Series 6 Mastery Exam

D

A 65-year-old man called the branch manager to complain about a recent exchange of a deferred variable annuity proposed and performed by a new representative. The customer said he was unaware that there would be charges associated with the transaction and was shocked that the account value diminished substantially during a recent downturn in the market. The manager should do which of the following? A) Document the facts of the complaint and submit a report to FINRA. B) Retrain the new representative to make exchanges in variable products only by prospectus and require future sales calls to be recorded. C) Promptly refund the customer's losses and unwind the transaction. D) Interview the representative to ascertain whether firm procedures were followed with regard to suitability and disclosure of charges and risks associated with the exchange.

A

A Regulation A exemption covers A) an offering of $50 million or less in 12 months. B) a private offering. C) an offering of letter stock. D) an offering of $75 million or more in 12 months.

D

A bank customer, concerned about the low savings rate of a CD, stepped up to the teller window and asked about moving money from the soon-maturing CD into a money market mutual fund. Because of Rule 3160, which of the following is allowed? A) The customer signs a transfer request form. B) The teller hands the customer a flyer that details the terms and conditions of investing in a money market mutual fund. C) The teller directs the customer to see the representative sitting at the new accounts desk across the lobby. D) The customer is instructed to follow the signs and see the representative located on the second floor.

C

A call to a referred contact presented the representative with a potential client of some size, financially speaking. The prospect informed the representative of the need for a prime account. In order to land them as a client, and in asking for the firm's help in establishing this relationship, the representative was informed of which of the following? A) The client would have to allow discretion to move in and out of the trades quickly while following the objectives established when the account was opened. B) Even if desired, the client must not enter orders to be executed through the prime account directly with multiple brokerage houses. C) The client will be receiving trade confirmations only from the prime broker. D) The representative's firm would be referred to as the executing broker.

D

A client expresses the desire to invest in income securities that have minimal credit risk. Which of the following would be the most suitable investments to recommend? Treasury bills Corporate intermediate term notes Subordinated debentures General obligation municipal bonds A) II and III B) I and III C) II and IV D) I and IV

A

A client of yours, Natalia, has been using dollar cost averaging to invest in the XYZ open-end management company family for 20 years and has an average cost of $21.40. During the last six months, she has refrained from making any more contributions into the fund due to poor health. According to her will, upon her death, the fund, which held 8,670.436 shares, passed into the possession and ownership of her 30-year old daughter. The fund carried, at the time of her passing, a NAV of $30.00 with an asking price of $31.50. Based on the facts stated, which of the following is true? A) The new cost basis of the inheritance will be stepped up to the next computed NAV. B) When Natalia's daughter sells the shares, only the last purchased shares will receive the stepped-up cost basis. C) Natalia's cost basis of $21.40 is passed to her daughter at her death. D) The new cost basis of the inheritance is stepped up to $31.50.

D

A conservative customer is invested in a large-cap, value-managed equity fund. The stock market drops 10% due to a poor economic forecast for the country. Your customer is upset that his conservative mutual fund lost almost as much as the stock market. What risks does your customer need to understand? Business risk Market risk Systematic risk Nonsystematic risk A) I and III B) II and IV C) I and IV D) II and III

B

A convertible preferred stock issue (par value $100) is selling at $125 and is convertible into five shares of common stock. The conversion price of the common stock is A) $1,200. B) $20. C) $25. D) $100.

C

A customer has expressed interest in exchange-traded funds (ETFs) and wishes to discuss them with you. You could tell her all of the following except A) selling short and trading on margin are available transactions with ETFs. B) a share of an ETF represents an entire portfolio, or a specific selection, of securities. C) ETFs have a NAV, calculated at the end of the trading day, that serves as the trading price until the next NAV is calculated. D) real-time quotes are available for ETFs.

B

A customer in her 40s, with ample income to meet her needs, has unexpectedly received $250,000 and would like to invest it in mutual funds. She emphasizes that she is interested in long-term growth and is willing to accept moderate risk. She proposes to her registered representative that the investment be split among three funds: the XYZ Balanced Fund, whose portfolio includes stocks and bonds of many old and successful companies; the KPL Growth and Income Fund, which has shown excellent performance over the past several years; and the NYF International SmallCap Stock Fund, which she feels will provide diversification by investing in foreign companies. In discussing the customer's proposal, the registered representative must make which of the following points? A) The proposal is unsuitable. Because mutual funds are under the control of a fund manager, the customer cannot respond to market and economic changes in a timely fashion. B) The proposal does not address the customer's objective: long-term, moderate-risk growth. Also, by splitting the investment among different fund families, she will probably pay higher sales charges. C) The proposal appears to be suitable because it combines safety (old and successful companies) and diversification (debt instruments, foreign stocks, and both small-cap and large-cap companies). D) The proposal is suitable because it provides safety nets: if the U.S. economy does not do well, the foreign investments could take up the slack. If the growth objective is not met, there are also income investments to provide returns. If small companies do not do well, she is also investing in large companies.

B

A customer wishes to buy a security providing periodic interest payments, safety of principal, and protection from purchasing power risk. The customer should purchase A) STRIPS. B) TIPS. C) TIGRS. D) CMOs.

C

A final prospectus must include all of the following except A) disclosure of material information concerning the issuer's financial condition. B) the effective date of the registration. C) a statement indicating that the SEC has approved the issue. D) whether the underwriter intends to stabilize the issue.

D

A fundamental analyst is concerned with all of the following except A) capitalization. B) historical earnings trends. C) inflation rates. D) trading volumes.

B

A mutual fund investor wants to know how closely your firm adheres to the industry's standardized breakpoint schedule and where he can find out more about breakpoints offered with the funds he is investing in. You tell him FINRA's standard breakpoint schedule is available only to professionals. there is no industry standard breakpoint schedule. the breakpoint schedule for a mutual fund is given in full only in the SAI. the complete breakpoint schedule for a fund is given in the prospectus. A) I and IV B) II and IV C) I and III D) II and III

D

A new registered representative in your firm was excited to be placing orders in a very fast-paced office and, when filling out the fifth order of the day, inadvertently omitted the designation of the account. The principal, when placing the order, made sure to remind the new representative to call with the designation as soon as they got back to their desk. Was this a problem, and if so, why? A) No, this was not a violation because the order was approved by the principal. B) Yes, this was a violation because the order should have been approved before being placed. C) Yes, this was a violation because the representative failed to sign the order. D) Yes, this was a problem because the principal placed the order without the account designation.

C

A prospect has primary investment objectives of current income and safety of principal. During the initial public offering of a closed-end government bond fund, an agent explains to the prospect that the fund invests in U.S. government-backed bonds, which keeps principal safe, and plans to make monthly distributions. Therefore, little could go wrong. Taken as a whole, this representation is A) accurate because the fund offers current income. B) accurate because the fund invests in government bonds. C) misleading because closed-end fund shares are subject to market pricing. D) misleading because government bonds experience considerable credit risk.

D

ABC Brokerage decided that an untapped market presents itself in the form of a targeted investment program for individual customers with $50 million or more in total assets—a list of 120 customers. A resource officer of the firm contacted a sample of 45 customers to answer a survey as to the least invasive and most impactful method to prove the program's worth. When asked by the CCO of the firm for the survey results, it was determined to be a winning plan. Which of the following were needed to be in compliance with FINRA? A) The communication to the 120 customers must be approved before use. B) The CCO had to approve the communication to the sample list of customers before its use. C) The winning plan could be used for all the firm's customers once it was proven through a 12-month trial period. D) The survey need not be approved prior to communicating with these individual customers.

A

All of the following are terms for different types of underwritings except A) closed end. B) standby. C) best efforts. D) firm commitment.

A

All of the following are true of a municipality wishing to raise money through a debt offering except A) an offering circular is submitted to the MSRB for approval. B) municipal securities are exempt from the filing requirements of the Securities Act of 1933. C) municipal bonds are considered second in safety of principal only to U.S. government securities. D) the announcement that is used to obtain an underwriter is referred to as a notice of sale.

C

All of the following statements regarding municipal bond official statements are true except A) the MSRB does not require the preparation of a final official statement for new municipal bond issues. B) all purchasers of a new municipal bond issue must receive a final official statement. C) an official statement must be delivered only upon customer request. D) a customer must receive an official statement no later than the settlement date.

A

An active portfolio manager may position the portfolio in stocks within a few market sectors, frequently trading in and out of the individual stocks, and subsequently, sectors. This type of management style can be suitable for certain investors. When explaining this strategy, you can help your investor see this as which of the following? A) Sector rotation B) Defensive rotation C) Opportunity speculation D) Sector selection

A

An open-end investment company seeks to achieve maximum income with little or no pursuit of appreciation. The fund invests in preferred stocks of small- and medium-sized companies that are just below investment grade, as well as bonds rated from B to BBB. The fund's management believes that, despite the risks involved with the individual securities, adequate diversification can result in superior investment returns. This information would most likely be describing A) the NavCo High Yield Fund. B) the ATF Capital Appreciation Fund. C) the ACE Balanced Fund. D) the NavCo Tax-Free Municipal Bond Fund.

B

As part of a well-diversified portfolio, your client is examining a potential new investment. Currently, the portfolio contains five secured, corporate bonds that will be maturing in two weeks. The plans are to potentially purchase three unsecured bonds and to replace two secured bonds identified in the secondary market, all of which have a 6% coupon rate. If overall interest rates decline before the investor can purchase the new bonds in two weeks, he can expect the income from the new bonds to A) pay no interest. B) remain at $60 per year. C) decline to less than $60 per year. D) increase to more than $60 per year.

A

During the cooling-off period, underwriters may not do which of the following? Make offers to sell the securities Take orders via the red herring Take indications of interest Publish a tombstone advertising A) I and II B) II and III C) I and III D) III and IV

B

Ezekiel, a 50-year-old investor, has entered your book of business through a transfer from another representative within your firm. According to Ezekiel's profile, he is approved for trading covered options. Getting to know him, you remind him he could profit from taking an income using calls. Because he is bullish on the market, which of the following would you recommend to accomplish your recommendation? A) Buying uncovered puts B) Selling covered calls C) Selling uncovered calls D) Buying covered puts

C

FINRA Rule 2330, dealing with members' responsibilities regarding variable annuities, applies under which of the following circumstances? The initial purchase of a deferred variable annuity The initial purchase of an immediate variable annuity The initial subaccount allocations Subaccount reallocations A) II and III B) II and IV C) I and III D) I and IV

D

FINRA has established rules designed to improve the objectivity of research reports and provide investors with more useful and reliable information when making investment decisions. To ensure the investing public receives objective information from the media and publications, the rule requires all of the following except A) research reports must disclose whether, within the past 12 months, the firm has received fees for investment banking services from a public offering for a company that is the subject of a research report. B) analysts must disclose in their research reports whether they have a financial interest in the subject security. C) analysts' compensation may not be tied to the firm's investment banking revenues. D) an adviser or a broker-dealer may not base a recommendation on reports or analyses prepared by others, as long as these reports are represented as the adviser's or broker-dealer's own.

B

Gary, a registered representative, would like to start a weekly blog on different topics of interest to investors with the purpose of attracting new business. The blog entries would require A) principal review after posting, but no FINRA filing is required. B) prior principal approval and filing with FINRA. C) principal review after posting and filing with FINRA. D) prior principal approval and filing with the SEC.

B

How often does a variable life insurance policy adjust the variable portion of the death? A) Biannually B) Annually C) Monthly D) Quarterly

C

If a customer requests to see the predispute arbitration agreement they have signed, a member firm must supply them with a copy within A) 2 business days of the request. B) 5 calendar days of the request. C) 10 business days of the request. D) 3 business days of the request.

B

If an underwriter of a rights issue will exercise any rights left unexercised by shareholders on the ex-rights date, this is an example of what type of offering? A) All or none B) Standby C) Best efforts D) Firm commitment

C

In order for a customer complaint to have regulatory standing, it must be delivered A) in person in the branch. B) by certified mail. C) in writing. D) in a voicemail or in written form.

B

Investors who purchase callable bonds face what types of investment risk? Call risk Reinvestment risk Principal risk Regulatory risk A) II and IV B) I and II C) I and IV D) II and III

A

Jane was excited when you told her you were watching for an opportunity to acquire an equity position in a five-year old, publicly traded growth company you recently heard about, which recently released a report on a new analytical computer program it created to more accurately predict weather-related crop impacts. While insisting on patience, Jane told you to "get in now." Which of the following risks should Jane be made aware of? A) Timing risk B) Speculative risk C) Diversification risk D) Liquidity risk

D

Joan purchased $10,000 worth of ABC Growth Fund five years ago, and during that time, she received $1,200 in dividends, which she reinvested, and $2,000 in long-term capital gains, which were also reinvested. The value of the fund as of today is $14,000. If she were to liquidate 50% of the shares and using the average share price method her profit or loss for tax purposes is a A) $1,200 loss. B) $2,000 profit. C) $800 profit. D) $400 profit.

C

Joe, a registered representative for ABC broker-dealer, read a great article in the local newspaper about investing in the stock market. He would like to make a copy of it to send to 10 prospects who he feels are suitable recipients. How will this be treated under FINRA rules regarding communications with the public? A) To qualify as an independently prepared reprint (IPR), the publisher may be an affiliate of ABC, as long as that is fully disclosed to the recipient. B) It is retail communication and does not require prior approval. C) Joe may send the article, subject to prior principal approval. D) The article is defined as correspondence and may be pre- or post-reviewed by a principal.

D

Mary wants to open a cash account with ABC broker-dealer. She does not have a Social Security number but has applied for one. According to the USA PATRIOT Act's customer identification program (CIP), all of the following are required when opening the account except A) her residential street address. B) her date of birth. C) her business street address in lieu of a residential address. D) her applied-for Social Security number.

A

Modern portfolio theory is an approach that attempts to quantify and control portfolio risk. It differs from traditional securities analysis in that it emphasizes determining the relationship between risk and reward in the total portfolio rather than analyzing specific securities. This is derived from the capital asset pricing model, which states that the pricing of a stock must take into account two types of risk. Those risks are systematic. timing. nonsystematic. beta coefficient. A) I and III B) III and IV C) II and IV D) I and II

A

Patsy's Party Supplies is based in Baton Rouge, Louisiana. The company has stores in the Baton Rouge and New Orleans metro areas. Patsy's would like to sell stock in a primary offering (worth $20 million) without registering the offer with the SEC. Patsy's may do this under any of the following offering types except A) an S-1 form offer. B) a Regulation D private placement. C) a Rule 147 intrastate offer. D) a Regulation A offer.

B

The provisions of Regulation T A) require most corporate bond issues to make provisions for a trustee. B) require that payment be made two business days after settlement date. C) define regular way settlement. D) prohibit the purchase of closed-end funds on margin.

C

The tax theory that allows investment companies to avoid triple taxation on dividend distributions made to shareholders is called A) the conveyor theory. B) the pipe theory. C) the conduit theory. D) the pass-through theory.

A

Three years ago, a customer purchased 300 shares of ACE Fund. He sold the shares on August 15 for a loss of $400. If he then purchased 300 shares of ACE Fund on September 4 of the same year, how would he record the loss for tax purposes? A) The loss is not deductible. B) Sixty percent of the loss is deductible. C) Fifty percent of the loss is deductible. D) Forty percent of the loss is deductible.

C

Under the intrastate offering rule (Rule 147), when may a resident purchaser of securities resell them to a nonresident? A) Six months after the last sale made in that state B) None of these C) At least six months after the date of purchase D) Three months after the first sale made in that state

A

When an option is trading, all of the following are fixed except A) the premium. B) the strike price. C) the expiration date. D) the underlying security.

A

When examining a new municipal bond fund that your firm just informed you it was adding to the list of approved offerings, you felt certain your list of suitable customers was very strong. After taking your first order of this fund and presenting the order ticket to your principal, she informed you to re-examine the conditions of suitability. Which condition would be most important to ensure suitability was paramount? A) Tax bracket of the customer B) Length of time the fund had been around C) Type of customer account into which the fund would be placed D) Approval of the fund from the firm

C

Which of the following account types would best suit the holder if the account holder wanted to maintain the property but would ensure the account's avoidance of probate? A) Partnership B) Joint tenants with right of survivorship C) Transfer on death (TOD) D) Tenants in common

C

Which of the following formulas determines a customer's net worth? A) long-term liabilities - current liabilities B) assets + liabilities - fixed assets C) assets - liabilities D) long-term liabilities + liquid assets

D

Which of the following insurance instruments do not offer inflation protection? Whole life insurance Variable life insurance Fixed annuities Variable annuities A) II and IV B) I and IV C) II and III D) I and III

C

Which of the following orders would be reduced by the specialist (designated market maker) on the ex-dividend date? Buy limit order Sell stop order Buy stop order Sell limit order A) III and IV B) II, III, and IV C) I and II D) I and IV

A

Which of the following statements regarding a Section 529 plan is true? A) A beneficiary of a Coverdell Education Savings Account may also be a beneficiary of a 529 plan. B) Contributions may only be made by those who fall within certain earnings limits. C) Once a contribution has funded the plan, no other payments into the account are permitted. D) Donors and beneficiaries must be related.

A

While employed as a representative at ABC Brokerage, one of John's younger clients has just been awarded a cash prize for her part in creating a new financial app. When asked what her objective was for the prize money, she told John she wasn't sure, but in the short-term, she needed a bit more life insurance and some income-producing investments. Which of the following should John not recommend? A variable annuity Variable life insurance A short-term government bond fund Term life insurance A) I and II B) II only C) I and IV D) II and IV

B

While trying to plan for retirement, your client, who just celebrated their 70th birthday in June, stated they plan to start withdrawals from their IRA four years from now. Which of the following should your client be made aware of? A) The distributions after December 31 of that year can be taken penalty tax free. B) Waiting this long will mandate that an extra RMD be withdrawn before April 1 of that year. C) All distributions will be taxed as ordinary income. D) Any distributions for the previous year must be completed by December 31.

A

You are the representative for three individuals who have a tenants in common account with your firm. If one individual dies, which of the following statements is true? A) Two survivors continue as cotenants with the decedent's estate. B) The account is converted to joint tenants with right of survivorship. C) The account must be liquidated and the proceeds split evenly among the two survivors and the decedent's estate. D) Trading is discontinued until the executor names a replacement for the deceased.

B

Your client, working for a local municipality, tells you that they have the opportunity to participate in a Section 457 plan. Explaining some of the characteristics and features of this type of plan, you could tell your client all of the following except A) contributions to the plan for eligible employees are made through salary deferral. B) earnings are taxable on an annual basis. C) these are nonqualified plans. D) they can be established by state and local governments and other tax-exempt employers.

A

Your new client, Miguel, is eager to start investing. However, you still consider his retirement account too highly concentrated in equities. You explain to him that, in general, all of the following should be considered when positioning his investments except A) value stream investing. B) diversification. C) time horizon. D) current income needs.