Series 6 Practice
A 50-year-old widow uses the proceeds of her late spouse's life insurance policy to purchase a single premium variable annuity in the amount of $100,000. Five years later, when the account is valued at $130,000, she withdraws $50,000. If she is in the 25% tax bracket, what will she pay the IRS for this withdrawal? A) $10,500 B) $12,500 C) $17,500 D) $7,500
A) $10,500 Because the annuity holder is under 59½, she must pay full income tax plus a 10% penalty on any growth she withdraws. Of the $50,000 withdrawn, $30,000 is growth. She must pay 25% of it, or $7,500, as income tax and 10% of it, or $3,000, as a penalty, for a total of $10,500.
A registered representative of a FINRA member firm decides to use email to communicate sales ideas to clients and prospects. Which of the following statements correctly describes the treatment of email? A) A thank you email sent to 25 existing customers is considered correspondence. B) A bulk email sent to 100 prospective customers within a 30-day period is considered group correspondence. C) All emails are subject to the 3-year recordkeeping requirements. D) All email from a broker-dealer is considered advertising.
A) A thank you email sent to 25 existing customers is considered correspondence. An email sent to an existing customer is a correspondence. Bulk email sent to more than 25 retail investors over a 30-day period is retail communication. Only emails defined as retail communication are subject to the 3-year recordkeeping requirement.
Under the intrastate offering rule (Rule 147), when may a resident purchaser of securities resell them to a nonresident? A) At least six months after the date of purchase B) Three months after the first sale made in that state C) Six months after the last sale made in that state D) Nine months from the initial sale
A) At least six months after the date of purchase In an intrastate offering, a purchaser of the issue may not sell the securities to a resident of another state for at least six months from the date of purchase.
If an investor has purchased an immediate variable annuity, which of the following statements best describe the investment? I. It was a lump-sum purchase. II. Distribution of dividends occurs during the accumulation period. III. Distributions to the annuitant will fluctuate during the payout period. IV. The investor purchased accumulation units. A) I and III B) I and II C) II and IV D) III and IV
A) I and III An immediate annuity has no accumulation period. A single lump-sum investment is made, and payments begin immediately because the investor has purchased annuity units. During payout, distributions will fluctuate due to performance in the separate account.
Which of the following statements for both variable life and variable annuity contracts are true? I. Both are insurance company products. II Both eliminate investment risk for the contract holder. III. Both have a separate account containing securities investments. IV. Both have a guaranteed death benefit. A) I and III B) II and IV C) II and III D) I and IV
A) I and III Both variable life contracts and variable annuities are insurance company products with an investment component in the separate account. The investment component means that the contract holder assumes investment risk. Only the life contract has a guaranteed death benefit
Which of the following must ABC broker-dealer file with FINRA? I. Website II. Email to a prospect reviewing a recommendation for investment III. Radio advertisement IV. Promotion sent to 50 nonprofit organizations A) I and III B) II and III C) I and IV D) II and IV
A) I and III The firm's website and radio advertisement are forms of retail communication and must be preapproved by a principal and filed with FINRA. The email is correspondence, and the promotion sent to nonprofits is a form of institutional communication—neither of which is filed with FINRA.
A corporate bond went up from 98 points to 98.80. How much is the 80 basis points increase worth? I. $8 II. $80 III. 0.8% IV. 8% A) I and III B) II and IV C) II and III D) I and IV
A) I and III We know that 100 basis points equals $10 equals 1% of a bond's face value. Therefore, 80 basis points equals 0.8% and is worth $8.00 (80 × $0.10). The market price went from $980.00 to $988.00.
In constructing a profile for your customer, you wish to assemble information on both financial and nonfinancial investment considerations that affect your customer. Which of the following qualify as financial investment considerations? I. Your customer's tolerance of various forms of risk II. Your customer's tax status III. Your customer's liquid net worth IV. Your customer's monthly credit card payments A) III and IV B) I and III C) II and IV D) I and II
A) III and IV Liquid net worth and credit card payments involve concrete sums of money and cash flow and, thus, are financial. Tax status and risk tolerance do not involve actual sums of money and, thus, are nonfinancial considerations
Which of the following would a customer examine to evaluate the credit quality of a new municipal security? A) Official statement B) Prospectus C) Trust indenture D) Legal opinion
A) Official statement The official statement is an offering document that discloses material information on a new issue of municipal securities. Because it commonly includes information concerning the purpose of the issue; how the securities will be repaid; and the financial, economic, and social characteristics of the issuer; it is an appropriate place to review the creditworthiness of an issue. The legal opinion reviews the legality of the issue, including certain legal exemptions. A prospectus is the document that provides material information about a nonexempt security being publicly distributed. The trust indenture is the basic bond contract between the issuer and the trustee.
Specific disclosures regarding surrender fees or deferred sales charges should be made for all of the following investments except A) S&P 500 index exchange-traded fund (ETF). B) Windmill growth fund, Class B shares. C) Johnson Life GoodLife variable annuity. D) Appalachian Life Insurance fixed annuity.
A) S&P 500 index exchange-traded fund (ETF). ETFs trade in the secondary markets and are commissionable trades. Class B share mutual funds have deferred sales charges, and most annuities have surrender charges.
Which of the following new issues would require registration with the SEC under the Securities Act of 1933? A) Sticky Glue, Inc., $100 million subordinated debentures of 2050 B) City of Gobbler's Knob Stadium revenue bonds of 2045 C) Small Corporation's sale of $15 million of common stock D) Bethel Baptist Church new building bonds
A) Sticky Glue, Inc., $100 million subordinated debentures of 2050 Sticky Glue's bond offer does not meet any of the exemptions from registration. Municipal debt and securities issued by religious organizations do not need to register. Small offerings under Regulation A+ are an exempt transaction.
Your client retired from her job three years ago and placed all of the proceeds of her 401(k) distribution into a rollover IRA at her local bank. She is unhappy with her return and wishes to transfer the funds to an IRA at your broker-dealer. Which of the following statements regarding this situation is true? A) Trustee-to-trustee transfers do not incur any tax consequences. B) Your firm may not do a transfer in these circumstances; she is limited to a rollover. C) Once the transfer is complete, she may not make another transfer for at least one year. D) The transfer must be completed within 60 days of opening the account at your firm.
A) Trustee-to-trustee transfers do not incur any tax consequences. IRA transfers may be done more often than once per year and do not incur tax consequences
All of the following terms are associated with a broker-dealer acting as a principal except A) agency basis. B) mark-up. C) inventory. D) market maker.
A) agency basis. A broker-dealer acting as an agent, or on an agency basis, for a customer is acting as a broker. A broker-dealer acting as a principal (dealer) basis may be called a market maker. They would maintain an inventory of the security and generate a profit on a mark-up or mark-down.
The measure of a security's or portfolio's volatility, as compared to its market risk, is called A) beta. B) volatility index (VIX). C) alpha. D) correlation coefficient.
A) beta. Beta is the measure of a security's or portfolio's volatility, as compared to its market. Alpha measures expected performance against actual performance based on beta. Correlation measures how closely a security moves in tandem with a portfolio or market. The VIX attempts to measure the overall volatility of the S&P 500.
All of the following information must be obtained from new individual customers except A) educational background. B) date of birth. C) residence address. D) Social Security number.
A) educational background. A customer's educational background is not required to open a new account. In the case of an account opened in the name of a business, the business address and tax identification number are required.
An investor who commits a sizable portion of her portfolio to long-term AAA-rated bonds would be exposing herself to A) purchasing power risk. B) liquidity risk. C) uncertainty about the ability of the issuer to make timely payments of interest and principal. D) less market risk than if the portfolio were invested in money market instruments.
A) purchasing power risk. Long-term AAA-rated bonds, by definition, have very low credit risk but, because they offer fixed income over an extended period, they subject their owner to inflation—or purchasing power—risk
A mutual fund has a high turnover ratio. This is an indication that A) securities are bought and sold frequently. B) the management style is value oriented. C) its expense ratio is low. D) the fund will likely distribute long-term capital gains.
A) securities are bought and sold frequently. A mutual fund that has a high turnover ratio indicates that securities are bought and sold frequently. This will result in the distribution of short-term capital gains
Jack Hart Equipment Corporation pays a $0.50 quarterly dividend and is currently trading at $50.00 a share. What is the company's current yield? A) 10% B) 4% C) 1% D) 2%
B) 4% Current yield is found by dividing the annual dividend by the current market value. For this question, you would start by multiplying the $0.50 quarterly dividend by 4 to get the annual dividend ($0.5 × 4 = $2.00). Then divide $2.00 by $50.00 to get 4% (2 ÷ 50 = 0.04).
Which of the following would be most suitable for a couple who needs no current income and wishes to have $100,000 available in a college education fund in 15 years? A) A highly rated municipal bond B) A zero-coupon bond C) A low-rated corporate bond fund D) A government bond fund
B) A zero-coupon bond Zero-coupon bonds, which don't pay interest, can usually be purchased at deep discounts. When purchased with a maturity date corresponding to an expected financial need, at maturity, the bond will produce par. A suitable recommendation, when a specific amount is needed at a predetermined point in time, is most often a zero-coupon bond.
Which of the following statements regarding a Section 529 plan is true? A) Contributions may be made only by those who fall within certain earnings limits. B) Donors may either invest a lump sum or make periodic payments. C) A beneficiary of a Coverdell Education Savings Account may not also be a beneficiary of a 529 plan. D) The donor must be related to the student.
B) Donors may either invest a lump sum or make periodic payments. While the method of choice is usually periodic payments, both prepaid tuition plans and college savings plans may be done as either lump-sum or periodic-payment investments.
A record of all written complaints received by a broker-dealer must be preserved for how long? A) Six years after resolution B) Four years after resolution C) Three years after receipt D) Four years after receipt
B) Four years after resolution These records must be maintained for four years after resolution.
Which of the following represent rights of an investor who has purchased a variable annuity? I. Right to vote on proposed changes in investment policy II. Right to approve changes in the plan portfolio III. Right to vote for the investment adviser IV. Right to make additional purchases at no sales charge A) II and III B) I and III C) I and IV D) II and IV
B) I and III Owners of variable annuities, like owners of mutual fund shares, have the right to vote on changes in investment policy and the right to vote for an investment adviser.
Employee Retirement Income Security Act (ERISA) regulations apply to which of the following? I. Public pension plans for government employees II. Private sector retirement plans III. Corporate retirement plan vesting requirements IV. Municipal retirement plans A) II and IV B) II and III C) I and III D) I and IV
B) II and III ERISA applies to private sector qualified retirement plans.
If a customer wishes to open a cash account in his name only and allow a third party to make trading decisions, but not withdraw cash and securities, he must instruct his broker-dealer to open A) a cash account with a transfer on death (TOD) designation. B) a cash account with limited power of attorney. C) a margin account. D) a cash account with full power of attorney.
B) a cash account with limited power of attorney. For a person other than the account owner to withdraw assets and make trading decisions, a full power of attorney is required. A limited power of attorney allows someone other than the account owner to enter trades, but not to withdraw assets. A TOD does not grant any authority over the account.
A limited registered representative (Series 6) may enter an order to purchase for their customers all of the following investments except A) a mutual fund. B) a closed-end management company that trades on an exchange. C) a variable annuity. D) a closed-end management company as part of the IPO.
B) a closed-end management company that trades on an exchange. A Series 6 representative may sell investments that fall under the Investment Company Act of 1940 and are sold by prospectus. A closed-end fund trading on an exchange (a secondary market center) is not sold with a prospectus. The others listed here require sale by a prospectus.
All of the following fall outside the definition of a research report except A) commentaries on economic, political, or market conditions. B) an analyst's recommendation to divest all assets from a particular industry. C) notices of ratings or price target changes. D) discussions of broad-based indices.
B) an analyst's recommendation to divest all assets from a particular industry. A recommendation to sell a security will meet the definition of a research report. The other three are outside the definition as too general or a simple notification of a change
All of the following statements regarding municipal bond official statements are true except A) a customer must receive an official statement no later than the settlement date. B) an official statement must be delivered only upon customer request. C) the MSRB does not require the preparation of a final official statement for new municipal bond issues. D) all purchasers of a new municipal bond issue must receive a final official statement.
B) an official statement must be delivered only upon customer request. A final official statement must be delivered to buyers of a new issue on or before settlement date. The MSRB does not regulate issuers.
The preliminary prospectus for a new offering A) contains the final offering price. B) must carry a legend—printed in red—that declares that a registration statement has been filed with the SEC but has not yet become effective. C) may not omit material facts relating to the issuer. D) may be used to solicit orders from customers.
B) must carry a legend—printed in red—that declares that a registration statement has been filed with the SEC but has not yet A preliminary prospectus (red herring) for a new offering carries a legend showing that the registration statement has been filed with the SEC. The preliminary prospectus may be used to solicit indications of interest, but not orders from customers. It does not contain the final offering price. Because the legend indicates that material may be subject to completion or amendment, the omission of a material fact is not prohibited
Funds that comply with Subchapter M are known as A) taxable mutual funds. B) regulated investment companies. C) diversified management companies. D) regular management companies.
B) regulated investment companies. Funds that comply with Subchapter M (conduit theory) are known as regulated investment companies.
A fundamental analyst is concerned with all of the following except A) inflation rates. B) trading volumes. C) capitalization. D) historical earnings trends.
B) trading volumes. A fundamental analyst is concerned with the economic climate, the inflation rate, how an industry is performing, a company's historical earnings trends, how it is capitalized, and its product lines, management, and balance sheet ratios. A technical analyst is concerned with trading volumes or market trends and prices.
Upon submitting an S-1 registration statement for the initial offer of the corporation's common stock, the offer enters a cooling-off period of at least how many days? A) 40 B) 10 C) 20 D) 30
C) 20 Under the Securities Act of 1933, the cooling-off period is at least 20 days.
Which of the following communications must be reviewed and approved by a principal before it can be used? A) Promotional material to be sent only to mutual funds and insurance companies B) A letter to be sent to all customers reminding them of a change in the tax laws C) A letter to be sent this week to 30 existing customers recommending a new service being offered by the firm D) An internal memo to be sent to registered representatives describing a new sales technique
C) A letter to be sent this week to 30 existing customers recommending a new service being offered by the firm Communications to individual customers are identified as correspondence and need not be reviewed before being sent. However, if the communication is sent to more than 25 retail investors in a 30-day period and contains recommendations either for a security or for a service offered by the firm, it must receive prior approval from a principal. A change in the tax laws is not a securities recommendation.
An investor is in the annuity period of a variable annuity he purchased 15 years ago. During the current month, the annuitant receives a check for an amount less than the previous month's payment. Which of the following events caused the annuitant to receive the smaller check? A) Account performance was less than the previous month's performance. B) Account performance was greater than the assumed interest rate. C) Account performance was less than the assumed interest rate. D) Account performance was greater than the previous month's performance.
C) Account performance was less than the assumed interest rate. In the annuity period of a variable annuity, the amount received depends on the account performance, compared with the assumed interest rate (AIR). If actual performance is less than the AIR, the payout value declines.
An investor reviewing the annual report for the GHI Investment Company notices that the net asset value per share increased by $1.21, yet the asking price of the shares dropped during that period. What type of investment company must GHI be? A) Balanced fund B) Open-end fund C) Closed-end fund D) Bond fund during a period of rising interest rates
C) Closed-end fund Closed-end funds are priced by supply and demand in the marketplace. Therefore, it is possible with closed-end funds that while net asset value per share is increasing, the asking price can fall because of a lack of demand for or an abundant supply of those shares.
Which of the following is not an advantage in buying listed call options, compared with buying the underlying stock? A) Buying a call allows greater leverage than buying the underlying stock. B) Buying a call has a lower dollar loss potential than buying the stock. C) The call has a time value beyond an intrinsic value that gradually dissipates. D) Buying a call would require a smaller capital commitment.
C) The call has a time value beyond an intrinsic value that gradually dissipates. Call options allow greater leverage than buying the underlying stock, and the capital requirements are smaller, allowing for a smaller loss potential. The fact that options expire (i.e., have a time value that erodes as the option nears expiration) is a disadvantage of options. Stock purchases have no time value component; there is no expiration, and therefore no value erosion due to this factor.
If an investor buys a put option with a strike price of 25, which of the following is true? A) The investor has a right to buy the underlying stock at the strike price and is bullish. B) The investor has an obligation to sell the underlying stock at the strike price and is bearish. C) The investor has a right to sell the underlying stock at the strike price and is bearish. D) The investor has an obligation to buy the underlying stock at the strike price and is bullish.
C) The investor has a right to sell the underlying stock at the strike price and is bearish. Buyers of contracts have rights, and sellers of contracts have obligations. Buying a put contract gives the right to sell the underlying stock at the strike price. With a strike price of 25, the investor wants the price of the stock to fall (bearish). She can then exercise the right—selling the stock at 25 after having bought the stock at a price less than 25.
Two spouses open a new account as tenants in common. All of the following statements regarding this account are true except A) orders may be given by either party. B) if certificates are requested, they must contain the names of both parties. C) in the event of death, the decedent's interest in the account goes to the surviving party. D) mail may be sent to either party with the permission of the other party.
C) in the event of death, the decedent's interest in the account goes to the surviving party. Parties in accounts designated as tenants in common have no survivorship rights should any person in the account die. With tenants in common, the deceased person's assets go to that person's estate.
Distributions from net investment income paid to shareholders by an investment company, which meets the requirements to be a regulated investment company, are A) taxed as long- or short-term capital gains, on the basis of the fund's holding period of the underlying securities. B) taxed to the fund but not the individual shareholder. C) nontaxable to the fund but taxable to the shareholder as dividend income. D) taxed as long-term capital gains to the shareholder, regardless of how long the investor has owned the shares.
C) nontaxable to the fund but taxable to the shareholder as dividend income. Subchapter M of the Internal Revenue Code allows the flow through of tax consequences on distributions from net investment income to shareholders by regulated investment companies. To be a regulated investment company, a fund must pass 90% of its net investment income through to the shareholders. If this requirement is met, the distribution amount is not taxable to the fund company but is taxable to the shareholders.
A company filed a registration statement for an initial public offering of its common stock with the SEC. As a registered representative, you can A) send out a research report on the company to your customers. B) take indications of interest and deposits from your customers. C) send a preliminary prospectus to each of your customers. D) take orders for the stock from customers in cash accounts only
C) send a preliminary prospectus to each of your customers. New issues can be sold only by prospectus, and indications of interest can be taken when the issue is in registration, but no money may be taken. During the registration period, only the preliminary prospectus may be sent to clients. Sales literature, such as research reports, may not be distributed, nor may orders be taken while the IPO is in registration.
When a person dies and leaves securities to heirs, the cost basis to the recipient is A) the original cost basis before any adjustments. B) the market value after six months if the will is adjudicated. C) the fair market value on the date of the owner's death. D) the stepped-down cost basis for equity securities as of 30 days before the date of inheritance
C) the fair market value on the date of the owner's death. When leaving securities to an heir, the cost basis of the securities becomes the fair market value on the date of the owner's death, which is either the stepped-up or stepped-down cost basis
Regulation D mandates all of the following except A) if the offering is advertised, all purchasers must be accredited. B) a special inscription or legend on the stock certificate indicates that its transfer is restricted. C) under no circumstances can more than 20 nonaccredited investors participate in the purchase of shares. D) investors agree to terms by signing an investment letter.
C) under no circumstances can more than 20 nonaccredited investors participate in the purchase of shares. A maximum of 35 nonaccredited investors may participate in the purchase of securities offered under a Regulation D exempt offering.
A customer bought 100 shares of ABC at $90 plus commission of $100. The payment due was $9,100. If the customer sold the shares six months later at $96, less commission of $100, what were the customer's cost basis and gain or loss? A) $90 and a $400 short-term gain B) $91 and a $500 short-term loss C) $90 and a $500 short-term gain D) $91 and a $400 short-term gain
D) $91 and a $400 short-term gain The customer's capital gain is calculated by comparing the cost basis to the sales proceeds as follows. Cost basis: $9,100, or $91 per share Sales proceeds: $9,500, or $95 per share Total: $400, or $4 per share Because the customer sold the shares after holding them for six months, the customer has a short-term capital gain taxable as ordinary income.
You are using beta as an analytical tool to compare several diversified mutual funds to help a client choose one for his portfolio. If your client's risk tolerance regarding principal is relatively low, you would probably recommend the fund with a beta of A) 2.0. B) 1.0. C) 1.5. D) 0.50.
D) 0.50. The lower the beta, the less the volatility. Because the question tells us that the client's risk tolerance is relatively low, we can take some volatility, making a fund that has half the volatility of the overall market a good recommendation.
Which of the following corporations is most likely a growth company? ABC DEF GHI JKL EPS $1.10 $1.25 $1.50 $1.90 Div. .00 $0.25 $0.75 $1.33 A) GHI B) JKL C) DEF D) ABC
D) ABC A growth company pays out very little in dividends and retains most of its earnings to fund future growth. ABC Corporation has the highest retained earnings ratio and is most likely to be a growth company.
The variable portion of the death benefit in a variable life insurance policy is adjusted based upon the performance of the separate account. How often is this adjustment made? A) Biannually B) Quarterly C) Monthly D) Annually
D) Annually The variable portion of the death benefit is adjusted annually based upon the separate account's performance, as compared to the assumed interest rate
Sally, a registered representative, is going to prospect by making cold calls and has written a script to keep her on track and remind her to ask all the right questions. Which of the following is true? A) Cold calling scripts are a form of generic advertising. B) The cold calling script is subject to approval of a principal promptly after use. C) All cold calls must be monitored by a principal. D) Cold calling scripts must be approved by a principal before use.
D) Cold calling scripts must be approved by a principal before use. Cold calling scripts are a form of retail communication (assuming it is used to contact more than 25 retail investors over a 30-day period), and as such, the broker-dealer must maintain a file for three years. Preapproval of a principal is required.
Which of the following investments is most suitable for an investor seeking monthly income? A) Mutual fund investing in small-cap issues B) Growth stock C) Zero-coupon bond D) GNMA mutual fund
D) GNMA mutual fund The GNMA mutual fund is the most suitable investment for an investor seeking monthly income. The other securities offer higher long-term growth potential, but they are not designed to provide monthly income.
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? I. Financial risk II. Market risk III. Systematic risk IV. Nonsystematic risk A) I and IV B) II and IV C) I and III D) II and III
D) II and III Both stocks and bonds involve some degree of market risk—the risk that investors may lose some of their principal due to price volatility in the overall market (also known as systematic risk).
If a customer wishes to open a new account but declines to provide all of the financial information the member firm requests, which of the following statements are true? I. The member firm may open the account and make recommendations without meeting any other criteria. II. The member firm may open the account if it is determined (by other means) that the customer has the financial resources to carry the account and that trading is suitable. III. The member firm may not recommend any transactions unless the representative is able, through the information available, to make a suitability determination. IV. The member firm may not allow trades in the account until the requested information is received. A) I and III B) I and IV C) II and IV D) II and III
D) II and III If a customer refuses to provide financial information, the member firm may use whatever information is available to decide whether to open the account. Any recommendation made to a customer must be suitable, taking into account the customer's investment objectives, financial situation, and any other relevant information. If the information is not provided, the account may be opened, but no investment recommendations may be made.
Is it permissible, and if so, under which of the following conditions is it permissible for a registered representative to share in the profits of a customer's account? A) It is permissible as long as the customer approves it in writing in advance. B) It is permissible but only with approval from a principal of the firm. C) It is never permissible to share in the profits of a customer's account. D) It is permissible as long as it is an approved joint account and the profits are shared to the extent of the representative's financial contribution.
D) It is permissible as long as it is an approved joint account and the profits are shared to the extent of the representative's financial contribution. Generally, representatives are prohibited from sharing in any profits or losses in a customer's account. An exception is made, however, if a joint account with the customer has received the member firm's prior written approval and the registered representative shares in the profits and losses only to the extent of his proportionate contribution to the joint account.
Sarah, a registered representative, would need to file an updated Form U4 for which of the following occurrences? A) Sarah, after several years of dating, gets married. B) Sarah, after several years of work, completes her doctorate in economics. C) Sarah's boss retires, and she has a new principal. D) Sarah, after landing several great new clients, moves to a larger home in the suburbs.
D) Sarah, after landing several great new clients, moves to a larger home in the suburbs. A change of residence would require a U4 filing. FINRA does not care about your education, your marital status, or that you have a new boss (so long as it is the same firm).
A client invested in the XYZ bond mutual fund five years ago. The client took dividend distributions in cash and reinvested capital gains distributions into more shares. Interest rates have declined over the past five years. Which of the following statements is most likely to be true? A) The dividend distributions were subject to capital gains taxation. B) The client's proportionate interest in the fund has not changed. C) The reinvested capital gains have accumulated tax deferred. D) The NAV per share of the XYZ bond mutual fund increased.
D) The NAV per share of the XYZ bond mutual fund increased. When interest rates decline, bond prices increase. The increased value of bonds in the portfolio causes an increase in the NAV. The client's ownership interest in the fund decreased as dividend distributions were received in cash. The dividend distributions were taxable each year as ordinary income. Reinvested capital gains or dividends are currently taxable. Earnings in mutual fund portfolios do not accumulate tax deferred.
Disclosure of a firm's policies and procedures regarding customer privacy must be made no later than when the customer relationship is established and at least A) semiannually. B) biennially. C) quarterly. D) annually.
D) annually. This disclosure needs to be made annually to existing customers.
All of the following disputes may be resolved using arbitration under the Code of Arbitration except A) a member against a person associated with a member. B) a member against another member. C) a member against a public customer with consent of the customer. D) class action suits against a member.
D) class action suits against a member. The Code of Arbitration is mandatory in member-against-member disputes. In a dispute between a member and a public customer, the member cannot force the customer to arbitrate, but arbitration may be used at the customer's request. Arbitration is optional in claims of employment discrimination (including sexual harassment) by associated persons against broker-dealers. Class action suits brought against member firms are not subject to arbitration.
A customer buys 100 shares of RFTQ at $10 per share. Several months later, the stock is trading at 4.60-5, at which time, the registered representative offers to buy back the stock from the customer for her own account at $9 per share. This action is A) permitted with the written permission of a principal. B) permitted because it allows the customer to sell at a price higher than the current market. C) prohibited because it violates the Uniform Practice Code. D) prohibited because FINRA does not allow registered representatives to guarantee customers against loss.
D) prohibited because FINRA does not allow registered representatives to guarantee customers against loss. A representative may never guarantee a customer against a loss. This is specified in the conduct rules, not the Uniform Practice Code.
