Free FINRA SIE Practice Exam with Questions & Answers | Set: 5

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

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

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

AandBdo not meet the definition of redeemable securities.

Step by Step Explanation:

Low Liquidity: Hedge funds often impose lock-up periods and restrict redemptions, leading to low liquidity for investors.

Incorrect Options:

B: Hedge funds typically have high minimum investment requirements, often $1 million or more.

C: Hedge funds employ diverse strategies, not just fixed income.

D: Hedge funds are generally opaque about their strategies and holdings to protect their competitive advantage.

References:

SEC Investor Bulletin on Hedge Funds: SEC Hedge Funds.

Step by Step Explanation:

Secondary Offering: Involves the sale of shares by an existing shareholder, such as an insider, rather than the company itself issuing new shares.

Incorrect Options:

A: Rights offerings involve giving existing shareholders the opportunity to buy additional shares.

B: Private offerings are not registered with the SEC and involve limited investors.

C: An exempt offering refers to securities exempt from SEC registration, such as Regulation D offerings.

References:

SEC Guide on Secondary Offerings:SEC Secondary Offerings.

Step by Step Explanation:

Government Bond Funds: Invest in government-backed securities, but the value of the fund itself is not guaranteed by the government, as these funds are subject to market risks.

Incorrect Options:

A: Diversification depends on the fund’s investment strategy.

B: Interest/dividend payments may fluctuate.

C: If interest rates fall, NAVs typically rise, not drop.

References:

SEC Guidance on Mutual Funds: SEC Government Bond Funds.

Accounts held individually are subject to probate, which is the legal process of administering the decedent’s estate. Probate determines the distribution of assets according to the deceased’s will or state intestacy laws.

A is correctbecause individual accounts require probate to transfer assets.

Bis incorrect because irrevocable trusts bypass probate.

Cis incorrect because TOD accounts allow direct transfer of assets to named beneficiarieswithout probate.

Dis incorrect because JTWROS accounts transfer ownership to the surviving account holder automatically.

Step by Step Explanation:

Form U4 Reporting Requirements: Registered persons must disclose criminal charges (excluding minor traffic violations) and material changes such as residential address changes. Gambling-related misdemeanors are considered reportable.

Incorrect Options:

Speeding Ticket: Typically not reportable unless it involves a felony.

Business Telephone Number: Not material for Form U4.

References:

FINRA Form U4 Instructions: FINRA Form U4.

Step by Step Explanation:

Diversification: Spreads investments across multiple securities, industries, or asset classes to reduce exposure to a single security or sector.

Other Options:

Use of Leverage: Increases, not decreases, portfolio risk.

Dollar-Cost Averaging: Reduces timing risk but does not address concentration.

Dividend Reinvestment: Enhances returns but does not mitigate concentration risk.

References:

SEC Guidance on Diversification: SEC Diversification.

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.

Federal Reserve Regulation T mandates that customers must pay for purchases in a cash account within two business days of settlement (T+4). If payment is not made, the brokerage firm must liquidate the securities and place the account on a 90-day restriction.

C is correctbecause the customer’s account is frozen for 90 days, during which all trades must be paid for in advance.

Ais incorrect as closing transactions are still permitted but require prepayment.

Bis incorrect because the restriction lasts for 90 days, not 30.

Dis incorrect as only the delinquent account, not related accounts, is frozen.