Series 6
An ABLE Account allows an annual contribution of up to:
$16,000
A self employed individual earns $240,000 for the year. The maximum deductible contribution that can be made to a defined contribution HR10 plan for this year is
$48,000 20% of income prior to taking Keogh deduction or $61,000 whichever is less 20% of $240,000 = $48,000
Fund's gross investment income:
- dividends received from common stock - dividends received from preferred stock -interest received from bonds
The maximum permitted annual 12b-1 free under FINRA rules is:
.75% of Net Assets Also notes that FINRA rules state that if a fund wishes to call itself "no-load" fund, then the maximum permitted annual 12b-1 fee is only .25%
A married couple has a combined net worth of $14 million, if one dies in 2022, the taxable amount of the estate to the surviving spouse is:
0 An unlimited marital exclusion to spouses when 1 party dies. Thus, if a husband dies, no estate tax are paid at that point by surviving spouse. When that person dies, the estate is subject to tax, with an estate tax exclusion which is adjusted for inflation annually. For 2022, the adjusted exclusion amount is $12,060,000
A client of a registered representative refers a new potential customer. This customer is interested in purchasing an oil and gas limited partnership unit. What percentage of the purchase amount can the representative share with the referring client as a finder's fee?
0%
A 30 year old single individual wished to invest for retirement. he is employed at a high paying job at a stable employer, has a high risk to tolerance and, has no current income needs from his investments. The BEST asset allocation recommend to the customer is:
100% common stocks/ 0% bonds This customer can assume risk, has no current income needs, and has a 40-50 year investment time horizon.
When a mutual fund receives a redemption request from one of its shareholders, payment for the shares redeemed must be made in what time period?
7 Calendar days
The maximum permitted annual 12b-1 fee under FINRA rules is
75 basis point .75%
A customer has heard about balanced funds and blend funds and asks her broker about the difference. Which of the following statements by her broker is correct?
A balanced fund can invest in bonds, but blend fund will not
In a rising market which statement concerning beta is TRUE?
A fund with a lower beta will have lower risk and lower returns
Which of the following bonds would typically offer the highest coupon?
A non-convertible issue that is callable Straight( non convertible) issues offer coupons that are higher than convertible issues. Callable bonds must offer higher coupons to compensate the investor for the risk of a call occurring in a low interest rate environment
Which statement is TRUE regarding the purchase of open-end investment company shares?
A trustee purchasing for a single trust qualifies for breakpoints on large dollar purchase
A mutual fund advertisement may quote all of the following EXCEPT:
Annual share appreciation A fund may only advertise average annual total return (covering 1,5,10 year periods, of the life of the fund if shorter), current yield, and if applicable, the taxable-equivalent
When must a salesperson deliver the latest prospectus for a variable annuity?
At the time of, or before, solicitation Variable annuity is a non-exempt security and must meet the requirements of the Securities Act of 1933 for "new issue" offering
Which of the following is an appropriate investment for a customer with an objective of growth and income?
Blue-chip stocks
Bonus annuity
Bonus annuities tend to have higher fees than other annuities generally have longer surrender fee schedules than other annuities The insurer contributes an additional percentage of premium payments to account
A customer has completed an account transfer instruction form at broker-dealer "B," instructing that his account be transferred from caring broker-dealer "A". Once the position are validated, any new orders must be placed through
Broker-dealer "B"
Which of the following is the most significant difference between closed-end and open-end investment companies?
Capitalization
Collateral trust certificate:
Collateral trust certificate shares of stock owned by the company as collateral
What is a disadvantage for a convertible preferred stock purchaser?
Convertibility means preferred stockholders must accept a lower stated dividend rate
A customer holds a large portfolio of corporate bonds. The customer is worried about capital risk. Which diversification strategy would be least effective to minimize capital risk for this customer ?
Diversification among differing coupon rates
ETF and Mutual fund
ETF shares can be bought on 50% margin while mutual fund shares must be paid for in full when purchased, but become marginable after being held for 30 days
Which statement about taxation of 103(b) plans is TRUE?
Employee salary deferrals reduce the employees taxable income
Which of the following apply to both mutual funds and variable annuities?
Exposure to the stock market Annuities offer death benefits-mutual funds do not. For an annuity, the death benefit is only in force during the accumulation period. Mutual funds operate under the conduit theory of taxation while annuities grow-tax deferred
Withdrawals from variable life policies are taxed on
FIFO basis
An individual wishes to have a fixed number of shares liquidated each month. He or she should elect which type of withdrawal plan?
Fixed shares
Which mutual funds will be expected to have the most appreciation during a bull market?
Growth fund The growth fund tends to appreciate more rapidly during bull market and will typically do better than the overall market during this period. A growth fund will invest a high percentage of its assets in common stocks of rapidly growing industries, and these do better in rising markets
A mutual fund wholesaler wished to take a registered representative and the RR's wife our to dinner
He may do so
The premiums that are invested in a separate account for a variable product can be invested in which of the following way?
Indirect investment in mutual funds and direct investment in stock and bonds
Withdrawals from variable annuities are taxed on a
LIFO basis
which of the following must be registered with the SEC as a Registered Investment Adviser?
Manager that advises a mutual fund on selecting investments
Typically, accumulation units of variable annuities represent an investment interest in underlying:
Mutual fund shares most variable annuity purchasers choose a "growth" mutual fund, since this provides an inflation hedge
A mutual fund has a NAV per share of $1200. The maximum offering price per share is
NAV/ (100%-sales charge%) = $12 (NAV)/ (100% -8.5%) = $12//.915 = $13.11 POP
Which statement is TRUE about retirement plans?
Payments into a non-qualified plan are made with post-tax dollars and are not tax deductible
Bullish
Put writer
An open-end management company is limited to a maximum sales charge of 7¼% under FINRA rules if the fund does NOT offer its shareholders:
Rights of accumulation and quantity discounts (breakpoints) as prescribed by FINRA
A customer owns 3,250 accumulation units in a separate account, with a value of $7.70 each. She wishes to retire and begin taking a life annuity. The annuity units are currently valued at $2.28 each. Which statement is true?
She will receive 10,975 annuity units in exchange for the accumulation units The customer has 3,250 accumulation units valued at $7.70 each. The total account value is $25,025. The customer annuitizes this account value into annuity units valued at $2.28 each. Divide the $25,025 by the $2.28 to get the number of annuity units this transaction produce (10,975). These annuity units fund the monthly annuity payment from this date forward
Which type of life insurance has a fixed annual premium, a fixed death benefit, a fix time period for coverage and no cash value?
Term Life
An insurance policy that promises to pay a named beneficiary a specified amount of money only if the insured dies within a certain limited time is a
Term life policy
Which statement about the securities Exchange Act of 1934 id TRUE?
The act required issuers to report on their businesses annually by filing Form 10k with the SEC
Which statement about mutual fund retail communications by established FINRA member firms is FALSE?
The broker-dealer must submit all mutual fund retail communications to FINRA for approval before distributing it
Forty-five days ago, a client invested $2,000 in shares of a common stock mutual fund. Now the client wants to buy enough shares to qualify for a lower sales charge. Which statement about the use of a Letter of Intent by the client is TRUE?
The client should sign a LOI, backdated to the date of the original $2,00 purchase so the lower sales charge is applied to the entire amount
A management company has a net asset value of $8.59 per share. The fund's ask price is 5.3% lower than the net asset value. Which statement is TRUE?
The fund must be closed-end
Which statement about the tax rates for long-term and short-term capital gains is TRUE?
The maximum rate for long-term capital gains is 15%-20% and short-term capital gains are taxed at the same rates as ordinary income
Which statement is TRUE regarding member firms holding sales contests for selling mutual funds and variable annuities?
The member firm is permitted to pay both commission on each mutual fund and variable annuity sale and a bonus to any representative that meets the minimum sales goal
Which of the following statement(s) concerning annuitization of a variable annuity is(are) TRUE?
The number of annuity units is fixed, but the value of each benefit payment may vary
The maximum civil penalty to a controlling person violation of the Insider Trading and Securities Fraud enforcement Act of 1988 is:
Three times the profit achieved or loss avoided or $1,000,000 whichever is larger
Which statement is TRUE?
Variable life insurance was derived from whole life insurance
In a bear market, an investor should expect which of the following to occur?
a blend fund will decline more than balanced fund a blend fund invests primarily in common stocks. The investment. t adviser selects the stocks based on a "blend" of both the growth and value styles of investing.
Defined benefit plans
a qualified retirement plan; investment risk is carried by the employer employees are guaranteed they will not outlive benefits PBGC coverage protects benefits for employees older workers prefer these plans to defined contribution plans
Qualified Retirement plan
a retirement plan that meets ERISA's minimum requirements for qualification for special federal income tax benefits for the sponsoring employer. The tax benefit for the employer is the deductibility of contributions and for participating employees, is the deferral of tax on benefits until distributions are taken
Which statement is TRUE about Equity Indexed Annuity contract?
a salesperson does not need either series 6 registration to sell this product Equity indeed annuities are regulated as an insurance product, not as security, due to the products "no investment loss" guarantee. Non security
An "accumulation unit" of a variable annuity contract is a(n)
accounting measure of the owner's interest in the separate account
a specialty or specialized fund is
also a common stock fund, but it invests in the common shares of companies in one industry or geographic area
SIMPLE retirement plan
an easier to administer plan available to employers with no more than 100 employees. the maximum employee contribution per year to a SIMPLE plan for 2022 is $14,000 Employee contribution are a salary reduction to the employee and are 100% vested when they are mad
Unrealized capital gain
an unrealized capital gain is the growth in value of security while an investor owns it. Upon the sale of the security, any gain becomes a realized gain. Unrealized gains re not taxable. A realized gain is taxable
Monet market funds
are very safe and liquid investments in money market instruments with low return and no growth potential Money funds are no-load. There are no up-front sales charges, thus there are no "breakpoints," which are reduced sales charges for large purchases. 12b-1 fees are annual fees that the fund is permitted to charge against fund net assets for the cost of marketing the fund Every mutual fund has an investment adviser to manage the fund, who is paid a management fee. The fee is higher for actively managed funds than it is for passively managed (index) funds
When a management company shows an increase in net asset value due to a rising market, this is called:
asset appreciation asset appreciation in a mutual fund occurs when the securities in the portfolio increase in value, but the fund has not yet sold the appreciated securities resulting in a capital gain.
As the economy and the stock market fluctuate, which of the following can the holder of a fixed annuity expect to occur during the payout years?
benefits will not fluctuate overtime
The risk associated with the uncertainty of future economic performance of a company, excluding any effect of financial leverage, is called
business risk is the risk that a company's future operating earnings decline due to adverse business factors, such as declining demands for the company's products. If the company's earnings decline precipitously, it could "go out of business," hence the term business risk
Stabilizing bids
can be only be entered at or below the POP, never above. If the bid were allowed to be placed above the POP, it would make the issue instantly "hot" and this is prohibited
Universal life insurance:
cash value increases at a fixed and guaranteed rate of return with universal life policy, any cash value is invested in the insurer's general account, and the policy owner's account is credited for the interest income earned on the general account. This rate of return can vary from year to year. The policy owner can use cash value to increase the death benefit or to skip some premium payments
Universal life
combines elements of term life and whole life policies. The premium is broken down into an insurance element (the term component) and a savings element that is invested in the insurance company's general account (saving component).
In a rising market, which fund would likely show the greatest appreciation?
common stock fund
A representative gives a seminar to investors, making a presentation about successful hedge fund strategies. It is attended by 10 retail clients and 20 institutional clients. FINRA defines this as:
correspondence: a communication to 25 or fewer existing or prospective retail clients "10 retail client"
When the FINRA member firm buys for its inventory, it is acting as a(n):
dealer OTC and NASDAQ firms are known as broker-dealers, because they can execute transactions in either of 2 ways: When a firm acts as a broker, it is an agent, matching a buyer to a seller (or vice-versa) and the firm earns a commission. When a firm acts as a dealer, it is a principal, selling the security to a customer from its inventory, or buying the security into its inventory from a customer. For each round-turn trade completed, the dealer earns the spread. In addition, under FINRA rules, when a dealer sells to a customer, it may charge a mark-up over the ask price; and when it buys from a customer, it may deduct a mark-down from the bid price.
To determine the value of a variable annuity accumulation unit on any given date, the insurance company must:
divide the total value of all assets in the separate account by the number of accumulation units
a balances fund
divides its investments between among equity and debt securities
A 200% Leveraged Inverse Dow Jones Industrial Average Index ETF would be expected to move:
down 100% in price when the DJIA moves up 50% A leveraged ETF uses borrowing (margin) and options to magnify price movements as compared to the reference index.
The majority of open-ended investment companies impose:
front-end load sales charges
Equity income funds
invest in the common stocks of blue chip companies that pay a high dividend, but that have lower growth potential and also invest a good percentage of their assets in preferred shares that pay a high fixed dividend rate, but which do not grow in price as the earnings of that company grow. These companies are more mature and tens not to appreciate as much, so their returns will not be as great during a bull market
Which statement is TRUE regarding the income tax treatment of a variable life insurance policy during the life of the policy ?
investment earning are tax deferred and the owner may borrow part of the cash value without tax consequences
balanced fund
invests in a balance of common stocks, preferred stocks and bonds. In a rising market, the common stocks do well, but the preferred stocks and bonds in the portfolio only appreciate if market interest rates fall. Thus, the returns will be lower in a bull market than for a growth funds
Dollar-cost averaging (DCA)
is a way to reduce the investor's average cost of shares below the average price per share over the same period. The average cost will not be below the market price, and may actually be above the current market price in a steadily decreasing market. DCA requires an investor to make fixed dollar investments at regular intervals without regard to market trends. The result will be that the investor will buy more shares when the price falls and fewer shares when the price for shares is high
Total return on a mutual fund:
is year-to-year percentage gain or loss in net asset value per share and excludes sales loads
Whole life insurance
it protects the purchaser from increasing premiums as that person ages, and there are no renewals - the policy is good for that person's "whole" life
If a member firm receives a written complaint from a customer, the member must
keep a separate file of the written complaint with action taken (if any) in the Office of Supervisory Jurisdiction
An increasing market rate of interest would lead to
lower bond prices and higher bond yields if interest rates rise, then bond prices will drop, and yields on those bonds will rise to match up to currently higher interest rates
Which risk for a mutual fund is most likely associated with a enteral economic recession?
market risk
Direct investment
means that the variable annuity separate account is structured as a management company that makes "direct" investment in common stocks and bonds
Indirect Investment
means that the variable annuity separate account is structured as a unit investment trust that buys shares of a designated mutual fun. Thus, the separate account is making indirect investments in common stock and bonds via the purchase of the mutual fund shares
True when comparing index mutual fund to an index exchange traded fund?
mutual funds cannot be sold short; exchange traded funds can be sold short
A tax deduction for a contribution to a Coverdell Education Savings account is:
not permitted
Capital gains realized in a non qualified variable annuity separate account during the accumulation period are:
not subject to tax The build up in a variable annuity separate account is tax-deferred. Tax is due on the build up portion only when the account is annuitized and distribution commence
a diversified common stock fund and growth fund
only invest in common share (equity)
As the economy fluctuates, the holder of a variable annuity contract should know that:
payments will fluctuate based upon the actual return that the separate account earns.
Which statement about variable universal life policies is TRUE ?
premium and coverage amounts can vary
Variable life
products invest a portion of the premium in a separate account rather than the general account, and the investment return of the separate account will determine the amount of insurance coverage, which can vary. Variable life is similar to whole life, except that there is no guarantee of investment return. Both have a fixed annual premium, are permanent insurance, and build cash value
Term Life insurance
pure insurance with no investment element. For the premium paid, the purchaser is buying life insurance coverage for a fixed time period. At the end of that time period, the policy must be renewed to maintain coverage, typically at a higher premium as the insured individual ages (because of the greater mortality risk). when the purchaser of a term life policy is young, the premium is very low; as that person ages, the premium gets higher and higher
Exchange trade funds CAN NOT be:
redeemed with the sponsor ETFs such as SPDRs are negotiable; they trade as would any regular stock
If a mutual fund declares a dividend equal to 4% of current NAV (currently at $12 per share), and its NAV declines by 4% on the ex-date, the shareholder who reinvests dividends can expect that his or her purchasing power will:
remain unchanged
The ex-date for a mutual fund is
set by the BOD of the fund the date on which the fund reduces its NAV per share for any distributions
Lump sum distributions from non-qualified variable annuities taken prior to annuitization are:
subject to LIFO accounting and 100% taxable in the earlier distributions and non taxable on the later distribution
Which statement describes a variable life insurance policy?
the cash value increases based on equity investments
Option/income fund
the fund earns premiums from writing call options and it earns dividends and capital gains on its stock holdings
If a customer purchases a variable annuity and dies before annuitization, what amount will the insurance company pay to the beneficiary?
the value of the separate account on the date of death
which type of insurance policy allows the premium payment to be changed?
universal life
Which type of insurance requires a fixed annual premium, pays a variable death benefit, provides protection for the entire life of insured, and gains cash value?
variable life
