SIE FINRA Securities Industry Essentials Exam (SIE) Free Practice Exam Questions (2026 Updated)

Step by Step Explanation:

Call Provision: This allows the issuer to redeem bonds before their maturity date, usually at a premium to the par value, which benefits the issuer in a declining interest rate environment.

Put Provision: Allows bondholders, not issuers, to sell the bond back to the issuer.

Conversion: Relates to convertible bonds that can be converted into equity.

Defeasement: Refers to the removal of a bond issuer’s obligation by setting aside cash or securities to cover the debt.

SEC Guide on Callable Bonds: SEC Callable Bonds.

Communications with the public must be fair, balanced, and not misleading. A registered representative may not make exaggerated, unwarranted, promissory, or predictive statements that imply certainty about future market performance. Choice D is prohibited because it states that the stock “will hit $50 per share” by a specific month. That is a definitive price prediction and creates an improper guarantee-like impression about future performance. Choice A is a factual historical statement if accurate. Choice B references a firm research rating and may be permissible if the research report is properly approved and included with appropriate disclosures. Choice C provides factual information about management experience and is not inherently prohibited if accurate and not misleading. The SIE outline includes communications with the public, general requirements, prohibited manipulative or deceptive devices, and suitability/best interest communications. It also lists FINRA Rule 2210, Communications with the Public, and SEC antifraud provisions as relevant rules. The central rule is that sales communications may discuss opinions and facts, but they cannot promise or guarantee a specific future price. Reference: Section 3.2.5 Communications with the Public; FINRA Rule 2210; Section 3.3 Prohibited Activities.

Step by Step Explanation:

Debentures: Corporate bonds not backed by physical assets or collateral. They rely on the issuer’s creditworthiness.

Incorrect Options:

B: Trust certificates are a legacy term for bonds backed by a trust.

C: Collateral trust bonds are secured by financial assets.

D: GO bonds are issued by municipalities, not corporations.

SEC Guide on Corporate Bonds: SEC Corporate Bonds.

529 savings plans are state-sponsored education savings accounts that offer tax-advantaged growth. Key features include:

Contributions are not federally tax deductible (some states offer state-level deductions).

No income limitations for contributions.

The account owner, not the beneficiary, controls the plan.

Assets can be transferred tax-free to another family member’s 529 plan.

D is correct because tax-free rollovers are allowed for family members of the current beneficiary.

A is incorrect as contributions are not universally tax deductible.

B is incorrect as there are no income limitations for contributing.

C is incorrect because the account owner, not the beneficiary, controls the assets.

A key characteristic of non-traded (non-exchange-listed) REITs is limited liquidity, making A correct. Unlike publicly traded REITs that trade on exchanges and can be sold during market hours, non-traded REIT shares do not have an active public secondary market. Investors often must rely on limited redemption programs (if offered) or wait for a liquidity event (such as listing, merger, or liquidation), which can take years. As a result, investors may face difficulty selling shares quickly or at a predictable price, which is the essence of liquidity risk.

Choice B is misleading because many non-traded REITs are still registered securities sold via broker-dealers; “non-traded” does not automatically mean “private.” Some non-traded REITs are registered but not exchange listed. Choice C is the opposite of non-traded: if it is listed on an exchange, it is a traded REIT. Choice D describes open-end funds that calculate a daily NAV for purchases/redemptions; non-traded REITs do not function like mutual funds with daily NAV transactions (even though some may provide periodic valuations, that is not the defining “strike daily NAV” feature tested on the SIE).

This question tests product knowledge and risk recognition: non-traded REITs may offer income potential and real estate exposure, but the trade-off is often reduced transparency, higher fees, and notably limited liquidity compared with exchange-traded REITs or ETFs.

Step by Step Explanation:

Discount Bonds: These are issued or traded below par value. Over time, their price moves closer to par as they approach maturity, assuming yields remain constant.

Other Options:

Par Value Changes: The par value of a bond does not change over time; only its price fluctuates.

SEC and FINRA Bond Basics: SEC Discount Bonds.

American Depositary Receipts, or ADRs, represent ownership interests in shares of a foreign issuer and trade in U.S. markets in U.S. dollars. Dividends paid by the foreign issuer are converted by the depositary bank into U.S. dollars before being distributed to ADR holders. Therefore, choice A is correct. ADRs are still subject to political risk because changes in the foreign issuer’s home country, including political instability, capital controls, sanctions, or regulatory changes, may affect the issuer and the investment. Choice C is incorrect because ADR investors remain exposed to currency risk. Even though the ADR trades and pays dividends in U.S. dollars, the value of the underlying foreign shares and dividends may be affected by exchange-rate movements. Choice D is incorrect because ADR ratios vary. One ADR may represent one foreign share, multiple shares, or a fraction of a share, depending on the ADR program. The SIE outline includes ADRs under equity securities and separately identifies currency, political, market, and other risks under investment risks. This question tests both product structure and international risk exposure. Reference: Section 2.1.1 Equity Securities, ADRs; Section 2.2 Investment Risks.

Step by Step Explanation:

Breakeven Calculation: For covered call writing, breakeven is the stock purchase price minus the premium received.

Purchase Price = $50

Premium Received = $8

Breakeven = $50 - $8 = $42.

Other Options:

B, C, and D: Incorrect because they do not reflect the proper calculation of stock price minus the premium.

Options Clearing Corporation (OCC) Education: OCC Options Guidance.

A statutory disqualification occurs if an RR has been convicted of certain crimes, violated securities laws, or been barred by a regulatory authority. Under FINRA rules, the RR cannot associate with a member firm in any capacity unless they obtain a waiver from FINRA.

B is correct because the disqualified person must obtain a waiver to continue employment.

A and C are incorrect because the RR is not allowed to associate with the firm in any capacity without a waiver.

D is incorrect because statutory disqualification directly affects the RR’s employment status.

A 1-for-2 reverse stock split reduces the number of shares outstanding by half while proportionally increasing the share price. The investor’s total market value does not change solely because of the split. Before the reverse split, the customer owns 200 shares at $14 per share, for a total market value of $2,800. After a 1-for-2 reverse split, every two old shares become one new share. Therefore, the customer’s 200 shares become 100 shares. To preserve the same total value, the price doubles from $14 to $28. The post-split position is 100 shares at $28 per share, still worth $2,800. Choice B is correct. Choice A incorrectly reduces the shares without adjusting the price. Choice C adjusts only the price but not the share count. Choice D describes the effect of a forward split, not a reverse split. The SIE outline specifically includes stock splits and reverse stock splits under corporate actions and requires knowledge of their impact on market price and cost basis. Reference: Section 3.1.4 Corporate Actions.

Step by Step Explanation:

Closed-End Funds: Trade on exchanges like stocks, and the investor receives the bid price (market price) minus any applicable commissions.

Incorrect Options:

A & B: NAV applies to open-end mutual funds, not closed-end funds.

D: POP applies to initial sales of mutual fund shares.

SEC Guidance on Closed-End Funds: SEC Closed-End Funds.

The beta coefficient measures the sensitivity of a stock ' s returns relative to the overall market (usually the S & P 500). A beta of:

1.0 indicates the stock moves in line with the market.

Greater than 1.0 suggests the stock is more volatile than the market.

Less than 1.0 suggests the stock is less volatile.

D is correct because beta specifically compares the volatility of a stock to the market.

A is incorrect as beta does not measure the market’s volatility.

B is incorrect as beta considers both upside and downside movements.

C is incorrect as beta does not measure liquidity.

The correct answer is A, $2,000. A Coverdell Education Savings Account (ESA) is a tax-advantaged account designed to help families save for qualified education expenses, including both K–12 and higher education costs. One of the key features tested on the SIE exam is the annual contribution limit, which is $2,000 per beneficiary per year, regardless of the number of contributors.

This contribution limit is relatively low compared to other education savings vehicles, such as 529 plans, which generally allow much higher contributions. Additionally, contributions to a Coverdell ESA are not tax-deductible, but earnings grow tax-deferred, and withdrawals are tax-free if used for qualified education expenses.

The other answer choices are incorrect because they do not reflect IRS rules. $6,500 is closer to IRA contribution limits, not Coverdell accounts. $75,000 is far above any permitted annual contribution and is unrealistic for this type of account. Choice D refers to a concept used in 529 plan withdrawal limits for room and board but has no relevance to ESA contribution limits.

Thus, remembering the fixed $2,000 annual contribution cap is essential for SIE exam success.

A secondary market transaction occurs when securities are bought and sold between investors, typically on an exchange.

C is correct because securities purchased on a registered exchange are secondary market transactions.

A is incorrect as open-end mutual fund shares are purchased directly from the issuer.

B refers to the primary market.

D is also incorrect as private placements occur in the primary market.

A broker-dealer must safeguard customer funds and securities by segregating customer assets from the firm’s proprietary business activities. Segregation helps ensure that customer securities and cash are not improperly used by the broker-dealer and remain available for customers, even if the firm experiences financial or operational difficulty. Choice D is correct. FDIC insurance applies to bank deposits at insured depository institutions, not brokerage securities accounts. Brokerage customer protection is generally associated with customer protection rules and SIPC coverage, not FDIC protection. Choice B is prohibited because firm personnel may not sign on behalf of customers merely for convenience. Choice C is incorrect because broker-dealers do not protect customers from market losses caused by declining securities values. The safeguard concerns custody and proper handling of customer assets, not investment performance. The SIE outline includes customer protection and custody of assets, improper use of customer securities or funds, and books and records requirements. It also lists FINRA Rule 2150, improper use of customers’ securities or funds, and customer protection-related rules. Reference: Section 3.2.4 Books and Records and Privacy Requirements; Section 3.3.3 Other Prohibited Activities.

The Investment Company Act of 1940 includes governance requirements intended to protect fund shareholders by ensuring a meaningful degree of board independence. Limiting the percentage of “interested persons” on a fund’s board reduces the likelihood that the board will be dominated by individuals with material ties to the fund’s adviser, underwriter, or other service providers. The purpose is to mitigate conflicts of interest, which is why choice C is correct. An independent board is better positioned to oversee critical areas such as advisory contract approvals, fee reasonableness, compliance, and potential self-dealing risks.

Choice A (insider trading) is not the primary target of this board composition requirement. While good governance may indirectly discourage misuse of information, insider trading concerns are addressed through broader securities laws and compliance controls. Choice B (money laundering) is addressed through AML programs and customer identification procedures at financial institutions and broker-dealers, not primarily through investment company board independence rules. Choice D (market manipulation) is also not the core focus of board independence; manipulation is addressed through trading and anti-fraud rules and market regulation rather than investment company board composition.

The SIE commonly tests the concept that investment companies are structured to protect investors through transparency, fiduciary oversight, and independent governance. By ensuring that a substantial portion of directors are “uninterested,” the Act helps prevent the adviser or affiliated parties from unduly influencing decisions that directly affect shareholder outcomes—particularly fees, expense arrangements, and conflicts between the fund’s interests and the adviser’s profit motive.

Authorized stock is the maximum number of shares a corporation is legally permitted to issue under its corporate charter (articles of incorporation). That is why choice D is correct. The authorized share count is established when the company is formed and can typically be changed later only through proper corporate procedures (often requiring board approval and shareholder approval, depending on jurisdiction and governing documents). The purpose is to define the company’s legal capacity to issue shares for capital raising, compensation plans, acquisitions, and other corporate needs.

Choice A, issued stock, refers to shares that have actually been sold/issued by the corporation to shareholders. Issued shares are always less than or equal to authorized shares. Choice B, treasury stock, refers to shares that were previously issued and outstanding but have been repurchased by the corporation and are held in the company’s treasury; treasury shares are not outstanding and typically have no voting rights or dividend rights while held by the issuer. Choice C, restricted stock, refers to shares subject to resale restrictions (often associated with Rule 144 or insider/control stock concepts), not the legal maximum number of shares.

This question is a straightforward corporate equity definition commonly tested on the SIE because it links to shareholder rights, corporate actions, and capitalization structure. Candidates should clearly distinguish:

Authorized = legal limit the company may issue

Issued = shares the company has sold/issued

Outstanding = issued minus treasury (shares held by public)

Treasury = repurchased shares held by the issuer

Understanding these terms helps when analyzing corporate filings, dilution, and equity financing decisions.

The correct answer is B, Tenants in common. This type of account allows multiple owners to hold separate and distinct ownership interests in the same account. Each owner can control, sell, or transfer their individual portion without requiring consent from the other co-owner(s). Additionally, ownership percentages do not need to be equal, and each owner’s interest can be passed to their heirs upon death.

In contrast, Joint Tenants with Right of Survivorship (JTWROS) (choice D) requires equal ownership interests, and when one owner dies, their share automatically passes to the surviving owner(s). Importantly, actions in the account generally require joint participation, limiting independent control.

Tenants by the entirety (choice C) is similar to JTWROS but is limited to married couples and also does not allow unilateral control over a portion of the account.

A trust account (choice A) involves a trustee managing assets on behalf of beneficiaries and does not provide individual ownership control in the same sense as joint accounts.

Therefore, for investors who want independent control over their respective shares without needing approval from the other owner, a tenants in common account is the most appropriate choice, making answer B correct.

The quote indicates that the market maker is willing to buy 500 shares at $39.05 (bid) and sell 1,000 shares at $39.15 (ask). Market makers are required to honor their quoted size for orders that fall within their bid/ask prices.

D is correct because the market maker is obligated to sell at least 1,000 shares at $39.15 as it falls within the quoted size and price.

B is incorrect because the bid is at $39.05, not $39.00.

C is incorrect because $39.10 does not match the ask price.

A is invalid as a stop order would not activate at $39.00.