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Municipal bonds often provide interest income exempt from federal income tax and sometimes state/local tax, making them attractive for investors in higher tax brackets. Corporate bonds, Treasuries, and preferred stock generate taxable income. The SIE exam tests suitability by matching securities to investor objectives, especially regarding tax treatment.

Open-end investment companies (mutual funds) are purchased and redeemed directly with the fund at net asset value (NAV) calculated once per business day, typically after the market close. Under the forward-pricing requirement, all orders received by the fund (or an authorized intermediary) before the daily pricing time are executed at the next calculated NAV, not a past price. Mutual funds do not trade on exchanges intraday; there is no continuous bid/ask. Therefore, investors cannot obtain the opening NAV if orders arrive after the opening calculation, nor can they transact at an average of the day’s NAV range. Loads (if applicable) are added to or subtracted from NAV to determine public offering price (POP) for purchases or redemption proceeds for sales. The SIE expects candidates to distinguish open-end funds (forward pricing, redeemable) from ETFs and closed-end funds (exchange-traded, intraday pricing), as well as understand share classes, sales charges, and expense implications for suitability.

Revenue bonds are municipal bonds supported by revenues from a project, such as tolls, lease payments, or user fees. They carry higher risk than general obligation bonds, which are backed by the issuer’s taxing authority. Debentures are unsecured corporate bonds, and collateral trust bonds are secured by securities held in trust. The SIE exam stresses knowing the difference between GO and revenue bonds.

The Municipal Securities Rulemaking Board (MSRB) writes rules for municipal securities dealers and advisors but does not enforce them. Enforcement for broker-dealers is carried out by FINRA and the SEC, while bank regulators oversee bank dealers. The SIE exam requires candidates to understand that MSRB sets standards but relies on other regulators for enforcement.

Long-term fixed-income securities like a 30-year Treasury bond are most sensitive to interest rate changes because of their high duration. Treasury bills (short-term) are least sensitive, while 5-year notes and preferred stock are moderately affected. The SIE exam emphasizes the relationship between maturity, duration, and interest rate risk.