85 SIE Practice Exam Questions with Correct Answers

85 SIE Practice Exam Questions with Correct Answers

The Sierra Verde Coffee Company recently developed a new flavor, jasmine chili salted mocha. Unfortunately, the coffee has a horrible taste, and the company discontinues the flavor. The costs involved in bringing the new product to market combined with the drop in sales and a reputational hit have translated into a significant drop in the price of the stock. This is an example of what type of risk?

• Market risk
• Interest rate risk
• Business risk
• Default risk >>> C) Business risk

Risk that arises out of a poor business decision is business risk. Interest rate risk and default risk impact bond values. Market risk impacts the entire market.

Which of the following is an example of systematic risk?

• Interest rate risk
• Default risk
• Call risk
• Business risk >>> A) Interest rate risk

Interest rate risk affects all fixed-income investments in a similar way due to the inverse relationship. Business and default risk are issuer specific. Call risk is issue specific, and is generally seen as unsystematic.

In the event of a corporate bankruptcy, which of the following is true?

• A shareholder's liability is limited to the amount invested when shares were

purchased.

• A shareholder has unlimited liability as an owner of the corporation.
• A shareholder can be obligated to liquidate personal assets to meet the liabilities of

the corporation.

• A shareholder can be required to rebate all dividends received during ownership to

meet the liabilities of the corporation. >>> A) A shareholder's liability is limited to the amount invested when shares were purchased.

Shareholders have limited liability and are personally at risk only for the amount that was invested.

Which of the following is not reported on Form U4?

• Aliases
• Marital status
• Employment history

• Residency history >>> B) Marital status

Marital status is not on Form U4. The form requires a 5-year residency history, 10-year employment history, and any aliases you use.

Risk that is difficult to reduce by diversification within an asset class is called which of these?

• Financial risk
• Unsystematic risk
• Nonsystematic risk
• Systematic risk >>> D) Systematic risk

Systematic risk affects an entire asset class in the same way, so diversification does little to reduce systematic risks.

Market and interest rate risk are examples. Unsystematic and nonsystematic risk are different terms for the same class of risk. Financial risk is a specific nonsystematic risk.

An investor with no other positions in LMN stock purchases 600 shares at the market.

This investor is:

• short LMN stock and bullish.
• short LMN stock and bearish.
• long LMN stock and bullish.
• long LMN stock and bearish. >>> C) long LMN stock and bullish.

With no other positions in LMN stock, the purchase was an opening transaction. Having purchased the stock in an opening transaction, the investor now has a long position in LMN stock and is bullish—wanting to see the stock rise in value.

An IRA can be funded using all of the following except:

• stocks and bonds.
• an investment company.
• securities.
• works of art. >>> D) works of art.

IRAs can be funded with stocks, bonds, investment company securities (open- and closed-end funds), U.S.-minted gold and silver coins, and many other securities.

There are, however, certain investments that are ineligible in an IRA such as collectibles, antiques works of art, and others.

As participants in a firm commitment underwriting agreement, the underwriters know

that:

• they, the underwriters, will not be at risk for any securities left unsold.

• they, the underwriters, will be acting as principals buying the securities from the

issuer.

• if shares cannot be sold to the public, the issuer will not be able to raise all of the

capital needed as an agent.

• for the issuer, they are only committing to making their best effort to sell securities for

them. >>> B) they, the underwriters, will be acting as principals buying the securities from the issuer.

In a firm commitment, the underwriters contract with the issuer to buy the securities from them and thus are acting as principals rather than agents. In this type of underwriting, it is the underwriters who are at risk for any shares they cannot sell to the public, not the issuer. The issuer knows that ultimately all of the securities will be sold and all of the capital needed will be raised.

Achieving a Better Life Experience (ABLE) accounts may be opened for beneficiaries at what age?

• Before the beneficiary's 26th birthday
• On or after the beneficiary's 26th birthday
• Any age
• Before the beneficiary reaches the age of majority in their home state >>> C) Any

age

The age limit for ABLE accounts is based on the onset of disability, not their current age. The onset must be before they turn 26 years old.

For common shareholders, which of the following true?

• Dividends declared by the board of directors represent neither income nor growth.

• An increase in the value of shares owned represents growth or capital appreciation.

• An increase in the value of shares owned represents income.

• Dividends declared by the board of directors represent growth or capital

appreciation. >>> B) An increase in the value of shares owned represents growth or capital appreciation.

For shareholders, an increase in the value of shares owned represents growth or capital appreciation, while any dividends paid represent income.

If Edna moves $50,000 from a maturing certificate of deposit to her checking account, which of the following measures of money supply would change?

• All of these
• M2
• M3
• M1 >>> D) M1

This move would only impact M1.

M1 is a component of M2 and M3, so the funds never leave those measurements. The only change would be an increase in M1.

The Windmill Alternative Energy Fund offers its shares to the public at the fund's net asset value (NAV) based on the next calculation of that figure. Based on this, you can say that the fund is

• a no-load fund.
• a closed-end fund.
• a front-end load fund.
• a hedge fund. >>> A) a no-load fund.

Offering shares at the next NAV calculation is a characteristic of mutual funds and other open-end management companies (called forward pricing). If a mutual fund has a public offering price equal to its NAV, it has no sales charge and is therefore a no-load fund.

Details surrounding a termination must be included with a Form U-5 filing for all of the

reasons below except:

• other.
• discharged.
• death.
• permitted to resign. >>> C) death.

Death is self-explanatory. All of the others require a full explanation as to the circumstances of the termination.

An investor owns a municipal bond fund. What is the tax status of distributions from the fund?

• Income is tax free, but capital gains distributions are taxable.

• Income is taxable, but capital gains distributions are tax free.