unemployed keeps rising for a while after a recovery starts, because hiring picks up slowly, so it is a lagging indicator. Leading indicators move before the economy does, and coincident indicators move with it.
Why the others are wrong
- A. Building permits are a leading indicator, because they signal future construction activity.
- B. Industrial production is a coincident indicator that moves with the economy.
- C. New orders are a leading indicator, because they signal future production.
FINRA SIE Content Outline, 1.3.2
Show answer and explanation
Answer: B. Its value varies with the chosen subaccounts, and the owner bears the risk
Why B is correct
In a variable annuity, purchase payments are invested in subaccounts, typically mutual-fund-like portfolios, and the contract value rises or falls with their performance. The contract owner, not the insurer, bears the investment risk. Because of this, variable annuities are securities sold with a prospectus, and earnings grow tax-deferred.
Why the others are wrong
- A. A guaranteed rate is a feature of a fixed annuity; variable subaccounts can lose value.
- C. Variable annuities are registered securities, and the customer must receive a prospectus.
- D. Payments into a non-qualified variable annuity are not tax-deductible; the tax benefit is deferral of earnings.
FINRA SIE Content Outline, 2.1.4 · Investor.gov: Variable Annuities
Show answer and explanation
Answer: D. Hold the mail up to three months and offer other ways to monitor the account
Why D is correct
FINRA Rule 3150 lets a firm hold mail on a customer's written instruction, but holding it for more than three consecutive months needs a valid reason, such as safety or security, and convenience is not one. The firm must also tell the customer in writing about other ways to monitor the account, such as email or the firm's website. It must check at reasonable intervals that the instructions still apply.
Why the others are wrong
- A. Convenience is not an acceptable reason to hold mail longer than three months.
- B. A principal's approval does not override the rule's three-month limit for convenience requests.
- C. The firm may hold mail on written instructions within the rule's limits. It need not refuse entirely.
FINRA SIE Content Outline, 3.2.4 · FINRA Rule 3150
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: A. Filing misleading information violates FINRA Rule 1122 and can lead to a fine, suspension or bar.
Why A is correct
FINRA Rule 1122 prohibits members and associated persons from filing membership or registration information that is incomplete or inaccurate so as to be misleading, and from failing to correct it. Omitting a required disclosure on Form U4 can result in FINRA discipline, including fines, suspension or a bar, and a willful omission can itself lead to statutory disqualification.
Why the others are wrong
- B. Paying the judgment later does not cure a misleading filing; the violation occurred when the form was filed.
- C. Rule 1122 applies to associated persons as well as firms, and the representative attests to the accuracy of his answers.
- D. The duty to file accurate information exists whether or not any customer complains.
FINRA SIE Content Outline, 4.2.1 · FINRA Rule 1122
Show answer and explanation
Answer: C. It is a prohibited breakpoint sale made just below the breakpoint
Why C is correct
FINRA Rule 2342 bars members from selling investment company shares in dollar amounts just below the point at which the sales charge is reduced, so as to share in the higher sales charge. This practice is called a breakpoint sale. FINRA weighs the facts, including whether the sale was part of a documented, bona fide asset allocation program.
Why the others are wrong
- A. Leaving money uninvested does not cure a sale structured to stay below the breakpoint.
- B. Disclosing the charge does not make an improper breakpoint sale acceptable.
- D. Rule 2342 addresses any sale made just below a breakpoint, not only letter-of-intent purchases.
FINRA SIE Content Outline, 2.1.4 · FINRA Rule 2342
Show answer and explanation
Answer: A. As soon as practicable, but no later than 30 days after becoming aware
Why A is correct
Regulation S-P, as amended by the SEC in 2024, requires a written incident response program that assesses and contains unauthorized access to customer information and notifies affected individuals. Notice must be given as soon as practicable, but no later than 30 days after the firm becomes aware that sensitive customer information was, or is reasonably likely to have been, accessed without authorization. The Attorney General can delay notice only for national security or public safety reasons.
Why the others are wrong
- B. Regulation S-P does not set a 72-hour customer notice deadline.
- C. The clock runs from when the firm becomes aware, not from the end of its investigation, and the limit is 30 days.
- D. Breach notice is a separate, prompt requirement. It cannot wait for the annual privacy notice.
FINRA SIE Content Outline, 3.2.4 · Regulation S-P, 17 CFR 248.30
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: A. Whether the customer would pay a surrender charge or lose existing benefits
Why A is correct
FINRA Rule 2330 requires that, for a deferred variable annuity exchange, the representative consider whether the customer would incur a surrender charge, be subject to a new surrender period, lose existing benefits or pay higher fees, and whether the customer would benefit from product enhancements. Surrender charges are usually highest in a contract's early years, so an exchange can be costly.
Why the others are wrong
- B. A lower minimum purchase is not one of the exchange factors Rule 2330 lists.
- C. The rule looks at whether the customer made another deferred variable annuity exchange within the preceding 36 months, not mutual fund exchanges.
- D. The insurer's home state is not a factor the rule requires for exchanges.
FINRA SIE Content Outline, 2.1.4 · FINRA Rule 2330(b)(1)(B) · Investor.gov: Variable Annuities
Show answer and explanation
Answer: C. It contributes to a deficit in the current account.
Why C is correct
The balance of payments records all transactions between a country's residents and the rest of the world. Trade in goods and services is part of the current account, so when more money flows out to pay for imports than flows in from exports, the result adds to a current account (trade) deficit.
Why the others are wrong
- A. A surplus would occur if exports exceeded imports; here imports are larger.
- B. The balance of payments includes trade in goods and services in the current account, not just investment flows.
- D. The gap between GNP and GDP depends on income earned abroad by residents versus income earned here by foreigners, not on the trade balance.
FINRA SIE Content Outline, 1.3.3
Show answer and explanation
Answer: C. The grandparent, as the account owner
Why C is correct
In a 529 plan, the account owner, not the beneficiary, controls the account. The owner chooses investments from the plan's options, decides when to take withdrawals, and can generally change the beneficiary to another eligible family member. The beneficiary is the student whose qualified education expenses the account will pay.
Why the others are wrong
- A. Unlike a custodial (UTMA/UGMA) account, a 529 account does not pass to the beneficiary at the age of majority.
- B. The state sponsors the plan and selects its investment options, but the owner directs the account.
- D. The parents have no control unless one of them is the account owner.
FINRA SIE Content Outline, 2.1.5 · MSRB Investor's Guide to 529 Savings Plans
Show answer and explanation
Answer: D. 7:00 p.m. Eastern time
Why D is correct
FINRA Rule 3230 bars telemarketing calls to a residence before 8 a.m. or after 9 p.m. local time at the called person's location, unless an exception such as an established business relationship applies. The window is measured in California time, 8 a.m. to 9 p.m. Pacific, which is 11 a.m. to midnight Eastern. A 7:00 p.m. Eastern call reaches the prospect at 4:00 p.m. Pacific.
Why the others are wrong
- A. 9:00 a.m. Eastern is 6:00 a.m. in California, before the 8 a.m. limit.
- B. 10:30 a.m. Eastern is 7:30 a.m. in California, still before 8 a.m. local time.
- C. 8:30 a.m. Eastern uses the caller's clock. In California it is 5:30 a.m.
FINRA SIE Content Outline, 3.2.5 · FINRA Rule 3230
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: D. Passed through to the partners, who report them on their own returns
Why D is correct
Direct participation programs, such as limited partnerships, are pass-through entities. The program itself generally pays no federal income tax; each partner reports a share of the income, gains, losses and deductions on his or her own tax return. Tax benefits from these flow-throughs are often a significant feature of a DPP.
Why the others are wrong
- A. Double taxation applies to C corporations, not to partnerships.
- B. Partners report their shares each year, not only when assets are sold.
- C. Partnership income is not paid as corporate dividends, so the qualified dividend rate does not apply.
FINRA SIE Content Outline, 2.1.6 · FINRA Rule 2310
Show answer and explanation
Answer: B. Pump and dump
Why B is correct
In a pump and dump, manipulators buy a stock, push up its price by spreading false or misleading information, and sell into the demand they created. Later buyers are left holding shares when the price collapses. Spreading false market rumors to move a price is market manipulation.
Why the others are wrong
- A. Front running involves trading ahead of a known customer order, not promoting a stock with false claims.
- C. Backing away is a market maker failing to honor its quote.
- D. Churning is excessive trading in a customer's account to generate commissions.
FINRA SIE Content Outline, 3.3.1
Show answer and explanation
Answer: B. She would not manage the business, and her liability is limited to her investment
Why B is correct
In a limited partnership, the general partner manages the business and has unlimited liability for its debts. Limited partners are passive investors: they do not take part in management, and their liability is generally limited to the amount they invested. A limited partner who takes on management duties risks losing that limited liability.
Why the others are wrong
- A. Managing operations with unlimited liability describes the general partner.
- C. Limited partners do not share the general partner's unlimited liability or control the business.
- D. Directing daily operations is the general partner's role and is not compatible with limited partner status.
FINRA SIE Content Outline, 2.1.6 · FINRA Rule 2310
Show answer and explanation
Answer: D. $100
Why D is correct
FINRA Rule 3220 limits gifts given in connection with the recipient's employer's business to $300 per person per year; this limit was raised from $100 by amendments effective March 30, 2026. Gifts to the same person are added together over the year, so after a $200 gift, only $100 more is allowed. The firm must keep records of these gifts.
Worked calculation
- Annual gift limit per person under FINRA Rule 3220: $300
- Already given this year: $200
- Remaining: $300 − $200 = $100
Why the others are wrong
- A. $0 treats the $200 gift as using up the whole annual limit, but the current limit is $300 per person per year.
- B. $300 ignores the $200 gift already given; the limit is a yearly total per person.
- C. $50 wrongly uses the $250 MSRB Rule G-37 political contribution figure, which is unrelated to gifts.
FINRA SIE Content Outline, 4.2.2 · FINRA Rule 3220 · FINRA Regulatory Notice 26-05
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: A. Gross national product (GNP), but not gross domestic product (GDP)
Why A is correct
GDP measures the value of goods and services produced within a country's borders, no matter who owns the producer. GNP measures output by a country's residents and businesses wherever they operate. Profits from a U.S.-owned factory abroad count in U.S. GNP but not in U.S. GDP.
Why the others are wrong
- B. This reverses the definitions; GDP is based on location, so output abroad is excluded from U.S. GDP.
- C. U.S. GDP counts only production inside the United States, so the foreign factory is left out of it.
- D. GNP is based on ownership, so output of U.S.-owned businesses abroad is included.
FINRA SIE Content Outline, 1.3.3
Show answer and explanation
Answer: D. She may be unable to sell quickly, and the shares may be hard to value
Why D is correct
Non-traded (registered, non-listed) REITs do not trade on a stock exchange, so they are illiquid and generally cannot be sold readily on the open market. Their per-share value can also be hard to determine, since an estimated value is often not provided until well after the offering closes. Listed REITs, by contrast, trade on exchanges like other stocks.
Why the others are wrong
- A. Exchange trading describes a listed REIT, not a non-listed one.
- B. Redemption at NAV within seven days is a feature of mutual funds; non-traded REITs may limit or suspend redemptions.
- C. A non-traded REIT may list later at the sponsor's choice, but an investor cannot force a conversion.
FINRA SIE Content Outline, 2.1.7 · Investor.gov: Real Estate Investment Trusts (REITs)
Show answer and explanation
Answer: D. Marking the close
Why D is correct
Marking the close is trading at or near the end of the session to influence the closing price. Because closing prices are used to value portfolios, raising them can falsely inflate reported performance. It is a form of market manipulation.
Why the others are wrong
- A. A pump and dump relies on false promotion to sell shares at inflated prices, not on end-of-day orders.
- B. Front running is trading ahead of a customer's pending order.
- C. Backing away is a market maker refusing to trade at its quoted price.
FINRA SIE Content Outline, 3.3.1
Show answer and explanation
Answer: D. He generally cannot redeem until the lock-up ends, then only on set dates
Why D is correct
Hedge funds are generally illiquid. They often impose a lock-up period of a year or more during which investors cannot redeem, and afterward they usually allow redemptions only at set times, such as quarterly or less often, sometimes with a fee. Funds may also suspend redemptions in stressed markets.
Why the others are wrong
- A. Private hedge fund interests are not listed on exchanges.
- B. Seven-day redemption is a mutual fund feature, not a hedge fund feature.
- C. 12b-1 fees belong to registered mutual funds, and hedge funds do not offer daily redemptions.
FINRA SIE Content Outline, 2.1.8 · Investor.gov: Hedge Funds
Show answer and explanation
Answer: B. A company board's unannounced decision to cut its dividend
Why B is correct
Information is material if a reasonable investor would consider it important in deciding to buy or sell, and nonpublic if it has not been released to the market. A dividend cut that the board has decided but not announced is both. Released earnings, published reports and analysis built on public data are already public.
Why the others are wrong
- A. Earnings released in a press release are public, even if they are material.
- C. Analysis built entirely from public information is not inside information.
- D. A published annual report is public information.
FINRA SIE Content Outline, 3.3.2
Show answer and explanation
Answer: C. The index ETF usually has lower expenses, but trades may involve commissions
Why C is correct
Passively managed funds track an index, which usually means less trading, fewer transaction costs and lower fees than actively managed funds. Because ETF shares trade on an exchange, investors may also pay brokerage commissions and the bid-ask spread when they buy or sell. ETFs can be an alternative to mutual funds, but their total cost includes both kinds of expenses.
Why the others are wrong
- A. No fund is guaranteed to outperform another; an active fund's results depend on the manager's skill.
- B. Active managers usually trade more, not less, and active funds generally charge higher fees.
- D. Every ETF has an expense ratio, even if it is low.
FINRA SIE Content Outline, 2.1.9 · Investor.gov: Exchange-Traded Funds (ETFs)
Show answer and explanation
Answer: B. Firm commitment underwriting
Why B is correct
In a firm commitment underwriting, the underwriters buy the whole issue from the issuer and act as principals, so the issuer is sure of its proceeds and the syndicate bears the risk of unsold securities. In a best efforts deal, the underwriter acts only as agent and does not buy what it cannot sell.
Why the others are wrong
- A. In a best efforts underwriting, the underwriter acts as agent and returns unsold securities to the issuer rather than buying them.
- C. An all-or-none deal is a type of best efforts offering that is canceled if the whole issue is not sold; the underwriter does not buy the shares.
- D. A placement agent in a private placement acts as agent selling to a limited group of investors, not as a buyer of a public issue.
FINRA SIE Content Outline, 1.4
Show answer and explanation
Answer: D. $150,000
Why D is correct
Under Section 21A of the Securities Exchange Act of 1934, the civil penalty for the person who committed an insider trading violation may not exceed three times the profit gained or loss avoided. Three times the $50,000 loss avoided is $150,000. This penalty is separate from disgorgement and from possible criminal penalties.
Worked calculation
- Maximum civil penalty = 3 × the profit gained or loss avoided.
- Loss avoided = $50,000.
- 3 × $50,000 = $150,000.
Why the others are wrong
- A. $50,000 is one times the loss avoided, the amount usually given up through disgorgement, not the maximum penalty.
- B. $100,000 uses two times the loss avoided instead of three.
- C. $1,000,000 is part of the cap for controlling persons such as employers, not for the trader.
FINRA SIE Content Outline, 3.3.2 · Securities Exchange Act of 1934, Section 21A (15 U.S.C. 78u-1)
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: C. Reinvestment risk
Why C is correct
Reinvestment risk is the risk that cash flows such as coupons or returned principal must be reinvested at lower rates than the original investment earned. It rises when rates fall. Zero-coupon bonds avoid it during their life because they make no periodic payments to reinvest.
Why the others are wrong
- A. Liquidity risk is about being unable to sell quickly at a fair price, not about reinvestment rates.
- B. Credit risk is the chance the issuer fails to pay, which is not described here.
- D. Currency risk comes from exchange-rate changes on foreign investments.
FINRA SIE Content Outline, 2.2
Show answer and explanation
Answer: C. Written notice; the firm must approve or disapprove in writing and supervise if approved
Why C is correct
Selling securities away from the firm is a private securities transaction. Under FINRA Rule 3280, the associated person must first give written notice describing the transaction, her role and whether she may receive selling compensation. Because she will be paid, the firm must approve or disapprove in writing; if it approves, it must record the transaction on its books and supervise it as if it were the firm's own. Rule 3280 stays in force until October 25, 2027, when FINRA Rule 3290 replaces Rules 3270 and 3280 with the same notice-and-approval approach for paid outside securities transactions.
Why the others are wrong
- A. Rule 3280 requires written notice, and with compensation the firm must also respond in writing.
- B. A written acknowledgment alone applies only when there is no selling compensation; here she is being paid.
- D. Rule 3280 exists specifically to cover securities transactions outside the regular scope of the person's employment.
FINRA SIE Content Outline, 4.2.2 · FINRA Rule 3280 · FINRA Regulatory Notice 26-20
Rule or figure checked on against the official source. Rules can change.
Show answer and explanation
Answer: A. Liquidity risk
Why A is correct
Liquidity risk is the risk that an investment cannot be sold quickly without accepting a significantly lower price. Small, thinly traded issues often have few buyers and wide spreads, so a seller in a hurry may have to take a discount.
Why the others are wrong
- B. Prepayment risk is principal being returned early, mainly on mortgage-backed securities.
- C. Political risk comes from government actions, such as instability or seizure of assets.
- D. Systematic risk affects the whole market, not the difficulty of selling one thinly traded bond.
FINRA SIE Content Outline, 2.2
Show answer and explanation
Answer: B. Prior written approval of the firm and customer, with 25% sharing
Why B is correct
FINRA Rule 2150 generally prohibits sharing in customer accounts. It is allowed only with prior written authorization from both the employing firm and the customer, and only in direct proportion to each person's financial contribution. A 25% contribution permits 25% sharing in profits and losses.
Why the others are wrong
- A. Verbal consent is not enough, and a 50/50 split is not proportionate to a 25% contribution.
- C. Authorization comes from the firm and the customer, not FINRA, and sharing must match contributions.
- D. Contributing money does not remove the written-approval and proportionate-sharing conditions.
FINRA SIE Content Outline, 3.3.3 · FINRA Rule 2150
Show answer and explanation
Answer: B. Portfolio rebalancing
Why B is correct
Portfolio rebalancing means periodically buying and selling holdings to bring the portfolio back to its target allocation. It keeps the portfolio's risk level in line with the investor's plan after market moves shift the mix.
Why the others are wrong
- A. Hedging takes an offsetting position to protect against a loss, rather than restoring a target mix.
- C. Dollar-cost averaging is investing a fixed dollar amount at regular intervals.
- D. Market timing tries to predict market moves, while rebalancing follows a set target regardless of forecasts.
FINRA SIE Content Outline, 2.2
Show answer and explanation
Answer: C. A shelf registration
Why C is correct
Under SEC Rule 415, an eligible issuer can register securities in advance and keep them on the shelf, then sell portions (takedowns) over time as its needs and market conditions allow. This lets the issuer move quickly when conditions are favorable without preparing a new registration statement for each sale.
Why the others are wrong
- A. A Regulation D private placement is exempt from registration; here the securities were registered with the SEC.
- B. Best efforts describes how an underwriter distributes an issue, not advance registration for sales over time.
- D. The intrastate exemption covers offerings made only to residents of one state, without SEC registration; that is not what happened here.
FINRA SIE Content Outline, 1.4 · Securities Act of 1933, SEC Rule 415
Show answer and explanation
Answer: C. Falsified the firm's books and records, a prohibited act
Why C is correct
Firms must keep accurate account records, including each customer's investment profile, under SEA Rule 17a-3. Changing a customer's information without their knowledge, to justify trades, falsifies the firm's books and records. That breaches FINRA Rule 2010's standards of commercial honor and can lead to fines, suspension or a bar.
Why the others are wrong
- A. Profits do not excuse falsifying records. The violation is the false entry itself.
- B. Account information must reflect what the customer actually provided, not what the representative wants.
- D. The violation occurs when the record is falsified, whether or not the customer complains.
FINRA SIE Content Outline, 3.3.3 · SEA Rule 17a-3 · FINRA Rule 2010
Show answer and explanation
Answer: B. Bond 2
Why B is correct
Interest rate risk is greatest for bonds with long maturities and low coupons. A long maturity means more payments are discounted at the new higher rate, and a low coupon means more of the bond's value comes from the distant principal payment. Bond 2 has both features.
Why the others are wrong
- A. A short maturity and high coupon make Bond 1 the least sensitive to rate changes.
- C. Bond 3 has a long maturity, but its higher coupon makes it less sensitive than Bond 2.
- D. Bond 4 has a low coupon, but its short maturity limits its price change.
FINRA SIE Content Outline, 2.2
This free SIE practice exam is part of our SIE exam prep hub, where you will also find FINRA’s facts on the exam format, fee and scoring.
How does this test match the real SIE?
SIE Practice Exam 1 has the same number of scored questions as the real SIE, split across the same four sections in the same proportions. The table compares FINRA’s official item counts with the questions on this test.
| Section | Official scored items | Official share | Questions on this test |
|---|---|---|---|
| 1. Knowledge of Capital Markets | 12 | 16% | 12 |
| 2. Understanding Products and Their Risks | 33 | 44% | 33 |
| 3. Understanding Trading, Customer Accounts and Prohibited Activities | 23 | 31% | 23 |
| 4. Overview of the Regulatory Framework | 7 | 9% | 7 |
| Total | 75 | 100% | 75 |
The real SIE also includes 5 unscored pretest questions, mixed in and not identified, for 80 questions in total (FINRA SIE Content Outline). Every question on this practice test counts toward your score.
How should you use your score?
Use your score as a study benchmark, not as a prediction of your real result. FINRA lists the SIE passing score as 70, but the real exam places scores on a common scale through equating, so a percentage on a practice test does not convert directly.
Your section scores matter more than the total. Start with your weakest section, and give extra time to products and their risks, which carries 33 of the 75 scored questions. A higher score on a second attempt partly reflects memory of these exact questions, so read every explanation before you retake the test.
How fast do you need to answer?
The SIE gives you 1 hour 45 minutes, which is 105 minutes for 75 scored questions: about 84 seconds per question. The 5 unscored questions share the same time, so across all 80 questions your working pace is about 79 seconds each.
Exam mode on this page uses the same 105-minute limit. If you finish with time to spare, your pace is on track. Calculation questions usually take longer than recall questions, so do not let one problem hold you up; flag it and come back.
What do the questions look like?
Here are three questions from this test, with the correct answer marked. The full test has an explanation for every option.
Understanding Products and Their Risks
A customer buys an ABC Corp bond with a 5% coupon and a $1,000 par value. The bond is quoted at 80, so she pays $800. What is the bond's current yield?
Why D: Current yield is annual interest divided by the current market price.
Understanding Trading, Customer Accounts and Prohibited Activities
A broker-dealer that accepts currency receives $6,000 in cash from a customer one morning and another $5,000 in cash from the same customer that afternoon. What must the firm do?
Why D: Financial institutions must file a Currency Transaction Report (CTR) for currency transactions of more than $10,000.
Knowledge of Capital Markets
Which statement best describes the North American Securities Administrators Association (NASAA) and its role in securities regulation?
Why D: Each state enforces its own securities (blue-sky) laws through a state securities administrator.
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What should you do next?
After your first attempt, open the review list and read the explanation for every question you missed. Then turn to the SIE study guide, which explains each outline topic with a worked example and the key formulas.
Each question here is checked against FINRA’s outline and primary sources before it goes live. Our editorial policy explains how, and how to report a mistake.
Frequently asked questions
Are these real SIE exam questions?
No. The questions on this SIE practice exam are original questions written by the FinLicensePrep editorial team from FINRA's SIE Content Outline. They are not actual FINRA exam questions and are not copied from other prep materials.
Is there a calculator on this practice exam?
Yes. Tap the calculator button in the top bar, or press C on a keyboard, to open a four-function calculator with a percent key. It stays open beside the question so you can work through yield and breakeven problems.
What is the difference between study mode and exam mode?
Study mode is untimed and shows the answer and explanation right after each question. Exam mode runs a 105-minute timer, gives no feedback until you submit, and lets you flag questions, jump between them and review before you submit.
Why do some questions show a date?
Questions that depend on a rule, limit or deadline that a regulator can change show the date we last checked that fact against the official source, with a link to it. If a rule changes, we update the question and the date.
What score should I aim for before booking the SIE?
There is no official target for practice scores. Many candidates aim to score comfortably above FINRA's listed passing score of 70 on more than one full practice test, in exam mode, before they book. That is a study benchmark, not a FINRA standard.
Written by the FinLicensePrep editorial team Last reviewed How we write our questions