CNA Domain 8: Legal and Ethical Need (Quiz 1) Welcome to your SIE Practice Exam 2 This test is designed to prepare you mentally for the actual SIE Exam with the same number of (75 questions) and the same time allowed (105 minutes) as the actual exam. The SIE Exam is breakdown into four (4) Parts. Here are the Four (4) Domains of SIE Exam with the weightage and number of questions in this practice exam: 1. Understanding Products and their Risks [33 Questions] - 44% 2. Knowledge of Capital Markets [12 Questions] - 16% 3. Understanding Trading, Customer Accounts, and Prohibited Activities [23 Questions] - 31% 4. Overview of the Regulatory Framework[7 Questions] - 09% Please click NEXT to start your Free SIE PRACTICE EXAM right away. Best of Luck! 1. By electing a board of directors (BOD), stockholders have A) a say in the company's management but are not involved in the day-to-day details of its operations. B) neither a say in the company's management nor a say in any of the day-to-day details of its operations. C) a say in the day-to-day details of its operations but no say in the management selected to carry out those operations. D) a say in the company's management and all day-to-day details of its business operations. None 2. Common shareholders have the right to receive an audited set of financial statements of the company's performance A) each quarter. B) monthly. C) biannually. D) annually. None 3. In order to receive a declared dividend a shareholder must be an owner of record at the close of business on the A) record date. B) ex-dividend date. C) payable date. D) declaration date. None 4. A common stock shareholder's residual right to corporate assets refers to which of the following? A) During the dissolution of corporate assets, common shareholders will be paid first— before debtholders and preferred shareholders are paid. B) During the dissolution of corporate assets, common shareholders will be paid if there are any funds left after debtholders and preferred shareholders are paid. C) During the dissolution of corporate assets, common shareholders will be paid if any funds are left after preferred shareholders are paid but before debtholders are paid. D) During the dissolution of corporate assets, common shareholders will be paid if any funds are left after debtholders are paid but before preferred shareholders are paid. None 5. A shareholder feels strongly about some of the issues to be voted on at the next shareholder meeting but is unable to attend. Which of the following is true? A) The shareholder will need to attend in person in order to vote. B) The shareholder must relinquish the right to vote at this meeting. C) The shareholder must deliver the vote in person but can do so before the date of the meeting. D) The shareholder can vote by proxy. None 6. The decision to pay a dividend rests with A) shareholders, which is why it is guaranteed. B) shareholders but is not guaranteed because they can vote against paying one. C) the board of directors (BOD) but is not guaranteed. D) the board of directors (BOD) and is guaranteed. None 7. A penny stock is best described as A) an exchange-listed stock valued at less than $5 per share. B) an unlisted stock valued at less than $5 per share. C) an unlisted stock valued at less than $2 per share. D) an unlisted stock valued at less than $1 per share. None 8. Transactions where the penny stock rules are applicable would be those that A) are either solicited or unsolicited. B) are neither solicited nor unsolicited transactions. C) are solicited. D) are unsolicited. None 9. An investor interested in quarterly income should invest in A) corporate bonds. B) utility company stock. C) STRIPS. D) Treasury bonds. None 10. How long must customer complaints be kept on file by the broker-dealer? A) Two years B) Four years C) As long as the firm is in business D) Three years None 11. Common dividends may be A) declared, increased, reduced, or suspended by the shareholders. B) declared or suspended by the board of directors (BOD), with increases and reductions decided by the shareholders. C) declared or increased only by the board of directors (BOD). D) declared, increased, reduced, or suspended by the board of directors (BOD). None 12. Under penny stock rules, what is required for a broker-dealer to consider an investor an established customer? A) Open cash account for six months or more B) Signed transaction agreement C) At least three separate penny stock purchases D) Signed risk disclosure statement None 13. A preemptive right for existing shareholders is best described as A) the right to purchase shares in an amount that would keep a shareholder's proportionate ownership in the corporation unchanged when a company issues additional shares. B) the right for the board of directors (BOD) to preempt existing shareholders and only allow them to purchase the newly issued additional shares after the board has purchased the shares they want. C) the right that allows new investors to purchase shares before existing shareholders when a company issues additional shares. D) the right for the board of directors (BOD) to preempt existing shareholders from purchasing additional shares so that they may be used for paying stock dividends by the corporation. None 14. Once a dividend is initially declared by the board of directors (BODs), any future dividend payments A) are not guaranteed to be paid, but if they are paid, they must be at least equal to the initial declaration. B) carry no guarantee of payment in any amount. C) are guaranteed to be paid in at least the same amount as the initial declaration. D) are guaranteed to be paid, but no amount is stipulated. None 15. Purchasers of common stock may generally look to all of the following risks associated with that investment except A) reduction in dividend payout. B) low priority. C) market risk. D) interest rate risk. None 16. List the dates associated with dividend payment in their proper order. A) Record date, declaration date, ex-dividend date, pay date B) Declaration date, ex-dividend date, record date, pay date C) Declaration date, pay date, ex-dividend date, record date D) Declaration date, record date, ex-dividend date, pay date None 17. An investor looking to speculate in penny stocks would be exempt from the suitability statement requirement under which of the following circumstances? A) The investor is already exempt from the risk disclosure requirements. B) The investor is an established customer. C) The investor's account is approved for margin purchases. D) The investor has already received the risk disclosure statement. None 18. All of the following are possible actions of an investor who has received stock rights except A) sell the rights for a short-term capital gain or loss. B) hold the rights for a possible long-term capital gain. C) exercise the rights to purchase the new stock at a discount. D) allow the rights to expire unexercised. None 19. For registered shares held by an affiliate (known as control stock), which of the following applies? A) No holding period or any volume restrictions B) No holding period, but volume limits always apply C) Six-month holding period, with sales allowed freely thereafter D) Six-month holding period, with volume limits thereafter None 20. Securities acquired through some means other than a registered public offering are known as A) convertible. B) control. C) restricted. D) affiliate's stock. None 21. Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144? A) Stock acquired by a corporate affiliate in a private placement B) Stock acquired in the OTC market by a corporate affiliate C) Unregistered stock acquired by a nonaffiliate under an investment letter D) Unregistered stock acquired by a corporate affiliate in a stock option program None 22. Mr. Smith purchases 2% of MES Corporation's common stock. Four years later Mrs. Smith purchases 9% for her own account. Which of the following is true? A) Only Mr. Smith, as the initial shareholder, would be considered a control person. B) Neither Mr. or Mrs. Smith is considered a control person. C) Because she owns more shares, only Mrs. Smith is considered a control person. D) Both Mr. and Mrs. Smith are considered control persons. None 23. Restricted securities may not be sold until they have been held fully paid for A) one year. B) six months. C) two years. D) one month. None 24. An officer of a public company buys 1,000 shares of the company's registered stock in the open market. Regarding the sale of these shares, the officer may sell A) immediately, subject to Rule 144 volume limitations. B) immediately, with no volume restrictions. C) under Rule 144 only after a six-month holding period. D) only after leaving (becoming unaffiliated with) the company. None 25. An investor having no affiliation with CDS Company has just purchased shares that were sold subject to Rule 144. This investor A) must wait six months before any sales can be made. B) can only sell subject to volume limits. C) must wait six months before selling shares subject to volume limits. D) can sell the shares unrestricted at any time. None 26. A corporation is issuing a bond with an interest rate below that which is commonly being offered for this type of bond. To improve the bond's marketability without reducing the capital to be obtained, which of the following actions might the corporation take? A) Offer a warrant on the stock with each bond B) Offer the bond at a discount C) Offer a stock dividend to the current shareholders D) Conduct a rights offering for potential bond buyers None 27. For restricted stock (unregistered) held by a nonaffiliated, which of the following applies? A) Six-month holding period, with volume limits thereafter B) No holding period, but volume limits always apply C) No holding period or any volume restrictions D) Six-month holding period, with sales allowed freely thereafter None 28. Securities and Exchange Commission Rule 144 regulates A) the sale of new issue securities in the primary market. B) state-level (blue-sky) registration of securities. C) communications with public retail investors. D) the sale of control and restricted securities. None 29. A corporation with 1 million shares of stock outstanding wishes to sell another 250,000 shares. When management conducts a rights offering, a shareholder owning 100 shares will be given stock rights to purchase how many additional shares? A) 125 shares B) 25 shares C) 250 shares D) 100 shares None 30. A nonaffiliated owns 3% of an issuer's common stock. This person will be considered a control person if a spouse owns A) 2% of the issuer's common stock. B) 5% of the issuer's common stock. C) 8% of the issuer's common stock. D) any shares of the issuer's common stock. None 31. Restricted shares, those that are unregistered, meaning that they were not attained in a public offering, may be sold by a nonaffiliate A) after holding them for six months but then subject to volume restrictions. B) freely, with no holding period or volume restrictions. C) at any time but with volume restrictions. D) after holding them for six months and freely thereafter. None 32. All of the following are considered control persons (owning control stock) except A) a director on the board of directors (BOD) owning 2% of the outstanding shares. B) an unaffiliated shareholder owning 8% of the outstanding shares. C) the corporation's CFO owning 1% of the outstanding shares. D) an officer of the corporation owning less than 1% the outstanding shares. None 33. For restricted stock (unregistered) held by an affiliate (insider), which of the following applies? A) No holding period or any volume restrictions B) Six-month holding period, with volume limits thereafter C) No holding period, but volume limits always apply D) Six-month holding period, with sales allowed freely thereafter None 34. If an officer of a bank with the authority to purchase and sell securities on behalf of the bank wants to purchase new issues, which of the following statements is true? A) The officer may not purchase a new issue unless the amount he wishes to purchase is considered small in relation to the total offering. B) The officer may purchase a new issue because anyone is allowed to purchase new issues. C) The officer may not purchase a new issue because he is considered a restricted person. D) The officer may purchase a new issue because no banking rules prohibit it. None 35. For primary and secondary markets, which of the following is true? A) In the secondary market, securities transactions cannot take place on an exchange. B) In the primary market, securities are purchased from and sold to individual investors. C) In the secondary market, all sales proceeds go to the issuer.V D) In the primary market, securities are sold to the public and the issuer receives the sale proceeds. None 36. Public offerings of securities are regulated under A) the Securities Act of 1934. B) Financial Industry Regulatory Authority (FINRA)'s communications with the public rules. C) the Securities Act of 1933. D) the Consumer Protection Act. None 37. The XYZ Company is looking to offer shares of its common stock to the public. Which of the following laws enacted by Congress would have the most relevance to the issuance of these securities? A) The Securities Investors Protection Act of 1970 B) The Investment Company Act of 1940 C) The Securities Act of 1933. D) The Trust Indenture Act of 1939 None 38. For the primary market, which of the following is true? A) All U.S. exchanges are primary markets where price is determined by supply and demand. B) All U.S. exchanges are primary markets where securities are offered at a public offering price. C) Issuer transactions occur in the primary market, and securities are offered at a public offering price. D) Issuer transactions occur in the primary market, and price is determined by supply and demand. None 39. A prospectus displays which of the following? A) A guarantee insuring against loss B) Performance predictions for a minimum of three years C) The Securities and Exchange Commission (SEC) endorsement D) Description of how the proceeds will be used None 40. In the capital markets, securities such as stocks and bonds can be A) offered by both public and private sectors. B) purchased and sold by individuals only. C) purchased and sold by institutions only. D) offered by the public sector only. None 41. All of the following are restricted persons except A) finders and fiduciaries acting on behalf of the underwriters. B) individual owning 5% of a member firm. C) employees of members. D) portfolio managers. None 42. An officer of a broker-dealer firm would be categorized as a restricted person if that individual attempted to purchase A) a municipal bond in a state where the officer does not reside. B) closed-end funds on the secondary market. C) call or put options on a stock in the secondary market. D) a new issue initial public offering (IPO) at the public offering price. None 43. An offering is defined as the sale of a security. Regarding offerings, all of the following are true except A) offerings of stocks can be made to the investing public. B) offerings of bonds can be made to the investing public. C) offerings can be identified by who is selling the securities issuer or investor. D) corporate securities can only be offered in public securities offerings. None 44. The ATOP Company is planning to offer shares of both common and preferred stock to the investing public in order to raise operating capital intended to be used for expansion. Which of the following laws enacted by Congress would be the most relevant when issuing these equity securities to the public? A) The Trust Indenture Act of 1939 B) The Investment Company Act of 1940 C) The Securities Investors Protection Act of 1970 D) The Securities Act of 1933 None 45. Ensuring that the investing public is fully informed about a security and its issuing company when shares are first sold in the primary market is covered under which of the following federal acts? A) Securities Exchange Act of 1934 B) Uniform Securities Act C) Securities Act of 1933 D) Investment Company Act of 1940 None 46. The spread a dealer makes is best described as A) the total commission. B) the ask plus the bid. C) none of these. D) the ask minus the bid. None 47. What is the spread on a stock quote? A) The range of prices the stock has shown over the course of one trading day B) The profit margin for an individual trade C) The broker-dealer's commission charges for the transaction D) The difference between the bid price and the ask price or offer None 48. Subject to market liquidity, which of the following orders is most likely to be executed immediately? A) All-or-none (AON) order B) Fill-or-kill order C) Market order D) Limit order None 49. Shares must be borrowed in order to A) buy to open a position. B) sell short to open a position. C) buy to close a position. D) sell short to close a position. None 50. Which of the following transactions has the most risk? A) Selling short B) Short against the box C) Buying to open D) Selling to close None 51. An opening transaction can be A) a short sale only. B) either a buy or a sell. C) a buy only. D) a sell only. None 52. Selling shares not yet borrowed or located to be borrowed is A) known as closing a short sale with a purchase. B) known as a short sale and is prohibited. C) known as a naked short sale and is prohibited. D) known as closing a position with a sale and is prohibited. None 53. When investors open a position by going long the security, they can close the position by A) opening a new position in the security. B) buying the security. C) selling the security short. D) selling the security. None 54. Which of the following transactions has the least risk? A) Selling to open B) Buying to open C) Short against the box D) Selling short None 55. A customer who is bullish on ABC would most likely A) sell ABC long. B) buy ABC long. C) sell ABC short. D) buy ABC short. None 56. Which of the following is true regarding short sales? A) Selling short involves purchasing the shares first. B) Selling short involves selling shares not yet owned. C) Selling shares not yet owned is prohibited. D) Selling short means selling less shares than were purchased. None 57. An investor with no existing positions in MMS stock sells 100 shares. This is A) a long bearish position. B) a short bearish position. C) a short bullish position. D) a long bullish position. None 58. A closing transaction can be A) either a buy or a sell. B) a sell only. C) a short sale. D) a buy only. None 59. Short sellers have A) unlimited profit and loss potential. B) unlimited profit potential and limited loss potential. C) limited profit and loss potential. D) limited profit potential and an unlimited loss potential. None 60. Shares to sell short have been located in order to be borrowed. Once sold short, these shares will be known as A) covered. B) uncovered. C) naked. D) closed. None 61. Potential risks of owning common stock include all of the following except A) unlimited liability. B) business risk. C) market risk. D) low priority in liquidation. None 62. Ownership of a security indicates that one is A) short the position and bearish. B) short the position and bullish. C) long the position and bullish. D) long the position and bearish. None 63. All of the following are bullish positions except A) long warrants. B) long stock. C) long calls. D) short stock. None 64. A customer who is short against the box may close the position by all the following except A) depositing the fair market value of the shorted stock into his account. B) combining purchases of stock with stock already owned by the customer. C) covering the short with the stock in his account. D) purchasing twice the stock in the open market. None 65. Meeting the location requirements and the borrowing of securities when a customer wants to sell short is done by A) the customer or entity that the shares will be borrowed from. B) the broker-dealer on behalf of the short-selling customer. C) the purchaser of the securities being sold short. D) the customer who wants to sell short. None 66. A customer wishes to sell short 1,000 shares of ABC. Prior to executing the order, the registered representative must A) receive permission from the customer to borrow shares. B) receive principal permission to execute the trade. C) locate shares that can be lent to effect the sale. D) have the customer pledge personal collateral to cover the sale. None 67. An investor who has a short position in 500 shares of JKH common stock would eliminate that position by A) entering an opening purchase order for 500 shares of JKH. B) entering a closing purchase order for 500 shares of JKH. C) entering a closing purchase order for 500 shares of ABC. D) entering a closing sale order for 500 shares of JJK. None 68. Selling long is equivalent to which of the following? A) Selling to close B) Selling short C) Selling to open D) Selling to open then buying to close None 69. Information on the Form U-4 is extensive and includes names (aliases) and addresses in addition to which of the following? A) 2 years employment and 3 years of residency history B) 10 years of residency and 5 years of employment history C) 3 years of employment and 3 years of residency history D) 5 years of residency and 10 years of employment history None 70. Members and non-members alike can look into a broker's service and qualifications record by accessing which of the following services? A) The Central Registration Depository B) Municipal Securities Rule Board (MSRB) C) BrokerCheck D) Form U-4 None 71. Registered broker-dealers must have fingerprint records for most of their employees and for which of the following? A) Drivers B) Doorman C) Receptionist D) Partners None 72. Updates to the Form U4 such as a change in address, and that do not point to disciplinary action must be made promptly but no later than A) 10 business days. B) 90 days. C) 60 days. D) 30 days. None 73. FINRA firms must employee at least how many principals? A) Two B) Three C) Four years. D) Five None 74. Those persons employed by a Financial Industry Regulatory Authority (FINRA)-registered broker-dealer to do nothing other than provide training for its associated persons A) need not be registered. B) must be registered as a representative. C) must be registered as a principal. D) are exempt from the firm element of the firm's continuing education requirement. None 75. After receiving a written complaint letter from a client, a registered representative should. A) forward copies immediately to Financial Industry Regulatory Authority (FINRA) or the appropriate self-regulatory organization (SRO). B) contact the client immediately to attempt reaching a resolution to the issue. C) employ a thorough investigation and provide a report to the Securities and Exchange Commission (SEC). D) turn the complaint over to the appropriate supervisor or principal. None 1 out of 75 Time is Up! Time's upTime is Up!
