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

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.

When a member firm opens an account for an employee of another member firm, the account-opening firm must comply with notification and duplicate-document requirements, but it is not required to request prior written approval from FINRA. Choice A is the exception and therefore the correct answer. The firm must advise the associated person that it will notify the employing firm. It must notify the employer firm before executing the initial transaction. If the employer firm requests duplicate confirmations and account statements, the executing firm must provide them. These requirements allow the employer firm to supervise outside brokerage activity of its associated persons and detect potential conflicts, undisclosed trading, insider trading concerns, or prohibited activity. Choice B, choice C, and choice D describe required or conditionally required steps. The SIE outline includes employee conduct, outside accounts, books and records, customer confirmations, account statements, and FINRA Rule 3210, Accounts at Other Broker-Dealers and Financial Institutions. The rule is supervisory in nature: FINRA does not approve each outside brokerage account, but the employing firm must receive notice and requested records. Reference: Overview of Regulatory Framework; Employee Conduct; FINRA Rule 3210.

A market maker typically trades as principal. Acting as principal means the firm buys and sells securities for its own account and stands ready to provide liquidity by quoting bid and ask prices. The market maker buys at the bid and sells at the ask, earning the spread as compensation for committing capital and assuming inventory risk. Choice C is correct. An agent or broker acts on behalf of a customer and generally earns a commission rather than trading from inventory. Although a firm can act in different capacities in different transactions, the defining role of a market maker is principal trading. “Fiduciary” describes a legal standard of care, often associated with investment advisers, not the trading capacity of a market maker. The SIE outline identifies traders and market makers as market participants and also requires candidates to understand trade capacity, including principal versus agency. This question tests that distinction directly: brokers arrange trades for others, while dealers and market makers trade for their own accounts. Reference: Section 1.1.4 Market Participants and Their Roles; Section 3.1.1 Orders and Strategies.

A zero-coupon bond does not make periodic interest payments. Instead, it is issued at a deep discount to par and matures at face value. Because there are no periodic coupon payments to reinvest, reinvestment risk is not a factor in the same way it is for coupon-paying bonds. Choice C is correct. Choice A is incorrect because zero-coupon bonds do not provide current income. Choice B is incorrect because interest rate risk is significant for long-term zero-coupon bonds; their prices can be highly volatile when interest rates change because all cash flow is received at maturity. Choice D is generally incorrect for taxable zero-coupon bonds because investors may owe tax annually on imputed or accreted interest even though no cash interest is received. The SIE outline covers debt instruments, coupon value, par value, yield, varying maturities, and risks including interest-rate and reinvestment risk. This question focuses on the structural feature of a zero: no interim cash flow means no interim coupon reinvestment decision. Reference: Section 2.1.2 Debt Instruments; Section 2.2 Investment Risks.

Redeemable securities are those that can be sold back to the issuer.

D is correct because unit investment trusts (UITs) issue redeemable securities.

C is incorrect because closed-end fund shares are traded on secondary markets, not redeemable.

A and B do not meet the definition of redeemable securities.

Step by Step Explanation:

Summary Prospectus Content: Must include key information such as the fund’s investment objectives, risks, fees, and past performance. This helps investors make informed decisions.

Incorrect Options:

A: Projected returns are speculative and not included in the prospectus.

C & D: Detailed portfolio holdings and control persons are included in the full prospectus, not the summary.

SEC Rule 498 (Summary Prospectuses): SEC Prospectus Requirements.

If the investor’s only goal is to minimize taxes from a sale, they generally want to realize the smallest taxable capital gain (or potentially realize a loss). Cost basis is central: capital gain = sale proceeds − cost basis. A higher cost basis means less gain (or a greater chance of a loss) for the same sale amount, leading to lower taxable impact. Therefore, redeeming $1,000 from Fund A (high cost basis) is the best strategy, making A correct.

Redeeming $1,000 of Fund B (low cost basis) would typically produce a larger capital gain because the investor paid less (basis is lower) relative to current value. That larger gain increases taxable income (assuming the shares are held in a taxable account and not offset by losses). Splitting the redemption between A and B (choice C) would likely create more gain than redeeming solely from the higher-basis fund, so it is not optimal for tax minimization if a single-fund redemption is possible.

Choice D is imprecise and potentially misleading. “Higher profit” informally means larger unrealized gain, which would generally produce more taxable gain, not less. The tax-minimizing approach focuses on tax lot selection and selling shares with the highest basis (or lowest gain) when the objective is to minimize taxes, subject to the investor’s holding period (long-term vs short-term rates) and specific cost basis method used.

This is a core SIE taxable-account concept: when choosing which holdings to sell, investors can manage taxes by selecting higher-basis positions (or specific lots) to reduce realized gains.

Bonds pay interest periodically (commonly semiannually). Between interest payment dates, interest accrues daily. When a bond is sold in the secondary market, the buyer will receive the full next interest payment from the issuer on the scheduled coupon date—even though the buyer did not hold the bond for the entire coupon period. To make this fair, the buyer compensates the seller for the portion of interest that accrued while the seller owned the bond. This compensation is called accrued interest, and it is paid by the buyer to the seller as part of the transaction’s total cost.

Operationally, in most bond trades the quoted price is “clean” (excluding accrued interest). The settlement amount is the “dirty” price: clean price + accrued interest. From the seller’s perspective, accrued interest is added to the net proceeds of the sale, which is exactly what choice D states. Therefore, the correct answer is D.

Choice A is incorrect because the buyer is not receiving accrued interest; the buyer is paying it. Choice B is incorrect because accrued interest is not deducted from the seller’s proceeds; it is added. Choice C is incorrect because the seller does not wait until the next coupon date to receive their earned interest—accrued interest is settled in the trade. The bond issuer pays the coupon to the holder of record as of the relevant record date, which will be the buyer after settlement; the seller is compensated at settlement via accrued interest.

This is a core SIE bond settlement concept: buyer pays seller accrued interest, and the seller’s proceeds include it.

Treasury bills (T-bills) are short-term debt securities issued at a discount to par value. The difference between the purchase price and the par value represents the investor’s interest income, which is realized when the T-bill matures.

C is correct because T-bills are issued at a discount and mature at par.

A is incorrect because T-bills are not sold at par value.

B and D are incorrect because T-bills do not pay periodic interest; the return is based on the discount.

Government National Mortgage Association pass-through certificates, commonly called Ginnie Mae pass-throughs, pay principal and interest to investors monthly. These securities represent interests in pools of mortgages. As homeowners make monthly mortgage payments, the principal and interest are passed through to certificate holders after servicing and guarantee-related processes. Choice A is correct. Quarterly, semiannual, and annual payment schedules do not match the standard cash-flow structure of mortgage pass-through securities. This monthly payment pattern differs from many traditional bonds, which commonly pay interest semiannually and principal at maturity. Mortgage-backed securities also expose investors to prepayment risk because homeowners may refinance or pay off mortgages early, especially when interest rates decline. The SIE outline includes agency securities, asset-backed securities, mortgage-backed securities, interest, principal, prepayment risk, and debt instrument characteristics. The question tests a basic product feature: mortgage-backed pass-through securities distribute monthly cash flows because the underlying mortgage loans are paid monthly. Reference: Section 2.1.2 Debt Instruments; agency, asset-backed, and mortgage-backed securities; Section 2.2 Investment Risks, prepayment risk.

The correct answer is C, is in the money by $1.50. A call option is in the money (ITM) when the market price of the underlying stock is above the strike price.

Step-by-step, the intrinsic value of a call option is calculated as:

Market Price − Strike Price

In this case:

$36.50 − $35.00 = $1.50

This means the call option has $1.50 of intrinsic value at expiration. Since the option is in the money, it will not expire worthless—instead, it will be exercised (or automatically exercised), allowing the holder to buy the stock at $35 and potentially sell it at the market price of $36.50.

Choice A is incorrect because “at the money” would mean the stock price equals the strike price. Choice B is incorrect because only out-of-the-money options expire worthless. Choice D is incorrect because the option is not out of the money—it is above the strike price.

It is also important to note that the investor wrote (sold) the call, meaning they face an obligation to deliver the stock at $35 if exercised, resulting in potential loss.

Thus, the call option is in the money by $1.50, making Answer C correct.

Step by Step Explanation:

Call Option Writer: When writing (selling) a call option, the writer has the obligation to sell the underlying stock at the strike price if the buyer exercises the option.

Incorrect Options:

A & B: Only the option buyer has rights, not the writer.

D: Obligations to buy stock apply to put option writers, not call option writers.

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

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.

FINRA Mutual Fund Features: FINRA Mutual Funds.

Step by Step Explanation:

Temporary Hold Period: Under FINRA Rule 2165, a firm can initially place a hold on disbursements for up to 10 business days if financial exploitation is suspected.

Additional Holds: The period may be extended by an additional 10 business days if warranted and allowed by state law.

Incorrect Options:

A & B: These are shorter than the permissible period.

D: The initial hold period is capped at 10 business days.

FINRA Rule 2165 (Financial Exploitation of Specified Adults): FINRA Rule 2165.

A registered representative may exercise limited discretion over the timing and price of an order on the day the customer gives oral authorization. This is often called time-and-price discretion. It does not require the same written discretionary account authorization as full discretion, provided the customer has specified the essential terms of the trade and the discretion is exercised only on that trading day. Choice D is correct. A representative may not independently decide whether to buy or sell without discretionary authority because that changes the fundamental action. The representative also may not independently choose the security or the number of shares without proper written discretionary authorization and supervisory acceptance. Choices A, B, and C therefore involve material investment decisions that exceed time-and-price discretion. The SIE outline includes discretionary versus non-discretionary accounts, order types, solicited versus unsolicited trades, and FINRA Rule 3260 on discretionary accounts. The key technical distinction is that full discretion includes action, asset, or amount, while temporary oral discretion is limited to execution timing and price only. Reference: Understanding Trading, Customer Accounts and Prohibited Activities; Orders and Strategies; Discretionary Accounts; FINRA Rule 3260.

The annual interest on a bond is calculated based on the coupon rate and the bond’s par value.

Coupon rate = 4.0%.

Annual interest = $10,000 (par value) × 4.0% = $400.

A is correct because the coupon rate determines the annual interest.

B, C, and D are incorrect because they reflect incorrect calculations. The current yield, YTM, and tax-equivalent yield do not affect the bond’s fixed coupon payments.

When interest rates rise, existing bond prices generally fall, and this relationship applies to municipal bonds just as it does to Treasuries and corporate bonds. The reason is competitive pricing in the market: newly issued bonds come to market offering higher yields (because prevailing rates are higher). To remain attractive, older bonds with lower coupon rates must trade at discounted prices so that their yield to an investor purchasing them today rises to a competitive level. Therefore, an increase in interest rates typically causes a decrease in the market price of an existing municipal bond, making choice A correct.

Choice B is the opposite of the correct interest-rate/price relationship. Choice C and D are incorrect because the question asks about the effect on a municipal bond already issued. The bond’s coupon rate (the stated interest rate on the bond) is fixed at issuance for most standard municipal bonds; market interest rates changing does not retroactively change the bond’s coupon. What changes is the bond’s market price and therefore its yield in the secondary market.

This concept is core SIE bond math/relationships: price and yield move inversely, and bond sensitivity to rate changes increases with longer maturities and lower coupons (i.e., more duration). Municipal bonds also carry other risks (credit, call/prepayment features, liquidity), but the direct effect of a general rise in interest rates is a market-price decline due to the need to adjust yields to current levels. The SIE outline specifically expects understanding of debt instruments and the relationship between price and interest rates.