Free practice test
Free Securities Industry Essentials Practice Test
50 questions from across the whole exam, weighted like the official Securities Industry Essentials outline. Every question shows its answer and explanation. No sign-up.
Question 1 of 50
A $1,000-par bond is quoted at 106.5. What is the quoted dollar price, before accrued interest and charges?
Reveal answer
Correct answer: $1,065
106.5% times $1,000 equals $1,065. A quote above 100 produces a premium price.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 2 of 50
A bond's scheduled annual interest is $60 on $1,000 par. Its market price moves from $1,000 to $900 after comparable rates rise. Which statement explains the adjustment?
Reveal answer
Correct answer: A buyer pays less for the same $60 annual interest and $1,000 scheduled principal.
The market changes the amount buyers pay for fixed cash flows. The $60 coupon and $1,000 face value remain unchanged.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 3 of 50
A shareholder owns 150 ordinary shares with one vote per share, and four directors are being elected using cumulative voting. How many votes may the shareholder concentrate on one candidate?
Reveal answer
Correct answer: 600 votes
The cumulative pool equals 150 shares multiplied by four seats, or 600 votes. The entire pool may be allocated to one candidate.
From the free practice set Common stock: ownership, limited liability, order of liquidation and voting rights
Question 4 of 50
A proposed description says, 'The SEC protects investors by deciding which registered securities deserve their money.' Which revision best preserves the agency's actual purpose and limits?
Reveal answer
Correct answer: The SEC protects investors through disclosure, oversight, and enforcement without selecting their investments
Investor protection relies on regulatory tools such as disclosure, oversight, and enforcement. It is not government selection of investments or preservation of registered securities' prices.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 5 of 50
Which description best distinguishes a bond's maturity date from an early call date?
Reveal answer
Correct answer: Maturity is scheduled principal repayment; an early call date permits issuer redemption before then.
Maturity is the scheduled date for principal repayment. A call feature permits the issuer to redeem before maturity under the bond's terms.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 6 of 50
Two investors disagree about limited liability. One says it protects a shareholder from corporate debts; the other says it protects the purchase price from a market decline. Which assessment is correct?
Reveal answer
Correct answer: The first describes limited liability; the second confuses it with protection against investment loss.
Limited liability concerns responsibility for corporate debts, not preservation of a stock investment's value. Fully paid shareholders can lose their investment without becoming liable for those debts.
From the free practice set Common stock: ownership, limited liability, order of liquidation and voting rights
Question 7 of 50
An existing 5% fixed-rate bond traded at par. Comparable market rates rise to 6%, with other factors unchanged. Which statement is best supported?
Reveal answer
Correct answer: Its price should fall, but the exact new price cannot be determined from those rates alone.
The inverse relationship establishes a downward price direction. It does not establish a one-for-one number of price points for each percentage-point rate change.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 8 of 50
A customer buys a company's shares for the first time, purchasing existing shares from a holder on an exchange. How should the transaction be classified?
Reveal answer
Correct answer: Secondary, because existing shares are resold
Market classification depends on issuance versus resale, not whether a buyer has previously owned the security.
From the free practice set The primary market and the secondary, third and fourth markets
Question 9 of 50
A $1,000-par bond was purchased at 90. Comparable market rates later decline, and its quote rises to 95. Which description of the new quoted price is correct?
Reveal answer
Correct answer: $950, still a discount because it remains below par
95% of $1,000 is $950. The price has risen but remains below $1,000 par, so the bond still trades at a discount.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 10 of 50
A corporation has ordinary common shares with one vote per share. Which event generally gives those holders a governance vote rather than a role in daily operations?
Reveal answer
Correct answer: A proposed merger submitted to shareholders
A merger submitted to shareholders is a major corporate change on which they vote. Employee scheduling and routine operating decisions are management functions.
From the free practice set Common stock: ownership, limited liability, order of liquidation and voting rights
Question 11 of 50
An investor buys a $1,000-par bond at a quote of 104. What dollar premium over par is paid, ignoring accrued interest and charges?
Reveal answer
Correct answer: $40
104% of $1,000 is $1,040. Subtract $1,000 par from $1,040 to obtain a $40 premium.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 12 of 50
A shareholder authorizes a proxy to cast all 40 ordinary shares in a cumulative election for three directors. Does appointing the proxy change the total voting pool?
Reveal answer
Correct answer: No; the pool remains 120 votes.
Forty shares times three seats equals 120 cumulative votes. Proxy authorization changes who exercises that authority, not the pool size or election method.
From the free practice set Common stock: ownership, limited liability, order of liquidation and voting rights
Question 13 of 50
SEC examiners inspect an entity within their division's jurisdiction even though no civil case against it has been filed. Which conclusion follows?
Reveal answer
Correct answer: Compliance inspections are an oversight function and need not be identified as a filed civil case
Compliance inspections are an SEC examination function. An inspection is distinct from filing a civil case and does not itself establish a judicial determination.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 14 of 50
Congress authorizes the SEC to establish detailed requirements in an area of securities regulation. The SEC then adopts a rule under that authority. Which function is illustrated?
Reveal answer
Correct answer: Agency rulemaking under statutory authority
The SEC may adopt regulations under authority granted by Congress. A regulation implementing a statute is distinct from Congress enacting the statute itself.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 15 of 50
An investor owns 200 ordinary shares with one vote per share. Four directors are being elected under statutory voting. What is the maximum the investor can cast for one candidate for one seat?
Reveal answer
Correct answer: 200 votes
Under statutory voting, 200 shares times one vote per share equals 200 votes for each seat. The four seats do not allow 800 votes to be concentrated on one candidate.
From the free practice set Common stock: ownership, limited liability, order of liquidation and voting rights
Question 16 of 50
Which question should be answered first when classifying a securities transaction among these market categories?
Reveal answer
Correct answer: Are newly issued securities being sold, or are existing securities being resold?
The first distinction is new issuance versus resale. Venue and direct institutional dealing can then refine the classification of a resale.
From the free practice set The primary market and the secondary, third and fourth markets
Question 17 of 50
Comparable market interest rates rise after an investor buys a fixed-rate bond. Credit quality and other factors are unchanged. Which result is expected?
Reveal answer
Correct answer: The price falls and the coupon payment stays the same.
Higher comparable rates make the existing fixed payments less attractive. Price falls to adjust the return, while fixed coupon dollars stay unchanged.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 18 of 50
SEC personnel review a regulated firm's records and compliance procedures during an inspection. Which regulatory tool are they using?
Reveal answer
Correct answer: Compliance examination
Inspecting a regulated entity's compliance is an examination function. The statute provides for examiners who inspect entities within the relevant SEC division's jurisdiction.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 19 of 50
What does it mean that regular SEC commissioner terms are staggered?
Reveal answer
Correct answer: Their scheduled expirations occur at different times
Staggering distributes scheduled term expirations across time. It does not mean the regular five-year term differs from commissioner to commissioner.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 20 of 50
Two otherwise comparable $1,000-par bonds have the same maturity. One pays a 4% coupon and the other pays 6%. If both were offered at par, why would buyers prefer the cash flows of the 6% bond?
Reveal answer
Correct answer: It pays more annual interest for the same stated price.
At equal par and equal prices, the 6% coupon supplies more annual interest. Different coupons do not alter the stipulated equal principal or maturity.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 21 of 50
A trading plan asks the SEC to restore confidence by selecting a target stock price. A second plan asks it to investigate possible manipulation affecting that stock. Which comparison is correct?
Reveal answer
Correct answer: Investigating possible manipulation fits the SEC's role; selecting a target stock price does not
The SEC protects market integrity by addressing misconduct such as manipulation. Its role is not to choose the price a particular stock should reach.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 22 of 50
An existing fixed-rate bond pays 7%. Comparable new bonds now offer 5% at par. With other factors unchanged, why would buyers pay more for the existing bond?
Reveal answer
Correct answer: Its fixed interest payments are more attractive relative to the new alternatives.
The existing 7% fixed coupon becomes more attractive when comparable new bonds offer 5%. Its market price rises without changing coupon or par.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 23 of 50
A member firm's training materials state that FINRA's industry status means its regulatory work occurs without SEC oversight. Which replacement sentence is accurate?
Reveal answer
Correct answer: FINRA performs self-regulatory functions under SEC oversight
Industry self-regulation and federal oversight coexist. FINRA's status as a self-regulatory organization does not remove SEC oversight or transform FINRA into a federal agency.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 24 of 50
A report describes an over-the-counter dealer sale of listed shares as third market and also includes it in secondary-market volume. Are those labels consistent?
Reveal answer
Correct answer: Yes; third market identifies a specific arrangement for a secondary resale.
The classifications are compatible at different levels of specificity. Third market is a particular form of secondary trading, not a synonym for all secondary trades.
From the free practice set The primary market and the secondary, third and fourth markets
Question 25 of 50
Which description correctly identifies the SEC?
Reveal answer
Correct answer: An independent federal agency administering securities laws
The SEC is an independent federal agency responsible for administering federal securities laws. It is distinct from Congress, industry self-regulatory organizations, and criminal prosecutors.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 26 of 50
A conventional $1,000-par bond pays $70 of annual interest. Its quoted price falls to 95. What is its stated annual coupon rate after the price decline?
Reveal answer
Correct answer: 7%
The coupon rate is $70 divided by $1,000 par, or 7%. A market-price decline does not change that rate.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 27 of 50
An investor buys a conventional $1,000-par bond at a quote of 107. The issuer repays par at maturity. Ignoring interest and charges, what is the difference between principal repayment and purchase cost?
Reveal answer
Correct answer: A $70 loss
107% of $1,000 is a $1,070 cost. Subtracting $1,070 from $1,000 repaid gives a $70 principal loss, excluding coupons and charges.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 28 of 50
A broker-dealer argues that federal securities regulation does not reach its trading because the trades occur over the counter rather than on an exchange. Which response is correct?
Reveal answer
Correct answer: The federal securities framework includes both exchange and over-the-counter markets
The national public interest in securities regulation extends to exchange and over-the-counter markets. A trade's off-exchange location does not itself remove it from federal securities regulation.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 29 of 50
A shareholder owns 75 ordinary shares in a five-seat director election. Compared with statutory voting, how many additional votes could cumulative voting let this holder direct to one candidate?
Reveal answer
Correct answer: 300 additional votes
Cumulative voting permits 75 × 5 = 375 votes for one candidate. Subtract the statutory maximum of 75: 375 − 75 = 300 additional votes that can be concentrated.
From the free practice set Common stock: ownership, limited liability, order of liquidation and voting rights
Question 30 of 50
In a bond transaction, which description correctly pairs the issuer and the bondholder?
Reveal answer
Correct answer: Issuer: borrower; bondholder: creditor
A bond represents debt. The issuer has borrowed, and the bondholder holds the creditor's claim.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 31 of 50
A $1,000-par bond's quote moves from 96 to 99. Ignoring interest and charges, by how many dollars does the price increase?
Reveal answer
Correct answer: $30
The quotation rises 3 percentage points: 99 minus 96. Three percent of $1,000 is $30.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 32 of 50
Which comparison is most appropriate for isolating the effect of market interest rates on an existing fixed-rate bond's price?
Reveal answer
Correct answer: A rate change with credit quality and other factors held constant
Holding other influences constant isolates the inverse price-rate relationship. Simultaneous changes in credit quality or payments complicate attribution.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 33 of 50
In market terminology, over-the-counter trading refers to trading that occurs where?
Reveal answer
Correct answer: Away from an exchange
Over-the-counter trading is off-exchange trading. The term does not require a security to be unlisted.
From the free practice set The primary market and the secondary, third and fourth markets
Question 34 of 50
An investor buys shares after a registered offering and later experiences an ordinary market-price decline. The investor argues that registration entitles the investor to SEC reimbursement. Which explanation is correct?
Reveal answer
Correct answer: Registration does not provide SEC insurance against market losses
Registration does not insure an investment's market value. An ordinary market-price decline does not create a right to SEC reimbursement merely because the offering was registered.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 35 of 50
A fund uses a broker to purchase a large block of existing shares on an exchange. Which fact prevents classifying the described arrangement as fourth-market trading?
Reveal answer
Correct answer: The fund uses a broker intermediary instead of trading directly with another institution.
Fourth-market trading requires direct institutional dealing. A broker-intermediated exchange purchase does not fit that arrangement merely because it is large.
From the free practice set The primary market and the secondary, third and fourth markets
Question 36 of 50
After all creditors are satisfied, $90,000 remains in a liquidation. Preferred stockholders have a $60,000 liquidation claim. How much remains for common stockholders as a group?
Reveal answer
Correct answer: $30,000
Subtract the $60,000 preferred claim from the $90,000 remaining after creditors: $90,000 − $60,000 = $30,000 for common stockholders.
From the free practice set Common stock: ownership, limited liability, order of liquidation and voting rights
Question 37 of 50
An investor sells shares on an exchange at a price higher than the issuer's original offering price. What happens to the proceeds of this resale?
Reveal answer
Correct answer: The selling investor receives the resale proceeds, subject to transaction costs.
The secondary seller receives the proceeds. A price increase does not split a resale into an issuer financing payment and a seller payment.
From the free practice set The primary market and the secondary, third and fourth markets
Question 38 of 50
Which activity is part of the SEC's enforcement role?
Reveal answer
Correct answer: Bringing a civil action for a securities-law violation
The SEC brings civil enforcement actions for securities-law violations. Legislating, criminal prosecution, and criminal sentencing are different governmental functions.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 39 of 50
A registered representative tells a customer that an effective registration statement means the SEC considers the stock a sound investment. What correction is appropriate?
Reveal answer
Correct answer: Effectiveness is part of the disclosure process, not an endorsement of investment merits
Registration is a disclosure framework. Effectiveness does not mean the SEC has judged the investment sound, endorsed its financial condition, or promised a return.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 40 of 50
A buyer pays a premium for a conventional bond that will repay par at maturity. Which statement correctly distinguishes the purchase from the issuer's obligation?
Reveal answer
Correct answer: The premium raises the buyer's cost above par but does not raise scheduled principal repayment.
A premium is part of market purchase cost, not an amendment to principal, coupon, or maturity. The issuer's scheduled principal obligation remains par.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 41 of 50
A company sells newly issued shares, while its founder separately sells shares already held. Which part supplies new capital to the company?
Reveal answer
Correct answer: The company's sale of newly issued shares
Proceeds from the company's new shares supply issuer capital. Proceeds from the founder's existing shares belong to the founder as selling holder.
From the free practice set The primary market and the secondary, third and fourth markets
Question 42 of 50
A company that has been publicly traded for years sells additional newly issued shares to finance expansion. Which market does this sale represent?
Reveal answer
Correct answer: Primary market
A follow-on offering of new shares is primary-market activity. The company's prior public trading history does not make its new issuance a resale.
From the free practice set The primary market and the secondary, third and fourth markets
Question 43 of 50
A trainee says that buying listed stock from a dealer off exchange is impossible because listing determines where each trade occurs. Which response best corrects the error?
Reveal answer
Correct answer: Listing status and execution venue are distinct; the described resale fits the third market.
Exchange-listed securities can trade over the counter. A dealer's off-exchange resale of listed stock illustrates the distinction between listing and execution.
From the free practice set The primary market and the secondary, third and fourth markets
Question 44 of 50
A fixed-rate bond's quote declines after comparable market rates rise. Another analyst attributes the decline to a lower coupon payment. Which observation would identify the analyst's mistake?
Reveal answer
Correct answer: The scheduled interest dollars are unchanged even though the trading price is lower.
The fixed coupon does not decline with market price. Higher competing rates can lower the value of unchanged contractual payments.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 45 of 50
A company issues new shares to investors on Monday. On Tuesday, one investor sells those shares to another investor on an exchange. What is the correct sequence of market classifications?
Reveal answer
Correct answer: Primary, then secondary
The issuer's sale of new shares is primary. The later holder-to-holder exchange sale is secondary, regardless of how soon it follows issuance.
From the free practice set The primary market and the secondary, third and fourth markets
Question 46 of 50
What does a bond quotation of 100 indicate?
Reveal answer
Correct answer: A price equal to 100% of face value
Bond prices are quoted as a percentage of par. A quotation of 100 is par pricing: $1,000 for $1,000 face value.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
Question 47 of 50
Two institutions trade an existing bond position directly, without a broker intermediary. The bonds are not exchange listed. Which specific classification applies?
Reveal answer
Correct answer: Fourth market because the institutions trade directly
Direct trading between institutions identifies the fourth market. That classification does not require an exchange listing.
From the free practice set The primary market and the secondary, third and fourth markets
Question 48 of 50
A compliance memo says: 'Congress adopts SEC regulations, and the SEC enacts federal securities statutes.' Which correction is needed?
Reveal answer
Correct answer: Congress enacts statutes, while the SEC adopts rules under the authority those statutes grant
The memo reverses legislation and agency rulemaking. Congress enacts federal statutes, and the SEC implements its statutory authority through rules and other regulatory work.
From the free practice set The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority
Question 49 of 50
Which action is generally a function of common stockholders exercising voting rights?
Reveal answer
Correct answer: Electing members of the board of directors
Common stockholders generally elect directors. The board declares dividends, while daily operations are management functions.
From the free practice set Common stock: ownership, limited liability, order of liquidation and voting rights
Question 50 of 50
A holder has two $1,000-par bonds from the same 4% fixed-coupon issue. What is the combined annual coupon interest?
Reveal answer
Correct answer: $80
Two bonds have $2,000 total par. Multiply $2,000 by 4% to get $80 combined annual interest.
From the free practice set Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions
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How this test is built
Questions are drawn from the 160 free practice questions for Securities Industry Essentials, one free practice set per exam module. Each module gets questions in proportion to its share of the exam. The test only changes when the course content is updated.
| Module | Share of exam | Questions here |
|---|---|---|
| 1. Regulators and market participants Free practice: The SEC: why securities are regulated, and the SEC's definition, jurisdiction and authority | 25% | 13 |
| 2. Markets, the economy and offerings Free practice: The primary market and the secondary, third and fourth markets | 21% | 11 |
| 3. Equity securities Free practice: Common stock: ownership, limited liability, order of liquidation and voting rights | 16% | 8 |
| 4. Debt instruments Free practice: Bond basics: par value, coupon, maturity, and why price and interest rates move in opposite directions | 37% | 18 |