Series 6 - Unused Questions
Open an IRA and fund it with municipal bonds
A 45-year-old investor is in the highest tax bracket and wants to save over the next 20 years for a retirement income. Which of the following recommendations is least appropriate? A) Maximize contributions to your 401(k). B) Open an IRA and fund it with municipal bonds. C) Purchase a variable annuity. D) Buy blue-chip stocks.
Adjustment bonds
A company has negative operating revenues for the year. It would not be required to make interest payments on which of its following issues? A) Collateralized debt B) Mortgage bonds C) Adjustment bonds D) Subordinated convertible debentures
II and III
A customer is considering entering into an accumulation plan with his mutual fund. He is worried about committing to sending in so much per month that he may have trouble meeting the obligation, but he doesn't wish to commit to so little per month that his account does not build rapidly enough to meet his investment objectives. The registered representative explains that accumulation plans I. are binding on the investor. II. are binding on the mutual fund. III. are not binding on the investor. IV. are not binding on the mutual fund. A) III and IV B) I and II C) I and IV D) II and III
the assumed interest rate
A customer purchasing an annuity should be aware that all of the following will affect the value of his account during the accumulation stage except A) the value of each accumulation unit. B) the assumed interest rate. C) the number of accumulation units in his account. D) the performance of his separate account.
the award will be stated in writing and rendered to the claimant within 30 days
A customer who participates in a FINRA arbitration hearing would expect that A) a majority of the arbitration panel would comprise industry personnel. B) an award that is disputed could be appealed to the National Adjudicatory Council. C) the award will be stated in writing and rendered to the claimant within 30 days. D) the maximum amount awarded would not exceed $10,000.
Small-cap technology stock fund
A customer would like to know which of the following mutual funds has the highest potential for capital growth. Which would you choose? A) Blue-chip preferred stock fund B) Small-cap technology stock fund C) Blue-chip growth stock fund D) Long-term bond fund
This is a violation because it constitutes a guarantee against market risk
A registered representative tells a customer that by investing in government bonds, he is guaranteed to make money. Under the Conduct Rules, which of the following statements is true? A) This is ethical if the government bonds mature in less than one year. B) This is a violation because it constitutes a guarantee against market risk. C) This is a violation if the customer loses money but not if he at least breaks even. D) This is ethical because government bonds carry no risk.
Build up cash reserves and then save for a down payment on the new home. Investing must wait
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 10 years. What type of mutual fund investment would likely be the best recommendation? A) Dollar-cost-average $400 per month in an asset allocation fund, lowering the average cost per share of the investment. B) Build up cash reserves and then save for a down payment on the new home. Investing must wait. C) Invest $2,000 in a real estate investment trust for the home purchase and use the $400 per month to pay down the student loans. D) Pay down the student loans and invest $200 a month in a value fund for purchase of a new home.
II and III
According to the Code of Arbitration, which of the following entities may institute arbitration proceedings against a registered representative? I. Only a customer II. Anyone employed outside the securities industry III. Anyone employed in the securities industry IV. Only the registered representative's firm A) II and III B) I and IV C) I and III D) II and IV
three business days
After receiving the transfer initiation form (TIF) from a broker-dealer, how long after validating the securities on the form does the carrying firm have to complete the transfer? A) two business days B) one business day C) three business days D) four business days
opening a cash account for a customer without the customers signature on the new account form
All of the following actions are violations of the Conduct Rules except A) recommending a growth fund to a customer whose sole investment objective is income. B) delivering a prospectus 48 hours after the sale of a mutual fund. C) offering mutual fund shares to a customer at a discount from the appropriate POP. D) opening a cash account for a customer without the customer's signature on the new account form.
deferred compensation plans
All of the following are corporate qualified retirement plans except A) defined contribution plans. B) defined benefit plans. C) deferred compensation plans. D) profit-sharing plans.
80% of the offer must be sold to residents of the state
All of the following are criteria under Rule 147 (intrastate offering) except A) 80% of the issuer's assets are located in the state. B) 80% of the offer must be sold to residents of the state. C) the issuer receives 80% of its income from the state. D) 80% of the offers proceeds will be used within the state.
although investors bear the investment risk, the insurance company provides a minimum return guarantee.
All of the following statements regarding variable annuities are true except A) all account earnings must be reinvested. B) upon annuitization, the investor selects the settlement options. C) when funding a variable annuity, accumulation units are purchased in a separate account. D) although investors bear the investment risk, the insurance company provides a minimum return guarantee.
an email to several municipalities sent out in a single day offering your firm's services for underwriting their municipal securities.
All of the following would be considered either retail communications or correspondence except A) an electronic communication distributed through the firm's website regarding potential opportunities with the firm as a registered representative. B) a letter to 10 individual investors within the past week regarding a new investment strategy. C) an email to several municipalities sent out in a single day offering your firm's services for underwriting their municipal securities. D) a written communication to all of the firm's customers regarding a new mutual fund being offered.
shows any fluctuation
Dollar cost averaging results in a lower average cost per share than the average price per share paid, only if the share price during the investment period A) starts low and becomes higher. B) starts high and becomes lower. C) holds constant. D) shows any fluctuation.
QRS Money Market Mutual Fund
An investor has a portfolio diversified among many different asset classes. If there was an immediate need for cash, which of the following would probably be the most liquid? A) XYZ International Stock Mutual Fund B) CDL Common Stock Mutual Fund C) Cash value from a variable life insurance policy D) QRS Money Market Mutual Fund
long-term bonds when interest rates are high
An investor might expect to receive the greatest gain on an investment in a corporate bond by purchasing A) short-term bonds when interest rates are high. B) long-term bonds when interest rates are high. C) short-term bonds when interest rates are low. D) long-term bonds when interest rates are low.
The exchange is considered a taxable event that must be recognized in the current year
An investor owns $10,000 of shares in ABC bond fund. Due to a change in his financial situation, he wishes to exchange the bond fund shares for shares in ABC's aggressive growth fund. Which of the statements below correctly describes the tax consequences of this action? A) The exchange is not taxable. B) The exchange is taxable and the customer is also subject to a new sales charge on the aggressive growth fund shares. C) The exchange is considered a taxable event that must be recognized in the current year. D) Ordinary income taxes are due on any appreciation realized on the bond fund shares.
The entire amount
An investor who works for the city is ready to retire. The city has operated a Section 457 plan for its employees, in which he has participated. What portion of his withdrawals will be taxable? A) None B) Growth and earnings only C) The entire amount D) Cost base only
$300
An investor's portfolio includes 10 bonds and 200 shares of common stock. If both positions increase by one point, what is the appreciation? A) $220 B) $100 C) $210 D) $300
Income tax on $20,000 and a $2,000 penalty
Bob Smith, who is in his 40s, has just been placed into an extremely generous defined benefit plan at his company. He has decided that he no longer needs his variable annuity for retirement purposes and wants to use the money for a trip to Africa. Over the years, he has invested $60,000 in the annuity, and its total value is now $80,000. How much will Bob owe in taxes and penalties if he cashes it in? A) Income tax on $20,000 and a $2,000 penalty B) Capital gains tax on $60,000 and a $6,000 penalty C) Capital gains tax on $20,000 and a $2,000 penalty D) Income tax on $60,000 and a $6,000 penalty
$70 a share
Liam has received a gift of 200 shares of Seabird Airlines from his Uncle Mike. Mike purchased the shares 25 years ago for $15 a share. At the time Liam receives the stock, it is valued at $75 a share. He later sells the 200 shares for $85 a share. Liam will have a gain of A) $5 a share. B) $70 a share. C) $10 a share. D) $40 a share.
I and II
Institutional communications include all of the following except I. informational material on a new mutual fund offered by a registered investment company intended for use by registered sales personnel only. II. television appearances by an officer of a member firm. III. a recommendation report prepared for an insurance company. IV. a research report specifically prepared for a Section 457 plan with 100 participants. A) I and II B) II and III C) I and III D) II and IV
A resolution of the partners removing the prior authorized parties and appointing the new authorized parties
Double Entry Accountancy, an accounting partnership, has selected new managing partners. The existing authorized parties for the account will need to be removed and the new managing partners added as authorized to manage the account. What does the firm need to provide to accomplish this change? A) A resolution of the board removing the prior authorized parties and appointing the new authorized parties B) A resolution of the partners opening a new account and appointing the new authorized parties C) A resolution of the partners removing the prior authorized parties and appointing the new authorized parties D) A resolution of the board opening a new account and appointing the new authorized parties
$78,000 current IRA balance
During a fact-finding interview with a potential client, your client information sheet is used to list detailed financial information. Which of the following items would be relevant in determining a prospect's net worth? A) $225,000 annual income B) Recently paid off $3,000 credit card balance C) A potential inheritance D) $78,000 current IRA balance
a stock option plan
Each of the following is a defined contribution plan except A) a profit-sharing plan (qualified). B) a stock option plan. C) a 401(k) plan. D) a money purchase plan.
one year of service (1,000 hours)
Employee Retirement Income Security Act (ERISA) rules on participation require that employers include employees age 21 or older and with A) one year of service (2,000 hours). B) two years of service (3,000 hours). C) two years of service (4,000 hours). D) one year of service (1,000 hours).
His annuity payments are partly taxable and partly tax-free return of capital
John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments? A) His annuity payments are tax free. B) His annuity payments are partly taxable as capital gain and partly taxable as ordinary income. C) His annuity payments are all taxable as ordinary income. D) His annuity payments are partly taxable and partly tax-free return of capital.
I and IV
If a variable annuity has an assumed interest rate of 5% and the annualized return of the separate account is 4%, the value of I. the accumulation unit will rise. II. the annuity unit will rise. III. the accumulation unit will fall. IV. the annuity unit will fall. A) I and IV B) I and II C) II and III D) III and IV
The issuer has filed a standard registration statement
If the SEC has cleared an issue, which of the following statements is true? A) The SEC has guaranteed the accuracy of the information in the prospectus. B) The SEC has guaranteed the issue. C) The issuer has filed a standard registration statement. D) The SEC has endorsed the issue.
a positive alpha
If you heard a portfolio manager bragging that the portfolio generated excess returns, it means that there was A) a return in excess of the risk-free rate. B) dividend payout greater than expected. C) a positive alpha. D) a positive beta.
the fund's assets
Mutual fund 12b-1 fees are deducted from A) the fund's gross investment income. B) the fund's assets. C) the NAV of fund shares when shares are redeemed. D) the POP of fund shares when shares are purchased.
FINRA
The Department of Enforcement is an arm of A) the federal government. B) the SEC. C) the Securities Industry Association. D) FINRA.
They will be taxed as a short-term gain because the bond fund was held for less than 12 months
On February 14, an investor purchases 1,000 shares of ACE Bond Fund, with an objective of providing the highest possible level of income on a monthly basis. On August 15, the investor informs his agent that he has changed his mind and wishes to exchange his bond fund shares for shares of a common stock growth fund with an objective of capital appreciation within the same family of funds. If the investor's bond fund shares increase in value before the exchange, how will they be taxed? A) They will be taxed as income because the bond fund's objective was to provide current income on a monthly basis. B) They will be taxed as a short-term gain because the bond fund was held for less than 12 months. C) Because the shares were exchanged within a family of funds, the increase in the bond fund shares' value is not taxed, but it increases the cost base in the common stock fund investment. D) They will be taxed as a long-term gain because the exchange of the bond fund shares was made into a common stock fund with an objective of long-term capital appreciation.
firms must include a rating system
Rules regarding research reports include all of the following except A) analysts must disclose in their research reports and public appearances whether they or any member of their households have a financial interest in the subject security. B) analysts' compensation may not be tied to the firm's investment banking revenues. C) firms must include a rating system. D) research reports must disclose whether, within the last 12 months, the firm has received fees for investment banking services from or managed or co-managed a public offering.
II and IV
Several customers have failed to make payment for their trades within the time period required under Regulation T, and the broker-dealer is faced with selling out their securities. Which of the following customers need not have their positions closed out? I. The KLP Company, whose account owes $1,050 on a small equity trade II. Joe Bennett, who owes $850 on a closed-end fund purchase III. Bill Smith, who is close friends with his registered representative and who still owes $1,100 on a stock trade IV. Mr. and Mrs. J.F. Wilson, who owe $540 on a zero-coupon bond trade A) I and IV B) I and III C) II and IV D) II and III
Regulated
The KPF Corporate Bond Fund received $10 million in interest last year and no dividends from the securities that make up its portfolio. It had $500,000 in expenses and distributed $9 million of income directly to shareholders. Which of the following words applies to this fund? A) Regulated B) Growth C) Index D) Equity
when long-term interest rates are falling after a period of high interest rates
The best time to purchase shares in a long-term bond fund is A) when short-term interest rates are stable. B) when long-term interest rates are falling after a period of high interest rates. C) when long-term interest rates are rising after a period of low interest rates. D) when short-term interest rates are fluctuating.
annually
The death benefit of a variable life policy must be calculated at least A) semiannually. B) monthly. C) annually. D) weekly.
attempts to recruit registered representatives for the local branch office
The rules on communications with the public permit a member firm to exclude mention of its name in any retail communication or correspondence that A) announces the promotion of three individuals to vice president. B) offers a research report prepared by a firm other than the member sending the report. C) appears on a television program sponsored by the firm. D) attempts to recruit registered representatives for the local branch office.
C Corporation
Which of the following entities pays taxes? A) Partnership B) S Corporation C) C Corporation D) Limited Liability Corporation
deferred compensation plans
Under ERISA, all of the following retirement plans must set standards for vesting, eligibility, and funding except A) Keogh plans. B) deferred compensation plans. C) profit-sharing plans. D) corporate pension plans.
only when the investor is able to access a statutory prospectus online
Under SEC Rule 498, a summary prospectus may be used in a mutual fund sales presentation resulting in a sale A) only when preceded or accompanied by the fund's full prospectus. B) only when the client does not request the statement of additional information. C) only when the investor is able to access a statutory prospectus online. D) under no circumstances because the summary prospectus is only used to encourage potential investors to request the full prospectus.
recommending that a customer set up a scheduled investment program, depositing the same amount each period regardless of market value.
Under the Conduct Rules, all of the following actions violate fair and ethical treatment of customers except A) assuring a customer that, because dollar cost averaging is one of the most effective means of investing for the long term, his account is unlikely to suffer any losses. B) recommending that a customer regularly move his assets among several fund families with similar investment objectives to ensure diversification and top performance. C) encouraging customers to purchase mutual fund shares just before the ex-date to ensure that the customer receives the upcoming dividend. D) recommending that a customer set up a scheduled investment program, depositing the same amount each period regardless of market value.
II and IV
Under the IRC Subchapter M, if WWF fund only distributes 85% of its net investment income to its shareholders, then I. the fund must pay taxes on the undistributed 15% of net investment income. II. the fund must pay taxes on 100% of the net investment income. III. the shareholder pays no tax if the income is reinvested. IV. the shareholder must pay taxes if the income is received in cash or reinvested. A) I and III B) II and III C) II and IV D) I and IV
I and II
Under the definition of a management investment company, all of the following would qualify except I. face-amount certificate companies. II. real estate investment trusts. III. closed-end investment companies. IV. open-end investment companies. A) II and III B) III and IV C) I and III D) I and II
If the fund is established under Section 12b-1
Under what circumstances may an open-end investment company act as its own distributor? A) If the fund invests in government securities only B) If the fund is established under Section 12b-1 C) Can act as its own distributor at any time D) Under no circumstances
I and II
Variable annuity payout options may include I. life only. II. joint life with last survivor. III. assumed interest rate. IV. minimum required distribution. A) II and IV B) I and III C) III and IV D) I and II
$2,000 loss
Vivian sold 200 shares of Davenport Furniture short at a price of $15 a share. Shortly after this, Davenport reported that their sales increased significantly in the prior quarter and the shares moved up to $25 at which time Vivian was forced to close the position. What is Vivian's gain or loss for this transaction? A) $1,000 loss B) $2,000 loss C) $2,000 gain D) $1,000 gain
must be reviewed by a principal
When an order is accepted to purchase mutual fund shares, that order A) must be reviewed by a principal. B) must be approved by FINRA. C) is wired to the exchange where the shares trade. D) may be canceled, provided the order to cancel is received within one day of execution.
the names of the customers dependents
When opening a new account for an individual investor, FINRA asks its member to make a reasonable effort to obtain certain information about the account. Included information would be all of the following except A) the name(s) of the customer's dependents. B) the occupation of the customer and name and address of the employer. C) the customer's tax identification or Social Security number. D) whether the customer is an associated person of another member.
I and III
When referring to employee retirement plans, the term nonqualified refers to plans I. not approved by the IRS. II. that offer tax-deductible contributions and tax-deferred growth. III. under which employers may discriminate as to the inclusion of employees in the plan. IV. under which employers may deduct contributions made on behalf of employees as the contributions are made. A) I and III B) I and II C) II and IV D) III and IV
Tax on accumulation is deferred
Which of the following are correct when describing a nonqualified retirement plan? A) Tax on accumulation is deferred B) Distributions are fully taxable C) Distribution are tax free D) Plan must meet IRS guidelines
II and III
Which of the following are types of corporate retirement plans? I. 403(b) plans II. Defined benefit plans III. Profit-sharing plans IV. Solo 401(k) plans A) II and III B) III and IV C) I and II D) I and IV
20-year mortgage bond with duration of 16
Which of the following bond prices would fluctuate the most if the interest rates fell? A) 20-year mortgage bond with duration of 16 B) 30-year corporate bond with duration of 14 C) 15-year unsecured bond with duration of 12 D) 10-year zero coupon with duration of 10
Class A
Which of the following mutual fund share classes has no back-end load, lower operating expenses, and low or no 12b-1 fees? A) Class A B) Class C upon conversion to Class B C) Class C D) Class B
Two-year T-note
Which of the following securities is not exempt from registration based solely on the type of security? A) Six-month commercial paper B) Six-month banker's acceptance C) Two-year T-note D) Six-month T-bill
III and IV
Which of the following statements characterize the accumulation phase of a variable annuity? I. The number of accumulation units remains constant as investment continues. II. The value of an accumulation unit increases only if the separate account outperforms AIR. III. The number of accumulation units increases as investment continues. IV. The value of an individual accumulation unit depends only on the performance of the separate account, regardless of AIR. A) III and IV B) I and II C) I and IV D) II and III
II and IV
Which of the following statements correctly describe a Roth IRA? I. The maximum annual contribution is 100% of earned income or a maximum allowable dollar limit, whichever is greater. II. The maximum annual contribution is 100% of earned income or a maximum allowable dollar limit, whichever is less. III. Contributions are tax deductible. IV. Contributions are not tax deductible. A) I and IV B) II and III C) II and IV D) I and III
II and III
Which of the following statements regarding 12b-1 charges are correct? I. There is a maximum allowable charge of 0.25% for marketing and promotion. II. There is a maximum allowable charge of 0.75% for marketing and promotion III. An additional 0.25% may be charged as a shareholder servicing fee. IV. Rules allow a fund to market as no-load if its 12b-1 charge exceeds 0.25%. A) I and III B) I and IV C) II and III D) II and IV
They are redeemable securities
Which of the following statements regarding UITs is true? A) They trade on an exchange. B) They have a high management fee. C) They are most commonly sold at a discount. D) They are redeemable securities.
I and IV
Which of the following statements regarding an open-end investment company that operates pursuant to a 12b-1 plan are true? I. Shareholders are charged for sales expenses involved in the distribution of new fund shares. II. The 12b-1 charges may not exceed 0.25%. III. The plan can be terminated by a majority vote of the shareholders only. IV. Fees are deducted quarterly from a mutual fund's assets. A) II and III B) II and IV C) I and III D) I and IV
I and IV
Which of the following statements regarding variable annuities and index annuities are not true? I. Both index and variable annuities are securities products. II. Index annuities provide a guaranteed minimum return, whereas variable annuities do not. III. Index annuities typically have longer surrender periods than variable annuities do. IV. Variable annuities typically have longer surrender periods than index annuities do. A) II and IV B) II and III C) I and IV D) I and III
I and IV
Which of the following would be considered money market instruments? I. A Treasury bond with 11 months to maturity II. Ten shares of preferred stock sold within 270 days III. An American depositary receipt (ADR) held for less than 1 year IV. A $200,000 negotiable certificate of deposit A) I and III B) II and III C) I and IV D) III and IV
Expansion
Which segment of the business cycle would one expect to find rising interest rates and higher wages? A) Contraction B) Expansion C) Trough D) Recession
Invest $100 monthly into the mutual fund and send his daughter $100 monthly
Your customer has $200 per month of discretionary income and currently invests $200 monthly into a mutual fund. His daughter plans to enter college soon, and he would like to send her $100 monthly. Which of the following actions should you recommend to him? A) Invest $200 monthly into the mutual fund and redeem shares when needed. B) Invest $100 monthly into the mutual fund and send his daughter $100 monthly. C) Begin a systematic withdrawal program of $100 monthly. D) Invest $200 monthly into the mutual fund and send all dividends to his daughter.
Your customer will not be taxed on the distributions if she is over the age of 59½ and the money has been held in the account for five years, beginning with the first tax year for which a contribution was made to any Roth IRA established for the individual.
Your customer has contributed $1,000 annually into her Roth IRA for seven years. Which of the following statements concerning her Roth IRA distributions is true? A) The distributions are taxed as capital gains. B) Your customer will not be taxed on the distributions if she is over the age of 59½ and the money has been held in the account for five years, beginning with the first tax year for which a contribution was made to any Roth IRA established for the individual. C) Your customer will pay ordinary income taxes on the part of the distribution that represents earnings. D) The distributions are taxed as ordinary income.
He must declare $12,000 as a taxable gain upon exchange into the ACE Income Fund
Your customer originally invested $20,000 into the ACE Growth Fund and has reinvested dividends and gains of $8,000. His shares in ACE are now worth $40,000. He exchanges his investment to the ACE Income Fund. Which of the following statements is true? A) He must declare $12,000 as a taxable gain upon exchange into the ACE Income Fund. B) He retains a $20,000 cost basis in the ACE Income Fund because of the conversion privilege. C) He is not liable for taxes in the current year because he did not have constructive receipt of the money at conversion. D) He retains his cost basis of $28,000 in the ACE Income Fund.
Index fund
Your customer seeks capital growth but is concerned about execution costs. Which of the following funds would be most suitable for him? A) International fund B) Growth fund C) Balanced fund D) Index fund
ARG Stock Index Fund
Your customer, age 29, is seeking a long-term growth investment, is concerned about the loss of purchasing power as a result of inflation, and often complains about high commissions that reduce his investment returns. When he was in college, he took a few economics courses and firmly believes that securities analysts cannot consistently outperform the overall market. Which of the following mutual funds is the most suitable for the customer? A) ATF Biotechnology Fund B) ZB Asset Allocation Fund C) ARG Stock Index Fund D) NC Growth & Income Fund
STG Corporate Bond Fund, which specializes in speculative bond offerings
Your customer, who is in his 30s, is single, and has a steady, well-paying job, has just received a large inheritance. He wishes to generate as much extra income with it as possible and does not mind financial risk. Which of the following investments would you recommend? A) Excelsior Growth and Income Fund, which tries to generate growth in value of shares but also provides dividend income B) KLP Government Bond Fund, which concentrates on long-term government debt C) Smith and Jones Money Market Fund D) STG Corporate Bond Fund, which specializes in speculative bond offerings
III and IV
Your open-end investment company customer has decided to make automatic reinvestment of dividend and capital gains distributions. This choice will I. defer taxation on these distributions. II. lower the proportionate ownership in the fund each time a distribution is made. III. not change the tax status of these distributions. IV. allow your customer to reinvest the distribution without paying a sales charge. A) I and II B) I and IV C) III and IV D) II and III