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FINRA SIE Investment Products and Risks — practice questions

Explore 30 free Investment Products and Risks questions in FINRA SIE Finance. Open each question or exercise to read its content, reference answers and available explanation.

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Investment Products and Risks questions and exercises with answers

Showing questions 1–30 of 30.

How often must a mutual fund or an ETF calculate its NAV?Read the answer and worked solution →Which of these is one of the three basic types of investment company?Read the answer and worked solution →What distinguishes a closed-end fund from an open-end fund?Read the answer and worked solution →Which feature marks out a unit investment trust?Read the answer and worked solution →How do retail investors buy and sell ETF shares?Read the answer and worked solution →What is a creation unit?Read the answer and worked solution →An ETF share trades at a premium when its market price is:Read the answer and worked solution →Within what period must ETF and mutual fund shares traded through a broker settle?Read the answer and worked solution →What return objective do leveraged and inverse ETFs set for themselves?Read the answer and worked solution →What share price do government and retail money market funds try to hold?Read the answer and worked solution →Which bond fund risk describes bond prices falling as interest rates rise?Read the answer and worked solution →Which risk poses the greatest potential danger to investors in stock funds?Read the answer and worked solution →By what other name are balanced funds known?Read the answer and worked solution →How does a smart-beta fund build the index it follows?Read the answer and worked solution →Which three routes return money to fund investors?Read the answer and worked solution →An investor puts $1,000 into a fund carrying a 5% front-end load. How much reaches the fund?Read the answer and worked solution →What ceiling does the SEC place on a mutual fund redemption fee?Read the answer and worked solution →What do 12b-1 fees pay for?Read the answer and worked solution →What does the expense ratio of a fund express?Read the answer and worked solution →What may a fund that calls itself no-load still charge?Read the answer and worked solution →What do the several share classes of one mutual fund share?Read the answer and worked solution →What is typical of Class A mutual fund shares?Read the answer and worked solution →What may happen to Class B shares held long enough?Read the answer and worked solution →Which two kinds of prospectus does a mutual fund use?Read the answer and worked solution →What does the financial highlights section of a prospectus hold?Read the answer and worked solution →Mutual fund, ETF or both?Read the answer and worked solution →Shareholder fee or annual expense?Read the answer and worked solution →Fund and ETF terms bingoRead the answer and worked solution →Index based or actively run?Read the answer and worked solution →Catch the ETF investor costsRead the answer and worked solution →

Worked practice questions

How often must a mutual fund or an ETF calculate its NAV?

  1. At least once every week
  2. Only when shares are redeemed
  3. Once at each month's end
  4. At least once every day
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Correct answer: D. At least once every day

1. SEC rules set a daily floor on NAV calculation for mutual funds and for ETFs alike. 2. Mutual funds price their shares each business day, typically after the major exchanges close. 3. An ETF must also strike a NAV at least once every day, even though its shares trade at market prices in between. 4. Weekly, monthly or on-demand pricing would leave purchase and redemption orders without a price to settle against. _Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Glossary of Key Mutual Fund and ETF Terms_

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Which of these is one of the three basic types of investment company?

  1. A unit investment trust that issues fixed units
  2. A hedge fund open to sophisticated investors
  3. An exchange-traded note issued by a bank
  4. A money market deposit account at a bank
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Correct answer: A. A unit investment trust that issues fixed units

1. The three basic types of investment company are open-end funds, closed-end funds and unit investment trusts. 2. Mutual funds and most ETFs are open-end funds, while some ETFs are structured as unit investment trusts. 3. A hedge fund is a private, unregistered pool and is not one of the three. 4. An exchange-traded note is a debt obligation of a financial institution, not an investment company. 5. A money market deposit account is a bank deposit and belongs to banking, not to fund structure. _Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Types of Investment Companies_

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What distinguishes a closed-end fund from an open-end fund?

  1. It redeems shares from investors at NAV each day
  2. It sells a fixed number of shares in one offering
  3. It offers new shares continuously to all buyers
  4. It must dissolve on a date fixed at its creation
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Correct answer: B. It sells a fixed number of shares in one offering

1. An open-end fund sells shares on a continuous basis and redeems them back from investors. 2. A closed-end fund does the opposite: it sells a fixed number of shares once, in an initial public offering. 3. Those shares then trade on a secondary market such as an exchange rather than being redeemed by the fund. 4. Continuous offering and daily redemption at NAV both describe the open-end structure instead. 5. A fixed termination date is the mark of a unit investment trust, not of a closed-end fund. _Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Glossary of Key Mutual Fund and ETF Terms_

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