Series 6 chapters 1 and 2

Which of the following statements is NOT true of Regulation S-P? A) Consumers must be given an initial privacy notice. B) Firms must establish procedures to protect customers' nonpublic personal information C) Customers may be provided privacy information on internet web pages. D) Customers must be given annual privacy disclosures on a separate piece of paper.

A customer with an ongoing relationship with a member must receive both an initial and an annual privacy notice. It may be included in other documents but must be clear and conspicuous.

If your customer holds ten KLP 6% bonds, how much money will he receive in total at the debenture's maturity? A) $10,300. B) $10,000. C) $10,600. D) $10,200.

A) $10,300. The holder of 10 bonds will receive $10,000 in principal at maturity. Each bond pays 6% annual interest, or $60. Thus, ten bonds pay a total of $600 per year in two semiannual payments of $300. At maturity, the bondholder will receive the $10,000 face amount plus the final semiannual payment ($10,000 + $300 = $10,300). Reference: 3.7.1 in the License Exam Manual

If you invest in a front-end load mutual fund and choose automatic reinvestment, you should expect that: dividend distributions will be reinvested at net asset value. dividend distributions will be reinvested at the public offering price. capital gains distributions will be reinvested at net asset value. capital gains distributions will be reinvested at the public offering price.

A) I and III.

ACE Fund experienced an unrealized loss last month. This will: result in a lower NAV per share. result in lower dividend payments to shareholders. reduce the proceeds payable to shareholders who liquidate their shares. force the fund to raise the POP to make up for the loss.

A) I and III. An unrealized loss is the same as a depreciation in asset value, which results in a lower NAV per share. A shareholder would receive less at redemption than he would have received if redemption took place before the asset's depreciation.

A registered representative with a Series 6 registration can sell which of the following:

A) a mutual fund that redeems its own shares.

Which of the following statements is true of Treasury STRIPS?

B) STRIPS are backed by the full faith and credit of the federal government. Treasury STRIPS are stripped treasuries (discounted principal and interest sold separately). STRIPS are direct issues of the U.S. government are backed by its full faith and credit.

The AIR (Assumed Interest Rate) for your customer's variable annuity contract is 5%. In February, the separate account earned 7%. In March, the separate account earns 5%. The April annuity payment will be:

B) equal to the March payment. When the separate account return is equal to the AIR, the next month's payment amount does not change.

The cost basis of mutual fund shares includes

B) the total cost, including sales charges, plus dividends or capital gains reinvested in the fund

If a mutual fund's net asset value is $9.30 and its sales charge is 7%, its offering price is:

C) $10.00 To determine the selling price of the shares when given the NAV, divide the NAV by 100% minus the sales load: NAV / (100% − SL%) = public offering price. In this case, $9.30 divided by 93% (.93) = $10.

An investor has been investing $100 per month for the past three months. The purchase prices were $20, $25, and $10. What is average cost per share purchased? A) $18.33 B) $100 C) $15.79 D) $5.45

C) $15.79 The first purchase (at $20) acquired 5 shares ($100/$20), subsequent purchases acquired 4, and 10 shares respectively. That is a total of 19 shares with an outlay of $300. The result is an average cost per share of $15.79 ($300/19).

If a member firm is notified by FINRA that it must begin tape-recording the phone calls of its assistant representatives and registered representatives to existing and potential customers, it must do so within how many days of notification?

C) 60

Which of the following securities may a Series 6 registered rep sell?

C) Closed-end funds, but only in the primary market Series 6 RRs have a limited registration and are limited to selling investment company securities with a prospectus (only in the primary market).

A shareholder has redeemed some mutual fund shares that were purchased over a period of ten years. If the shareholder has not indicated the specific dates of purchase and cost of the shares that were redeemed on his tax return, the IRS will follow which of the following methods in determining the cost basis of shares redeemed? A) Average cost of purchase. B) LIFO. C) FIFO. D) Step-up in basis.

C) FIFO. If another method is not chosen, the IRS will assume the FIFO (first in, first out) method of accounting in determining the cost basis of the shares redeemed. Investors may choose to identify shares redeemed only if the cost of the shares and the date of purchase is recorded on the tax return. The average cost method is an alternative that a taxpayer can use continuously for a given investment.

Which of the following types of annuity contracts could your customer NOT purchase?

C) Periodic payment immediate life annuity. Periodic payment annuities may be purchased only on a deferred basis. Annuitization and regular payments into an annuity may not occur simultaneously. Reference: 3.10.6 in the License Exam Manual

When a brokerage firm sells stock from its own inventory, it is acting in the capacity of

C) a principal and charges a mark-up

Each of the following are characteristic of a mutual fund voluntary accumulation plan EXCEPT:

C) obligatory purchase goal. A voluntary accumulation plan is just that-voluntary, not binding. The company may require that the initial investment meet a certain minimum dollar amount. It may also specify that any additions meet set minimums (e.g., $50). The plan may qualify for breakpoints based on the accumulated value.

The XYZ Growth Fund has an NAV of $19. Its sales charge, calculated by the usual industry method, is 5%. What is the public offering price of a single share?

D) $20.00 Public offering price is equal to NAV divided by (1 − sales charge). Thus, $19 / .95 = $20.00.

A young, recently married couple, would like to purchase a home within five years. They have $2,000 in savings and $400 a month to invest. In addition, they owe $35,000 on student loans to be repaid over the next ten years. What type of mutual fund investment would likely be the BEST recommendation?

D) Build up cash reserves and then save for a down payment on the new home. Investing must wait.

An investor wishes to start a dollar cost averaging program by investing $100 per month. Which of the following would be the least appropriate investment vehicles for this plan? Closed-end investment company. Exchange-traded fund. Open-end investment company. Variable annuity.

D) I and II. Closed-end investment company shares and exchange-traded funds trade like any other stock. Smaller investment levels involve high commission costs relative to the amount being invested. Also, there are no provisions for rights of accumulation and reinvestment of distributions.

ACE Fund's offering price is $9.00, and its net asset value is $9.40. GEM Fund's offering price is $24.00, and its net asset value is $20.00. From these quotes you know that: ACE could be an open-end or closed-end fund. ACE is a closed-end fund. GEM could be an open-end or closed-end fund. GEM is a closed-end fund.

D) II and IV. ACE Fund is selling below its net asset value, so it must be a closed-end fund. GEM is selling above its NAV by more than the 8.5% sales load allowed for open-end funds, so it also must be a closed-end fund ($4/$24 = 16.7%).

Which of the following share classes typically have a higher expense ratio than Class A shares? No-load shares. Class B shares. Front-end load shares. Class C shares.

D) II and IV. The expense ratio of no-load shares is comparable to that of Class A shares-that is, very low. Front-end load shares are Class A shares under a different name. Class B shares and Class C shares have the highest expense ratios. Class B shares do convert to Class A shares after the CDSC expires.

If a registered representative of a FINRA member firm wants to open an account with another member firm, which of the following statements are TRUE? The account may not be opened under any circumstances because the registered representative has access to privileged information. The account may be opened, but the registered representative may not engage in securities transactions that he could do through his own firm. The member firm opening the account must send duplicate confirmations to the employing member firm if requested to do so. The member firm opening the account must give notice to the employing member firm.

D) III and IV. The member firm where the account is opened must notify the employing firm and provide copies of all requested trade confirmations.

Which of the following does NOT issue commercial paper?

D) Sole proprietorship

Your customer is a 66-year-old retired widower. He is seeking an investment of $50,000 that will keep pace with inflation. He currently survives on Social security and a pension and is very risk averse. Which of the following do you recommend?

D) TIPS TIPS is the only choice that keeps pace with inflation and also has the lowest default risk of the choices given. The biggest risk associated with a fixed annuity is that over time it won't keep pace with inflation and both the high-yield bond fund and the gold fund are too volatile for this risk averse client.

Which of the following is an advantage of purchasing a lump-sum deferred annuity as opposed to a periodic payment deferred annuity? A) Most investors find it easier to make a single large payment rather than many small ones spread out over years. B) Sales charge discounts are lower for a lump-sum deferred annuity than for a periodic payment deferred annuity. C) Periodic payment annuities usually have a lower cost base. D) The entire amount of the purchase has the maximum amount of time to grow.

D) The entire amount of the purchase has the maximum amount of time to grow. A single purchase would have the possibility of growth from the first moment. Periodic payments do not begin to grow until invested and thus later payments have less time to generate returns.

Which of the following statements about a straight-life variable annuity is TRUE? A) The monthly payout is fixed to the Consumer Price Index. B) The number of accumulation units a client owns never changes. C) If a client dies during the annuity period, the remaining funds are distributed to the beneficiary. D) The number of annuity units a client owns never changes.

D) The number of annuity units a client owns never changes. Once annuitized, the number of annuity units remains fixed. For straight-life, the annuitant receives a check for the rest of their life (there is no beneficiary).

All of the following statements relating to a deferred compensation plan are correct EXCEPT:

D) the covered employee must receive reports on the status of the plan no less frequently than annually. Deferred compensation plans are not qualified plans. They may discriminate among employees, and no reporting is necessary. The benefits of the deferral will be best realized if the employee's tax rates are lower upon receipt of the money. Since the benefits are scheduled to be paid out of the corporation's cash flow at the time of the employee's retirement, corporate financial difficulties may preclude any payout.

All of the following statements regarding government and agency securities are true EXCEPT:

D) they are always directly backed by the federal government. Only GNMAs are directly backed by the federal government. FNMAs and FHLMCs are only indirectly backed but are still considered less risky than corporate debt. Income from all three are taxable at federal, state, and local levels, and all were authorized by Congress.

If a corporation begins a nonqualified retirement plan, which of the following statements is TRUE?

Employee contributions grow tax deferred if they are invested in an annuity.

When a customer receives payment during the annuity period of a variable annuity, which of the following is TRUE? A) Only the amount that represents investment income is subject to tax. B) The investment income is taxed at the capital gains rate. C) The entire amount is subject to tax. D) All withdrawals are tax free.

Only the amount that represents investment income is subject to tax. The payment is divided into investment income and the client's original investment. Tax is owed on the investment income only, which is taxed at an ordinary income rate.

If a customer wishes to open a cash account, who must sign the new account form?

Only the principal. Neither the customer nor the registered representative are required to sign a new account form. A principal must review, and then accept, the new account by signing the form.

All of the following are advantages of investing in mutual fund shares EXCEPT:

Shareholders may exchange their holdings in one fund for another in the same family without tax implications. Although the exchange privilege is available at NAV (no sales charge), it is a taxable event.

A customer with an aggressive growth investment objective and short-term (6- to 12-month) time horizon wants to invest $50,000 in a mutual fund. He has a substantial net worth, but none of it is invested in mutual funds. You inform him that mutual fund investments are intended to be long-term investments, but he expresses his intention to make the short-term investment anyway. If the XYZ fund family (one you have dealt with in the past) offers an aggressive growth fund that has a respectable track record, your recommendation should be to:

buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in one year and .75 12b-1 fee. If the client insists on making this type of investment, then the Class C shares are most appropriate for this customer's objectives; the sales load would be lower than that of either Class A or Class B shares.

An investor purchases $10,000 of the Class B shares of the KAPCO Growth Fund. Two years later, the client redeems the shares. The redemption charge is a percent of the:

lesser of the NAV or purchase price. When faced with a CDSC on Class B shares, the charge is levied against the lesser of the current NAV or the original purchase price.

During the accumulation phase of a variable annuity, the value of the contract owner's portion of the separate account is equal to:

the number of accumulation units times the value per unit. During the accumulation phase, a variable annuity contract holder owns accumulation units. The value of one accumulation unit multiplied by the number of accumulation units equals the total value of the contract holder's investment.