FINRA Updated SIE Exam Questions and Answers by arden

A corporate bond purchased at par value costs $1,000. If the bond is convertible into 40 shares of the issuer’s common stock, the investor’s per-share cost basis is calculated by dividing the bond’s cost by the number of shares received upon conversion. $1,000 divided by 40 shares equals $25 per share. Choice A is correct. Choice B incorrectly uses the number of shares as the dollar answer. Choice C and choice D are mathematical distractors that do not reflect the conversion calculation. Convertible bonds allow bondholders to exchange the bond for a specified number of common shares, giving the investor fixed-income characteristics plus potential equity upside. The conversion ratio is the number of shares received for each bond. The conversion price is effectively the bond’s par value divided by the conversion ratio. The SIE outline includes corporate bonds, convertible features, par value, and equity securities. This question tests the relationship between par value and conversion ratio. Reference: Understanding Products and Their Risks; Debt Instruments; Corporate Bonds; Convertible Features.

Interest income from U.S. Treasury securities is subject to federal income tax but exempt from state and local income taxes. Treasury bills, notes, and bonds are direct obligations of the U.S. government, and their tax treatment is a core fixed-income concept tested on the SIE. Choice C is correct. Choice A is incorrect because Treasury interest is not exempt from federal income tax. Choice B is incorrect because Treasury interest is not subject to state income tax. Choice D reverses the correct treatment and is therefore wrong. This tax distinction is important when comparing Treasury securities with municipal bonds. Municipal bond interest is often federally tax-exempt and may also be exempt from state tax if issued in the investor’s state of residence. Treasury securities follow the opposite pattern: taxable federally, exempt at the state and local level. The SIE outline includes Treasury securities under debt instruments and requires candidates to understand income generation, coupon payments, yield, and the basic features of fixed-income products. Reference: Section 2.1.2 Debt Instruments; Treasury securities; investment income characteristics.

A bullish investor expects the price of the underlying security to rise. Selling a put is a bullish options strategy because the put seller has the obligation to buy the stock if assigned. The strategy profits if the stock remains above the strike price and the option expires worthless, allowing the seller to keep the premium. Therefore, choice A is correct. Selling calls is generally a neutral-to-bearish strategy because the call writer benefits if the stock does not rise above the strike price. Selling stock reflects reducing or eliminating ownership and is not a bullish action. Selling stock short is bearish because the investor profits if the stock declines and can repurchase the shares at a lower price. The SIE outline requires knowledge of “puts and calls,” “hedging or speculation,” “covered vs. uncovered,” “exercise and assignment,” and “varying strategies.” It also includes “bearish and bullish” under trading strategies. This question integrates options directionality with investor market outlook. Reference: Section 2.1.3 Options; Section 3.1.1 Orders and Strategies.