SIE Practice Exam

Answer: A
The defining tax feature of municipal bonds is that their interest is generally exempt from federal income tax, which is why they appeal most to investors in high tax brackets — choice A. Choice D is wrong because capital gains on municipal bonds remain taxable; only the interest is exempt. Choice B is wrong because municipal bonds are issued by state and local governments, not backed by the U.S. Treasury, and they do carry credit risk. Choice C is wrong because municipal bonds typically pay lower, not higher, coupon rates than comparable corporates precisely because of the tax exemption.

Answer: A
The corporate bond's after-tax yield is 6% × (1 − 0.32) = 4.08%, so any federally tax-exempt municipal bond yielding more than 4.08% provides a higher after-tax return for this investor, making choice A correct. Choice C confuses the tax paid — 6% × 0.32 — with the after-tax yield actually kept. Choice D is wrong because the municipal bond only needs to beat the corporate bond's 4.08% after-tax yield, not its full 6% pre-tax coupon. Choice B is wrong because federal taxes clearly change the comparison; ignoring them understates the municipal bond's relative advantage.

Answer: D
Bonds paid solely from the income of a specific facility — tolls, in this case — are revenue bonds, and their credit quality rises and falls with the project's earnings rather than with the issuer's taxing power, making choice D correct. Choice A is wrong: a debenture is unsecured corporate debt, not a municipal instrument, and this bond is backed by tolls, not the city's general credit. Choice B is wrong: this is a municipal bond, not a federally backed Treasury bond. Choice C is wrong: a general obligation bond, unlike this issue, is backed by the issuer's full faith, credit, and taxing power — exactly what this bridge bond lacks.

Answer: C
The conversion ratio equals par divided by the conversion price: $1,000 ÷ $40 = 25 shares. Parity is the conversion ratio times the current stock price: 25 × $44 = $1,100, making C correct. Choice A ($1,000) is simply the bond's par value and ignores the stock's premium over the conversion price. Choice B ($960) does not correspond to any correct calculation using the given figures. Choice D ($1,040) results from adding the $4 stock premium once to par instead of multiplying it across all 25 shares.

Answer: C
Sector classification turns on how demand responds to the economy: staples like household goods are purchased through recessions, making them defensive, while discretionary spending like cruise vacations gets cut first, making that sector cyclical. C is correct. A is wrong because vacation cruises are discretionary spending, not an essential purchase, which is exactly why the sector is cyclical rather than defensive. B is wrong because the defensive-versus-cyclical label tracks demand sensitivity to economic cycles, not a company's market capitalization. D is wrong because selling to consumers alone does not make a sector cyclical — staples sell to consumers too, and their demand persists regardless of the economy.

Answer: A
ADRs are dollar-denominated receipts for foreign shares, but the underlying value is still set in the foreign currency; if the yen buys fewer dollars, the same yen-priced shares are worth fewer dollars, so the ADR's dollar value falls — currency (exchange-rate) risk, making choice A correct. Choice B is wrong: ADRs simplify trading and dividend payment in dollars, but they do not eliminate exchange-rate exposure. Choice C is wrong: ADRs are not automatically converted into U.S. common stock; they remain depositary receipts representing the foreign shares. Choice D is wrong: it confuses a broader macroeconomic story about exports with the direct currency-translation effect on this specific ADR holding.

Answer: C
The controlling concept is cumulative preferred stock, under which any skipped dividend accrues as an arrearage that must be paid in full, along with the current dividend, before common stockholders can be paid anything. Choice C correctly totals last year's skipped $6 plus this year's $6 for $12. Choice A is wrong because cumulative preferred dividends are never forfeited; they carry forward as arrears. Choice B describes straight (non-cumulative) preferred stock, which owes only the current year's dividend, not this cumulative issue. Choice D is wrong because no rule adds a penalty rate to skipped cumulative preferred dividends; only the stated $6 per year accrues.

Answer: B
Bonds repaid solely from a specific project's earnings -- here, toll revenue -- are revenue bonds, so the credit analysis centers on the project's ability to generate enough income to cover debt service; that is why B is correct. Choice A is wrong because this is a revenue bond, not a general obligation bond, and no taxing power is pledged, so voter approval of the toll schedule is not the relevant safeguard. Choice C is the key trap: it correctly identifies a revenue bond, but incorrectly claims the city must raise taxes if tolls fall short -- that tax-backed guarantee is exactly what distinguishes a general obligation bond, and it does not apply here since no taxing power was pledged. Choice D is wrong for the same reason as A: this bond is not a general obligation bond, so the city's property tax base is not the relevant credit consideration.

Answer: D
Commercial paper is short-term, unsecured corporate debt used to meet near-term funding needs and is a classic money market instrument, making D correct. Choice A, a 30-year corporate debenture, is long-term debt with substantial interest rate risk, unsuitable for a very short holding period. Choice B, common stock, is an equity security with no maturity and fluctuating value, not a money market instrument. Choice C, a closed-end fund share, also has no maturity and trades at a market-determined price that can diverge from NAV, making it unsuitable for parking cash briefly.

Answer: B
In a corporate liquidation, creditors are paid before owners and secured creditors before unsecured ones: secured bondholders, then general (unsecured) creditors, then preferred stockholders, then common stockholders last, matching choice B. Choice A wrongly places preferred stockholders ahead of secured bondholders, though preferred stock is equity and ranks behind all creditors. Choice C places general creditors ahead of secured bondholders and both classes of stock in the wrong order relative to creditors. Choice D places preferred stockholders ahead of general creditors, ignoring that preferred stock's 'preference' applies only relative to common stock, not to the company's debt.

Answer: C
The controlling concept is prepayment risk: when rates fall, homeowners refinance, mortgage principal is returned to CMO holders sooner than expected, and that principal must be reinvested at the new, lower prevailing rates. Choice C states this correctly. Choice A describes extension risk, the mirror-image problem that occurs when rates rise and prepayments slow — the opposite of what is happening here. Choice B is wrong because no rule prohibits refinancing; homeowners are refinancing precisely because rates dropped. Choice D is wrong because nothing in the facts involves foreign-currency payments.

Answer: B
Securities Act Section 3(a)(3) exempts commercial paper with a maturity of 270 days or less from registration, provided proceeds fund current transactions — that speed and cost saving is the whole point of the ceiling. B is correct: staying under 270 days keeps the paper exempt from registration. A is wrong because nothing in the exemption sets or fixes the coupon rate; pricing is set by the issuer and market, typically at a discount to face value. C is wrong because the maturity ceiling says nothing about creditworthiness — rating agencies assess that independently, and short paper can still be junk-rated. D is wrong because commercial paper is an unsecured corporate IOU with no FDIC coverage; FDIC insurance applies only to bank deposits.

Answer: B
Intrinsic value on a call equals the amount the stock trades above the strike — here 47 minus 40 is 7 — and any premium beyond that is time value, here 9 minus 7 is 2. B is correct: $7 intrinsic and $2 time value. A is wrong because it reverses the split, showing only $2 intrinsic when the option is $7 in the money. C is wrong because it treats the entire $9 premium as intrinsic, leaving no room for the time value option buyers always pay for before expiration. D is wrong because a call with the stock above its strike is in the money by definition, not out of the money.

Answer: A
Direct participation program interests generally lack a ready secondary market, so illiquidity is a defining risk compared with exchange-listed shares, making choice A correct. Choice B is wrong because DPP interests do not experience the daily, exchange-driven price discovery of a listed stock. Choice C is wrong because no security offers a guaranteed loss of principal; that would misstate how any investment, including a DPP, actually behaves. Choice D is wrong because it is the general partner, not the limited partners, who bears unlimited personal liability for the partnership's debts; limited partners' liability is capped at their investment.

Answer: A
Writing calls against owned stock caps the maximum gain at the strike price plus the premium collected: exercise at $50 against a $42 cost captures $8 per share, plus the $2 premium, for $10 per share on 500 shares, or $5,000, matching A. B ($4,000) reflects only the $8-per-share gain on the stock and omits the $2 premium the customer was paid for writing the calls. C ($1,000) reflects only the premium received on 500 shares and omits the stock gain captured at exercise. D is wrong because owning the shares does not leave the upside open once calls are written against them; the short calls obligate the customer to deliver stock at $50 no matter how high the market price climbs, so gains above the strike belong to the call buyer, not the writer.

Answer: C
Choice C is correct: ADRs trade and pay dividends in U.S. dollars, but the underlying value depends on yen-denominated shares, so a weakening yen reduces the dollar value of the investment -- currency (exchange rate) risk. Choice A is wrong because ADR holders do receive dividends, converted into dollars by the depositary bank, not forfeited. Choice B is wrong because ADR trades settle in U.S. dollars through a U.S. broker-dealer, which is precisely the convenience ADRs provide. Choice D is wrong because shareholders, including ADR holders, never bear personal liability for a corporation's debts.

Answer: C
ETF shares trade on an exchange throughout the day at market prices, unlike open-end mutual fund shares, which price once daily at NAV after the market closes — correct answer C. Choice B is wrong because ETF shares can and do trade at small premiums or discounts to NAV; there is no guarantee of exact NAV pricing. Choice A is backwards: ETF shares, unlike traditional mutual fund shares, generally can be sold short and purchased on margin. Choice D describes an open-end mutual fund's redemption process, not an ETF's; ordinary ETF investors trade in the secondary market rather than redeeming directly with the fund.

Answer: C
Liquidity risk is the risk of being unable to sell an investment quickly at or near its fair value because of a thin market for that issue, making C correct. Choice A, currency risk, does not apply because no foreign-currency exposure is described. Choice B, reinvestment risk, concerns having to reinvest returned principal or coupon payments at lower rates, not the difficulty of finding a buyer. Choice D, credit risk, concerns the issuer's ability to pay interest and principal, not the investor's ability to find a willing buyer in a thin market.

Answer: D
A UIT assembles a fixed, unmanaged portfolio at creation, issues redeemable units, and generally terminates on a set date, with no ongoing portfolio management — that is choice D. Choice C describes the opposite: an actively managed vehicle with a board-appointed adviser trading daily is a mutual fund, not a UIT. UITs issue redeemable units rather than exchange-traded common stock, so choice A describes a closed-end fund, and while many UITs hold municipal bonds, they are not legally limited to that one asset class, so choice B is also wrong.

Answer: A
When the call is exercised, the writer delivers stock at the $55 strike: the stock gain is $55 − $50 = $5 per share, plus the $2 premium collected, for $7 per share × 100 shares = $700, making A correct. Choice B ($200) counts only a doubled premium and ignores the stock gain. Choice C ($1,200) mistakenly uses the $60 market price instead of the $55 strike price — the covered writer gives up appreciation above the strike, which is the trade-off of covered call writing. Choice D ($500) counts only the $5-per-share stock gain and omits the premium received.

Answer: A
The put is exercised, so the writer must buy stock at the $50 strike while it is worth $38 -- an intrinsic loss of $12 per share. Netting the $4 premium already collected against that loss leaves a net loss of $8 per share, choice A. Choice B incorrectly treats the $4 premium as the entire result and ignores the $12 loss on the forced purchase. Choice C ($12) would be the result only if the writer had received no premium at all. Choice D ($4) mistakes the premium amount itself for the net outcome instead of subtracting it from the $12 loss.

Answer: D
Issuers exercise a call feature when interest rates fall, because falling rates let them refinance outstanding debt more cheaply; the bondholder then receives principal back precisely when reinvestment opportunities pay less, which is choice D. Choice B pairs the correct reinvestment-risk consequence with a rate-rise trigger, but issuers have no incentive to call when rates rise, since their existing low coupons are already cheap. Choice A gets the price direction backward — bond prices rise, not fall, when rates fall — and choice C describes rates rising, a scenario where refinancing would raise the issuer's costs, not lower them, so no rational issuer would call in that environment.

Answer: D
In a variable annuity, contributions are invested in a separate account and the contract's value rises and falls with that account's performance, so the annuitant bears the investment risk — choice D. Choice A describes a fixed annuity, where the insurer guarantees a rate from its general account and bears the investment risk itself; that guarantee does not extend to a variable annuity's separate account. Choice B is wrong because a broker-dealer's net capital requirements protect the firm's own solvency, not the investment performance of a customer's separate account. Choice C is wrong because state guaranty funds and SIPC protect against insurer or broker-dealer insolvency and custody failures, not against ordinary investment losses in a separate account's underlying portfolio.

Answer: D
Issuers tend to call bonds when rates fall so they can refinance at cheaper rates, forcing the holder to reinvest proceeds at the new, lower rates — that is reinvestment risk, making D correct. Choice A is wrong because falling rates reflect broader market conditions, not a signal of this specific issuer's deteriorating credit quality. Choice B is wrong because no foreign currency is involved in a domestic corporate bond, so exchange rates are irrelevant here. Choice C is wrong because falling rates raise bond prices, not lower them — interest rate risk is the concern when rates rise, the opposite of this scenario.

Answer: A
Limited partnership interests trade in thin or nonexistent secondary markets, so an investor needing cash quickly may be unable to sell, or may have to accept a steep discount — liquidity risk, choice A — while actively traded large-cap listed stocks can generally be sold quickly near the quoted price. Choice B is wrong because partnership interests do not carry a bond-like stated duration; interest rate risk is a fixed-income concept, not the risk that most distinguishes an illiquid equity-style interest from listed stock. Choice C is wrong because limited partnerships are typically domestic vehicles denominated in dollars, not always in a foreign currency. Choice D is wrong because systematic (market) risk affects marketable, exchange-traded stocks just as much as partnership interests; it does not distinguish the two investments from each other.

Answer: B
Mixing customer securities with the firm's own assets — especially assets pledged as collateral for the firm's own bank loans — is prohibited commingling, choice B, because it exposes customer property to claims by the firm's creditors. Choice C is the tempting distractor: firms may rehypothecate securities that collateralize a customer's own margin debit within defined limits, but fully paid customer securities must be kept segregated, so no such permitted use applies here. Choice A, interpositioning, involves inserting an unnecessary broker between the firm and a customer's order, and choice D, freeriding, involves selling securities before paying for them — neither matches mixing custody of assets.

Answer: C
A custodial account is registered to one custodian for one minor, and the assets are the irrevocable property of the minor; the custodian merely manages them until the minor reaches the age of majority -- matching Choice C. Choice A is the classic misconception: the gift belongs to the child from the moment it is made, not to the custodian, regardless of who manages it. Choice B is wrong because custodial accounts cannot be registered jointly in both the custodian's and minor's names -- there is one custodian and one minor per account. Choice D is wrong because a minor cannot enter orders in the account, regardless of demonstrated investment knowledge; only the custodian may transact.

Answer: A
Entering a series of small orders near the close of trading for the purpose of influencing the day's official closing price is marking the close, choice A, a form of market manipulation. Choice B, front-running, is the tempting distractor because it also involves improperly timed orders, but front-running means trading ahead of a known customer or firm order — no such order is being exploited here; the goal is instead to distort the closing print. Choice D, churning, is excessive trading in a customer's account to generate commissions, and choice C, backing away, is a market maker's failure to honor its published quote — neither fits a trader pushing up his own position's closing mark.

Answer: C
Registered persons are generally prohibited from borrowing money from a customer because of the conflict of interest it creates; narrow exceptions exist, such as an immediate family relationship or a customer that is a lending institution, and firm procedures still apply even then, making choice C correct. Choice A is wrong: documentation and a market interest rate do not make an otherwise prohibited loan permissible. Choice B is wrong: the loan's size relative to the account has no bearing on the prohibition. Choice D is wrong: who first proposed the loan is irrelevant — the prohibition turns on the lender-customer relationship, not who initiated the offer.

Answer: B
Participating in a securities transaction outside the scope of one's employment without prior notice to (and, when compensated, approval from) the firm is the prohibited practice of selling away, making choice B correct. Choice A is wrong: a customer's signed risk disclosure does not substitute for the required notice to the firm. Choice C is wrong: the fact that a product is not offered on the firm's own platform is exactly why notice is required, not an exemption from it. Choice D is wrong: front-running means trading ahead of a known order, which did not occur here — the violation is the unreported private sale itself.

Answer: A
A sell stop order rests below the current market and becomes a market order once the stock trades at or through the stop price, limiting further loss while leaving the position intact if the stock recovers — and because it converts to a market order, the fill may be worse than the stop price, which the investor accepts, making choice A correct. Choice B is wrong because a buy stop order adds exposure to a rising stock; it does not protect an existing long position from a decline. Choice C is wrong because a sell limit order is placed above the market to sell into strength at a minimum price, not to protect against a decline. Choice D is wrong because an immediate market order would exit the position right now, rather than only if the decline continues to a chosen trigger price.

Answer: A
Joint tenants with right of survivorship, choice A, passes a deceased owner's entire interest directly to the surviving owner outside of probate, which is exactly what the spouses want. Choice B, tenants in common, instead passes the deceased owner's share to their estate, not automatically to the co-owner, so it fails the survivorship objective. Choice C, an individual account with a power of attorney, terminates the moment the account owner dies, so the power of attorney provides no survivorship at all. Choice D, a custodial account, is designed for a minor beneficiary under UGMA/UTMA, not for two adult spouses holding property together.

Answer: B
A stop order is dormant until the stock trades at or through the stop price; once triggered, or elected, it becomes a market order and executes at the next available price, which may be above or below the stop price, making choice B correct. Choice A is wrong because no stop order guarantees execution at the stop price itself — only that it will trigger at or through that level. Choice C is wrong because triggering a stop order does not cancel it; it converts the order into an active market order rather than requiring re-entry. Choice D is wrong because that describes a stop-limit order, a different order type that adds a price floor and risks non-execution, not how a plain stop order behaves.

Answer: C
Arranging sales of a private issuer's securities to customers without notifying, and since compensation is often involved without receiving approval from, the employing broker-dealer is selling away, a prohibited private securities transaction, making choice C correct. Choice A is wrong because a breakpoint sale concerns depriving a mutual fund customer of an available sales-charge discount, an unrelated violation not present in this fact pattern. Choice B is wrong because outside business activities cover non-securities work; transactions in securities — like these notes — are governed by the stricter private-securities-transaction notice-and-approval rules regardless of where the activity occurs. Choice D is wrong because whether a security is exchange-listed has no bearing on the duty to notify the firm of private securities transactions.

Answer: A
The controlling concept is joint tenancy with rights of survivorship (JTWROS), under which a deceased owner's interest passes automatically to the surviving joint owner rather than to the deceased owner's estate. Choice A states this correctly. Choice B is wrong because a custodial account is opened for a minor's benefit under an adult custodian, not for two co-equal adult owners. Choice C is wrong because under tenants in common, each owner's share passes to that owner's own estate at death, not to the co-owner — the opposite of what the facts describe. Choice D is wrong because a trading authorization grants order-entry power over an account but conveys no ownership interest and does not describe a joint registration at all.

Answer: D
A short seller borrows and sells shares, profiting from a price decline; because there is no ceiling on how high a stock can rise before the shares must be repurchased, the potential loss is theoretically unlimited, making choice D correct. Choice A is wrong: it describes a long position, not a short sale, which loses (not gains) as the price rises. Choice B is wrong: the sale proceeds cap the maximum gain, not the maximum loss. Choice C is wrong: short sales involve borrowed securities and must be effected in a margin account under Regulation T, not a cash account.

Answer: C
Best execution obligates a firm to seek the most favorable terms reasonably available for customer orders under the circumstances; routing to the venue paying the largest rebate, at the expense of price or fill quality, inverts that duty in favor of the firm's own revenue. C is correct. A is wrong because best-execution obligations exist specifically to constrain how firms route orders — it is not left purely to the firm's discretion. B is wrong because suitability governs the recommendations and advice given to a customer, not the mechanics of where an order is sent for execution. D is wrong because custody rules concern safekeeping and segregation of customer assets, an entirely separate obligation from order-routing decisions.

Answer: C
The controlling concept is market manipulation through matched (wash) trading: entering offsetting buy and sell orders in the same security to create a false appearance of trading activity, without any genuine change in beneficial ownership. Choice C states this correctly. Choice A is wrong because principal trading — buying for firm inventory and later reselling to a customer at a fair price — is a legitimate, permitted dealer function. Choice B is wrong because simply executing a customer's own unsolicited order is proper practice; the customer, not the representative, made the investment decision. Choice D is wrong because recommending a security after reasonable suitability research is the conduct the rules require, not a manipulative practice.

Answer: D
In a custodial account, the minor is the beneficial owner of the assets from the moment of the gift, while a single custodian manages the account for that one minor's benefit, making choice D correct. Choice A is wrong because the custodian never becomes the owner — the custodian only controls the assets, which belong to the minor immediately and irrevocably. Choice B is wrong because custodial accounts cannot be pooled across multiple minors; each account is limited to one custodian and one minor. Choice C is wrong because custodial accounts are managed conservatively for the minor's benefit and are not opened on margin, regardless of who signs the agreement.

Answer: D
A wash trade is a manipulative practice in which the same beneficial owner is effectively on both sides of a trade, so ownership never really changes, done to create a false picture of volume or price interest, matching choice D. Choice A is wrong because trading two different, unrelated securities across accounts is ordinary, unconnected activity with no manipulative pattern. Choice B is wrong because that describes a firm's best-execution duty, a legitimate obligation unrelated to manipulation. Choice C is wrong because selling at a loss and repurchasing within 30 days describes the IRS wash-sale rule, a tax concept about disallowing a loss deduction — a common point of confusion with the manipulative wash trade tested here, but a different rule entirely.

Answer: C
Effecting a securities transaction outside the scope of one's employment without giving the employing broker-dealer prior notice (and obtaining approval when required) is the prohibited practice of selling away, making choice C correct. Choice A is wrong: commingling means mixing customer assets with the firm's own inventory, and no pooling of assets occurred here. Choice B is wrong: insider trading requires trading on material nonpublic information in breach of a duty, which nothing here shows. Choice D is wrong: churning is excessive trading in a customer's account to generate commissions, not an unapproved private transaction conducted away from the firm.

Answer: A
Discretionary authority allows a representative to decide what to buy or sell and when, without approval for each transaction, but only after the customer grants written authorization, and it subjects the account to heightened firm supervision, including suitability review and monitoring for excessive trading. Choice A states this correctly and is the answer. Choice B is wrong because it incorrectly limits discretionary authority to fixed-income securities; the authorization can extend to any security type the account is approved to trade. Choice C is wrong because it overstates the similarity to a general power of attorney; discretionary trading authority lets a representative make investment decisions but does not grant ownership rights over the account or its assets. Choice D is wrong because it describes the opposite arrangement — a non-discretionary account requires the customer's approval for each individual trade.

Answer: C
Equity in a long margin account equals market value minus the debit balance, here $50,000 minus $40,000, or $10,000, and the 25 percent minimum maintenance requirement is measured against market value, meaning at least $12,500 of equity is required, so the account is deficient and will draw a maintenance call, which is C. A is wrong because it mistakes the debit balance itself, $40,000, for the account's equity rather than subtracting it from market value. B is wrong because maintenance requirements apply continuously while a position is held, not only at the moment of purchase, which is precisely why maintenance calls exist as prices move after the initial trade. D is wrong because it measures the 25 percent requirement against the $40,000 debit balance instead of the $50,000 market value, understating how much equity is actually required.

Answer: A
A trustee is a fiduciary bound to act prudently for the beneficiaries, and speculative strategies like writing uncovered, undefined-risk options are permitted only when the governing trust document expressly authorizes them — silence does not imply permission. A is correct. B is wrong because informal, verbal consent from beneficiaries does not satisfy the requirement for express authority in the governing document. C is wrong because a firm's internal margin department sets operational risk limits, not the legal standard governing what a trustee may do with trust assets. D is wrong because fiduciary law exists precisely to override the trustee's personal preferences in favor of the document's terms and the beneficiaries' interests.

Answer: B
The controlling concept is selling away: effecting securities transactions outside the scope of one's employment, without giving the firm prior written notice and, since compensated here, without obtaining its approval. Choice B states this correctly. Choice A is wrong because commingling involves mixing customer funds with the firm's own assets, which is not what occurred — the representative arranged an entirely separate, undisclosed private transaction. Choice C is wrong because churning requires excessive trading in a customer's account to generate commissions, not an off-book private placement. Choice D is wrong because freeriding involves buying and selling securities in a cash account without paying for the purchase, unrelated to an undisclosed private securities transaction.

Answer: C
Gifts to a custodial account are irrevocable and become the property of the minor; the custodian manages the assets solely for the minor's benefit and turns the account over at the age specified by state law, making choice C correct. Choice A is wrong: a custodial account is limited to one custodian and one minor, not multiple of either. Choice B is wrong: custodial accounts are registered to the custodian for the minor's benefit, not jointly titled like a survivorship account. Choice D is wrong: funding the account does not preserve any ownership interest for the donor — the assets belong to the minor from the moment of the gift.

Answer: B
Effecting securities transactions outside the scope of one's employment with a broker-dealer, without the firm's knowledge and written approval, is selling away -- a private securities transaction violation, matching Choice B. Choice A (churning) refers to excessive trading in a customer's account to generate commissions, not unapproved outside business. Choice C (commingling) refers to improperly mixing customer assets with firm or personal assets, not conducting undisclosed outside securities transactions. Choice D (front-running) refers to trading ahead of a customer or block order using advance knowledge of it, which is unrelated to this scenario.

Answer: A
A sell stop order placed below the current market price, choice A, becomes a market order once the stock trades at or through the stop price, limiting further downside while letting the position ride until then. Choice C is the classic confusion: a sell limit order placed below the market would instead execute immediately at the better, current price, because a limit order seeks a price or better — it cannot sit below the market and act as downside protection the way a stop can. Choice B, a buy stop above the market, is used to protect a short position or enter on a breakout, not to protect a long position from decline, and choice D, an immediate market order, sells right away rather than only if and when the stock actually falls.

Answer: B
The bid-ask spread is the gap between the highest price buyers are offering and the lowest price sellers will accept, and it compensates dealers for standing ready to trade — narrower in liquid, actively traded names and wider in thin ones. B is correct. A is wrong because the spread is a market-pricing feature, not a regulatory fee; fees and transaction charges are assessed separately. C is wrong because the spread reflects dealer compensation for making a market, not a specific commission owed to any one representative. D is wrong because a two-sided quote showing a bid and an ask is entirely normal market structure, not an error.

Answer: A
A buy limit order sets the maximum price a customer is willing to pay; it executes only at that price or lower, at the risk of never filling, precisely matching the customer's stated goal, making choice A correct. Choice B is wrong because a buy stop order rests above the current market and becomes a market order once triggered — it is used to enter or protect a position on upward momentum, not to cap a purchase price. Choice C is wrong because a sell limit order is used to dispose of shares at a minimum acceptable price, not to buy them at a maximum price. Choice D is wrong because a market order guarantees execution but offers no price protection, the opposite of what this customer wants.

Answer: B
The SIE fee was $80 in 2025 and rose to $100 in 2026, a $20 increase, making B correct. Choice C ($0) wrongly assumes the fee stayed the same between the two years. Choices A ($10 more) and D ($25 more) both misstate the size of the adjustment — the actual step up is exactly $20.

Answer: B
A score of 70% is required to pass the SIE, which is choice B. Choice A, 65%, understates the passing threshold FINRA requires. Choices C, 72%, and D, 75%, both overstate it; 75% in particular is the passing score used on some other FINRA qualification exams, not the SIE, which candidates sometimes confuse it with when studying across multiple exams.

Answer: D
The exam presents 80 total items — 75 scored plus 5 unscored pretest items — in 105 minutes, which works out to just over 1.3 minutes, or slightly less than 1 minute 20 seconds, per item, choice D. Choice A understates the true pace by wrongly assuming a shortened, 60-minute window applies rather than the full 105 minutes allotted. Choice B overstates the time available by rounding 105 minutes up to 2 hours and dividing by too few questions, both errors compounding in the same direction. Choice C similarly overstates the time per item by assuming only some of the items count toward pacing; because the unidentified pretest items look identical to scored ones, a candidate must pace against all 80, not a smaller subset.

Answer: D
Once a candidate passes the SIE, the result remains valid for four years, matching Choice D. Choice A (two years) is tempting because a shorter window feels typical for other registration-related periods, but it understates how long an SIE pass actually lasts. Choice C (three years) similarly understates the window. Choice B is wrong because the result is not permanent -- it does expire if the candidate does not associate with a member firm within four years of passing.

Answer: A
In a firm commitment underwriting, the underwriter purchases the entire issue from the issuer outright, fixing the issuer's proceeds at signing and leaving the underwriter to bear the risk of reselling the shares to the public, including any it cannot place. Choice A states this correctly and is correct. Choice B is wrong because it describes best efforts as though it were a firm commitment, attaching a guaranteed-proceeds promise to an arrangement in which the underwriter actually acts only as the issuer's agent and returns unsold shares rather than absorbing their cost. Choice C is wrong because an all-or-none arrangement is a type of best efforts underwriting in which the entire offering must be sold or the deal is called off and funds are returned to investors, not a purchase of the issue by the underwriter at its own risk. Choice D is wrong because a mini-max arrangement sets a floor and a ceiling on the amount that must be sold for the offering to close, with the underwriter acting as agent throughout; it does not obligate the underwriter to buy up whatever remains unsold at the public offering price.

Answer: C
Effective October 27, 2025, FINRA reduced the SIE's unscored pretest items from 10 to 5, which is choice C. Choice D reverses the direction of the change — the count went down, not up. Choice B overstates the change; pretest items were reduced, not eliminated, so the exam still totals 80 items. Choice A is incorrect because pretest items remain unscored; they were never converted into scored questions counted toward the candidate's result.

Answer: B
The SIE currently presents 80 total items: 75 that count toward the score plus 5 unidentified pretest items that do not affect it — correct answer B. Choice A describes the pre-October 27, 2025 format, when 10 unscored pretest items brought the total to 85; FINRA reduced that count to 5 effective that date, so A is now outdated. Choice C is wrong because FINRA did not eliminate pretest items, it only reduced their number from 10 to 5. Choice D is wrong because the 5 pretest items are never identified or labeled to the candidate, so no one can tell which items are pretest versus scored.

Answer: D
An SIE passing result remains valid for four years, so a March 2026 pass carries the candidate through March 2030, making choice D correct. Choice A is wrong: two years understates the actual four-year validity window. Choice B is wrong: an SIE pass does not remain valid indefinitely — it does expire if not used within four years. Choice C is wrong: three years also understates the correct four-year validity period that applies here.

Answer: C
The controlling concept is the classification of economic indicators by timing. Choice C is correct because building permits and jobless claims are leading indicators, which shift before the broader economy turns. Choice A is wrong because both series have established forecasting value tracked in composite leading indices. Choice B is wrong because coincident indicators, like GDP or payroll employment, move together with current activity rather than ahead of it. Choice D is wrong because lagging indicators, like the average duration of unemployment, confirm a turn only after it has already occurred.

Answer: C
Under FINRA's fee adjustment schedule, the SIE exam fee was $80 in 2025 and rose to $100 in 2026, a difference of $20, making choice C correct. Choice A is wrong: $40 overstates the actual scheduled increase. Choice B is wrong: the fee was not unchanged — this schedule includes a real, scheduled increase, unlike many years when exam fees stay flat. Choice D is wrong: $10 understates the increase; the correct difference between the two years' fees is $20, not $10.

Answer: C
Equity equals market value of securities minus the debit balance: $40,000 − $20,000 = $20,000, which is $20,000 / $40,000 = 50% of market value. A 30% maintenance requirement means equity must be at least 30% of market value, and 50% comfortably exceeds that, so the account is in compliance. Choice C states this correctly and is the answer. Choice A is wrong because it calculates equity as $60,000 by adding the debit balance instead of subtracting it. Choice B is wrong because 33% is not the result of dividing $20,000 by $40,000; that division yields 50%, not 33%. Choice D is wrong because it understates the equity percentage at 20%, which would only be correct if equity were $8,000, not $20,000.

Answer: D
Effective October 27, 2025, the SIE moved to five unscored pretest questions instead of 10, so the friend attempting the exam in 2026 will see 5 unscored items, not 10 — choice D. Choice A overstates the change; pretest items were reduced, not eliminated, so the exam still totals 80 items with 5 unscored questions among them. Choice B is wrong because pretest items remain unidentified; candidates cannot tell which items are pretest and which are scored, so none can be knowingly skipped. Choice C correctly notes the SIE's October 2018 launch but is wrong that the pretest count stayed at 10 unchanged since then — the October 27, 2025 rule change reduced it to 5.

Answer: A
An SIE passing result remains valid for four years, so a two-year-old pass is still usable, but under FINRA Rule 1210 passing the SIE alone does not qualify an individual for registration — a representative-level exam is also required, making choice A correct. Choice C gets the four-year validity right but wrongly treats the SIE as sufficient by itself for registration, when it is only a corequisite. Choice D invents a renewal mechanism; FINRA's continuing education Regulatory Element applies to individuals who are already registered, not to renewing an unassociated SIE pass, and the four-year window is fixed, not extendable by taking CE courses. Choice B wrongly applies the two-year lapsed-registration requalification window — which governs individuals leaving an already-registered role — to the SIE's own four-year validity period, understating it by half.

Answer: B
Real return equals the nominal yield minus the inflation rate, so a 4 percent bond yield against 5 percent inflation produces a roughly 1 percent annual loss of purchasing power on both the interest income and the principal, which is purchasing power risk, also called inflation risk. Choice B states this correctly and is correct. Choice A is wrong because redemption at par returns a fixed number of dollars that will buy less at maturity than they would today; par value does not adjust for purchasing power lost along the way. Choice C is wrong because credit risk concerns the issuer's ability to pay principal and interest as scheduled, a separate concept from inflation eroding what a fixed payment is worth. Choice D is wrong because any positive nominal yield does not automatically preserve purchasing power; what matters is the yield relative to the inflation rate, and here the yield is lower than inflation, producing a loss in real terms rather than a gain.

Answer: C
Changing federal income tax rates and federal spending levels are fiscal policy tools that belong to Congress and the President, while the Federal Reserve conducts monetary policy, working through reserves, the money supply, and interest rates rather than through taxing and spending. Choice C states this correctly and is correct. Choice A is wrong because the Treasury administers and collects taxes under rates Congress sets by statute; it has no independent regulatory authority to adjust income tax rates on its own. Choice B is wrong because the Securities and Exchange Commission regulates securities markets and disclosure, not federal tax policy, which falls entirely outside its statutory mission. Choice D is wrong because the Federal Open Market Committee's mandate is monetary, covering the money supply and interest rates in pursuit of maximum employment and stable prices; it has no authority over federal income tax rates or federal spending levels, which remain fiscal matters reserved to the legislative and executive branches.

Answer: D
Capital Markets (12 items) plus Products and Their Risks (33 items) equals 45 of the 75 scored questions, or 60%, which falls short of the 70% required to pass — choice D. Choice A makes the error of dividing 45 by the 80 total items presented instead of the 75 scored items, producing an incorrect 56% and the wrong denominator, even though it happens to reach the correct pass/fail conclusion. Choice B gets the percentage right but wrongly treats 60% as the passing score; the SIE's actual passing score is 70%, not 60%. Choice C incorrectly inflates the result to exactly 70%, which is not what the arithmetic on 45 of 75 produces.

Answer: C
The SIE is a corequisite to representative-level exams such as the Series 7, meaning both must be passed to register — choice C. Choice A understates the SIE's role; it is a required corequisite, not an optional study aid with no bearing on registration. Choice B reverses the order requirement — FINRA does not require the Series 7 before the SIE; a candidate may take the SIE independently and first. Choice D reflects the common misconception that passing the more advanced Series 7 makes the SIE unnecessary, but the two remain separate, independently required exams.

Answer: D
The SIE contains 75 scored items plus 5 additional, unidentified pretest items that do not contribute to the score, for a total of 80 items, which is choice D. Choice A is wrong because every candidate's scored section is fixed at 75 items; there is no alternate form with 85 scored questions. Choice B is a plausible-sounding scoring myth: pretest items are simply unscored from the start, not scored and then dropped as her worst answers. Choice C is wrong because there is no bonus-scoring mechanism on the SIE; a candidate's score cannot exceed 100%, and unidentified pretest items never add to or subtract from the result.

Answer: B
Per FINRA's fee schedule, the SIE fee was $80 for candidates in 2025 and rose to $100 in 2026, a $20 increase, making B correct. Choice A ($0) wrongly assumes the fee stayed the same across years. Choices C ($10) and D ($25) both misstate the size of the increase — the actual gap between the two years is exactly $20.

Answer: C
The controlling concept is that eligibility to take the SIE is separate from eligibility for FINRA registration: any individual, associated with a firm or not, may take the SIE without a prerequisite exam, but passing it alone does not by itself qualify anyone for registration. Choice C states this correctly. Choice A is wrong because firm association and a prerequisite exam are not required to sit for the SIE. Choice B is wrong because passing the SIE alone never independently qualifies a candidate for registration; a representative-level exam such as the Series 7 is also required. Choice D is wrong on both counts: it wrongly requires firm association to test and wrongly treats passing the SIE as sufficient for registration.

Answer: C
FINRA allots 105 minutes (1 hour 45 minutes) for the SIE's 80 total items, so 105 ÷ 80 ≈ 1.3 minutes, or about 79 seconds, per question, making C correct. A's 3-minute pace only fits an exam with far fewer than 80 items. B's 45-second pace comes from mistakenly assuming a 60-minute session instead of the actual 105 minutes. D's 2-minute pace would require about 160 minutes rather than the 105 FINRA actually schedules, and like A and B it ignores that the 5 unscored pretest items still consume time from the fixed window.

Answer: D
Raising the reserve requirement forces depository institutions to hold a larger share of each deposit in reserve, shrinking the portion available to lend and contracting the money supply; because the requirement applies uniformly and immediately to every institution's balance sheet, the Fed uses it sparingly compared with open market operations, which can be calibrated day to day. Choice D states this correctly and is correct. Choice A is wrong because it gets the mechanics backward: a higher reserve requirement ties up reserves rather than freeing them, which makes reserves scarcer and pushes the federal funds rate up, not down. Choice B is wrong because it describes the effect of lowering the reserve requirement, not raising it, and also misstates why the tool is used sparingly, which has to do with the abruptness of balance-sheet adjustment rather than a multi-year lag. Choice C is wrong because reserve requirements under Regulation D apply to depository institutions taking deposits, not to broker-dealers financing margin accounts, which is the separate subject of Regulation T.

Answer: D
The controlling fact is the SIE's format effective October 27, 2025: five additional, unidentified pretest items are included that do not count toward the candidate's score, for a total of 80 items (75 scored, 5 unscored). Choice D states this correctly. Choice A is wrong because it states the pre-October-2025 pretest count of 10, which the update reduced to 5. Choice B is wrong because pretest items never count toward the score, regardless of whether they are answered correctly. Choice C is wrong on both counts — it uses the outdated count of 10 and incorrectly claims those items count toward the score.

Answer: A
The controlling concept is the maturity-based distinction between the money market and the capital market: debt maturing in one year or less trades in the money market, while longer-term debt and equity trade in the capital market. Choice A correctly places the 90-day commercial paper in the money market and the 20-year debenture in the capital market. Choice C is wrong because the debenture's 20-year maturity places it in the capital market, not the money market. Choice B is wrong for the opposite reason: the commercial paper's short maturity keeps it out of the capital market. Choice D is wrong because it confuses the primary/secondary market distinction with the money/capital market distinction, and misclassifies the debenture.

Answer: A
A score of 70% is required to pass the SIE, making A correct. Choice B (75%) is a common wrong guess because the exam has 75 scored questions, conflating the question count with the passing percentage. Choices C (60%) and D (65%) both understate FINRA's actual passing standard for the exam.

Answer: A
A felony conviction, including securities fraud, within the preceding ten years is a statutory disqualification under the Securities Exchange Act, and it bars a person from becoming or remaining associated with a member firm unless the firm applies for and is granted relief through FINRA's eligibility process, typically paired with a detailed heightened supervision plan that regulators must approve. Choice A states this correctly and is correct. Choice B is wrong because a firm cannot simply adopt its own supervision plan and disclose the conviction on Form U4 to cure a statutory disqualification; approval of the specific eligibility application and supervisory plan by the regulator is required before the person may associate. Choice C is wrong because there is no rule limiting a statutorily disqualified person, once relief is granted, to a clerical role with customer-by-customer consent. Choice D is wrong because statutory disqualification is not a lifetime bar; it is a rebuttable disqualification with a defined path to relief, even though the six-year-old felony here still falls within the ten-year disqualifying window.

Answer: A
The SIE is a corequisite to the Series 7 — both exams must be passed for general securities representative registration, making A correct. B is wrong because there is no prerequisite exam for the SIE; it does not need to follow the Series 7. C is wrong because the Series 7 does not replace the SIE — both remain independently required. D is wrong because the SIE alone confers no registration status; it must be paired with a representative-level exam like the Series 7.

Answer: A
A passing SIE result remains valid for four years, so a June Year 1 pass carries her through roughly June of Year 5 — choice A. Choice B, one year, understates the validity period by a wide margin. Choice C, two years, is a window that applies in other registration contexts, such as requalifying after a lapsed registration, not to how long an unassociated SIE pass itself remains usable. Choice D is wrong because the SIE result does expire; it is not valid indefinitely.

Answer: C
A passing SIE result remains valid for four years, so choice C is correct. Choice A is wrong because the validity period is four years, not one. Choice B is wrong because the result does expire; it is not indefinitely valid. Choice D is wrong because two-year windows apply to other FINRA registration lapse rules, not the SIE's own four-year validity period.

Answer: A
With 80 total questions and 105 minutes available, even pacing allows 105 ÷ 80 ≈ 1.31 minutes, or about 1 minute and 19 seconds, per question, making choice A correct. Choice B understates the available time per question. Choice C is the trap that results from dividing 105 minutes by an assumed 50-question exam rather than the actual 80 items. Choice D overstates the time available by an even larger margin.

Answer: D
The SIE totals 80 items: 75 scored plus 5 additional, unidentified pretest items that never affect the score, making D correct. A is wrong because nothing indicates a mistaken exam version, and FINRA does not lengthen the exam for retake candidates. B is wrong because the extra items are not tiebreakers; FINRA uses them to evaluate future test questions, not borderline scores. C is wrong because the pretest items cannot raise the score either — they are excluded from scoring entirely, not counted as bonus credit.

Answer: B
A complaint about unsuitable recommendations is governed by Know Your Customer (KYC) and suitability standards, which require a broker to have a reasonable basis for believing a recommendation is appropriate given the customer's profile. Choice B states this correctly and is the answer. Choice A is wrong because anti-dilution provisions address how conversion ratios adjust in corporate securities, an unrelated corporate-finance topic. Choice C is wrong because self-regulatory status does not exempt any firm from federal rules; SRO member firms remain fully subject to FINRA and SEC requirements, including suitability. Choice D is wrong because Federal Reserve monetary policy affects market-wide interest rates and margin lending, not whether an individual recommendation was suitable for a specific customer.

Answer: C
The Kaplan SIE Essential Package costs $149, and one 5-month extension costs $49, for a total of $149 + $49 = $198, making C correct. A's $247 overstates the cost, as if two extensions or an additional add-on were purchased. B's $149 reflects only the base package and ignores the extension entirely. D's $178 understates the extension's actual $49 price, as if it cost only $29.

Answer: D
The controlling fact is the SIE content outline's item allocation: Knowledge of Capital Markets carries 12 items (16% of the exam), while Understanding Products and Their Risks carries 33 items (44%). Choice D states both figures correctly. Choice A incorrectly claims the two sections are equally weighted. Choice C swaps the two counts, assigning 33 to Capital Markets and 12 to Products, the reverse of the true allocation. Choice B pairs the correct Capital Markets item count (12) with an incorrect percentage (44%, which actually belongs to the Products section) instead of the correct 16%.

Answer: C
Both retail and institutional divisions of a broker-dealer remain fully regulated, but rules are calibrated to customer sophistication: institutional investors, presumed to have greater expertise and resources, receive different disclosure and suitability protections than retail customers. Choice C states this correctly and is the answer. Choice A is wrong because it claims no distinction exists between the divisions, when in fact rules are tailored based on customer sophistication. Choice B is wrong because the regulatory framework does directly address institutional versus retail distinctions, such as through FINRA's institutional-customer exemption from certain suitability documentation. Choice D is wrong because institutional customers remain subject to anti-fraud and other core securities rules; they are not completely exempt from SEC and FINRA oversight.

Answer: B
Understanding Products and Their Risks is the heaviest section of the SIE content outline, with 33 scored items (44% of the exam), compared with 12 items (16%) for Knowledge of Capital Markets, making choice B correct. Choice A understates the weighting by citing only the Capital Markets figures. Choice D is wrong because the outline assigns each section a fixed, published weighting rather than varying it randomly by exam form. Choice C is wrong because the sections are not equally weighted; each carries a distinct, fixed percentage.

Answer: A
The controlling fact is FINRA's SIE fee schedule, which was $80 per attempt in 2025 and rose to $100 per attempt beginning in 2026. Choice A correctly totals the 2025 attempt plus the 2026 retake: $80 + $100 = $180. Choice B ($200) incorrectly assumes both attempts were billed at the 2026 rate. Choice C ($100) reflects only a single 2026 attempt, ignoring the 2025 attempt entirely. Choice D ($160) incorrectly assumes both attempts were billed at the 2025 rate, missing the fee increase that took effect between attempts.

Answer: A
FINRA's SIE outline allocates 33 items (44%) to Understanding Products and Their Risks and 12 items (16%) to Knowledge of Capital Markets, so Products and Risks carries nearly three times the weight, making A correct. B is wrong because the two sections are far from equal — 44% versus 16% is a wide gap, not a 50/50 split. C is wrong because it swaps the item counts between the two sections, a common memorization error. D is wrong because it has the comparison backwards: Capital Markets has fewer items than Products and Their Risks, not more, so it does not deserve the greater share of study time.

Answer: A
Candidates are given 1 hour and 45 minutes (105 minutes) to complete the SIE exam, making choice A correct. Choice B is wrong: 90 minutes understates the allotted time. Choice D is wrong: 3 hours is far longer than any SIE session and is closer to the time allowed on some representative-level exams. Choice C is wrong: 2 hours and 15 minutes also overstates the SIE's 105-minute window, which is shorter than the time given for most representative-level qualification exams.

Answer: B
Under FINRA Rule 1210, passing the SIE alone does not confer FINRA registration — she would also need to associate with a firm and pass a representative-level exam — and her passing result remains valid for four years, making B correct. A is wrong because no registration, full or otherwise, results from the SIE alone. C is wrong because it is the SIE result itself, not some later registration deadline, that expires after four years; nothing requires her to 'join a firm to claim it.' D is wrong because there is no limited-capacity registration created by passing the SIE — she is simply not registered until she associates with a firm and passes the appropriate exam.

Answer: B
A passing SIE result remains valid for four years regardless of firm association, so a pass in March 2026 is still usable in March 2029, making B correct. A's two-year figure is a common confusion with other FINRA registration windows, not the SIE's actual four-year validity period. C is wrong because the SIE result does not lapse immediately for unassociated individuals — that's precisely why someone can pass it before ever joining a firm. D is wrong because the result does expire; four years is a fixed window, not an indefinite one.

Answer: B
Industry rules and ethical principles hold every registered person responsible for reporting suspected violations, and the appropriate first step is reporting internally to the firm's compliance department or management so the matter can be formally investigated and documented. Choice B states this correctly and is the answer. Choice A is wrong because bypassing the firm entirely and going straight to FINRA skips the internal reporting channel that firms are required to maintain, even though escalating externally can be appropriate later if the firm fails to act. Choice C is wrong because it wrongly absolves the representative of any responsibility to report, when all industry participants share that duty. Choice D is wrong because a private warning with no further action fails to ensure the misconduct is formally documented and investigated.

Answer: D
Under FINRA Rule 1210, individuals who are not associated persons of a member firm are eligible to sit for the SIE, and there is no prerequisite exam, making D correct. A is wrong because sponsorship letters are required for representative-level exams like the Series 7, not the SIE — a common rule candidates misapply. B is wrong because the SIE has no prerequisite exam; it is typically the first qualification exam a candidate takes. C is wrong because firm association is not required at all for the SIE, unlike representative-level exams.

Answer: A
Association with a member firm is not required to take the SIE, and there is no prerequisite exam — under FINRA's qualification rules, any individual, including students with no industry ties, is eligible to sit for it, making choice A correct. Choice B is wrong because it describes the requirement for representative-level exams like the Series 7, which do require firm sponsorship, a common point of confusion with the SIE. Choice C is wrong because no firm filing or Form U4 is needed to take the SIE itself; that filing is required only when registering as an associated person. Choice D is wrong because the SIE has no prerequisite exam; it is designed as an entry-level exam open to the general public.

Answer: C
Under FINRA Rule 1210, passing the SIE alone does not qualify an individual for registration; the SIE is a co-requisite for representative-level exams such as the Series 7, which must also be passed, making choice C correct. Choice B is wrong: fingerprinting is only one part of the registration process and does not substitute for passing a representative-level exam. Choice D is wrong: there is no requirement to retake the SIE annually — a passing result stays valid for four years. Choice A is wrong: the SIE covers only foundational material common across the industry, not the product- and role-specific material tested on representative-level exams.

Answer: C
The controlling fact is the October 27, 2025 change to the SIE format, which reduced the number of unscored pretest questions from 10 to 5. Choice C states this correctly. Choice A is wrong because pretest questions remain unscored under the new format; only the count changed, not whether they count. Choice B is wrong because pretest questions were not eliminated — five are still administered, just fewer than before. Choice D is wrong because it repeats the pre-October-2025 count of 10, which no longer applies to a 2026 candidate.

Answer: A
The Securities Act of 1933 governs the registration and full disclosure of new issues offered to the public through a prospectus, while the Securities Exchange Act of 1934 governs secondary market trading, created the SEC, and imposes ongoing requirements on exchanges, broker-dealers, and market conduct. Choice A states this correctly and is correct. Choice B is wrong because neither act is limited to municipal securities; both apply broadly across corporate and other securities, and municipal securities are in fact largely exempt from the 1933 Act's registration requirements rather than being its exclusive focus. Choice C is wrong because the 1934 Act, not the 1933 Act, created the SEC, and FINRA is a self-regulatory organization overseen by the SEC, not a federal agency with independent authority to sue in federal court. Choice D is wrong because it reverses the two statutes, attributing secondary market trading to the 1933 Act and new-issue registration and prospectus delivery to the 1934 Act, when the opposite pairing is correct.

Answer: B
Under FINRA Rule 1210, passing the SIE alone does not qualify anyone for registration with FINRA; registration also requires association with a member firm and passing the appropriate representative-level exam, making B correct. A is wrong because no registration, and therefore no ability to service retail accounts, results from the SIE by itself. C is wrong because there is no annual maintenance fee that converts an SIE pass into registration. D is wrong because there is no 'provisional' registration status — she remains unregistered until she both associates with a firm and passes a representative-level exam.

Answer: B
When a representative leaves a firm for any reason, including voluntary resignation, the firm must file a Form U5 terminating her registration, generally within 30 days, stating the reason for termination, and must provide her a copy of the filing; her registration ends upon filing, but FINRA retains jurisdiction over her conduct while registered for a period after termination. Choice B states this correctly and is correct. Choice A is wrong because Form U5 is the firm's filing, not the departing representative's; she does not file it herself when she joins her next firm, though her new firm will separately file a Form U4 for her. Choice C is wrong because a Form U5 is required for every termination, voluntary or for cause, and registration does not simply lapse on its own when employment ends. Choice D is wrong because filing the Form U5 does not extinguish jurisdiction over conduct that occurred while she was registered; that jurisdiction survives termination for a defined period, which is why misconduct at a prior firm can still be pursued after a representative resigns.

Answer: B
Continuing education has two components: the Regulatory Element, now completed annually for each registration category a person holds, and the Firm Element, training the firm designs and delivers based on its own annual needs analysis covering its products, strategies, and risks. Choice B states this correctly and is correct. Choice A is wrong because the annual Regulatory Element applies to registered representatives generally, not only to principals and supervisors; every registered person must complete it for each registration category held. Choice C is wrong because the Regulatory Element is a regulatory requirement with content set by the regulator, not by the firm; only the Firm Element is built entirely from the firm's own needs analysis. Choice D is wrong because it describes an older cycle in which the Regulatory Element came due periodically after registration rather than the current requirement, under which it must be completed every year, not just once in the second year.