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SIE packaged products practice questions

Free SIE exam questions on packaged products: mutual funds, NAV and sales charges, share classes and breakpoints, ETFs and ETNs, variable annuities, REITs, DPPs and hedge funds, 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

Which is a right of a limited partner?

  1. Inspecting the partnership's books
  2. Hiring and firing the program's employees
  3. Signing contracts that bind the partnership
  4. Choosing which properties the program buys
Show the answer and rationale

Answer: A

Limited partners may inspect books and records and vote on certain major matters. Hiring staff, binding the partnership and choosing investments are management functions reserved to the general partner.

📚 Learn it: Limited Partnerships: The Tax Pipe

Question 2 of 20

What generally distinguishes a private REIT from other REITs?

  1. It is not registered with the SEC
  2. It must distribute 100% of its income
  3. It trades on an exchange every day
  4. It may only own government buildings
Show the answer and rationale

Answer: A

Private REITs are offered without SEC registration, generally to institutional or accredited investors, so they have fewer disclosure requirements. The distribution floor is still 90%, they are not exchange-traded, and they can own any eligible real estate.

📚 Learn it: REITs: Owning Buildings Through a Share

Question 3 of 20

A customer qualifies as an accredited investor and asks about a hedge fund with a two-year lockup. Which statement is accurate?

  1. Accredited investors cannot lose money in it
  2. Accredited status does not make it suitable
  3. The lockup is waived for accredited buyers
  4. The fund must be approved by the SEC first
Show the answer and rationale

Answer: B

Accreditation determines who may buy a private offering; whether it fits the customer's needs, including liquidity and risk, is a separate question. Losses are possible, lockups apply to everyone, and the SEC does not approve funds.

📚 Learn it: Hedge Funds and Private Equity: Locked Doors

Question 4 of 20

Before recommending a complex product such as a structured note, what must a rep do first?

  1. Get the issuer to guarantee its payoff
  2. Understand its features, risks and costs
  3. Confirm the customer has a margin account
  4. Obtain the SEC's approval of the product
Show the answer and rationale

Answer: B

A rep needs a reasonable basis: a real understanding of how the product works, its risks and its costs, before recommending it to anyone. Margin accounts, SEC approval and issuer guarantees are not required or available.

📚 Learn it: Structured Notes, ETNs and Volatility Products

Question 5 of 20

Which statement about UIT units is accurate?

  1. They are guaranteed by the trust sponsor
  2. They trade only on a national exchange
  3. They are actively managed by an adviser
  4. They can be redeemed with the trust
Show the answer and rationale

Answer: D

UITs issue redeemable units, so holders can redeem them with the trust, and sponsors often keep a secondary market as well. UITs have no investment adviser, are not required to list on an exchange, and their sponsor does not guarantee their value.

📚 Learn it: Open, Closed or Fixed: The 1940 Act Family

Question 6 of 20

A fund's POP is $50.00 and its sales charge is 5%. What is its NAV?

  1. $47.50
  2. $47.62
  3. $45.00
  4. $52.50
Show the answer and rationale

Answer: A

Because the sales charge is a percentage of POP, NAV = POP × (1 − 0.05) = $50.00 × 0.95 = $47.50. $47.62 divides by 1.05, $52.50 adds the charge, and $45.00 uses 10%.

📚 Learn it: NAV, POP and the Next Price Rule

Question 7 of 20

Which statement about Class B shares is accurate today?

  1. They carry the lowest yearly 12b-1 fee
  2. They are sold with a front-end load and breakpoints
  3. They are no longer widely available
  4. They have no sales charge of any kind
Show the answer and rationale

Answer: C

The SEC's investor bulletin notes B shares, which have a deferred charge and higher 12b-1 fees, were once common but are no longer widely available. They are not front-loaded, they carry sales charges, and their 12b-1 fee is not the lowest.

📚 Learn it: A, B, C Shares and the Breakpoint Rules

Question 8 of 20

An investor exchanges shares of one stock fund for another fund in the same family in a taxable account. For tax purposes, the exchange is:

  1. Taxed only if a new load is charged
  2. Not reportable unless held under 30 days
  3. A sale, so any gain may be taxed
  4. Tax-free, since the family is the same
Show the answer and rationale

Answer: C

An exchange between funds, even in the same family, is treated as a sale of one fund and a purchase of another, so a gain or loss is realized in a taxable account. Exchange privileges may waive a new load, but they don't avoid tax.

📚 Learn it: Fund Flavors, Fees and the Prospectus

Question 9 of 20

An inverse ETF tracks an index. If the index rises 2% in one day, the inverse ETF should, before fees:

  1. Stay unchanged
  2. Fall about 2%
  3. Fall about 4%
  4. Rise about 2%
Show the answer and rationale

Answer: B

A simple (−1x) inverse ETF seeks the opposite of the index's daily return, so a 2% gain means about a 2% loss that day. A 4% drop would describe a −2x fund.

📚 Learn it: ETFs, Leveraged ETFs and ETNs

Question 10 of 20

When recommending a variable annuity exchange, Rule 2330 requires the rep to consider whether the customer has had another deferred VA exchange within the preceding:

  1. 24 months
  2. 60 months
  3. 12 months
  4. 36 months
Show the answer and rationale

Answer: D

Rule 2330(b)(1)(B) requires considering whether the customer exchanged a deferred variable annuity within the preceding 36 months. The other periods are not in the rule.

📚 Learn it: Variable Annuities: Units, AIR and Rule 2330

Practice 10 more packaged products questions free →

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Question 11 of 20

In a fixed annuity, the interest credited is backed by:

  1. The FDIC up to $250,000
  2. The insurer's general account
  3. A separate account invested in stocks
  4. The owner's chosen subaccounts
Show the answer and rationale

Answer: B

Fixed annuity guarantees are paid from the insurer's general account, and the insurer bears the investment risk. Subaccounts and separate accounts belong to variable products, and annuities are not FDIC-insured.

📚 Learn it: Fixed vs Indexed Annuities and Variable Life

Question 12 of 20

What is the most a limited partner can generally lose in a DPP?

  1. Nothing, since the GP guarantees capital
  2. Twice the original amount of the investment
  3. An unlimited amount, like the general partner
  4. The amount invested plus any amount committed
Show the answer and rationale

Answer: D

Limited liability caps an LP's loss at the investment plus any additional amounts the LP has agreed to contribute. Unlimited liability belongs to the GP, there is no capital guarantee, and no 'double' rule exists.

📚 Learn it: Limited Partnerships: The Tax Pipe

Question 13 of 20

What tax benefit does a REIT receive for meeting its distribution requirement?

  1. It may pass its losses to shareholders
  2. No corporate tax on income it distributes
  3. Its shares become exempt from state tax
  4. Its shareholders pay no tax on dividends
Show the answer and rationale

Answer: B

A qualifying REIT can deduct dividends paid, so income it distributes is not taxed at the corporate level. Shareholders still pay tax on dividends, losses stay inside the REIT, and there is no state exemption for its shares.

📚 Learn it: REITs: Owning Buildings Through a Share

Question 14 of 20

A venture capital fund typically invests in what?

  1. Short-term Treasury bills
  2. Exchange-listed REIT shares
  3. Young, early-stage private companies
  4. Large listed companies' bonds
Show the answer and rationale

Answer: C

Venture capital is a type of private equity that backs start-ups and other early-stage companies. Corporate bonds, T-bills and listed REITs are public-market investments.

📚 Learn it: Hedge Funds and Private Equity: Locked Doors

Question 15 of 20

Principal protection on a structured note generally works only under what conditions?

  1. Sold any time, at the investor's own choosing
  2. Held at least one year, whatever the issuer
  3. Held to maturity and the issuer is able to pay
  4. Backed by FDIC insurance on the full amount
Show the answer and rationale

Answer: C

Protection is a promise to repay principal at maturity, so it depends on holding to maturity and on the issuer's credit. An early sale may be at a loss, a one-year hold means nothing, and structured notes are not FDIC-insured.

📚 Learn it: Structured Notes, ETNs and Volatility Products

Question 16 of 20

Which party actually manages a mutual fund's portfolio, choosing what to buy and sell?

  1. The fund's transfer agent
  2. The fund's custodian bank
  3. The fund's principal underwriter
  4. The fund's investment adviser
Show the answer and rationale

Answer: D

The investment adviser makes the day-to-day portfolio decisions for a fee. The custodian safeguards the assets, the transfer agent keeps shareholder records and processes purchases and redemptions, and the underwriter distributes shares.

📚 Learn it: Open, Closed or Fixed: The 1940 Act Family

Question 17 of 20

Which statement about a mutual fund's NAV per share is accurate?

  1. It already includes the front-end sales charge paid by buyers
  2. It is set each morning by the fund's underwriter
  3. It moves continuously during the trading day
  4. It is the fund's net assets divided by shares outstanding
Show the answer and rationale

Answer: D

NAV per share is total assets minus liabilities, divided by shares outstanding, usually computed once a day after the close. The sales charge is added on top of NAV to get POP, and continuous intraday pricing describes exchange-traded shares.

📚 Learn it: NAV, POP and the Next Price Rule

Question 18 of 20

A Class B share's contingent deferred sales charge typically:

  1. Applies only to reinvested dividends
  2. Is charged when the shares are bought
  3. Declines the longer the shares are held
  4. Increases each year the shares are held
Show the answer and rationale

Answer: C

A CDSC is charged at redemption and usually shrinks each year until it reaches zero; B shares then commonly convert to A shares. It does not increase, is not charged at purchase, and FINRA rules bar loads on reinvested dividends for newer funds.

📚 Learn it: A, B, C Shares and the Breakpoint Rules

Question 19 of 20

Unlike a front-end sales load, a purchase fee that some funds charge is paid to:

  1. FINRA
  2. The custodian bank
  3. The fund itself
  4. The selling broker
Show the answer and rationale

Answer: C

SEC investor guidance explains that a purchase fee is paid to the fund, unlike a front-end load, which compensates the selling broker. Custodians are paid for safekeeping, and FINRA does not receive fund fees.

📚 Learn it: Fund Flavors, Fees and the Prospectus

Question 20 of 20

An index rises 10% on day 1 and falls 10% on day 2. A 2x daily leveraged ETF on that index starts at $100. Ignoring fees, what is it worth after day 2?

  1. $96
  2. $99
  3. $98
  4. $100
Show the answer and rationale

Answer: A

Day 1: +20% → $120. Day 2: −20% → $120 × 0.80 = $96. The index itself ends at $99 (down 1%), but the fund is down 4%, not 2%, because of daily compounding. $98 assumes simple doubling and $100 assumes no change.

📚 Learn it: ETFs, Leveraged ETFs and ETNs

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