Series 6 Unit 3

Three years ago, your client invested $10,000 in the RIF Fund. During this time, the fund has distributed $700 in dividends and $1,100 in capital gains, all of which have been reinvested in additional shares. If the client decides to liquidate his position of 1,173.452 shares when the POP is $12 and the NAV is $11.52, the client's cost base is:

$11,800.00

A client of a SIPC member firm has recently liquidated his entire holdings of $425,000 of stock and has had the proceeds swept into a money market fund sponsored by that broker-dealer. If the firm were to go bankrupt, the insurance payout for this client would be

$425,000.00

A customer has a cash account that has securities with a market value of $200,000 and $300,000 in cash. The customer also has a joint account with his wife that has securities with a market value of $300,000 and $200,000 in cash. If the firm were to go bankrupt, the customer would be covered under SIPC for cash and securities of:

$450,000 cash and securities for his account and $500,000 cash and securities for the joint account

Your father purchased $10,000 of ABC stock 10 years ago and purchased an additional $5,000 on April 1. On September 1, when the current market value of the stock is $25,000, your father passes away and you inherit the ABC stock. On November 1, you sell the stock for $30,000. What do you report on your tax return?

$5,000 long-term capital gain

Under the Securities Investor Protection Act, customer cash and securities at a broker-dealer firm are covered up to:

$500,000 for cash and securities but no more than $250,000 of cash per separate customer.

A retired public school teacher, age 65, has deposited a total of $10,000 into a nonqualified variable annuity, and her account's current value is $16,000. If she wishes to take a lump-sum withdrawal of the full amount, how much of this withdrawal is taxed at the ordinary income tax rate?

$6,000.00

Your customer would like to do a 1035 exchange of his variable annuity for a life insurance policy and wants to be sure there will be no adverse tax consequences. You tell him:

1035 exchanges are not allowed from annuities to life insurance

After and absence of how many years are you required to re-qualify by examination?

2

A customer who sold a bond at a loss must wait how long before he can buy back a substantially identical bond and not have the sale classified as a wash sale?

31 days

Don is a young man, just beginning his career as an engineer at the ABC Corporation. He doesn't have a lot of financial obligations and he'd like to start saving for his retirement. Which of the following retirement plans would favor his situation the most?

401(k) plan

The phrase employer matching is commonly used when referring to which type of retirement plan?

401(k) plans

The Centerboro School District is initiating a retirement plan for its teachers and staff. Those who participate will make pretax contributions directly from their salaries, which will be invested according to a trust agreement. What type of retirement plan is this?

403(b) plan

If a member firm is notified by FINRA that it must begin tape-recording the phone calls of its assistant representatives and registered representatives to existing and potential customers, it must do so within how many days of notification?

60

Required minimum distributions from an IRA must begin the year after the account owner reaches what age?

70.5

Which of the following permits the highest annual contributions?

A SEP IRA

An investor has been found guilty of making a stock sale on the basis of insider information, who could make a claim against him as a contemporaneous trader?

A person who bought the same stock at about the same time

According to the rules that established self-regulatory organizations (SROs), these organizations are regarded as what?

Accountable to the SEC for supervising the securities business within their assigned jurisdictions and membership organizations that report to the SEC

A customer has $250,000 in securities and $200,000 in cash with his brokerage firm. If the brokerage firm were forced to liquidate, how much of the account would SIPC cover?

All of the securities and all of the cash.

A client with a self-directed traditional IRA is permitted to make a contribution for this year no later than:

April 15 next year

What is the latest date that an IRA participant may make an IRA deposit for the current year?

April 15 of the following year

When a customer wants income from an annuity and chooses the option of life with 20-year period certain, how will distributions be taxed?

As ordinary income based on an exclusion ratio

When a customer opens an account with a financial institution, the institution is required to give a clear and conspicuous disclosure to the new customer regarding its policies and procedures for customer privacy. How often must the customer receive an updated notice containing the same information?

At least on an annual basis

The New York Stock Exchange is characterized as what type of market?

Auction

Your client has a salaried, full-time position, but his employer does not offer a company retirement plan. He also has his own clock repair business, organized as a sole proprietorship, that earns less than his salaried position. If he wants to invest for his retirement, what should he do?

Both an IRA and a Keogh plan

If a customer has securities worth $250,000 in a cash account, $150,000 worth of fully-paid-for securities in a margin account, and $195,000 worth of securities in a joint account with his wife, what is the total SIPC coverage?

Combined $400,000 in the cash and margin account and $195,000 in the joint account

Two investments that may be suitable for a Roth IRA?

Covered calls and international bond mutual funds

When pension plan proceeds (employer contributions only) are rolled into a Roth IRA, what portion is taxable?

Employer contributions

All member firms must have at least one Office of Supervisory Jurisdiction (OSJ) is required by who?

FINRA

What type of securities are exempt from the 1933 Act?

Federal and state government issues and nonprofit organizations

Your customer owns two accounts with your firm: a cash account and a margin account. He and his wife own a joint account. He is also the custodian of UTMA accounts for their two older sons, and his wife is the custodian for an UTMA account for their youngest son. The Securities Investor Protection Corporation would consider this to be how many customers?

Five - the man's two accounts taken as a single customer, the joint account with his wife taken as another customer, and each of the three UTMA accounts taken separately

John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments?

His annuity payments are partly taxable and partly tax-free return of capital.

Bob Smith, who is in his 40s, has just been placed into an extremely generous defined benefit plan at his company. He has decided 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?

Income tax on $20,000 and a $2,000 penalty

Under what circumstances must an employee be given an opportunity to participate in a deferred compensation plan?

It is solely up to the company who may participate in this type of plan

If a retiree is 58 years old and wants to take a lump-sum distribution from his SEP, what would be the tax treatment of this distribution?

It will be taxed as ordinary income plus a 10% penalty

Are deferred compensation plans qualified under ERISA?

No

Can FINRA firms invest in IPO's?

No

To which securities market does the Securities Act of 1933 apply?

Primary

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. What type of investment company is this?

Regulated

Which of the following retirement plans are always funded with after-tax contributions?

Roth IRAs

Under federal law, which act regulates the activities of broker-dealers and associated persons?

Securities Exchange Act of 1934

If the owner of a $1 million IRA leaves it to his daughter, how will she be taxed?

She will pay income taxes on the full amount she withdraws each year

What information must be included in a prospectus describing variable life insurance to customers?

Summary explanation in nontechnical terms of the principal features of the policy and Statement of investment policy of the separate account

Key advantage of purchasing a variable annuity?

Tax deferral

A customer establishes a nonqualified periodic payment deferred annuity and makes payments for three years. If the customer suddenly dies, which of the following statements correctly identifies the tax consequences to the beneficiary?

The beneficiary must pay ordinary income tax on proceeds exceeding the cost basis

In July, a customer invested $10,000 in the ABC Mutual Fund. In December of the same year, ABC announced a long-term capital gains distribution. In May of the next year, the customer decided to redeem his shares for a capital gain. How are both of the capital gains treated for tax purposes:

The capital gain distribution is treated as long term and the capital gain from redemption is treated as short term

If Jorge, age 49, earns $400,000 per year in his salaried position and he participates in his company's 401(k) plan, how much may he contribute to his traditional IRA?

The current maximum contribution

What is the total amount that may be invested in a Coverdell Education Savings Account in one year?

The current maximum per child

John is the annuitant in a variable plan, and Sue is the beneficiary. Upon John's death during the accumulation period, Sue takes a lump-sum payment. What is her total tax liability?

The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate

Which of the following transactions may be made on margin?

The purchase of NYSE-listed closed-end fund shares

What cannot be offered by a prospectus?

Treasury bonds

If a customer does not pay for a trade regular way, how much additional time does Regulation T give the broker-dealer to deal with the problem?

Two business days

If a representative possesses material inside information about a publicly traded company, under which of the following circumstances may he communicate this information to a customer?

Under no circumstances

Under which of the following circumstances can an owner of a Roth IRA take an early distribution without a penalty?

When the distribution is used to purchase a first home

Can school employees participate in tax-sheltered annuity plans?

Yes

Any trade made by a registered representative of a FINRA member firm must be reviewed by:

a designated principal

An employee who is involved in the management of a FINRA member's business, particularly in the supervision of business solicitation or in training, must be registered as:

a principal

When a brokerage firm sells stock from its own inventory, it is acting in the capacity of

a principal and charges a mark-up

A regulated investment company:

acts as a conduit for dividend distributions

Compliance meetings must be held:

annually

Under FINRA rules, carrying firms must advise their customers of the BrokerCheck phone number or Web address

annually

For purposes of the Insider Trading and Securities Fraud Enforcement Act, an insider would be best described as:

any individual with access to investment-relevant information not available to the public

A statutory disqualification applies to an employee or an officer of a broker-dealer who, within the past ten years, has:

been convicted of securities-related fraud

Individuals licensed as Series 6 representatives:

deal in open and closed-end funds in the primary market only

Corporate qualified retirement plans?

defined contribution plans, profit-sharing plans, defined benefit plans

A deferred compensation plan needs the prior approval of the:

employer only

If your firm is in the process of underwriting a new issue, sales literature, including a record of past performance, may be included in a mailing of the:

final prospectus

What are the consequences of Grandpa giving $50,000 of stock to his granddaughter?

grandpa is responsible for any gift tax due and the granddaughters cost basis in the stock remains the same as grandpa's cost basis

SEC Rule 17f-2 requires fingerprinting of certain employees of registered broker-dealers. Included in this rule are individuals who:

handle customer funds and/or securities and supervise those who prepare records of original entry

If an individual makes a withdrawal from her IRA at age 52, she pays no penalty tax if she:

is disabled

ALFA Securities acts as a dealer when filling a customer's order to purchase 300 shares of LMN. ALFA makes its profit from a

markup on the offering price of the securities

A preliminary prospectus:

may be used to gather indications of interest.

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

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

Over-the-counter is what type of market?

negotiated market

Is a deferred compensation plan qualified or non-qualified?

non-qualified

Your open-end investment company customer has decided to make automatic reinvestment of dividend and capital gains distributions. This choice will:

not change the tax status of these distributions and allow your customer to reinvest the distribution without paying a sales charge

The Securities Act of 1933 regulates:

offerings of new securities

The disclaimer stating that the SEC does not approve or disapprove of a securities issue must appear

on the cover of the prospectus

Tax ramifications of investing in annuities?

partial withdrawals from nonqualified plans are taxed on a LIFO basis and if she is dissatisfied with one company, Section 1035 of the Internal Revenue Code will permit her to liquidate one variable annuity and place the funds into a different one without being taxed

Red Herring

preliminary prospectus

A registered representative must register as an investment adviser representative if he is:

providing investment advice and charging a fee for the advice

Withdrawals from a 529 plan:

qualified withdrawals are exempt from federal income tax and some states will tax the withdrawals as income

For an owner to be paid a dividend, his name should be recorded on the stock record book of the issuer's transfer agent by the:

record date

Who can open a Keogh Plan (HR-10)?

self-employeed

If a customer fails to pay for XYZ mutual fund shares within the required amount of time, the broker-dealer may:

sell the securities and charge the customer for any loss

If a corporation begins a non-qualified plan, how do their contributions grow?

tax deferred if they are invested in an annuity

When referring to employee retirement plans, the term non-qualified refers to plans:

that are not approved by the IRS and under which employers may discriminate as to the inclusion of employees in the plan

If a FINRA member firm suspends a registered representative, the firm must report the suspension to

the FINRA

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?

the entire amount

When a customer, who is at least 59½, withdraws money from a traditional IRA that has been funded totally with deductible contributions:

the entire amount withdrawn is subject to taxation at ordinary income tax rates

The effective date is found where?

the final prospectus only

To which securities market does the Securities Act of 1933 apply?

the new issue market

To prevent manipulative and deceptive practices in the secondary markets, the Act of 1934 (the People Act) requires what?

the registration of people and exchanges transacting securities business

The cost basis of mutual fund shares includes

the total cost, including sales charges, plus dividends or capital gains reinvested in the fund

At what age is an individual required to begin taking distributions from a Roth IRA?

there is no age at which distributions are required

Whay can't a traditional IRA hold AAA municipal bonds?

they generate tax-free interest income

How would a self-employed customer with a traditional IRA avoid the 10% premature withdrawal penalty?

to pay college tuition or to pay medical expenses exceeding what is defined by his AGI

An announcement of a new issue of a security that gives the name of the issuer, the price and the name of the underwriter is called a(n):

tombstone

A nurse has been participating in her employer's Keogh plan. Upon leaving the clinic, she may arrange for a transfer of the Keogh assets into an IRA and defer taxes on these assets if she completes the transaction within:

transfers are always tax and penalty-free

Mutual fund shareholders are not taxed on:

unrealized capital gains

A customer purchased a variable annuity from an agent five years ago with an initial investment of $200,000. The annuity's surrender fee will expire in year seven, which coincides with the customer's anticipated need for the funds. In the fifth year of the contract, the value of the annuity increased from $300,000 to $375,000. The agent notices that the general market is on the decline and recommends she enter a 1035 exchange of the variable contract for another, thus increasing her death benefit and locking it in at a higher minimum. This recommendation is:

unsuitable because of surrender fees