Series 6 Practice Test 1 q's

quaterly 12b-1 fees are deducted from fund assets every quarter

12b-1 Fees are charged on a _____ basis

pre-taxed, taxed on entire amount

403 (b) plans are payed with pre or after tax dollars, and are therefore taxed on whole amount or taxed on growth at withdrawal?

Open an IRA and fund it with municipal bonds. IRAs are tax favored accounts. Funding tax favored accounts with municipal securities that already offer tax free interest negates the advantage of the tax free IRA account and therefore would not be considered an appropriate recommendation. Each of the remaining answer choices offer advantages to a high income individual with a long term retirement objective and are therefore more appropriate / suitable recommendations.

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?

made an unsuitable recommendation based on the client's needs and objectives. Recommending a municipal bond for an IRA is unsuitable as the distributions from IRAs are taxed as ordinary income. Therefore, there is no benefit to the tax-exempt income municipal bonds generate.

A 54-year-old client is in the highest tax bracket and seeks a conservative investment for retirement. If his investment adviser representative recommends a general obligation municipal bond for the client's IRA, the IAR has:

1 & 4 An appeal must be filled with the National Adjudicatory Council within 25 days of the decision or the decision is final.

A FINRA member firm is found guilty of some but not all of the charges brought against it by the Department of Enforcement. An appeal: 1)must be made within 25 days of the decision. 2)must be made within 30 days of the decision. 3)is filed with FINRA. 4)stays the effective date of any sanction other than a bar or expulsion.

10 days

A customer has filed a serious complaint against your firm and is threatening to take the firm to court. When informed that he has signed a predispute arbitration agreement, he demands to see a copy of it. How many days does your firm have to supply the customer with a copy of the signed agreement upon receipt of his request?

the current yield will increase since the price of the shares can be expected to fall.

A customer of yours owns a corporate bond fund with a long duration. Mortgage rates are going up. What impact will this have on the investment?

may open the account but may not make any recommendations.

A customer wishes to open a new account but refuses to provide suitability information. Under FINRA rules, the member (in terms of opening the acct and making or not making recommendations)

due diligence meeting

A meeting between the issuer and underwriter to ensure that the prospectus is true and accurate is called:

1 & 4

A mutual fund has $100 million in total assets. How much of the $100 million may be invested in one issuer and be defined as a diversified fund? 1)$5 million from 75% of assets 2)$5 million from 100% of assets 3)$10 million from 75% of assets 4)$30 million from 100% of assets

business risk; New companies, especially those in highly competitive industries like the computer industry, subject investors to a high degree of business risk. Business risk is the possibility that the business opportunity is not viable.

A new company starting operations in the highly competitive computer industry subjects an investor to which type of risk?

his initial registration date. If reassociation occurs within two years, the cycle date remains associated with his original registration date. If it occurs after two years have elapsed, the new cycle is based on the reassociation date.

A registered person leaves the securities industry and 18 months later reassociates with another member firm. FINRA requires that this person's cycle for determining the dates for the regulatory element portion of continuing education be based on:

120

A registered representative with a FINRA member firm must complete the regulatory elements of CE within how many days of his registration anniversary date?

index annuity

A retail investor, age 40, wants to fund an annuity. She would like to take advantage of the stock market gains she sees in the news but is terrified of losing money. If an annuity is the right recommendation, what kind of annuity would be most appropriate?

The maximum sales charge for any contractual plan is 9% over the life of the contract. $100 × 120 months = $12,000 × 9% = $1,080

A subscriber to a front-end load contractual plan is investing $100 a month for 10 years. What is the maximum sales charge that she will pay?

variable life

A type of life insurance where the death benefit varies based upon the investments selected by the policyowner is known as ____ life

False, Employers make pretax contributions to SEP IRAs on behalf of their employees. The account is usually set up at a bank or other financial institution.

t/f: contributions to SEPs are made with after-tax dollars.

False: Anyone who has earned income and is under age 70.5 is allowed to make an annual contribution of up to an indexed maximum, or 100% of earned income, whichever is LESS

t/f: contributions made by individs to a TRAD IRA under age 50 are limited to the greater of 100% of earned income or a dollar amt that is determined by the IRS

vary with the actual requirements to fund a certain benefit.

The contribution in a defined benefit plan will:

ex date To receive a previously declared dividend, the stock would have to be purchased before the ex-(dividend)date. The stockholder purchasing the stock on or after the ex-date would purchase the stock "ex-dividend," or without the dividend.

The first date on which the buyer would NOT be entitled to receive a declared dividend being paid by a corporation is the:

the operating expense of the fund. The management fees paid by an investment company are part of the operating expenses of the fund. Custodial fees are also part of the operating expenses. A sales load is a selling cost contained within the underwriting agreement.

The management fees paid by an investment company are part of:

1 day

Under FINRA rules, the carrying member, after receiving account transfer instructions from the receiving member must validate the positions in the account within how many business days of receipt?

The custodian may exercise or sell the rights as he deems prudent. But they cant let the rights expire unexcersized

Under the Uniform Gifts to Minors Act, how may stock subscription rights or warrants be handled in a custodial account?

life only. joint life with last survivor.

Variable annuity payout options may include:

25,000 min backced by full faith and credit of US gov

What are 2 characteristics of GNMA's

Investment income is received by the fund. The securities in the portfolio appreciate: Dividends and interest received by the fund and appreciation of the portfolio cause an increase in NAV. The purchase of securities with cash results in no change of NAV because the outlay of cash is offset by the increased value of portfolio securities. Any dividends or gains distributed by the fund would cause a decrease in NAV.

What increases NAV?

Contribution limits are the same.

What is big similarity between trad and roth IRAS

The maximum fine under a minor rule violation (MRV) is $2,500. Insider trading penalties can run into the millions of dollars. Simplified arbitration can involve amounts under dispute that are as high as $50,000, and there is no limit to the size of the fine under AWC

What is the smallest monetary penalty when being charged with violating a rule?

must deposit the full purchase price before a purchase order may be executed.

When a client's cash account is frozen, the client:

The long-term fund has a higher yield. The short-term fund is less volatile. The longer a bond portfolio's average maturity, the greater the price of the fund will fluctuate when interest rates move up or down. To compensate investors for this risk, long term bonds will offer higher yields than those with shorter maturities.

When comparing a short-term bond fund to a long-term bond fund, which of the following is generally true?

$100 of cash value funded by the insurance company's separate account.

When voting rights are extended to contract holders of variable life insurance contracts, there is one vote for each:

Class A

Which mutual fund share classes has no back-end load, lower operating expenses, and low or no 12b-1 fees?

It creates an estate: Life insurance provides funds upon death that may be used to continue to sustain the beneficiaries. It therefore "creates" rather than eliminates an estate. It may be used to eliminate (payoff) estate taxes. Although the cash value build up is tax deferred, that is not the primary purpose of buying a life insurance policy.

Which of the following best describes the purpose of life insurance?

A) In delivering a Class A share to a member of the public, the fund sells to the underwriter at NAV. The underwriter adds his concession and sells to the dealer. The dealer adds his reallowance to bring the price to the POP and sells to the public. Thus, the dealer pays NAV plus the underwriter's concession, and his profit is the reallowance he adds when selling to the public at the POP.

Which of the following describes the price of a Class A mutual fund share paid by a dealer on contract with the fund's underwriter? A)Net asset value plus the underwriter's concession. B)Net asset value plus the dealer's reallowance. C)Public offering price minus the sales charge. D)Public offering price minus the underwriter's concession.

c) BECAUSE: (read this you lazy woman!)vvv The high-yield bond fund is subject to the Name Rule and must invest at least 80% of its assets in high-yield bonds. The technology fund is a sector fund and must have a minimum of 25% of assets invested in technology companies as defined in the objective of the fund.

Which of the following funds would be required to invest at least 80% of its assets in a particular type of security? A)ABC Technology Fund B)ABC Special Situation Fund C)ABC High-Yield Bond Fund D)ABC Go-Go Fund

The maximum annual contribution varies from state to state.

Which of the following statements describing Section 529 plans is TRUE?

2&4 Because 12b-1 charges are to cover distribution costs, it would be inappropriate (an illegal) for a closed-end fund to assess the charge. The .75% maximum is set by FINRA, not the SEC and FINRA does permit the additional .25% for shareholder servicing.

Which of the following statements regarding 12b-1 charges are CORRECT? 1)They may be charged by closed-end management companies. 2)They may be charged by open-end management companies. 3)The SEC sets a maximum limit of .75%. 4)FINRA permits members to charge .25% as a shareholder servicing fee which is not included in the 12b-1 limits.

1) CPA keogh plans are qualified plans for self-employed persons of UNINCORPORATED business (doctors/lawyers- file Sched C)

Who is eligible to open Keogh plan: 1)CPA who operates sole proprietorship 2)Group of physicians who have incorporated their practice together

B) contributions arent taxed until assets are distibuted from plan to employee A Section 457 plan is a nonqualified, salary deferred contribution plan established by state and local governments and employers with tax-exempt status. Earnings grow on a tax-deferred basis, and contributions are not taxed until the assets are distributed from the plan to the employee.

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

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. (these are post tax contributions)

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?

The solo, or self-employed, 401(k) plan offers flexible contributions and loans on the principal. It is for sole proprietorships that have no full-time employees but proprietor and spouse.

Your customer has his own sole proprietorship. He and his wife are the only full-time employees. He would like to start a retirement plan for his business but would like to have access to the funds in the account by means of loans. You would recommend:

Financial institutions, including broker-dealer firms, must designate an officer of the firm as having responsibility for monitoring OFAC regulations and overseeing the blocking of transactions or declining of business with certain customers.

Your firm has determined that a person seeking to open an account is on the Office of Foreign Asset Control's (OFAC) list of individuals who are viewed as threats to the United States. Who must oversee your firm's dealings, if any, with this individual?

403 b 7 plan

a type of tax-sheltered annuity, allows employees to set up retirement plans directly with mutual fund companies.

1&3

FINRA Rule 2330 dealing with members' responsibilities regarding variable annuities applies under which of the following circumstances: 1)The initial purchase of a deferred variable annuity. 2)The initial purchase of an immediate variable annuity. 3)The initial sub-account allocations. 4)Sub-account re-allocations.

breakpoints & rights of accum.

For a fund without asset based sales charge to legally charge the max load, what must be made available to shareholders?

assets of the fund

From which of the following is the 12b-1 fee deducted?

5 years

How long must the confirmation of a money transfer be retained for under the Bank Secrecy Act?

at least 40% If a company is in the business of investing in securities and, among other things, has at least 40% of its assets so invested (excluding government securities and the securities of majority-owned subsidiaries), it must register with the SEC as an investment company.

How much of an investment company's assets must be invested in securities before it must register with the SEC as an investment company?

The amount by which he over contributed.

If a 41-year-old investor this year over contributes to his IRA, how much will be subject to the 6% penalty?

B

If a company starts a pension plan for an employee who already has an IRA, this employee: A)must stop contributing to the IRA, which will continue to accumulate on a tax-deferred basis. B)may continue to contribute to his IRA, but the contributions may not be 100% deductible, depending on his level of compensation. C)may continue to make 100% deductible contributions up to the indexed maximum per year to his IRA. D)must roll over his IRA into the company pension plan.

Only the principal

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

3 & 4: The member firm where the account is opened must notify the employing firm and provide copies of all requested trade confirmations.

If a registered representative of a FINRA member firm wants to open an account with another member firm, which of the following statements are TRUE? 1)The account may not be opened under any circumstances because the registered representative has access to privileged information. 2)The account may be opened, but the registered representative may not engage in securities transactions that he could do through his own firm. 3)The member firm opening the account must send duplicate confirmations to the employing member firm if requested to do so. 4)The member firm opening the account must give notice to the employing member firm.

Callable. When the stock is called, dividend payments are no longer made. With callable preferred stock, to compensate for that possibility, the issuer pays a higher dividend than with straight preferred. Cumulative and convertible preferred have positive characteristics that would justify a lower fixed dividend than straight.

If all other factors are equal, an investor would expect which type of preferred stock to pay the highest stated dividend rate?

the sponsor of the fund & a brokerage firm. ( A bank may not be a member of FINRA and therefore may not act as a dealer )

If an investor wants to buy $1,000 worth of Class B shares in an open-end investment company, she may buy shares through:

receive the insurance proceeds and complete the plan immediately, turning the fund shares over to the beneficiary.

In a contractual plan with completion insurance, upon the death of the plan participant, the plan custodian will:

must begin by April 1 the year after the owner turns 70½.

Minimum distributions from a traditional IRA must begin:

The participant is guaranteed a contribution based on an agreed-upon percentage or rate. The participant's retirement benefits are based on the balance in his individual account.

Name 2 qualities of qualified defined benefit plan

16% The Investment Company Amendments Act of 1970 state that a spread-load plan cannot take more than 20% of any plan payment as a sales charge and that the charges may not exceed an average of more than 16% during the first 4 years of the plan's investment. Contractual plans are no longer sold, but there are still plans in effect.

Over the first four years, the average sales charge on a spread-load contractual plan can be no more than:

Rights and warrants. & Common stock.

SIPC provides coverage for which of securities held in a customer account?

1&2

Series 6 can sell which of the following: 1)FACs 2) Closed end in primary 3) bonds of only investment grade 4)only blue chip corp stocks

convert shares to a different mutual fund within the family of funds on a dollar-for-dollar basis.

Some mutual funds that are in a family of funds managed by the same company offer an exchange privilege. This privilege gives a shareholder the right to

TRUE

T/F: 55 year old owner of a trad IRA would like to move $20k from his IRA to a ROTH IRA. He will need to report $20k as oridnary income on his tax return.

TRUE

T/F: The exchange, or conversion, privilege allows an investor to exchange shares of one fund for those of another under the same management without paying an additional sales charge (although the exchange is still a taxable event).

False: because of surrender charges and early withdrawal penalties, is not considered liquid and real estate may take months or longer to sell and is a prime example of an illiquid investment.

T/F: Annuities are pretty liquid

TRUE

T/F: Income from rental property or mutual funds shares is passive income and therefore doesn't constitute an outside business activity (no need to notify firm)

FALSE, only can send red herring (preliminary prospectus) or tombstone advertise, or gather indications of interest

T/F: during the cooling off period of a new securities registration you can send prostpect sales lit relating to the issue if it is accompanied by or preceded by a red herring

a Section 457 plan.

That type of retirement plan is open only to state and local governments and tax-exempt employers.

5%

The Investment Company Act of 1940 places a number of restrictions upon the portfolio composition of a money market mutual fund. Included in those restrictions is the requirement that, other than securities issued or guaranteed by the U.S. government, the maximum percentage of the fund's assets that may be invested in the securities of any single issuer is:

must give notice to the employing firm and must inform the employee that his employer will be notified of the account. Persons associated with one FINRA member firm may open securities accounts at other member firms. The firm opening the account must notify the employing firm but does not need its permission to open the account.

An employee of a FINRA member firm wishes to open an account at another member firm. The member firm opening the account:

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

An investor has been investing $100 per month for the past three months. The purchase prices were $20, $25, and $10. What is average cost per share purchased?

The IRS considers this exchange to be a sale and repurchase. Any gain or loss on the bond fund shares must be recognized in the current year. Any share appreciation is classified as a capital gain and subject to taxation at capital gains rates. Because the exchange is made within the same family of funds, no new sales charge is applicable.

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?

lesser of the NAV or purchase price

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

Placement

At which stage of the money-laundering process are illicit funds most susceptible to detection?

the Code of Procedure

After a FINRA audit, if the Department of Enforcement issues a formal complaint against a member firm for alleged violations of federal securities law, the matter will be dealt with under:

3 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?

D

ACE, an open-end investment company, operates under the conduit, or pipeline, tax theory. Last year, it distributed 91% of all net investment income as a dividend to shareholders. Therefore, which of the following statements is TRUE? A)ACE paid taxes on 91% of its net investment income last year. B)ACE paid taxes on 9% of its net investment income and capital gains last year. C)ACE paid no taxes last year because it qualified as a regulated investment company under IRC Subchapter M. D)ACE paid taxes on 9% of its net investment income last year.

B) To share in the profits or losses of a customer's account, a registered person must obtain the firm's prior written approval, and the representative must share only to the extent of his proportionate contribution to the account. (Note: Accounts of the associated person's immediate family are exempt from the proportionate share limitation.)

According to the Conduct Rules, a FINRA member must do which of the following? A)Grant an extension of the settlement date for a purchase made in a cash account. B)Authorize a registered representative to share in a client's profits or losses only in writing. C)Quote a quantity discount on blocks consisting of more than 100 shares. D) Repurchase any securities the client offers for sale.

$5000

Broker-dealers are required to file suspicious activity reports (SARs) involving transactions of _____ or more when financial behavior appears commercially illogical and serves no apparent reasonable business or legal purpose.

TOD -transfer on death. It is used to facilitate transfer of assets in an account upon the death of the account holder (your customer in this case) without the need for probate. While the owner is alive, the account remains her property. The nephew is chronologically too old for a custodial account. She should not have a joint account because of creditor and control issues.

One of your clients wants to set aside some money for her ne'er-do-well nephew, who just turned 30. She does not wish his numerous creditors to have access to the money until after she dies, but she wants him to have easy access to the money at that time. You recommend that she open a:

focus on companies whose stocks are currently undervalued, offer dividend yields higher than growth stocks, more conservative than funds managed for growth

DESCRIBE VALUE FUNDS

STOCK FUNDS WITH PORTFOLIO COMPRISED WITH # OF DIFF CLASSES OF STOCK blend core funds own value and growth stocks and even some blue-chip stocks, carry a higher degree of market risk than bonds/munis/balanced funds

Describe blend/core fund

Market & Business Risk: Diversification reduces nonsystematic risk such as business risk, which is associated with the decline of an individual security's value. Systematic risk, such as market risk, affects all securities and therefore is not significantly reduced by diversification.

Diversification helps protect against which types of risk?