SIE Products and Their Risks — Section 2 — the largest section, about 33 of your 75 scored questions

What FINRA tests in Section 2

The knowledge areas of the SIE content outline for Understanding Products and Their Risks. FINRA weighs this section at 44% of the exam.

• Equity securities: common and preferred stock, rights and warrants, ADRs, shareholder rights, dividends and splits
• Debt instruments: Treasury securities, agency securities, corporate bonds, municipal bonds (GO vs. revenue), money market instruments, bond pricing, yields and ratings
• Options: calls and puts, buyers and writers, intrinsic value and premium, basic strategies, breakeven and maximum gain/loss
• Packaged products: open-end mutual funds (classes, loads, NAV), closed-end funds, UITs, ETFs and ETNs, variable annuities, 529 plans, ABLE accounts and LGIPs
• Direct participation programs, REITs and hedge funds: structure, liquidity, tax treatment and suitability
• Investment risks: market, interest rate, inflation, credit, call, reinvestment, liquidity, political, currency, business and regulatory risk, and how diversification addresses them

Key facts to know

FINRA SIE content outline, 2.1.2

Bond prices and interest rates move in opposite directions; when a bond trades at a discount its current yield and yield to maturity exceed its coupon rate, and the reverse at a premium.

FINRA SIE content outline, 2.1.2

Current yield = annual interest ÷ market price. A 5% coupon bond ($50 a year) priced at $900 has a current yield of about 5.56%.

FINRA SIE content outline, 2.1.3

A call buyer's maximum loss is the premium; a put writer's maximum loss is the strike price minus the premium (if the stock goes to zero). Breakeven: strike + premium for calls, strike − premium for puts.

Investment Company Act of 1940 / FINRA Rule 2341

Open-end mutual funds are bought and redeemed at the next computed NAV (forward pricing), plus any sales charge; the maximum sales charge under FINRA rules is 8.5% of the public offering price.

FINRA SIE content outline, 2.1.7

To qualify for pass-through tax treatment, a REIT must distribute at least 90% of its taxable income to shareholders; most REITs trade on exchanges and are liquid, unlike DPPs.

FINRA SIE content outline, 2.1.2

Municipal bond interest is generally exempt from federal income tax; interest on Treasury securities is exempt from state and local tax but federally taxable.

Three practice questions with answers

From the Admezo bank for Understanding Products and Their Risks, outside the 20 free questions, as they appear in the app once answered — with the rule and a link to the source. Rules checked October 27, 2026.

1. 1 / 32Multiple choice2. Understanding Products and Their Risks — 2.1.3 Options

   An investor buys 2 XYZ 60 calls at a premium of 3.50 each. What is the total cost, excluding commissions?

   • A$350
   • $700 (correct answer)
   • C$7
   • D$3,500

   Correct answer: B

   Listed equity option premiums are quoted per share, and each standard contract covers 100 shares, so the premium is multiplied by 100 per contract. This is the concept of option premium pricing.

   Calculation

   Cost per contract = 3.50 x 100 shares = $350
   Total cost = $350 x 2 contracts = $700
   Result: $700

   Source: finra.orgQuestion bank checked October 27, 2026

2. 2 / 32Multiple choice2. Understanding Products and Their Risks — 2.1.4 Packaged Products

   A closed-end fund has a net asset value of $20.00 per share and its shares last traded on the exchange at $18.50. The fund is trading at a:

   • Apremium of 7.5% to NAV
   • discount of 7.5% to NAV (correct answer)
   • Cdiscount of 8.1% to NAV
   • Dpremium of 8.1% to NAV

   Correct answer: B

   Closed-end fund shares trade in the secondary market at prices set by supply and demand, so they may trade above (premium) or below (discount) NAV. The premium or discount is measured as (market price - NAV) / NAV. Dividing by the market price instead gives 8.1%, a distractor.

   Calculation

   Difference = $18.50 - $20.00 = -$1.50
   Discount % = -$1.50 / $20.00 = -0.075
   Result: 7.5% discount to NAV

   Source: finra.orgQuestion bank checked October 27, 2026

3. 3 / 32Multiple choice2. Understanding Products and Their Risks — 2.1.1 Equity Securities

   An investor acquired restricted stock of a company that files reports with the SEC through a private placement. Under Rule 144, how long must the investor generally hold the shares before any public resale?

   • AThere is no holding period for restricted stock of a reporting company
   • B90 days
   • Six months (correct answer)
   • DTwo years

   Correct answer: C

   Securities Act of 1933 Rule 144 requires a six-month holding period for restricted securities of an issuer subject to Exchange Act reporting (one year for a non-reporting issuer). After that period, non-affiliates may sell freely, while affiliates remain subject to volume limits and other conditions.

   Source: finra.orgQuestion bank checked October 27, 2026

Practice all 132 Products & Risks questions

How to prepare for Products & Risks

Study tips, not a promise: Admezo doesn't guarantee a result beyond its pass guarantee.

• Master the three calculations

  Current yield, options breakeven and maximum gain/loss, and mutual fund sales charge or NAV. They are a few questions each exam and purely mechanical: practice them until the arithmetic is automatic. Admezo shows the full working under every calculation question.

• Pair every product with its main risk

  Long-term bonds: interest rate risk. Callable bonds: call and reinvestment risk. Foreign securities: currency and political risk. DPPs: liquidity risk. The exam often asks which risk a product carries most, not what the product is.

• Don't confuse open-end, closed-end and ETFs

  Open-end funds are redeemed at NAV, closed-end funds trade on exchanges at a premium or discount, ETFs trade intraday near NAV thanks to creation and redemption. Three questions about pricing hide behind one word.

Products & Risks: frequently asked questions

The other sections of the SIE

• 1Knowledge of Capital Markets16% of the exam
• 3Trading, Customer Accounts and Prohibited Activities31% of the exam
• 4Overview of the Regulatory Framework9% of the exam

For the big picture — format, enrollment, retakes and fees — read the SIE exam overview, or browse the 20 free questions with answers.