FINRA Updated SIE Exam Questions and Answers by bernie

A 1-for-3 reverse stock split means that shareholders will receive one new share for every three shares currently owned. Reverse splits reduce the number of shares outstanding while proportionally increasing the market price per share, leaving the investor’s overall market value (ignoring market reactions and rounding) essentially unchanged at the moment of the split. In this question, the investor owns 300 shares at $9.00 each. Dividing the share count by 3 results in 100 shares after the reverse split (300 ÷ 3 = 100). Because the split is reverse, the price is multiplied by 3 to keep the position value constant: $9.00 × 3 = $27.00 per share. Therefore, the investor will have 100 shares at $27.00, which is answer choice A.

You can also verify by checking the total value before and after the split. Before: 300 × $9.00 = $2,700. After: 100 × $27.00 = $2,700. This illustrates the central split principle tested on the SIE: stock splits and reverse splits change share count and per-share price, but do not inherently create gains or losses; instead, they adjust the number of shares and the price per share proportionally. Cost basis per share is adjusted accordingly (the total cost basis remains the same, but it is allocated across fewer shares at a higher per-share basis).

Reverse splits are often used by issuers seeking to raise the trading price per share (for example, to meet listing requirements), and the SIE commonly tests the mechanical impact on share quantity, market price, and cost basis.

The Securities Act of 1933 requires securities offered to the public to be registered with the SEC unless they qualify for an exemption. Open-end investment companies (mutual funds) are not exempt and must register.

D is correct because mutual funds are publicly offered and require registration.

A is incorrect because private placements are exempt under Regulation D.

B is incorrect because municipal securities are exempt under Section 3(a)(2).

C is incorrect because U.S. government securities are also exempt under Section 3(a)(2).

Step by Step Explanation:

529 Savings Plans: These plans allow tax-advantaged savings for education expenses. They can be used for both undergraduate and graduate studies, as well as certain K-12 expenses.

Contribution Limits: Contributions are subject to gift tax limits but have no specific statutory maximum under federal law.

Tax Treatment: Earnings grow tax-deferred and are tax-free if used for qualified education expenses.

IRS Section 529 Guidance: IRS 529 Plans.

In a tenants in common account, each owner has a distinct percentage of ownership. Upon the death of one owner, their share does not transfer to the surviving owner(s); instead, it becomes part of the deceased’s estate.

C is correct because ownership is divided, and the deceased’s share passes to their estate.

A is incorrect because partnerships have different agreements governing ownership transitions.

B is incorrect because trust corporations are governed by trust agreements, not estate processes.

D is incorrect because JTWROS accounts pass ownership directly to the surviving account holder(s).