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NEW QUESTION # 12
A customer owns 100 shares of ABC with a current market value of $5.00 per share. The company undergoes a 1-for-2 reverse split of the stock. Which of the following statements is true of the customer's holdings and the price of the stock?
- A. The customer will have 100 shares at $5.00 per share.
- B. The customer will have 50 shares at $10.00 per share.
- C. The customer will have 200 shares at $2.50 per share.
- D. The customer will have 1,000 shares at $0.50 per share.
Answer: B
Explanation:
Step by Step Explanation:
* Reverse Split Calculation: A 1-for-2 reverse split reduces the number of shares by half while doubling the price per share.
* Pre-Split Holdings: 100 shares at $5.00 = $500.
* Post-Split Holdings: 50 shares at $10.00 = $500.
* Incorrect Options: The total value remains unchanged; only the number of shares and price per share adjust.
References:
* FINRA Corporate Actions Guidance: FINRA Reverse Splits.
NEW QUESTION # 13
A city has appointed Broker-dealer XYZ to act as lead underwriter for its upcoming issuance of municipal bonds. This is an example of which of the following types of offering?
- A. A competitive offering
- B. A negotiated offering
- C. A best-efforts offering
- D. A follow-on offering
Answer: B
Explanation:
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.
NEW QUESTION # 14
Which of the following terms describes failure to honor a firm quote?
- A. Backing away
- B. Freeriding
- C. Interpositioning
- D. Market manipulation
Answer: A
Explanation:
Step by Step Explanation:
* Backing Away: Refers to the failure of a market maker to honor a firm quote when a customer attempts to trade at that price. It is a violation of market rules.
* Incorrect Options:
* Freeriding: Involves selling securities before paying for them in a cash account.
* Interpositioning: Involves unnecessary intermediaries in trades, which can harm customers.
* Market Manipulation: Covers a range of deceptive practices, such as wash trading or spoofing, not specific to honoring quotes.
References:
* FINRA Rule 5220 (Firm Quote Rule): FINRA Rule 5220.
NEW QUESTION # 15
A registered representative (RR) opens a new account for a customer whose investment objectives are growth and income. She makes an initial deposit of $5,500 using a series of money orders drawn from different sources, and she makes no investments for the first 30 days the account is open. At the end of that time, the customer asks to have the funds wired to an account at a different firm as her needs have changed. The RR's first course of action should be to:
- A. Deny the request.
- B. Accept the instructions and wire the funds.
- C. Report internally as a suspicious activity.
- D. Freeze the account.
Answer: C
Explanation:
Step by Step Explanation:
* Suspicious Activity: The use of multiple money orders, lack of investment activity, and request to wire funds to another firm raise red flags for potential money laundering.
* FINRA Rules: The RR should escalate the issue by reporting internally and potentially filing a Suspicious Activity Report (SAR).
* Incorrect Options:
* A: Denying the request without investigation may violate customer instructions.
* B: Freezing the account requires a valid legal or regulatory basis.
* D: Processing the request without investigation could facilitate illegal activity.
References:
* FINRA Anti-Money Laundering (AML) Guidance: FINRA AML Rules.
NEW QUESTION # 16
Under which of the following circumstances, if any, is it permissible for an individual without a Power of Attorney (POA) to sign a customer's name on their behalf?
- A. When accounts are fully discretionary
- B. Never permissible to sign a customer's name on their behalf
- C. Upon receipt of verbal authorization provided that written authorization is subsequently provided
- D. Upon approval by a firm principal
Answer: B
Explanation:
Step by Step Explanation:
* Prohibition on Signing Customer Names: It is never permissible to sign a customer's name without written authorization (POA) due to legal and ethical concerns. Unauthorized signing constitutes forgery and violates FINRA rules.
* Incorrect Options:
* A: Firm principal approval does not override this prohibition.
* B: Verbal authorization is insufficient.
* C: Discretionary authority does not allow unauthorized signing.
References:
* FINRA Rule 4512 (Customer Account Information): FINRA Rule 4512.
NEW QUESTION # 17
Which of the following types of accounts permits an investor to borrow money from a broker-dealer to help pay for a trade?
- A. An individual retirement account (IRA)
- B. Delivery versus payment (DVP) / receive versus payment (RVP)
- C. Cash
- D. Margin
Answer: D
Explanation:
Step by Step Explanation:
* Margin Accounts: Allow investors to borrow funds to purchase securities, with the securities serving as collateral for the loan.
* Cash Accounts: Require full payment for securities purchased.
* IRAs: Do not permit borrowing due to their tax-advantaged status.
* DVP/RVP: Settlement mechanisms, not account types for borrowing.
References:
* FINRA Rule 4210 (Margin Requirements): FINRA Rule 4210.
NEW QUESTION # 18
A real estate investment trust (REIT) is required to invest what percentage of total assets in real-estate-related assets to maintain favorable tax treatment?
- A. At least 50% of total assets
- B. At least 90% of total assets
- C. At least 75% of total assets
- D. 100% of assets
Answer: C
Explanation:
Step by Step Explanation:
* REIT Requirements: REITs must invest at least 75% of their total assets in real estate to qualify for favorable tax treatment under IRS regulations.
* 90% Rule: Refers to the distribution requirement for taxable income, not asset allocation.
* 100% Rule: There is no requirement to allocate 100% of assets to real estate.
References:
* IRS Publication 542 (Real Estate Investment Trusts): IRS REIT Guidelines.
NEW QUESTION # 19
Which of the following statements is true regarding the ownership of investment company shares held as tenants in common?
- A. Each tenant has a fractional interest in the investment.
- B. Upon the death of a tenant, all shares in the account are taxable in the estate of the deceased.
- C. Any income is distributed evenly among the tenants.
- D. All tenants must sign redemption requests.
Answer: A
Explanation:
Step by Step Explanation:
* Tenants in Common: In this arrangement, each tenant owns a fractional interest in the account's assets, which can be unequal depending on the agreement.
* Income Distribution: Income is distributed based on ownership percentage, not necessarily equally.
* Redemption Requests: Only the owner of the fractional interest has authority to request redemption for their portion.
* Estate Taxation: Upon the death of a tenant, only their fractional interest is taxable in their estate.
References:
* FINRA Guidelines on Joint Accounts: FINRA Joint Accounts.
NEW QUESTION # 20
A registered representative wants to open an account for himself at a different financial institution. Under FINRA rules, which of the following accounts requires prior written consent from his employing broker- dealer?
- A. Variable contracts registered under the Investment Company Act
- B. Mutual fund accounts held directly with the fund company
- C. A 529 savings plan account established for his grandchild
- D. An investment advisory account in which securities transactions are effected
Answer: D
Explanation:
Step by Step Explanation:
* FINRA Rule 3210: Requires registered representatives to obtain written consent from their employing broker-dealer before opening accounts at other financial institutions if securities transactions will occur.
* Incorrect Options:
* A, B, and C: These accounts are exempt because they do not involve direct securities transactions requiring monitoring.
References:
* FINRA Rule 3210 (Accounts at Other Institutions): FINRA Rule 3210.
NEW QUESTION # 21
Which of the following statements describes a characteristic of exchange-traded funds (ETFs)?
- A. ETFs are not permitted to be purchased on margin.
- B. ETFs are purchased and sold daily at net asset value (NAV).
- C. ETFs are offered with front-end or back-end loads.
- D. ETF expense ratios are generally lower than those of mutual funds.
Answer: D
Explanation:
Step by Step Explanation:
* ETF Expense Ratios: ETFs generally have lower expense ratios compared to mutual funds due to their passive management style.
* Incorrect Options:
* A: ETFs do not have sales loads; they are traded like stocks.
* B: ETFs can be purchased on margin, like other equities.
* C: ETFs are traded throughout the day at market prices, not NAV.
References:
* SEC ETF Fact Sheet: SEC ETF Info.
NEW QUESTION # 22
An investor holds 1,000 shares of a stock with a total cost basis of $5,000 in his account when a 1-for-5 reverse stock split is announced. What will be the investor's total cost basis after the payable date of the reverse split?
- A. $2,500
- B. $5,000
- C. $25,000
- D. $1,000
Answer: B
Explanation:
Step by Step Explanation:
* Cost Basis in Reverse Split: The total cost basis remains unchanged in a reverse stock split. Only the number of shares and price per share adjust.
* Pre-Split: 1,000 shares at $5 each = $5,000.
* Post-Split: 200 shares at $25 each = $5,000.
* Incorrect Options:
* A, B, and D: Do not reflect the unchanged total cost basis.
References:
* IRS Guidance on Stock Splits: IRS Stock Split Info.
NEW QUESTION # 23
A municipal securities dealer makes a political contribution of $990 to a local mayoral candidate. At the end of the quarter, to whom, if anyone, must the dealer report the contribution?
- A. FINRA
- B. SEC
- C. MSRB
- D. No disclosure required as the amount is below the reporting threshold
Answer: C
Explanation:
Step by Step Explanation:
* MSRB Rule G-37: Requires municipal securities dealers to report contributions to the MSRB, even if the amount is below the $1,000 threshold that would trigger a two-year prohibition on municipal business.
* Incorrect Options:
* SEC and FINRA: Not involved in reporting political contributions for municipal securities.
References:
* MSRB Rule G-37 (Political Contributions): MSRB Rule G-37.
NEW QUESTION # 24
Which of the following is considered nonpublic information?
- A. Customer's net worth
- B. Customer's name
- C. Customer's telephone number
- D. Customer's address
Answer: A
Explanation:
Step by Step Explanation:
* Nonpublic Information: A customer's net worth is nonpublic personal information that requires confidentiality under Regulation S-P.
* Incorrect Options:
* A, B, and D: Names, addresses, and phone numbers may be public unless linked to specific financial or personal details.
References:
* SEC Regulation S-P (Privacy of Consumer Financial Information): SEC Regulation S-P.
NEW QUESTION # 25
Which of the following is the primary risk of using asset allocation models without periodic rebalancing?
- A. Marketability
- B. Overweighting
- C. Inflation
- D. Interest rate risk
Answer: B
Explanation:
Step by Step Explanation:
* Rebalancing: Ensures that a portfolio remains aligned with its target allocation. Without rebalancing, outperforming assets can become overweighted, increasing exposure to specific risks.
* Incorrect Options:
* Inflation: Impacts purchasing power but isn't tied to rebalancing.
* Marketability: Refers to liquidity and isn't linked to allocation models.
* Interest Rate Risk: Relates to fixed-income investments and isn't directly addressed by allocation models.
References:
* SEC Investor Bulletin on Asset Allocation: SEC Asset Allocation.
NEW QUESTION # 26
A confirmation indicates a 100-share purchase of Company ABC at $11. According to SEC rules, which of the following information is required to be stated on the confirmation?
- A. The firm's inventory level at the time of trade execution
- B. That the firm did not act as a market maker in the security
- C. The capacity in which the firm acted when executing the trade
- D. The firm's cost basis in the security
Answer: C
Explanation:
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.
NEW QUESTION # 27
Which of the following statements is true of the comparison between penny stocks and blue-chip stocks?
- A. Penny stocks are more likely to pay dividends than blue-chip stocks.
- B. Penny stock prices are generally more stable than blue-chip stock prices.
- C. Penny stocks are generally less liquid than blue-chip stocks.
- D. Penny stock issuers are generally better capitalized than issuers of blue-chip stocks.
Answer: C
Explanation:
Step by Step Explanation:
* Penny Stocks: These are low-priced, highly speculative stocks often issued by small or distressed companies. They generally have low liquidity, meaning they can be difficult to buy or sell without significantly impacting the price.
* Incorrect Options:
* Dividends: Penny stocks rarely pay dividends, unlike blue-chip stocks.
* Price Stability: Penny stocks are highly volatile compared to blue-chip stocks.
* Capitalization: Blue-chip companies are far better capitalized.
References:
* SEC Bulletin on Penny Stocks: SEC Penny Stocks.
NEW QUESTION # 28
Which of the following listed securities carries voting rights?
- A. Common stock
- B. Corporate bond
- C. Preferred stock
- D. Convertible bond
Answer: A
Explanation:
Step by Step Explanation:
* Common Stock: Holders of common stock typically have voting rights, which allow them to participate in decisions like electing the board of directors or approving major corporate actions.
* Other Securities:
* Preferred Stock: Usually does not carry voting rights.
* Corporate and Convertible Bonds: Debt instruments, so they do not confer voting rights.
References:
* SEC Guide on Stock Voting Rights: SEC Voting Rights.
NEW QUESTION # 29
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SIE Dumps Updated Apr 08, 2025 WIith 87 Questions: https://drive.google.com/open?id=1Hk4LzYuu7OxqSFE04RfseHvuxPTXvgj8