SIE Exam Dumps - FINRA General Securities Representative Questions and Answers

A mutual fund investor’s cost basis is generally the total amount invested in the position, adjusted for actions that add to or reduce the investor’s investment in the fund. Reinvested dividends change cost basis because the dividends are used to purchase additional shares, which increases the investor’s total invested amount. Even if the dividends are paid from the fund and immediately reinvested, the IRS treats them as distributed to the shareholder and then used to buy shares. As a result, reinvestment increases the number of shares owned and increases total basis by the amount reinvested. Therefore, D is correct.

Choice A is incorrect because transferring a position via ACATS does not change the investor’s economic investment; it is simply moving the account/position between firms. The cost basis should transfer as part of the record (subject to cost basis reporting rules), but the act of transfer itself does not change basis. Choice B is incorrect because NAV movement changes market value, not what the investor paid; unrealized appreciation does not change cost basis. Choice C is incorrect because a new portfolio manager may affect future performance, but it does not alter the historical amounts the investor contributed or reinvested; thus it does not change basis.

For SIE purposes, the key relationship is: cost basis changes when the investor adds money (new purchases, dividend/cap gains reinvestments) or when basis is adjusted due to specific corporate/fund actions (like return of capital distributions in some contexts). Reinvested dividends are a standard, frequently tested basis-changing event because they affect taxable reporting and future gain/loss calculations upon redemption.

Step by Step Explanation:

Definition of Accredited Investor: As per SEC Regulation D, Rule 501, an accredited investor includes:

Individuals with a net worth exceeding $1 million (excluding primary residence equity).

Individuals with an annual income exceeding $200,000 (or $300,000 jointly with a spouse) for the past two years.

Elimination of Incorrect Answers:

$500,000 threshold (option B) is too low to qualify under Regulation D.

Option D is incorrect as it requires assets of $5 million, not $2.5 million.

SEC Regulation D, Rule 501 (Accredited Investor Definition): SEC Regulation D.

A stock dividend increases the number of shares owned without affecting the total cost basis. The new cost basis per share is calculated by dividing the original total investment by the new number of shares:

Original total investment = 100 shares × $50.00 = $5,000

After a 10% stock dividend, the investor owns 110 shares.

New cost basis = $5,000 ÷ 110 shares = $45.45 per share.

B is correct because it reflects the adjusted cost basis per share.

Step by Step Explanation:

Bullish Position: Buying ABC stock aligns with the expectation that the stock’s price will rise, allowing the investor to profit.

Incorrect Options:

A: Buying puts is a bearish strategy.

C: Selling calls benefits from stable or declining prices.

D: Selling short is a bearish strategy anticipating a price drop.

FINRA Guidance on Market Strategies: FINRA Trading Basics.

FINRA Rule 3220 prohibits member firms from giving gifts exceeding $100 per individual per year to ensure that gifts do not influence business conduct. The rule applies to gifts given in connection with the firm’s business.

C is correct because it adheres to FINRA’s $100 annual limit.

A is incorrect because the total value of gifts must also not exceed $100 annually.

B is incorrect as there is no $200 limit.

D is incorrect as gifts are allowed within the $100 limit.

The beta coefficient measures the sensitivity of a stock's returns relative to the overall market (usually the S&P 500). A beta of:

1.0 indicates the stock moves in line with the market.

Greater than 1.0 suggests the stock is more volatile than the market.

Less than 1.0 suggests the stock is less volatile.

D is correct because beta specifically compares the volatility of a stock to the market.

A is incorrect as beta does not measure the market’s volatility.

B is incorrect as beta considers both upside and downside movements.

C is incorrect as beta does not measure liquidity.

Broker-dealers are subject to SEC recordkeeping and retention rules (commonly tested under Exchange Act recordkeeping requirements). Certain records must be preserved for long periods, and some must be kept for the life of the firm. Among the choices, corporate formation documents (e.g., articles of incorporation/charter, bylaws, partnership agreements, and similar foundational records) are the category most clearly associated with “lifetime” retention. These documents establish the firm’s legal existence, governance structure, and authority to conduct business, so regulators require them to remain available as long as the broker-dealer exists.

Trade blotters and customer confirmations are important operational records, but they are generally subject to multi-year retention requirements rather than “lifetime.” They help reconstruct trades, demonstrate compliance, and support customer reporting, yet the retention period is not typically “for the life of the firm.” Similarly, Forms U4 and U5 and other employee records are retained for specified periods and are updated as reportable events occur, but they are not generally described as “lifetime of the broker-dealer” records in the way corporate formation documents are.

On the SIE, this question is about understanding that recordkeeping rules distinguish between:

organizational/legal foundation records (kept for the life of the firm), and

transactional/operational records (kept for defined periods).

That distinction supports investor protection and regulatory supervision by ensuring that a firm’s legal identity and governance history remain accessible for examinations, enforcement, and customer protection purposes.

Step by Step Explanation:

Common Stock: Holders of common stock typically have voting rights, which allow them to participate in decisions like electing the board of directors or approving major corporate actions.

Other Securities:

Preferred Stock: Usually does not carry voting rights.

Corporate and Convertible Bonds: Debt instruments, so they do not confer voting rights.

SEC Guide on Stock Voting Rights: SEC Voting Rights.

This scenario describes a covered call: the investor owns the underlying stock (long 100 shares) and has sold (written) a call option against it. A call option gives its holder the right to buy the stock at the strike price ($50) before expiration. On expiration day, the key question is whether the option is in the money (stock price above strike) or out of the money (stock price below strike). If XYZ closes at $45, the call option with a $50 strike is out of the money because exercising the right to buy at $50 makes no economic sense when the market price is $45. As a result, the call will typically expire worthless, and the writer keeps the premium collected. The investor remains long the original 100 shares, which is exactly choice B.

Choice A is incorrect because assignment/exercise is most likely when the option is in the money at expiration (and sometimes slightly in the money intraday), not when it is out of the money. Choice C is incorrect because standard listed equity options do not create a “margin call on the expiring contract” simply because they expire; margin requirements are about risk exposure while positions are open, and here the position is covered by stock ownership. Choice D is incorrect because a call option expiring out of the money does not deliver shares to the writer; it simply expires and disappears.

This tests core SIE options mechanics: moneyness, expiration outcomes, assignment likelihood, and covered vs. uncovered risk.