SIE Exam Sample Questions
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A customer has bought a fully registered Exxon-Mobil debenture. The customer will receive interest payments:
A ) From the paying agent once a year
B ) From the paying agent twice a year
C ) By clipping coupons once a year
D ) By clipping coupons twice a year
Rationale: All new issues of U.S. Government bonds, municipal bonds and corporate bonds are book entry. A “book entry” bond is a fully registered bond where no paper certificate is issued. Instead, the owner simply receives that confirmation that he or she bought the bond. On such bonds, the paying agent mails the semi-annual interest payments to the registered owner.
Note, however, that there are still many issues of long term corporate bonds still outstanding that have paper certificates. These bonds have not yet matured. Book entry bonds did not really come to dominate bond issuance until the 1990s, so 30-year bond certificates issued, say in 1995, do not mature until 2025. A fully registered bond is one issued with a physical certificate. The paying agent has the record of the owner’s name and mails the interest payments semi-annually to the registered owner.
Also note that no bearer bonds have been sold since 1983, but 40-year bearer bonds still exist (at least until 2023!). Bearer bondholders receive interest payments by clipping coupons and submitting them to the paying agent.
The custodian bank usually performs all of the following functions EXCEPT:
A ) Sending dividends and capital gains distributions to shareholders
B ) Selecting the investment manager
C ) Preparing and mailing proxies to shareholders
D ) Holding the portfolio of investments in safekeeping
Rationale: The custodian bank always safekeeps the assets and usually acts as both paying agent and transfer agent. Therefore, sending dividends and proxies to shareholders would fall to the custodian. The custodian does not manage the fund, nor does it choose the manager. The manager's contract is voted on annually by the shareholders.
Which options strategy provides the greatest profit potential in a bull market?
A ) Long Call
B ) Short Call
C ) Long Put
D ) Short Put
Rationale: The purchaser of a call (long call) has the right to buy stock at a fixed price, no matter how high the market price of the stock may go. This strategy has unlimited gain potential.
Which of the following information items is NOT needed to open a cash account for a customer?
A ) Customer’s name and address
B ) Customer’s social security number or tax I.D. number
C ) Customer’s signature
D ) Customer’s occupation and employer
Rationale: A customer signature is not needed to open a cash account (thus cash accounts can be opened over the phone). A signature is required for margin accounts only, since such an account requires that the customer pledge all the securities in the account to the brokerage firm in return for a margin loan.
To open a cash account, the registered representative must complete a new account form which includes the Social Security number of the customer (tax I.D. number) so that the IRS gets its 1099 reports of income earned in the account; and the customer's occupation and employer because if the customer is employed by another brokerage firm, special procedures must be followed.
The registered representative who performs the suitability determination and the manager (principal) must sign the form. By signing, the registered representative indicates that the information is written as stated by the customer; and the manager is signing that the information has been reviewed prior to accepting the account for the firm.
The Securities Act of 1933 is primarily concerned with registration of:
A ) Broker-dealers
B ) Exempt issues
C ) Non-exempt issues
D ) Self-regulatory organizations
Rationale: The Securities Act of 1933 requires that new issues that are not exempt from the Act be registered with the SEC. Thus, the 1933 Act is concerned with the primary (new issue) market.
The Securities Exchange Act of 1934 consists of a variety of rules covering the trading (secondary) market. It requires the registration of broker-dealers and self-regulatory organizations (the exchanges).