Free FINRA SIE Practice Exam with Questions & Answers | Set: 9

Step by Step Explanation:

Publicly Traded Limited Partnerships (PTPs): Represent ownership stakes, which categorize them as equity securities. PTPs often involve sectors like real estate or energy.

Incorrect Options:

A: Mutual funds are pooled investment vehicles, not partnerships.

C: Fixed-income securities are debt instruments like bonds.

D: Derivatives include options or futures, not ownership stakes.

SEC Guidance on Publicly Traded Partnerships: SEC PTPs.

Step by Step Explanation:

FINRA Rule 3240: Permits borrowing or lending arrangements between RRs and customers under specific conditions, including familial relationships, provided the arrangement complies with the firm’s policies.

Incorrect Options:

A: FINRA approval is not required; firm approval is.

B: A written agreement alone is insufficient without firm approval.

C: Commercially reasonable terms are not the sole criterion for permissibility.

FINRA Rule 3240 (Borrowing from or Lending to Customers): FINRA Rule 3240.

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.

SEC ETF Fact Sheet: SEC ETF Info.

The correct answer is C, Panels are permitted to be a combination of industry and public arbitrators. FINRA arbitration panels are designed to ensure fairness and neutrality in resolving disputes between customers and broker-dealers.

Step-by-step, FINRA classifies arbitrators into two main categories:

Public arbitrators, who have no significant ties to the securities industry

Industry arbitrators, who have experience working within the securities industry

For customer disputes, panels may include a mix of these arbitrators. In many cases, especially for larger claims, panels consist of two public arbitrators and one industry arbitrator, though customers may request an all-public panel.

Choice A is incorrect because arbitrators are not required to be attorneys. Choice B is incorrect because not all arbitrators come from the securities industry—public arbitrators are specifically included to provide impartiality. Choice D is incorrect because arbitrators are selected from a FINRA-provided roster, and while parties can rank and strike candidates, they do not jointly create the pool.

Thus, FINRA arbitration panels are intentionally structured as a combination of public and industry arbitrators, ensuring balanced perspectives, making Answer C correct.

The correct answer is D, They are backed by the full faith and credit of the U.S. government. Treasury securities (including Treasury bills, notes, and bonds) are considered among the safest investments because they are guaranteed by the U.S. government’s ability to tax and print money.

Step-by-step, this “full faith and credit” backing means that the government is legally obligated to pay interest and return principal on time, virtually eliminating credit (default) risk. This is why Treasury securities are often used as a benchmark for “risk-free” rates in financial markets.

Choice A is incorrect because Treasury securities are non-callable, meaning the government cannot redeem them prior to maturity. Choice B is incorrect because FDIC insurance applies to bank deposits, not securities. Choice C is incorrect because while Treasury securities are exempt from state and local taxes, they are still subject to federal income tax.

Thus, the defining characteristic of Treasury securities is their government backing, making them extremely low-risk investments and confirming that Answer D is correct.

SEC Regulation A provides a registration exemption for smaller public offerings but includes a " bad actor " disqualification. If certain key parties, such as the issuer, underwriter, or affiliates, have been involved in securities violations, the exemption is forfeited.

B is correct because underwriters are considered essential participants, and their status as bad actors disqualifies the offering.

A, C, and D are incorrect because custodians, transfer agents, and clearing corporations are not included in the " bad actor " provisions of Regulation A.

Current yield is the rate that compares a bond’s annual interest payment with its current market price. The formula is annual interest divided by current market price. For example, a bond paying $60 per year and trading at $1,000 has a current yield of 6%. If that same bond trades at $900, its current yield rises because the fixed annual interest is being measured against a lower market price. Choice C is correct. Total return is broader and includes income, realized or unrealized gains and losses, and reinvestment effects over a holding period. Coupon rate is the stated interest rate based on the bond’s par value, not its current market price. Yield to maturity is a more complete yield measure that considers coupon payments, purchase price, par value repayment, and time remaining until maturity. The SIE outline requires knowledge of coupon value, par value, yield, yield to maturity, current yield, and the relationship between price and interest rates. This question isolates the specific formula tied only to annual income and market price, which is current yield. Reference: Understanding Products and Their Risks; Debt Instruments; Investment Returns; Yield Concepts.

Regulation S-P mandates that broker-dealers disclose how they collect, protect, and share customers’ nonpublic personal information. The privacy notice must include:

The categories of information collected.

The firm’s policies for safeguarding data.

Opt-out rights for sharing information with unaffiliated third parties.

D is correct because privacy notices must describe policies for protecting customer information.

A, B, and C are incorrect because they do not relate to the required elements of Regulation S-P privacy notices.

The buyer of a Treasury bond purchased in the secondary market begins earning interest on the settlement date. In secondary-market bond transactions, the seller is entitled to interest earned up to, but not including, settlement. The buyer pays the seller accrued interest as part of the transaction so the seller is compensated for the holding period before settlement. From settlement forward, the buyer becomes entitled to the bond’s interest accrual. Choice D is correct. The issue date is relevant when a security is originally issued, but this question specifically concerns a secondary-market purchase. The trade date is when the parties agree to the transaction, but ownership and entitlement to future income transfer on settlement. The maturity date is when principal is repaid and is not the date interest entitlement begins for a secondary purchaser. The SIE outline includes Treasury securities, debt instruments, coupon interest, settlement time frames, and trade settlement. This question integrates fixed-income income accrual with securities settlement mechanics. Reference: Section 2.1.2 Debt Instruments; Section 3.1.3 Trade Settlement.