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

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

1.0indicates the stock moves in line with the market.

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

Less than 1.0suggests the stock is less volatile.

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

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

Bis incorrect as beta considers both upside and downside movements.

Cis incorrect as beta does not measure liquidity.

Step by Step Explanation:

Private Securities Transactions: Under FINRA Rule 3280, RRs must obtain written approval from their employing firm before participating in the sale of securities outside the firm.

Promissory Notes: These are typically considered securities, requiring prior approval.

Incorrect Options:

A & C: Notification alone is insufficient; written approval is required.

D: Promissory notes are generally treated as securities under federal law.

References:

FINRA Rule 3280 (Private Securities Transactions): FINRA Rule 3280.

Step by Step Explanation:

FINRA Rule 3150: Permits firms to hold customer mail only with written instructions specifying the duration, which cannot exceed three months unless there are exceptionalcircumstances.

Incorrect Options:

A: Holding mail is not prohibited if done in compliance with FINRA rules.

C & D: Oral instructions or RR discretion are not sufficient; written authorization is mandatory.

References:

FINRA Rule 3150 (Holding of Customer Mail): FINRA Rule 3150.

Step by Step Explanation:

Expense Ratio: Class A shares typically have lower ongoing expense ratios but higher front-end sales charges. Class C shares often have higher ongoing expense ratios but no front-end charges.

Incorrect Options:

B: NAV is determined daily and does not vary by share class.

C: All share classes invest in the same underlying portfolio.

D: Purchase timing is the same for all share classes.

References:

SEC Guidance on Mutual Fund Share Classes:SEC Fund Classes.

Step by Step Explanation:

Warrants: These are long-term options issued by a company that give the holder the right to buy shares at a specific price before expiration. They are typically attached to bond or stock offerings to make them more attractive.

Incorrect Options:

A: Warrants do not pay interest.

B: Refers to callable bonds, not warrants.

D: Describes municipal bonds, not warrants.

References:

SEC Guide to Warrants and Options: SEC Warrants Information.

Step by Step Explanation:

ADRs: Represent foreign securities but are issued in the U.S. and quoted in U.S. dollars, making them easier for American investors to trade.

Incorrect Options:

B: ADRs are quoted in U.S. dollars, not foreign currencies.

C & D: ADRs represent foreign securities held by U.S. banks, not foreign banks.

References:

SEC Bulletin on ADRs: SEC ADR Overview.

Buying a put option gives the investor the right to sell a stock at a specific strike price, effectively setting a floor for potential losses if the stock price declines. This is a common risk-management strategy.

A is correctbecause buying puts limits downside risk while retaining the potential for upside gains.

Bis incorrect as buying puts is a bearish strategy, not one used during upward momentum.

Cis incorrect because selling call options does not hedge losses; it is a speculative or income-generating strategy.

Dis incorrect because buying calls is a bullish strategy, used during upward momentum, not downward.

Variable annuity subaccounts are held in separate accounts, distinct from the insurance company’s general account. This separation protects subaccount assets from claims by creditors in case the insurance company becomes insolvent.

C is correctbecause the separate account ensures creditor protection.

Ais incorrect as management fees for variable annuities are often higher.

Bis incorrect because the subaccounts are not held at broker-dealers.

Dis incorrect as subaccounts do not represent subordinated debt.

Purchasing power risk, also known as inflation risk, occurs when inflation reduces the real value of a fixed-income stream. Fixed payments (e.g., bond interest or annuity payments) lose buying power as inflation rises.

D is correctbecause inflation directly affects fixed income by eroding purchasing power.

Ais incorrect because market risk relates to fluctuations in market prices, not inflation.

Bis incorrect because economic risk generally refers to broader economic downturns.

Cis incorrect because interest rate risk involves changes in bond prices due to interest rate movements, not inflation.

Step by Step Explanation:

SIPC Coverage Limits: Protects up to $500,000 per customer, including a maximum of $250,000 for cash.

In this case, $300,000 in cash exceeds the SIPC limit, so only $250,000 is protected.

Incorrect Options:

A: $150,000 understates the SIPC limit for cash.

C: The full $300,000 in cash is not protected.

D: Total coverage exceeds SIPC limits.

References:

SIPC Coverage Details:SIPC Protection.

Fundamental analysis focuses on evaluating a company’s financial health and potential for growth by analyzing its financial statements, such as the income statement, balance sheet, and cash flow statement.

C is correctbecause financial statements provide the data necessary for fundamental analysis.

AandBare incorrect because chart patterns and moving averages are tools of technical analysis, not fundamental analysis.

Dis incorrect because resistance and support levels are also part of technical analysis.

Step by Step Explanation:

Turnover Ratio: Indicates how frequently the fund manager buys and sells securities. A high turnover ratio may result in higher capital gains distributions, impacting tax efficiency.

Incorrect Options:

B: Sales charges affect cost but not tax efficiency.

C: Commission details are unrelated to the fund’s tax efficiency.

D: Projections of distributions are speculative and not disclosed under regulations.

References:

SEC Mutual Fund Guide: SEC Mutual Funds.

The annual interest on a bond is calculated based on thecoupon rateand the bond’s par value.

Coupon rate = 4.0%.

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

A is correctbecause the coupon rate determines the annual interest.

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

Step by Step Explanation:

SEC Rule 10b-10: Requires trade confirmations to disclose the capacity in which the firm acted (e.g., as agent or principal) and details like trade price, quantity, and commissions.

Incorrect Options:

A: Cost basis is not disclosed on trade confirmations.

B: Inventory levels are not part of the required disclosures.

C: Market maker status is not explicitly required in the confirmation.

References:

SEC Rule 10b-10 (Confirmation Requirements): SEC Rule 10b-10.

Step by Step Explanation:

Short Sale Definition: Involves selling borrowed securities with the expectation of repurchasing them at a lower price.

Investor Ownership: Short sales do not involve securities already owned by the seller.

Other Options: None of the other choices accurately define a short sale.

References:

SEC Regulation SHO (Short Selling): SEC Short Sales.

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.

References:

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

Step by Step Explanation:

PIPE Offerings: Typically priced below the current market value to incentivize institutional investors to participate in these transactions.

Discount: The discounted price compensates for the potential illiquidity and risk associated with PIPE offerings.

POP/Market Value: These do not apply to private offerings structured as PIPE transactions.

References:

SEC PIPE Offering Guidance: SEC PIPE Offerings.

Step by Step Explanation:

Negotiated Offering: Occurs when the issuer directly selects an underwriter and negotiates terms. Common in municipal bond issuances.

Incorrect Options:

A: Follow-on offerings apply to subsequent issuances of equity securities.

C: Competitive offerings involve multiple underwriters submitting bids.

D: Best-efforts offerings do not guarantee the sale of all securities.

References:

MSRB Overview of Municipal Offerings:MSRB Offerings.

The cooling-off period begins after the registration statement is filed with the SEC and lasts for at least 20 days. During this time, the issuer and underwriters can market the securities but cannot finalize sales.

D is correctbecause marketing (e.g., roadshows) is permitted during the cooling-off period.

Ais incorrect because the final prospectus is distributed after the offering is effective.

BandCare incorrect because sales and deliveries are prohibited until the registration becomes effective.