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FINRA SIE Exam
Securities Industry Essentials (Page 4 )

Updated On: 7-Feb-2026
Page 4 of 34
PDF with 266 Questions

The provision that allows a bond issuer to purchase bonds from customers prior to the maturity date on the bond is known as a:

  1. Put
  2. Call
  3. Conversion
  4. Defeasement

Answer(s): B

Explanation:

Call Provision: This allows the issuer to redeem bonds before their maturity date, usually at a premium to the par value, which benefits the issuer in a declining interest rate environment.

Put Provision: Allows bondholders, not issuers, to sell the bond back to the issuer.

Conversion: Relates to convertible bonds that can be converted into equity.

Defeasement: Refers to the removal of a bond issuer's obligation by setting aside cash or securities to cover the debt.


Reference:

SEC Guide on Callable Bonds: SEC Callable Bonds.



Which of the following types of accounts permits an investor to borrow money from a broker-dealer to help pay for a trade?

  1. Cash
  2. Margin
  3. An individual retirement account (IRA)
  4. Delivery versus payment (DVP) / receive versus payment (RVP)

Answer(s): B

Explanation:

Margin Accounts: Allow investors to borrow funds to purchase securities, with the securities serving as collateral for the loan.

Cash Accounts: Require full payment for securities purchased.

IRAs: Do not permit borrowing due to their tax-advantaged status.

DVP/RVP: Settlement mechanisms, not account types for borrowing.


Reference:

FINRA Rule 4210 (Margin Requirements): F, I, N, R, A Rule 4210.



A rating agency downgrades a corporation's credit rating.
Which of the following effects is this action most likely to have on the yield and price of the corporation's outstanding bonds?

  1. Yield will fall; price will fall.
  2. Yield will fall; price will rise.
  3. Yield will rise; price will fall.
  4. Yield will rise; price will rise.

Answer(s): C

Explanation:

Credit Downgrade: Increases perceived risk, causing bond prices to drop and yields to rise.

Yield-Price Relationship: Yields move inversely to bond prices. Lower prices lead to higher yields as investors demand more return for increased risk.


Reference:

SEC Guidance on Bond Ratings: SEC Bond Ratings.



Which of the following responses best describes a short sale?

  1. A sale of securities that results in a loss
  2. A sale of securities that the investor does not own
  3. A sale of securities that results in an unsecured debit balance in the investor's account
  4. A sale of securities that the investor had purchased in his cash account but had not yet paid for

Answer(s): B

Explanation:

Short Sale Definition: Involves selling borrowed securities with the expectation of repurchasing them at a lower price.

Investor Ownership: Short sales do not involve securities already owned by the seller.

Other Options: None of the other choices accurately define a short sale.


Reference:

SEC Regulation SHO (Short Selling): SEC Short Sales.



A registered representative who is terminated from a broker-dealer must notify FINRA of a residential address change for what period of time after termination?

  1. One year
  2. Two years
  3. Three years
  4. Six years

Answer(s): B

Explanation:

FINRA Rule 1122: Requires that registered representatives update their residential address with FINRA for two years post-termination.

Purpose: This ensures accurate records for potential regulatory inquiries during the statutory two- year period when a terminated individual remains subject to FINRA's jurisdiction.


Reference:

FINRA Rule 1122 (Filing False or Misleading Information): FINRA Rule 1122.



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