SIE FINRA Securities Industry Essentials Exam (SIE) Free Practice Exam Questions (2025 Updated)

Each option contract represents 100 shares. A covered call involves selling a call option while holding an equivalent number of shares to deliver if the option is exercised.

The customer owns 1,000 shares.

Since 1 contract = 100 shares, the maximum number of contracts the customer can sell is:1,000 shares ÷ 100 shares/contract = 10 contracts.

B is correctbecause selling 10 contracts corresponds to 1,000 shares, fully covering the position.

In cumulative voting, shareholders can allocate all their votes to a single candidate. The total number of votes is calculated by multiplying the number of shares owned by the number of seats available:

Total votes = 100 shares × 10 seats =1,000 votes.

The investor can allocate all votes to one candidate.

C is correctbecause cumulative voting allows all votes to be concentrated.

FINRA Rule 2360 requires that customers receive theOptions Disclosure Document (ODD), published by the Options Clearing Corporation (OCC), before they are approved to trade options. The ODD explains the risks and characteristics of options trading.

D is correctbecause the ODD is mandatory for options account approval.

Ais incorrect because a prospectus is not specific to options trading.

Bis incorrect because the MSRB Investor Brochure applies to municipal securities.

Cis incorrect because a margin disclosure statement is required only for margin accounts.

FINRA’s Continuing Education (CE) requirements include the Regulatory Element, which must be completed:

Within 120 days of the second anniversary of a registered representative’s initialregistration.

Every three years thereafter (changed to every two years as of 2023).

C is correctbecause registered persons must complete the CE Regulatory Element after their initial requirement and then every two years.

AandBare incorrect because CE is not required annually or semiannually.

Dis incorrect because CE is not tied to customer complaints.

Step by Step Explanation:

Dividend Reinvestment Plans (DRIPs): These allow investors to automatically reinvest income distributed by the mutual fund to purchase additional shares.

Dollar Cost Averaging: Refers to systematic investments over time, not directly tied to income distributions.

Capital Gains Reinvestment: Involves reinvesting profits from the sale of fund holdings, which is distinct from dividend reinvestment.

References:

FINRA Mutual Fund Features: FINRA Mutual Funds.

When an economy operates near full capacity, additional money in circulation leads to inflation, as demand exceeds the economy’s ability to increase supply.

B is correctbecause inflation is the primary impact when supply cannot keep up with excess demand.

Ais incorrect because output does not significantly increase when capacity is already maximized.

Cis incorrect because velocity measures the rate at which money circulates, not the impact of oversupply.

Dis incorrect as unemployment is already low when the economy is at full capacity.

Step by Step Explanation:

Warrants: Are often issued alongside fixed-income securities, such as bonds, to enhance their appeal to investors. Warrants give the holder the right to purchase company stock at a specific price in the future.

Incorrect Options:

Options: Not typically bundled with fixed-income securities.

Common and Preferred Stock: Usually issued separately, not as part of a package with bonds.

References:

SEC Guide on Warrants: SEC Warrants Information.

Step by Step Explanation:

European-Style Options: Can only be exercised on their expiration date, unlike American-style options, which can be exercised any time before expiration.

Incorrect Options:

A: Not accurate; the exercise must occur specifically on the expiration date.

C: Options cannot be exercised after expiration.

D: The expiration date depends on the option contract, not a specific weekday.

References:

Options Clearing Corporation (OCC) Guidelines:OCC European Options.