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?
A) Market risk
B) Interest rate risk
C) Business risk
D) 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?
A) Interest rate risk
B) Default risk
C) Call risk
D) 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) A shareholder's liability is limited to the amount invested when shares were
purchased.
B) A shareholder has unlimited liability as an owner of the corporation.
C) A shareholder can be obligated to liquidate personal assets to meet the liabilities of
the corporation.
D) 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?
A) Aliases
B) Marital status
C) Employment history
,D) 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?
A) Financial risk
B) Unsystematic risk
C) Nonsystematic risk
D) 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:
A) short LMN stock and bullish.
B) short LMN stock and bearish.
C) long LMN stock and bullish.
D) 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:
A) stocks and bonds.
B) an investment company.
C) securities.
D) 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:
, A) they, the underwriters, will not be at risk for any securities left unsold.
B) they, the underwriters, will be acting as principals buying the securities from the
issuer.
C) if shares cannot be sold to the public, the issuer will not be able to raise all of the
capital needed as an agent.
D) 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?
A) Before the beneficiary's 26th birthday
B) On or after the beneficiary's 26th birthday
C) Any age
D) 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?
A) Dividends declared by the board of directors represent neither income nor growth.
B) An increase in the value of shares owned represents growth or capital appreciation.
C) An increase in the value of shares owned represents income.
D) 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.
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?
A) Market risk
B) Interest rate risk
C) Business risk
D) 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?
A) Interest rate risk
B) Default risk
C) Call risk
D) 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) A shareholder's liability is limited to the amount invested when shares were
purchased.
B) A shareholder has unlimited liability as an owner of the corporation.
C) A shareholder can be obligated to liquidate personal assets to meet the liabilities of
the corporation.
D) 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?
A) Aliases
B) Marital status
C) Employment history
,D) 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?
A) Financial risk
B) Unsystematic risk
C) Nonsystematic risk
D) 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:
A) short LMN stock and bullish.
B) short LMN stock and bearish.
C) long LMN stock and bullish.
D) 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:
A) stocks and bonds.
B) an investment company.
C) securities.
D) 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:
, A) they, the underwriters, will not be at risk for any securities left unsold.
B) they, the underwriters, will be acting as principals buying the securities from the
issuer.
C) if shares cannot be sold to the public, the issuer will not be able to raise all of the
capital needed as an agent.
D) 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?
A) Before the beneficiary's 26th birthday
B) On or after the beneficiary's 26th birthday
C) Any age
D) 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?
A) Dividends declared by the board of directors represent neither income nor growth.
B) An increase in the value of shares owned represents growth or capital appreciation.
C) An increase in the value of shares owned represents income.
D) 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.
