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SIE municipal securities practice questions

Free SIE exam questions on municipal securities: general obligation vs revenue bonds, municipal notes, tax-equivalent yield, 529 plans and MSRB rules, 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

Which characteristic generally applies to revenue bonds but not to general obligation bonds?

  1. Requires approval by voters in a referendum
  2. Repaid mainly from local property tax receipts
  3. Not subject to the issuer's statutory debt limits
  4. Backed by the issuer's full power to levy taxes
Show the answer and rationale

Answer: C

Because revenue bonds do not draw on tax dollars, they are generally outside statutory debt limits and rarely need voter approval. Taxing power, referendums and property taxes are GO characteristics.

📚 Learn it: Taxes or Tolls: Who Pays the Bondholders?

Question 2 of 20

What does a bond's tax-equivalent yield tell an investor?

  1. The taxable yield needed to match a muni's
  2. The yield of a muni bought at a discount
  3. The muni's yield after state tax is paid
  4. The yield a muni pays if it is called early
Show the answer and rationale

Answer: A

TEY converts a tax-free yield into the taxable yield that would leave the investor with the same after-tax income. It has nothing to do with call dates, discounts or state tax payments on the muni.

📚 Learn it: Tax-Free Interest and the Tax-Equivalent Yield

Question 3 of 20

A state borrows short term to start highway work, planning to repay the notes from federal highway money it has been promised. What are these notes?

  1. Grant anticipation notes
  2. Tax anticipation notes
  3. Bond anticipation notes
  4. Variable-rate demand notes
Show the answer and rationale

Answer: A

GANs are repaid from expected grants, often federal. TANs rely on taxes and BANs on a future bond sale. A variable-rate demand note describes a rate and put feature, not the repayment source.

📚 Learn it: TANs, RANs, BANs: Borrowing Until the Money Arrives

Question 4 of 20

Who invests in a local government investment pool (LGIP)?

  1. People with qualifying disabilities
  2. State and local government entities
  3. Hedge funds seeking tax-free income
  4. Retail investors saving for college
Show the answer and rationale

Answer: B

LGIPs let public entities such as towns and school districts invest short-term cash. College savers use 529 plans and people with disabilities use ABLE accounts; LGIPs are not offered to retail investors or hedge funds.

📚 Learn it: 529s, ABLE Accounts and LGIPs

Question 5 of 20

A dealer acting as agent buys a municipal bond for a customer. What does MSRB Rule G-30 require about the commission?

  1. It must not exceed 5% of the price
  2. It must be fair and reasonable
  3. It must be set by the MSRB each year
  4. It must be disclosed only on request
Show the answer and rationale

Answer: B

For agency trades, G-30 requires a reasonable effort to get a fair price and a commission that is fair and reasonable given factors like the expense and value of service. No fixed percentage or MSRB-set rate exists.

📚 Learn it: The MSRB Writes the Rules, Others Enforce Them

Question 6 of 20

When analyzing a town's GO bonds, why look at the debt of the county and school district covering the same area?

  1. Their debt draws on the same taxpayers
  2. Their interest is taxed by the town each year
  3. Those bonds are legally part of the same issue
  4. MSRB rules require all three issuers to merge
Show the answer and rationale

Answer: A

Overlapping debt is owed by other issuers that tax the same property owners, so it competes for the same tax dollars. It is not part of the town's issue, no merger rule exists, and towns do not tax that interest.

📚 Learn it: Taxes or Tolls: Who Pays the Bondholders?

Question 7 of 20

An investor in the 25% bracket is offered a muni yielding 4.5%. What is the tax-equivalent yield?

  1. 5.63%
  2. 18.0%
  3. 3.38%
  4. 6.0%
Show the answer and rationale

Answer: D

TEY = 4.5 ÷ (1 − 0.25) = 4.5 ÷ 0.75 = 6.0%. 3.38% is 4.5 × 0.75, 5.63% adds a quarter of the yield, and 18% divides by 0.25 rather than 0.75.

📚 Learn it: Tax-Free Interest and the Tax-Equivalent Yield

Question 8 of 20

A municipal note rated SG by Moody's is considered what?

  1. Short-term government
  2. Superior grade
  3. State guaranteed
  4. Speculative grade
Show the answer and rationale

Answer: D

On Moody's short-term municipal scale, SG means speculative grade, below MIG 3. It does not mean superior, state guaranteed or short-term government; those are invented expansions.

📚 Learn it: TANs, RANs, BANs: Borrowing Until the Money Arrives

Question 9 of 20

What is the 2026 federal limit on total annual contributions to an ABLE account (before any extra amount a working beneficiary may add)?

  1. $35,000
  2. $20,000
  3. $19,000
  4. $15,000
Show the answer and rationale

Answer: B

The IRS set the 2026 ABLE annual limit at $20,000. $19,000 is the 2026 gift-tax exclusion, which equaled the ABLE limit in earlier years; $15,000 was the 2018 figure; $35,000 is the 529-to-Roth lifetime cap.

📚 Learn it: 529s, ABLE Accounts and LGIPs

Question 10 of 20

Which regulators enforce MSRB rules for a bank's municipal securities dealer department?

  1. The MSRB's own exam staff
  2. State insurance departments
  3. The issuing municipalities
  4. Federal bank regulators
Show the answer and rationale

Answer: D

Bank dealers are examined and disciplined by their federal bank regulators, along with the SEC. FINRA covers broker-dealers. The MSRB has no exam staff with enforcement power, and insurers and issuers do not police dealers.

📚 Learn it: The MSRB Writes the Rules, Others Enforce Them

Practice 10 more municipal 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 project is the best fit for GO financing rather than revenue bonds?

  1. An airport terminal leased to airlines
  2. A parking garage that charges hourly
  3. A public park that charges no admission
  4. A city water system billing users
Show the answer and rationale

Answer: C

A free park earns no income to pay bondholders, so tax backing is needed. Parking garages, water systems and airport terminals produce fees or rents that can support revenue bonds.

📚 Learn it: Taxes or Tolls: Who Pays the Bondholders?

Question 12 of 20

A customer buys a municipal bond at a premium and holds it to maturity. What is the federal tax result at maturity?

  1. Taxable income equal to the amount of the premium
  2. No capital loss, since the premium was amortized
  3. A capital loss equal to the full premium paid
  4. An ordinary loss that is deductible at maturity
Show the answer and rationale

Answer: B

Premium on a tax-exempt bond must be amortized, lowering the cost basis each year until it reaches par at maturity, so no loss results. The amortization is not deductible, and no income is created.

📚 Learn it: Tax-Free Interest and the Tax-Equivalent Yield

Question 13 of 20

A tax anticipation note is repaid mainly from which source?

  1. Property or other taxes due to be collected
  2. Tolls collected on a city-owned bridge
  3. Proceeds of a planned long-term bond sale
  4. A grant expected from the federal government
Show the answer and rationale

Answer: A

A TAN bridges the gap until taxes come in, and those collections repay it. A future bond sale repays a BAN, a federal grant repays a GAN, and tolls back revenue bonds.

📚 Learn it: TANs, RANs, BANs: Borrowing Until the Money Arrives

Question 14 of 20

A parent contributes $8,000 to a 529 college savings plan. How is the contribution treated for federal income tax?

  1. Deductible federally only if used for K-12 tuition
  2. Fully deductible on the parent's federal income tax return
  3. Not deductible, though a state may allow a deduction
  4. Deductible up to the annual gift-tax exclusion amount
Show the answer and rationale

Answer: C

529 contributions are made with after-tax dollars and get no federal deduction. Many states offer a state deduction or credit, often only for their own plan. The gift-tax exclusion limits gifts, not deductions.

📚 Learn it: 529s, ABLE Accounts and LGIPs

Question 15 of 20

A dealer sells a muni to a retail customer as principal and bought the same bond earlier that day. What must the confirmation show?

  1. The markup in dollars and as a percent of market price
  2. The customer's yield after paying state income tax
  3. The name of the dealer that sold the same bond to the firm
  4. The dealer's total trading profit for the entire day
Show the answer and rationale

Answer: A

For retail principal trades offset the same day, G-15 requires the markup as a total dollar amount and as a percentage of the prevailing market price. The counterparty's name, daily profit and after-tax yield are not required.

📚 Learn it: The MSRB Writes the Rules, Others Enforce Them

Question 16 of 20

Why do general obligation bonds usually require voter approval?

  1. Taxpayer money is pledged to repay them
  2. The SEC requires a vote on every muni issue
  3. Their interest is exempt from state income tax
  4. They can be sold only to local residents
Show the answer and rationale

Answer: A

A GO pledge commits the taxing power, so taxpayers usually get a vote. The SEC does not require referendums, tax exemption has nothing to do with voting, and GO bonds are sold to investors anywhere.

📚 Learn it: Taxes or Tolls: Who Pays the Bondholders?

Question 17 of 20

Why are municipal bonds generally a poor fit inside a traditional IRA?

  1. Only institutional investors may own municipal bonds
  2. IRAs are not permitted to hold any kind of bond
  3. Muni interest turns into AMT income inside an IRA
  4. IRA withdrawals are taxed, wasting the exemption
Show the answer and rationale

Answer: D

Money leaving a traditional IRA is taxed as ordinary income, so tax-free muni interest gets taxed on the way out and its lower yield buys nothing. IRAs can hold bonds, there is no IRA-specific AMT rule, and individuals may own munis.

📚 Learn it: Tax-Free Interest and the Tax-Equivalent Yield

Question 18 of 20

Which Moody's rating is the lowest investment-grade rating for a municipal note?

  1. MIG 3
  2. SG
  3. Baa3
  4. MIG 1
Show the answer and rationale

Answer: A

Moody's note scale runs MIG 1, MIG 2, MIG 3 for investment grade. MIG 1 is the highest, SG denotes speculative grade, and Baa3 belongs to Moody's long-term scale, not the note scale.

📚 Learn it: TANs, RANs, BANs: Borrowing Until the Money Arrives

Question 19 of 20

Who controls a 529 college savings account, including changing the beneficiary?

  1. The state treasurer
  2. The account owner
  3. The beneficiary
  4. The plan's program manager
Show the answer and rationale

Answer: B

The owner (often a parent or grandparent) controls investments, withdrawals and beneficiary changes; switching to a qualifying family member does not trigger tax. The beneficiary, program manager and state do not control the account.

📚 Learn it: 529s, ABLE Accounts and LGIPs

Question 20 of 20

A broker-dealer's markup on a municipal bond is judged under which standard?

  1. The SEC's Regulation T limits on dealer pricing
  2. The issuer's posted price from the original offering
  3. FINRA's 5% markup policy used for equity trades
  4. MSRB Rule G-30's fair and reasonable standard
Show the answer and rationale

Answer: D

Municipal trades fall under MSRB Rule G-30, which requires fair and reasonable prices with no fixed percentage. FINRA's 5% guideline does not govern munis, Reg T is about credit, and the issuer's price applies only to the primary offering.

📚 Learn it: The MSRB Writes the Rules, Others Enforce Them

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