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Products & Risks SIE Practice Questions

Products & Risks

The biggest FINRA SIE domain (~44%). Bonds, equities, packaged products, options, and risk types.

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What this domain covers

Products & Risks is the largest SIE domain at roughly 44% of the exam. It tests breadth across equity securities, debt securities, packaged products (mutual funds, ETFs, UITs, REITs, DPPs), and derivatives, plus the major risk categories: market, credit, interest-rate, inflation, liquidity, and currency risk.

Sample questions

Question 1. A corporate bond with a 5% coupon trades at a premium to par. Which of the following is true?

  1. Current yield is higher than the coupon rate
  2. Yield to maturity is lower than the current yield, which is lower than the coupon rate
  3. Yield to maturity equals the coupon rate
  4. Yield to maturity is higher than the current yield
Show answer and explanation

Correct answer: B. For a premium bond (price > par), the ordering from lowest to highest is: yield to call (if callable) < yield to maturity < current yield < nominal yield (coupon). YTM accounts for the capital loss back to par at maturity, which drags it below the current yield.

Question 2. Which of the following is a key structural difference between a traditional open-end mutual fund and an exchange-traded fund (ETF)?

  1. Mutual funds trade intraday on exchanges; ETFs price once daily after market close
  2. ETFs trade intraday at market prices; mutual funds are priced once daily at forward NAV
  3. ETFs always charge a front-end sales load; mutual funds do not
  4. Mutual funds are exempt from SEC registration; ETFs are not
Show answer and explanation

Correct answer: B. ETFs trade on exchanges throughout the day at market-determined prices, which can deviate slightly from NAV. Open-end mutual funds price once per day at forward NAV — the NAV calculated after the market closes.

Question 3. An investor buys 1 XYZ call with a strike price of $50 and pays a premium of $3 per share. At what stock price does the investor break even at expiration?

  1. $47
  2. $50
  3. $53
  4. $56
Show answer and explanation

Correct answer: C. Long call breakeven = strike price + premium paid. Here $50 + $3 = $53. The stock must rise above $53 for the call buyer to make a net profit at expiration.

Question 4. Which U.S. Treasury security is issued at a discount to face value and pays no periodic interest?

  1. Treasury note
  2. Treasury bond
  3. Treasury bill
  4. Treasury inflation-protected security (TIPS)
Show answer and explanation

Correct answer: C. Treasury bills are short-term (one year or less) securities issued at a discount to face value. The investor's return is the difference between the discounted purchase price and the face value at maturity. Notes and bonds pay periodic coupon interest.

Question 5. To maintain its tax-advantaged status under the Internal Revenue Code, a Real Estate Investment Trust (REIT) must distribute at least what percentage of its taxable income to shareholders annually?

  1. 70%
  2. 80%
  3. 90%
  4. 100%
Show answer and explanation

Correct answer: C. REITs must distribute at least 90% of their taxable income to shareholders to avoid corporate-level taxation. REITs must also derive most of their income from real estate and hold most of their assets in real estate.

Question 6. Two corporate bonds are otherwise identical except one matures in 2 years and the other matures in 20 years. If interest rates rise sharply, the price of the 20-year bond will most likely:

  1. Rise more than the price of the 2-year bond
  2. Fall more than the price of the 2-year bond
  3. Move by approximately the same amount as the 2-year bond
  4. Rise while the 2-year bond falls
Show answer and explanation

Correct answer: B. Bond prices and interest rates move inversely. Longer-maturity bonds have greater interest-rate (duration) risk than shorter-maturity bonds — the same rate change produces a larger price move at the long end of the curve.

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Practice the other domains

Domain

Capital Markets

Domain

Trading & Accounts

Domain

Regulatory

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