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SIE debt securities practice questions

Free SIE exam questions on bonds: par, coupon and price, current yield and yield to maturity, Treasuries, agencies and mortgage-backed securities, corporate bonds and money market instruments, with rationales.

Tap an answer to check it, or open "Show the answer and rationale" under each question. Customers in the questions are fictional. Exam practice only, not investment advice.

Question 1 of 20

After buying a bond between interest dates and paying accrued interest, who receives the full next coupon from the issuer?

  1. The trustee
  2. The seller
  3. The buyer
  4. Split by the two parties
Show the answer and rationale

Answer: C

The buyer is the holder on the payment date and gets the whole coupon, which repays the accrued interest the buyer advanced to the seller at settlement.

📚 Learn it: Par, Coupon, Maturity: Reading a Bond

Question 2 of 20

A 5% bond is trading at 125. What is its current yield?

  1. 3.75%
  2. 4.0%
  3. 5.0%
  4. 6.25%
Show the answer and rationale

Answer: B

$50 annual interest ÷ $1,250 price = 4%. 5% is the nominal yield, and 6.25% multiplies 5% by 1.25 instead of dividing.

📚 Learn it: The Price–Yield Seesaw

Question 3 of 20

Which term describes bonds rated below BBB or Baa?

  1. Senior secured
  2. Investment grade
  3. High-yield
  4. Prime
Show the answer and rationale

Answer: C

Below-investment-grade bonds are called high-yield, speculative or junk, because they pay more to offset greater default risk. Seniority and rating are separate ideas.

📚 Learn it: Who Gets Paid First: Corporate Bonds

Question 4 of 20

Which risk are TIPS primarily designed to reduce?

  1. Liquidity risk
  2. Credit risk
  3. Call risk
  4. Purchasing power risk
Show the answer and rationale

Answer: D

TIPS principal rises with inflation, protecting purchasing power. Treasuries already carry minimal credit risk, and TIPS are not callable.

📚 Learn it: Bills, Notes, Bonds, TIPS and STRIPS

Question 5 of 20

A collateralized mortgage obligation (CMO) differs from a simple pass-through because it:

  1. Has no exposure to prepayments
  2. Is always backed by the U.S. Treasury
  3. Divides pool cash flows into tranches
  4. Pays a fixed amount every month
Show the answer and rationale

Answer: C

A CMO splits the pool's payments among tranches with different priorities and maturities. That redistributes prepayment risk but does not eliminate it.

📚 Learn it: Ginnie, Fannie, Freddie and the Mortgage Pool

Question 6 of 20

Each of the following is a money market instrument EXCEPT:

  1. A bankers' acceptance due in 90 days
  2. A 13-week Treasury bill
  3. A newly issued 10-year Treasury note
  4. Commercial paper due in 60 days
Show the answer and rationale

Answer: C

A new 10-year note is a long-term capital market security. Bills, commercial paper and bankers' acceptances with short maturities are money market instruments.

📚 Learn it: The Money Market: Short, Safe, Liquid

Question 7 of 20

A bond indenture requires the issuer to set aside money regularly to retire part of the issue before maturity. This is a:

  1. Sinking fund
  2. Put feature
  3. Conversion feature
  4. Call protection clause
Show the answer and rationale

Answer: A

A sinking fund retires bonds over time or builds cash for maturity, which supports the issuer's ability to repay. A put is the investor's right to sell back.

📚 Learn it: Who Holds the Option: Calls, Puts, Conversion

Question 8 of 20

Unless stated otherwise, the par value of one corporate bond is assumed to be:

  1. $5,000
  2. $10,000
  3. $100
  4. $1,000
Show the answer and rationale

Answer: D

Bond math on the exam assumes $1,000 par per bond. $100 is the minimum Treasury purchase increment, and $5,000 is a common municipal denomination, not the standard par assumption.

📚 Learn it: Par, Coupon, Maturity: Reading a Bond

Question 9 of 20

Which statement about a bond bought at a premium is correct?

  1. Its current yield equals the coupon
  2. Its YTC is its highest yield
  3. Its YTM is above its coupon
  4. Its YTM is below its current yield
Show the answer and rationale

Answer: D

For premium bonds the yields fall in order: nominal > current > YTM > YTC. So YTM is below the current yield, and YTC is the lowest, not the highest.

📚 Learn it: The Price–Yield Seesaw

Question 10 of 20

The Trust Indenture Act of 1939 applies most directly to:

  1. Public corporate bond offerings
  2. Municipal revenue bonds
  3. Common stock offerings
  4. U.S. Treasury notes
Show the answer and rationale

Answer: A

The Act requires a qualified indenture and a trustee for public corporate debt offerings. Treasury and municipal securities are exempt, and stock has no indenture.

📚 Learn it: Who Gets Paid First: Corporate Bonds

Practice 10 more debt securities questions free →

A timed or tutor-mode set in the app, scored by SIE section, with every miss saved for review. Free, no sign-up needed.

Question 11 of 20

Which Treasury security cannot be stripped into STRIPS?

  1. 10-year note
  2. Treasury bill
  3. 30-year bond
  4. 30-year TIPS
Show the answer and rationale

Answer: B

STRIPS are made from fixed-principal notes, bonds and TIPS. Bills (and floating-rate notes) cannot be stripped, and bills pay no coupons to strip anyway.

📚 Learn it: Bills, Notes, Bonds, TIPS and STRIPS

Question 12 of 20

Which agency mortgage securities lack the full faith and credit backing of the U.S. government?

  1. Treasury STRIPS
  2. Treasury bills
  3. Ginnie Mae MBS
  4. Freddie Mac MBS
Show the answer and rationale

Answer: D

Freddie Mac (FHLMC), like Fannie Mae, is a GSE whose guarantee is not full faith and credit. Ginnie Mae, STRIPS and bills are backed by the U.S. government.

📚 Learn it: Ginnie, Fannie, Freddie and the Mortgage Pool

Question 13 of 20

Which pair of features best describes money market instruments as a group?

  1. High risk in exchange for high expected return
  2. Long maturities with semiannual coupons
  3. High liquidity and low credit risk
  4. Equity ownership with shareholder voting rights
Show the answer and rationale

Answer: C

Money market instruments are short-term, high-quality and easy to sell, so they serve as cash substitutes. They are debt, not equity, and offer modest returns.

📚 Learn it: The Money Market: Short, Safe, Liquid

Question 14 of 20

An issuer sells new 4% bonds and uses the proceeds to retire its outstanding 7% bonds. This is called:

  1. Stripping
  2. Refunding
  3. Conversion
  4. Defaulting
Show the answer and rationale

Answer: B

Refunding is replacing existing debt with new debt, usually at a lower rate. Conversion swaps bonds for stock, and stripping separates coupons from principal.

📚 Learn it: Who Holds the Option: Calls, Puts, Conversion

Question 15 of 20

A customer buys 10 corporate bonds at 99. Ignoring commissions and accrued interest, what is the cost?

  1. $99,000
  2. $9,900
  3. $10,100
  4. $990
Show the answer and rationale

Answer: B

Each bond costs 99 × $10 = $990, and 10 bonds cost $9,900. $990 is the price of just one bond, and $10,100 would be a price of 101.

📚 Learn it: Par, Coupon, Maturity: Reading a Bond

Question 16 of 20

For a callable bond bought at a discount, which yield is highest?

  1. Current yield
  2. Yield to call
  3. Yield to maturity
  4. Nominal yield
Show the answer and rationale

Answer: B

The discount is earned back faster if the bond is called early, so the annualized return to the call date is the highest of the four.

📚 Learn it: The Price–Yield Seesaw

Question 17 of 20

A holding company pledges shares of its subsidiaries, deposited with a trustee, to secure a bond issue. These are:

  1. Collateral trust bonds
  2. Mortgage bonds
  3. Income bonds
  4. Subordinated debentures
Show the answer and rationale

Answer: A

Collateral trust bonds are secured by securities the issuer owns, held by a trustee. Mortgage bonds use real property, and income bonds and debentures are unsecured.

📚 Learn it: Who Gets Paid First: Corporate Bonds

Question 18 of 20

TIPS pay a fixed interest rate. Why do the dollar amounts of the semiannual payments change over time?

  1. Payments are linked to stock market returns
  2. The coupon rate resets at every new auction
  3. It is paid on adjusted principal
  4. The Federal Reserve sets a new rate each year
Show the answer and rationale

Answer: C

The rate stays fixed, but it is applied to principal that moves with the CPI. When inflation raises the principal, each interest payment grows too.

📚 Learn it: Bills, Notes, Bonds, TIPS and STRIPS

Question 19 of 20

As interest rates rise, the expected average life of a mortgage-backed security generally:

  1. Lengthens
  2. Stays fixed
  3. Drops to zero
  4. Shortens
Show the answer and rationale

Answer: A

Fewer homeowners refinance when rates rise, so principal is repaid more slowly and the security's expected life extends.

📚 Learn it: Ginnie, Fannie, Freddie and the Mortgage Pool

Question 20 of 20

Which money market instrument carries the lowest credit risk?

  1. A negotiable CD over $250,000
  2. A bankers' acceptance
  3. Commercial paper
  4. A Treasury bill
Show the answer and rationale

Answer: D

T-bills are backed by the full faith and credit of the U.S. government. Commercial paper is unsecured corporate debt, and CD amounts above the FDIC limit are uninsured.

📚 Learn it: The Money Market: Short, Safe, Liquid

Practice 10 more debt securities questions free →

A timed or tutor-mode set in the app, scored by SIE section, with every miss saved for review. Free, no sign-up needed.

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