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SIE equity securities practice questions

Free SIE exam questions on equity: common and preferred stock, voting rights, rights and warrants, ADRs and returns on stock, each with the answer and a rationale.

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

Common stockholders generally have all of the following rights EXCEPT:

  1. The right to a set dividend each year
  2. The right to vote for the board of directors
  3. The right to transfer their shares
  4. Limited liability for corporate debts
Show the answer and rationale

Answer: A

Common dividends are paid only if the board declares them, so no set dividend exists. Voting for directors, transferring shares and limited liability are standard common-stock features.

📚 Learn it: Common Stock: Owners Last in Line

Question 2 of 20

A 6% noncumulative preferred, $100 par, skipped its dividend the last two years. What must it receive this year before common stockholders get a dividend?

  1. $12
  2. $0
  3. $18
  4. $6
Show the answer and rationale

Answer: D

Noncumulative preferred loses skipped dividends, so only the current $6 must be paid before common. $12 and $18 treat it as cumulative; preferred still comes ahead of common, so $0 is wrong.

📚 Learn it: Preferred Stock: The Fixed-Dividend Hybrid

Question 3 of 20

A company plans to sell new shares equal to 20% of its stock. A holder who owns 1% wants to stay at 1%. Which shareholder right addresses this?

  1. Right of inspection
  2. Preemptive right
  3. Cumulative voting
  4. Limited liability
Show the answer and rationale

Answer: B

A preemptive right lets existing holders buy new shares in proportion to keep their percentage. Cumulative voting concerns director elections, limited liability caps losses, and inspection lets holders review certain records.

📚 Learn it: Rights vs Warrants: Short and Cheap, Long and Pricey

Question 4 of 20

All else equal, which change would raise the dollar value of an ADR?

  1. The issuer's home currency strengthens vs. the dollar
  2. The depositary bank raises its custody fee
  3. The ADR program moves from Level 2 to Level 1
  4. The U.S. dollar strengthens vs. the issuer's currency
Show the answer and rationale

Answer: A

A stronger home currency means the underlying shares convert into more dollars, raising the ADR's dollar value. A stronger dollar does the opposite, higher fees reduce net returns, and a program level change does not raise value.

📚 Learn it: ADRs: Foreign Stock in U.S. Dollars

Question 5 of 20

A stock priced at $36 pays a quarterly dividend of $0.45. What is its current yield?

  1. 1.25%
  2. 5%
  3. 4.5%
  4. 8%
Show the answer and rationale

Answer: B

Annual dividend = $0.45 × 4 = $1.80; $1.80 ÷ $36 = 5%. 1.25% uses only one quarter; 4.5% and 8% are arithmetic slips.

📚 Learn it: How Stock Pays: Dividends, Gains and Yield

Question 6 of 20

Why is cumulative voting considered favorable to minority shareholders?

  1. They can concentrate all votes on one candidate
  2. They may elect all directors with a simple majority
  3. They can vote without attending or sending a proxy
  4. They receive more votes per share than majority holders
Show the answer and rationale

Answer: A

Cumulative voting lets a holder put all shares × seats votes on one candidate, improving a minority holder's chance of electing someone. Every share still gets the same number of votes, majority control is what cumulative voting dilutes, and proxy rules are unrelated.

📚 Learn it: Common Stock: Owners Last in Line

Question 7 of 20

A convertible preferred ($100 par) converts at $25 per common share and trades at $112. What is the parity price of the common stock?

  1. $28
  2. $112
  3. $4.48
  4. $25
Show the answer and rationale

Answer: A

Conversion ratio = $100 ÷ $25 = 4 shares. Parity common price = $112 ÷ 4 = $28. $25 is the conversion price, $112 is the preferred price, and $4.48 divides by the conversion price.

📚 Learn it: Preferred Stock: The Fixed-Dividend Hybrid

Question 8 of 20

In a rights offering, the subscription price of the new shares is typically:

  1. Equal to the stock's book value
  2. Above the current market price
  3. Below the current market price
  4. Equal to the stock's par value
Show the answer and rationale

Answer: C

Rights let existing holders buy at a discount to market, which gives the rights value and encourages exercise. An above-market price is typical of warrants at issue; par and book value are not how the price is set.

📚 Learn it: Rights vs Warrants: Short and Cheap, Long and Pricey

Question 9 of 20

If an ADR's deposit agreement gives holders a vote, how do they usually exercise it?

  1. By voting electronically through the SEC's EDGAR system
  2. By filing an instruction with their exchange
  3. By instructing the depositary bank how to vote
  4. By attending the shareholder meeting and voting in person
Show the answer and rationale

Answer: C

The depositary is the registered holder of the foreign shares, so ADR holders vote, where the agreement allows, by giving it instructions (sometimes for a fee). They are not the record owners who vote directly, and neither EDGAR nor an exchange collects votes.

📚 Learn it: ADRs: Foreign Stock in U.S. Dollars

Question 10 of 20

For federal tax purposes, a gain on stock is long-term if the shares were held:

  1. At least six months
  2. More than 60 days
  3. At least three years
  4. More than one year
Show the answer and rationale

Answer: D

Long-term treatment requires holding more than one year. 60 days relates to the qualified-dividend holding period, and six months and three years are not the rule for stock.

📚 Learn it: How Stock Pays: Dividends, Gains and Yield

Practice 10 more equity 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

Under statutory voting, a holder of 400 shares voting in an election for five directors may cast at most how many votes for any one candidate?

  1. 5
  2. 400
  3. 2,000
  4. 80
Show the answer and rationale

Answer: B

Statutory voting allows one vote per share for each seat, so at most 400 votes per candidate, with no stacking. 2,000 is the cumulative-voting total; 80 and 5 misapply the formula.

📚 Learn it: Common Stock: Owners Last in Line

Question 12 of 20

Which statement about voting by preferred stockholders is generally accurate?

  1. They vote on every matter before common holders
  2. They receive two votes per share in elections
  3. They must approve every dividend on common
  4. They usually have limited or no voting rights
Show the answer and rationale

Answer: D

Preferred stock typically has little or no vote, though terms may give limited rights such as electing some directors in specific situations. It does not routinely outvote or out-rank common holders on every matter.

📚 Learn it: Preferred Stock: The Fixed-Dividend Hybrid

Question 13 of 20

Why do companies often attach warrants to new bonds or preferred stock?

  1. To shorten the maturity of the bonds
  2. To give holders immediate voting rights
  3. To guarantee the bonds against default
  4. To lower the rate the issuer must pay
Show the answer and rationale

Answer: D

Warrants act as a sweetener: the potential upside lets the issuer offer a lower interest or dividend rate. Warrants carry no votes, do not reduce credit risk and do not change maturity.

📚 Learn it: Rights vs Warrants: Short and Cheap, Long and Pricey

Question 14 of 20

A sponsored ADR is one in which:

  1. A U.S. broker-dealer agrees to buy back any of the unsold ADRs
  2. The ADR's value is protected against currency changes
  3. The SEC guarantees the payment of all of the ADR's dividends
  4. The foreign company has an agreement with the depositary
Show the answer and rationale

Answer: D

Sponsored means the foreign issuer has a deposit agreement with the depositary bank covering records, communications and dividends. The SEC guarantees nothing, no broker buyback is involved, and currency risk remains.

📚 Learn it: ADRs: Foreign Stock in U.S. Dollars

Question 15 of 20

A young company reinvests all its earnings and pays no dividend. An investor's return on its stock would come from:

  1. Current yield
  2. Capital appreciation
  3. Interest payments
  4. Dividend arrears
Show the answer and rationale

Answer: B

With no dividend, the only return is a rise in the share price. Current yield would be zero, stock pays no interest, and arrears apply only to cumulative preferred.

📚 Learn it: How Stock Pays: Dividends, Gains and Yield

Question 16 of 20

Who decides whether a corporation pays a cash dividend on its common stock?

  1. The corporation's transfer agent
  2. The exchange where it is listed
  3. The common shareholders by vote
  4. The board of directors
Show the answer and rationale

Answer: D

Dividends are declared at the discretion of the board. Shareholders elect the board but do not vote on dividends; the transfer agent only keeps ownership records; exchanges do not set dividends.

📚 Learn it: Common Stock: Owners Last in Line

Question 17 of 20

A $100 par convertible preferred converts into 4 common shares. The common trades at $30. What is the preferred's parity price?

  1. $134
  2. $100
  3. $120
  4. $30
Show the answer and rationale

Answer: C

Parity preferred price = shares received × common price = 4 × $30 = $120. $100 is par, $30 is one common share and $134 adds instead of multiplying.

📚 Learn it: Preferred Stock: The Fixed-Dividend Hybrid

Question 18 of 20

Which instrument usually lasts for years and may even be perpetual?

  1. A warrant
  2. A stock right
  3. A rights subscription
  4. A proxy
Show the answer and rationale

Answer: A

Warrants are long-term instruments. Rights (and the subscription period they create) are short-lived, usually a matter of weeks, and a proxy is a voting authorization, not a purchase right.

📚 Learn it: Rights vs Warrants: Short and Cheap, Long and Pricey

Question 19 of 20

Besides currency risk, an ADR holder is most directly exposed to which risk tied to the issuer's home country?

  1. Political (country) risk
  2. Prepayment risk
  3. Reinvestment risk
  4. Call risk
Show the answer and rationale

Answer: A

Events such as instability or new controls in the issuer's home country can hurt the company's shares and so the ADR. Reinvestment, call and prepayment risk relate to bonds and mortgage securities.

📚 Learn it: ADRs: Foreign Stock in U.S. Dollars

Question 20 of 20

A stock has risen from $20 to $32, but the investor still holds it. The $12 increase is:

  1. Dividend income, taxed this year
  2. A return of capital, not taxable
  3. An unrealized gain, not yet taxed
  4. A realized gain, taxed this year
Show the answer and rationale

Answer: C

Until shares are sold, the increase is an unrealized (paper) gain and is not taxed. A realized gain requires a sale; price growth is not a dividend or a return of capital.

📚 Learn it: How Stock Pays: Dividends, Gains and Yield

Practice 10 more equity 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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