Mastery Examen Serie 6 KPBK

A client owns shares of the ABC Mutual Fund with a total current value of $20,000, and ABC has a sales charge of 5% that reduces to 3% at $25,000. If ABC offers a right of accumulation, how much sales charge will be levied on an additional investment of $10,000? A) $400 B) $150 C) $300 D) $500

A) $400 Of $10,000 more: 5,000 x 0.05 = 250 5,000 x 0.03 = 150 Total = $400

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? A) $5 million B) $25 million C) $10 million D) $30 million

A) $5 million

The 55-year-old owner of a traditional IRA would like to move $20,000 from his IRA into a Roth IRA. You advise him of the following. A) He will need to report $20,000 as ordinary income on his tax return. B) This transaction is not a taxable event. C) He will need to report $20,000 as long-term capital gains on his tax return. D) There will be a 10% penalty on the distribution.

A) He will need to report $20,000 as ordinary income on his tax return. [3. 9. 2. 3]

84w. A public offering of new securities would be exempt from the antifraud provisions of the Securities Act of 1933 in which of the following cases? A) Under no circumstances B) Commercial paper maturing in 270 days or less C) US Treasury bonds D) Common stock sold on an intrastate basis only

A) Under no circumstances [3. 6]

The Federal Reserve may alter which of the following in responding to an inflationary trend? I. Broker call loan rate II. Prime rate III. Discount rate IV. Reserve requirement A)III and IV B)I and II C)I and III D)II and IV

A)III and IV III. Discount rate IV. Reserve requirement [1. 4. 2. 1]

An investor purchased 100 shares of the CDL Growth and Income Fund three years ago when the POP was $10 and the NAV was $9.50. During this period, the investor received dividend distributions totaling $1 per share and capital gains distributions totaling $.50 per share, all of which were taken in cash. The investor submits an order to liquidate this account when the current POP is $11 and the NAV is $10.45. The tax consequences of this liquidation would be a A)capital gain of $100 B)capital gain of $45 C)capital loss of $50 D)capital loss of $105

A)capital gain of $100

All of the following information must be obtained from new individual customers EXCEPT A)educational background B)Social Security number C)date of birth D)residence address

A)educational background [5. 1]

Which of the following companies would generally NOT employ the services of an underwriter to assist them in raising capital? A) Finance company offering an IPO B) No-load mutual fund C) An open-end investment company offering investors a choice of Class A, Class B, or Class C shares D) Closed-end investment company

B) No-load mutual fund [Organizational Structure of a Fund, pp. 101]

A husband and wife open a new account as tenants in common. All of the following statements regarding this account are true EXCEPT A) if certificates are requested, they must contain the names of both parties B) in the event of death, the decedent's interest in the account goes to the surviving party C) mail may be sent to either party with the permission of the other party D) orders may be given by either party

B) in the event of death, the decedent's interest in the account goes to the surviving party [5. 2. 2. 1]

A registered representative would not be permitted to open an account in the name of a(n) A) executor of an estate B) minor C) court-appointed guardian D) limited partnership

B) minor [5. 1]

The City of Chicago issued $100 million in GO debt three years ago. The bonds were issued with a 20-year maturity and carry a 5% coupon. Your client who purchased one of these bonds on the initial offering calls you to get a current quote. You respond that the bonds are selling at a slight premium. This means that the A) current yield is higher than the nominal yield B) nominal yield is higher than the yield to maturity C) yield to maturity is equal to the current yield D) yield to maturity is higher than the current yield

B) nominal yield is higher than the yield to maturity [Inverse Bond/Yield Relationship Chart, pp. 41]

You have made a sales presentation for the XYZ Growth Fund to a prospect. If the prospect asks if you can furnish any more knowledge before an investment decision is made, you would supply the prospect with A) a current prospectus B) the Statement of Additional Information C) your broker/dealer's most recent balance sheet D) FINRA's mutual fund disclosure form

B) the Statement of Additional Information [2. 3. 6. 3]

Which of the following are provisions of the Securities Exchange Act of 1934? I. Regulates the sale of new issues of securities II. Regulates secondary markets III. Regulates investment advisers IV. Registers broker/dealers A)I and III B)III and IV C)I and II D)II and IV

B)III and IV III. Regulates investment advisers IV. Registers broker/dealers [glossary, pp. 408]

All of the following statements regarding the Code of Arbitration Procedure are true EXCEPT A) arbitration is the procedure used to settle disputes between member firms B) the decision of the arbitrator or arbitrators is final and binding C) claims involving customers require that the majority of arbitrators be from within the industry D) a FINRA member failing to abide by the arbitrator's decision will be subject to disciplinary action

C) claims involving customers require that the majority of arbitrators be from within the industry [5. 4. 2. 4]

The forward pricing rule applies to A) purchases, but not redemptions, of the shares of open-end investment companies B) purchases and redemptions of the shares of closed-end investment companies C) purchases and redemptions of the shares of open-end investment companies D) securities traded in the fourth market

C) purchases and redemptions of the shares of open-end investment companies [Glossary, pp. 396]

The Jeffers Fund provides higher than average, taxable current income to its shareholders. It appeals to investors who like equity income and are willing to assume business risk. Which of the following might describe the Jeffers Fund? I. A speculative bond fund II. A preferred stock fund III. A common stock income fund IV. A municipal bond fund A)I or IV B)II or IV C)II or III D)I or III

C)II or III II. A preferred stock fund III. A common stock income fund [2. 4. 4. 1. 2]

If an associated person of a broker/dealer owns a vacation home, under which of the following circumstances is he permitted to rent it out? A)Only with prior written approval of the firm B)Under no circumstances C)Without restriction D)Only after notifying the firm

C)Without restriction [5. 3. 2. 2]

Which of the following statements regarding the Investment Company Act of 1940 are TRUE? I. Investment companies must have a minimum capitalization of $1 million before they may begin offering shares to the public. II. Under most circumstances, selling short or buying on margin is restricted by the act. III. An investment company must clearly state its objectives. IV. Bank borrowing by an open-end investment company is limited to 200% asset coverage. A) I and II B) I and IV C) III and IV D) II and III

D) II and III II. Under most circumstances, selling short or buying on margin is restricted by the act. III. An investment company must clearly state its objectives.

Your customer is deeply interested in electronics, in which he has established a successful career. He would like to invest in new companies in this area and has accumulated substantial discretionary funds for the purpose. His objectives for this money include aggressive growth with minimal concern for risk. You might recommend A) a corporate high-yield bond fund concentrating on manufacturing and heavy industrial companies B) a large-cap growth fund that includes substantial holdings in many of the largest electronics and computer companies in the country C) a municipal bond fund with emphasis on industrial development revenue bonds used to provide facilities for startup enterprises D) a sector fund specializing in small-cap companies that include electronics companies

D) a sector fund specializing in small-cap companies that include electronics companies [Suitability table, pp.361]

Under the Uniform Transfer to Minors Act, a custodian may invest in all of the following EXCEPT A) mutual funds B) blue-chip stocks C) corporate bonds D) commodity futures

D) commodity futures [5. 2. 5. 5]

Open-end investment companies are referred to as issuers of redeemable securities because the Investment Company Act of 1940 requires them to send the sales proceeds of redeemable shares A) at an amount equal to the next calculated public offering price B) within 45 days of purchase, refunding the original purchase price in full to the purchaser C) at the higher of cost or market value D) within seven days after the tender of the shares to the company or its designated agent

D) within seven days after the tender of the shares to the company or its designated agent [4. 2. 3]

The RIF Corporation has determined that a new issue of best method for them to raise the additional capital needed for expansion of their facilities. To lower RIF´s interest cost, the could add which of the following features to this security? I. Convertibility II. Preemptive rights III. Voting power IV. Warrants a) I and IV b) II and III c) I and III d) II and IV

a) I and IV I. Convertibility IV. Warrants [1. 2. 5. 2. 1 and 1. 3. 5. 2. 1]

If an open-end investment company has 12b-1 fee, which of the following are TRUE? I. These fees are commonly referred to as asset-based distribution fees. II. The fund may advertise as no-load if the 12b-1 charges are kept under .75% III. The plan may be terminated by vote of the shareholders, the board of directors, or the non interested members of the board IV. To terminate 12b-1 fees, a majority of the non interested board members or a majority vote of outstanding shares is needed a) I and IV b) II and III c) I and III d) II and IV

a) I and IV I. These fees are commonly referred to as asset-based distribution fees. IV. To terminate 12b-1 fees, a majority of the non interested board members or a majority vote of outstanding shares is needed [2. 4. 3. 2. 4]

Requirements of the Telephone Consumer Protection Act of 1991 include I. maintaining a do-not-call list II. using a copy of the national do-not-call list that is no more than 60 days old III identifying the security that is the purpose of the call IV. supplying the prospect with contact information a) I and IV b) I and III c) II and III d) II and IV

a) I and IV I. maintaining a do-not-call list IV. supplying the prospect with contact information [4. 1. 9]

Which of the following statements about FINRA's position on the use of electronic communication are CORRECT? I. A broker/dealers website is exempt from filing requirements with FINRA II. An individualized email message sent to a single customer si considered correspondence III. A group email sent to 100 prospective customers within a 30-day period is considered institutional communication IV. A group email sent to more than 25 retail investor over 30-day period is considered retail communication a) II and IV b) III and IV c) I and III d) I and II

a) II and IV II. An individualized email message sent to a single customer si considered correspondence IV. A group email sent to more than 25 retail investor over 30-day period is considered retail communication [4. 1]

Which of the following activities might lead a registered representative with a member firm to suspect a client might be engaging in illegal practices? a) The client seems unduly concerned about losses in his account b) The client complains frequently about what he feels are over large commissions c) The client wires money to unrelated accounts d) The client still chooses to engage in a transaction once he learns that a currency transaction report will have to be completed

a) The client seems unduly concerned about losses in his account [5. 5. 2]

All of the following statements regarding a traditional IRA are true EXCEPT a) contributions made by individuals under age 50 are limited to the greater of the 100% of earned income or a dollar amount that is determined by the IRS b) withdrawals before age 59 1/2 because of death or disability are not subject to the 10% tax penalty c) contributions may be made on behalf of a spouse without earned income d) contributions may or may not be tax deductible, but all earnings are tax deferred

a) contributions made by individuals under age 50 are limited to the greater of the 100% of earned income or a dollar amount that is determined by the IRS [3. 9. 2]

An application to open an account with an open-end investment company would be found a) in the funds summary prospectus b) with the Statement of Additional Information (SAI) c) in a Rule 482 omitting prospectus d) in an advertisement in a financial periodical

a) in the funds summary prospectus [2. 3. 6. 2]

A breakpoint sale is defined as the sale of mutual fund shares in an amount a) just below the dollar amount at which the sales charge is reduced b) just below the public offering price of the fund c) at or above the dollar amount at which the sales charge is reduced d) required as the minimum investment in a fund as specified by the SEC

a) just below the dollar amount at which the sales charge is reduced [4. 2. 2. 2. 1]

The provisions of Regulation T a) require that payment be made two business day after settlement date b) prohibit the purchase of closed-end funds on margin c) regulate the extension of credit for securities purchases by banks to customers d) require most corporate bond issues to make provision for a trustee

a) require that payment be made two business day after settlement date [3. 5. 3. 1. 2]

If a client called a registered representative to ask about a life settlement contract, the discussion would deal with a) the sale of a life insurance policy in the secondary market b) the death benefit feature of a variable annuity c) which settlement option to choose when annuitizing a contract d) methods of minimizing estate taxes

a) the sale of a life insurance policy in the secondary market [2. 8. 11]

All of the following are true about deferred compensation plans EXCEPT a) these types of plans are often offered to highly compensated, younger employees b) these plans are not available to company board c) when the benefit is payable at retirement, it is taxable as ordinary income to the employee d) if the business fails, the employee becomes a general creditor of the firm

a) these types of plans are often offered to highly compensated, younger employees [3. 9. 1. 1]

Which of the following statements regarding a Section 529 plan TRUE? a) the donor must be related to the student. b) Donors may either invest a lump sum or make periodic payments. c) Contributions may be made only by those who fall within certain earnings limits. d) A beneficiary of a Coverdell Education Savings Account may not also be a beneficiary of a 529

b) Donors may either invest a lump sum or make periodic payments. [3. 9. 2. 5]

If a customer and his spouse own shares in the ABC Mutual Fund as joint tenants with right of survivorship, and the customer dies, what happens to the shares in the account? a) Any surviving children would automatically own his portion b) His spouse would own all the shares c) Fifty percent of the shares would belong to his spouse, and the remaining half would be distributed to his estate d) Ownership of the shares would be determined by probate court

b) His spouse would own all the shares [5. 2. 2. 2]

Which of the following types of risk cannot be significantly reduced through diversification? I. market risk II. business risk III. credit risk IV. systemic risk a) II and IV b) I and IV c) I and III d) II and III

b) I and IV I. market risk IV. systemic risk

A FINRA member broker/ dealer enteres into a selling agreement with a mutual fund distributor. Under the terms of that agreement, the member I. may purchase shares for its own investment account II. will be able to purchase shares of the fund at discount from the net asset value III. may maintain only a limited inventory of funds shares IV. may purchase shares to fill customer orders already received a) II and IV b) I and IV c) I and III d) II and III

b) I and IV I. may purchase shares for its own investment account IV. may purchase shares to fill customer orders already received

Which of the following are TRUE with regard to contractual plans? I. The maximum sales charge over the life of a plan is 9% II. 1940 companies may deduct a 50% sales charge in the first year III. Spread load plans may deduct a 20% sales charge in the first year IV. The maximum average sales charge that may be withdrawn over any four-year period with a spread-load plan is 20% a) I, II, and III b) I only c) I, II, III, and IV d) I and II

b) I only I. The maximum sales charge over the life of a plan is 9% [Glossary, pp.410]

Rank the following variable annuity payout options in order form typically lowest monthly payments I. life only II. life with 10 years certain III. life with 20 years certain IV. joint with last survivor a) III, II I IV b) I, II, III, IV c) I, III, II, IV d) IV, III, II, I

b) I, II, III, IV [2. 7. 4]

Which of the following are general characteristics of municipal revenue bonds? I. they are backed by the taxing power of the issuer II. they rank somewhat below US Treasury issues in safe but rank higher than GO municipal bonds III. in many instances, the federal government does not tax revenue bond interest IV. they are backed by the revenue generated from the facility that was built with the proceeds of the bond issue a) I and II b) III and IV c) I and III d) II and IV

b) III and IV III. in many instances, the federal government does not tax revenue bond interest IV. they are backed by the revenue generated from the facility that was built with the proceeds of the bond issue [1. 3. 4. 3]

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 customers monthly credit card payments a) II and IV b) III and IV c) I and III d) I and II

b) III and IV III. your customer's liquid net worth IV. your customers monthly credit card payments [6. 1. 1. and 6. 1. 2]

Which of the following is an advantage of dollar cost averaging? a) In a down market , financial loss is prevented b) In a fluctuating market, the investor experience a lower cost per share than the average price per share c) In fluctuating market, gains are ensured d) The investor experience a lower price per share than the average cost per share

b) In a fluctuating market, the investor experience a lower cost per share than the average price per share [2. 5. 1. 1]

Which of the following has the smallest amount of business risk? a) Income bonds b) US Treasury bonds c) Corporate bonds d) Common stock

b) US Treasury bonds

All of the following are correct concerning the tax treatment of variable life insurance to the policyholder EXCEPT a) on death of the insured, the policy proceeds are income tax exempt b) a minimum of 100% of the cash value may be borrowed without tax consequences after policy has been in force for three years c) during the life of the policy, the earnings grow tax deferred d) if the policy is surrendered, any value received in excess of the cost basis will be taxed as ordinary income

b) a minimum of 100% of the cash value may be borrowed without tax consequences after policy has been in force for three years [2. 8. 7]

One common characteristic of all securities products that may be sold by Series 6 licensed registered representative is a) always secondary market trades b) always sold by prospectus in the primary market c) redeemable securities d) limited in the amount of sales charge by the 5% mark-up policy

b) always sold by prospectus in the primary market [2. 1. 2. 3]

An open-end investment company with a primary stated objetive of conservation of principal using both equity and debt a) hedge fund b) balanced fund c) growth fund d) specialized fund

b) balanced fund [2. 4. 4. 2]

You are recommending the purchase of the XYZ Growth Fund to one of your clients and you explain that the fund operates pursuant to a 12b-1 plan. Under the terms described in the prospectus, the fee is a) a part of the fee paid to the fund's investment manager b) charged against the assets of the fund c) included in the sales charge when shares are purchased d) reduced on purchases that reach or exceed specified breakpoints

b) charged against the assets of the fund [2. 4. 3. 2. 4]

You have a client who is in the 35% income tex bracket. When looking at a financial periodical, you notice a new State of Vermont GO bond being issued at par with a 4% coupon. You think this is a suitable investment for this client and call her to explain that a) she should consider funding her IRA with these bonds b) her tax-equivalent yield on this security would exceed 4% c) this investment is fully backed by the US government d) she would received quarterly interest payments if she purchased the bonds

b) her tax-equivalent yield on this security would exceed 4% [1. 3. 4. 1. 1] 4% coupon/ (100-35% tax bracket) = 6% tax equivalent

A person who, for compensation, engages in the business of advising others about the value of securities or the advisability of investing in or selling securities is known as a(n) a) investment banker b) investment adviser c) registered representative d) investment company

b) investment adviser

One of the ways in which closed-end investment companies differ from open-end investment companies is in their ability to a) lend money b) issue preferred stock c) issue commons stock d) operate as nondiversified management companies

b) issue preferred stock [2. 1. 2. 3. 2]

Which of the following statements best describes the assumed interest rate (AIR) of a variable annuity contract? a) it is the rate that the annuity separate account must earn during the accumulation phase of the contract for monthly payments to remain level b) it is the rate that the annuity separate account must earn during the payout phase of the contract to keep monthly payments level c) while benefits are largely dependent on separate account performance, the AIR represents a minimum rate of return offered by the insurance company d) if is used by the IRS to determine the taxability of annuity distributions

b) it is the rate that the annuity separate account must earn during the payout phase of the contract to keep monthly payments level [glossary p. 386]

Under the pipeline or conduit theory, taxes payable on dividends are interest collected and distributed by regulated investment company on the securities in its portfolio are paid a) by the investment company b) only by the shareholder c) by both the investment company and the shareholder d) only when the dividends are taken in cash rather than reinvested

b) only by the shareholder [3. 7. 2. 2]

During the cooling-off period a new securities registration, you would be allowed to a) send prospect sales literature relating to the issue if it accompanied by or preceded by a red herring b) send prospects a preliminary prospectus c) take a check for a proposed purchase provided the check is postdated after effective date d) accept binding indications of interest

b) send prospects a preliminary prospectus [3. 4. 2. 3]

An advantage of a nonqualified variable annuity compared to a mutual fund is a) receiving dividends b) tax deferral c) voting for the board of directors d) diversification

b) tax deferral [2. 7. 1. 3]

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) uncertainty about the ability of the issuer to make timely payments of interest and principal c) liquidity risk d) less market risk than if the portfolio were invested in money instruments

b) uncertainty about the ability of the issuer to make timely payments of interest and principal [6. 2. 2. 8]

Under the Conduct Rules, the principal underwriter of an open-end investment company would be permitted to award the registered representative of a broker/dealer under contract with the highest sales totals in each state a) a vacation trip to the Bahamas b) up to $100 in any one year c) monthly dinner and theater tickets for two for one year d) anything of material value

b) up to $100 in any one year [5. 3. 3. 3]

All of the following actions could potentially be violations of the Conduct Rules EXCEPT a) making unsuitable investment recommendations b) using discretionary to make a purchase in a client's account without discussing the transaction with the client first c) omitting a material fact in recommending an investment d) urging a client to take advantage of IRS Code Section 1035 without discussing suitability

b) using discretionary to make a purchase in a client's account without discussing the transaction with the client first [5. 3. 3]

A 50-year-old widow uses the proceeds of her late husband'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 the 25% tax bracket, what is the total tax due on the withdrawal? a) $7,500 b) $12,500 c) $17,500 d) $10,500

c) $17,500 50,000 x 0.25 = $12,500 (tax bracket) plus 50,000 x 0.10 = $5,000 (penalty) total: $17,500

Which of the following securities transactions would most likely be accomplished through the use of an ADR? a) 1,000 shares of General Electric Common stock on the New York Stock Exchange b) 1,000 shares of Sony Corporation common stock on the Tokyo Stock Exchange c) 1,000 shares of Sony Corporation common stock on the New York Stock Exchange d) 1,000 shares of General Electric common stock on the Tokio Stock Exchange

c) 1,000 shares of Sony Corporation common stock on the New York Stock Exchange [1. 2. 4]

A FINRA member firm could be fined if a registered representative is terminated and the member firm does not notify FINRA within a) 60 days b) 10 days c) 30 days d) 45 days

c) 30 days [3. 1. 5. 5]

An investor reviewing the annual report for the GHI Investment Company notices that the net asset value 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 [2. 4. 3. 3]

Which of the following statements would probably reflect characteristics of the XYZ S&P 500 Index Fund? I. Relatively low portfolio turnover rate II. Relatively low operating expense ratio III. Relatively low correlation to the performance of the S&P 500 Index IV. Relatively low market risk a) II and IV b) I and III c) I and II d) III and IV

c) I and II I. Relatively low portfolio turnover rate II. Relatively low operating expense ratio [2. 4. 4. 1. 7]

Which of the following statements are characteristics of GNMA securities? I. The minimum issue amount is $25,000 II. Distributions are made semiannually III. These securities are backed by the full faith and credit of the US government IV. Interest income received on GNMAs is taxable only at the federal level a) II and II b) I and IV c) I and III d) II and IV

c) I and III I. The minimum issue amount is $25,000 III. These securities are backed by the full faith and credit of the US government [1. 3. 3. 3. 1]

Regarding the anti-money laundering rules, which of the following would be considered a suspicious activity? I. Moving large sums of money between account with the same last names II. Moving large sums of money between nonrelated accounts III. A client not expressing concern about the losses in the client's account IV. A client expressing undue concern about substancial commission being charged to the account a) I and III b) I and IV c) II and III d) II and IV

c) II and III II. Moving large sums of money between nonrelated accounts III. A client not expressing concern about the losses in the client's account [5. 5. 2]

A client expresses the desire to invest in securities that have minimal credit risk. To meet those wishes, which of the following would be appropriate to recommend? I. Over-the-counter common stock II. Noncumulative preferred stock III. B rated debentures IV. B rated mortgage bonds a) I and II b) I and III c) III and IV d) II and IV

c) III and IV III. B rated debentures IV. B rated mortgage bonds [6. 2. 2. 8]

An open-end investment company seeks to achieve maximum income, with little or no pursuit of appreciation. The fund invests in preferred stocks of small- and medium-sized companies that are just below investment grade as well as bonds rated from B to BBB. The funds management believes that, despite the risk involved with the individual securities, adequate diversification can result in superior investment returns. The information would most likely be describing the a) ATF Capital Appreciation Fund b) NAVCO Tax-Free Municipal Bond Fund c) NAVCO High Yield Fund d) ACE Balanced Fund

c) NAVCO High Yield Fund [suitability table, pp. 361]

An elderly couple has retired with a moderate accumulation of assets. They have several grown children and a number of grandchildren and are investing with your firm. Keeping in mind that every customer is different, which of the following pairs if investment objectives would you expect them to express? a) Speculation, diversification b) Growth, liquidity c) Preservation of capital, current income d) Tax advantages, aggressive growth

c) Preservation of capital, current income [6. 1. 3]

Eight years ago, your client retired at age 65 from a manufacturing job that he had held since graduating from high school. He is not enjoying retirement and has recently taken a position with a major retail greeting customers as they enter the store. He would like to contribute to a retirement plan to accumulate additional money to leave his grandchildren. You would advise him to open a a) deferred compensation plan b) Keogh plan c) Roth IRA d) traditional IRA

c) Roth IRA [3. 9. 2. 2]

Under the Code of Procedure, the maximum penalty under a minor rule violation is a) suspension not to exceed five business days b) a fine of any amount deemed appropriate to the violation c) a $2,500 fine, censure, or both d) a $1,000 fine and the requirement to requalify by examination

c) a $2,500 fine, censure, or both [5. 4. 1. 3]

Which of the following would be eligible to open a Keogh plan? a) a salaried investment company employee b) the CEO of a publicity traded corporation c) a CPA who operated as a sole proprietorship d) a group of physicians who have incorporated their practice together

c) a CPA who operated as a sole proprietorship [3. 9. 3]

One of your clients is concerned about market volatility and decides to convert a substantial portion of his holdings into cash. Following this liquidation, he has a cash balance in his account of $275,000 and has reduced his securities holdings to $225,000. As his registered representative, you are concerned about his SIPC coverage and should warn him that a) cash in excess of $250,000 is subject to market risk b) he should reinvest the money a soon as possible c) although his securities are fully covered by SIPC, only $250,000 of his cash is covered d) only $100,000 of this securities is covered by SIPC

c) although his securities are fully covered by SIPC, only $250,000 of his cash is covered [3. 10. 1. 1]

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 b) margin account c) cash account with limited power of attorney d) cash account with full power of attorney

c) cash account with limited power of attorney [5. 2. 3]

An investor in long-term US Treasury bonds would be most concerned with a) legislative risk b) liquidity risk c) interest rate risk d) default risk

c) interest rate risk [1. 3. 5. 3]

John purchased stock of a company in the business of manufacturing yachts. Two years ago his securities had lost most of their value as a result of a congressionally imposed luxury tax on purchases of more than $30,000. John's investment in the yacht-building business suffered a loss due to a) business risk b) interest rate risk c) legislative risk d) volatility

c) legislative risk [6. 2. 2. 10]

Distributions from net investment income paid to shareholders by an investment company meeting the requirements to be a regulated investment company are a) taxed as long - or short -term capital gains based on the fund's holding period of the underlying securities b) taxed to the fund, but not to the individual shareholder as dividend income c) nontaxable to the fund, but taxable to the shareholders 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 shareholders as dividend income [3. 7. 2. 2]

The Conduct Rules prohibit all of the following practices EXCEPT a) encouraging an investor to purchase to purchase a mutual fund share just before the ex-date b) borrowing from a customer's account without the customer's knowledge but with the intent of paying the loan back in a timely fashion c) presenting third-party research reports to clients with disclosure that were prepared by others d) failing to state a material fact in making a mutual fund recommendation to a customer

c) presenting third-party research reports to clients with disclosure that were prepared by others [5. 3. 3]

If a registered representative wished to make recommendations to a client, it would be most appropriate to limit those recommendations to a) those securities that the registered representative has reasonable grounds to expect appreciation in market value b) securities in which the firm was a market maker because the mark-ups would generally be lower than commissions c) those securities that are deemed suitable for the client d) securities found on the states legal list

c) those securities that are deemed suitable for the client [6. 2. 1]

Your client retired from his job three years ago and placed all of the proceeds of his 401k distribution into a rollover IRA at his local bank. He is unhappy with his 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) your firm may not do a transfer in these circumstances; he is limited to a rollover b) once the transfer is complete, he may not make another transfer for at least one year c) trustee-to-trustee transfers do not incur any tax consequences d) the transfer must be completed within 60 days of opening the account at your firm.

c) trustee-to-trustee transfers do not incur any tax consequences [3. 9. 2. 1]

The XYZ Fund, an open-end investment company was founded more than 15 years ago, If it wishes to show average annual rates of return in an advertisement, it must show returns for the past a) 1, 3, 5, and 10 years b) 12 months only c) 1, 5, and 10 years d) 1, 5, and 10 years and since inception

d) 1, 5, and 10 years and since inception [4. 1. 6. 1]

The RAN Corporation has a $100 par 4% preferred stock and is not in arrears on its dividends. What is the current yield on this stock when the RAN common stock is selling for $160 per share and the preferred stock is selling for $80 per share? a) 4% b) 2.5% c) 2% d) 5%

d) 5% [1. 3. 2. 1. 2] CY= (annual interest %)/ current market price

The following information shows the NAV and the ask prices of Investment Company A and Investment Company B on a particular day. Choose the answer that best describes the two companies. Company A: NAV - $ 22.00 ASK - $21.20 Company B: NAV - $9.40 ASK - $10.00 a) Both A and B are closed-end investment companies b) A is a closed-end investment company; B could be either an open-or closed-end investment company c) Both A and B are open-end investment companies d) A is a closed-end and B is an open-end investment company

d) A is a closed-end and B is an open-end investment company [2. 4. 3. 3]

Which of the following terms best describes a corporate debt instrument secured by a pledge by the issuer of property that consist of stocks or bonds of the corporations? a) Equipment trust certificate b) Unit investment trust c) Debenture d) Collateral trust certificate

d) Collateral trust certificate [1. 3. 5. 1. 1]

The declaration of a dividend for holders of common stock in a corporation will result in payment of a dividend to holders of that corporations I. convertible preferred stock II. noncumulative preferred stock III. outstanding warrants IV. debentures a) II and III b) III and IV c) I and IV d) I and II

d) I and II I. convertible preferred stock II. noncumulative preferred stock [1. 2. 3]

A client purchasing a scheduled premium variable life insurance policy should expect I. level premiums for the life of the policy II. a possible reduction in premiums if separate account performance exceeds the policy's AIR III. a death benefit that will never be less than the guaranteed minimum amount IV. cash value that will never be less than the guaranteed minimum amount a) I and II b) III and IV c) II and IV d) I and III

d) I and III I. level premiums for the life of the policy III. a death benefit that will never be less than the guaranteed minimum amount [2. 8. 2]

ERISA regulations apply to which of the following? I. Public pensions plans for government employees II. Private sector retirement plans III. Corporate retirement plan vesting requirements IV. Municipal retirement plans a) II and IV b) I and IV c) I and III d) II and III

d) II and III II. Private sector retirement plans III. Corporate retirement plan vesting requirements [3. 9. 6]

For a fund without an asset-based sales charge to legally charge the maximum load, which of the following features must be made available to shareholders? I. a ten-day, free-look provision II. quantity discounts for purchases made by any person III. Rights of accumulation IV. An exchange privilege within the family funds a) I and III b) I and IV c) II and IV d) II and III

d) II and III II. quantity discounts for purchases made by any person III. Rights of accumulation

Under which of the following circumstances may an agent borrow money from a customer? a) Upon notification to his firm b) Under no circumstances c) With written permission from FINRA d) If the customer is a bank

d) If the customer is a bank [5. 3. 3. 7]

An investor would be subject to the least interest rate risk when purchasing a) T-notes b) long-term corporate bonds c) T-bonds d) T-bills

d) T-bills [1. 3. 5. 3]

Your client wants to increase her purchase of put options. From this, you would expect that the client feels the market outlook is a) bullish b) income-oriented c) neutral d) bearish

d) bearish [put= bear, call= bullish)

All of the following are generally considered speculative investments EXCEPT a) uncovered call options b) B rated debt securities c) short sales d) blue-chip stocks

d) blue-chip stocks [1. 3. 1. 9 and 2. 4. 4. 1. 1]

The preliminary prospectus for a new offering a) includes the final offering price b) is available only after the effective date of the offering c) declares that an offering has been approved by the SEC d) cannot be used when taking orders from customers

d) cannot be used when taking orders from customers [3. 4. 2. 3]

Which of the following constitutes selling dividends? a) encouraging investors to postpone purchases of mutual fund shares until after the ex-date for a dividend distribution b) encouraging customers to sell their mutual fund shares just before the ex-dividend date c) withdrawing dividends, rather than reinvesting them in additional shares d) enticing customers to buy mutual fund shares just before the ex-dividend date

d) enticing customers to buy mutual fund shares just before the ex-dividend date [3. 7. 2. 4. 4]

Your client begins an investment program that has him purchasing $240 of the DCA Balanced Fund each month. The purchase prices for the first four months of this program are $6, $5, $4, and $3 per share. This program will likely be effective as a dollar cost averaging program a) if the client is successful in timing the market with each purchase b) if the client tailors his investment to achieve a lower average price per share than the average cost per share c) only if the market continues to trend downward over time d) if the client continues to invest regular amounts at regular intervals in fluctuating market

d) if the client continues to invest regular amounts at regular intervals in fluctuating market [2. 5. 1. 1]

Your customer is receiving payments during the annuity period of a variable annuity. For tax purposes, which of the following is TRUE? a) the investment income is taxed at the capital gains rate b) the entire amount is subject to tax c) all withdrawals are tax free d) only the amount that represents investment growth and income is subject to tax

d) only the amount that represents investment growth and income is subject to tax [2. 7. 1]

A major difference between an open-end management investment company and close-end company is that the open-end investment company a) has a fixed number of shares outstanding b) has a share price determined by supply and demand c) offers shares that are not redeemable by the issuer d) sells shares through a continuous primary offering

d) sells shares through a continuous primary offering [2. 1. 2. 3. 2]

Holders of a common stock listed on the NYSE have all of the following rights EXCEPT a) the right to stock dividends, if declared by the board of directors b) the right to vote on an upcoming merger involving the parent company c) the right to receive an annual audited report describing the corporation's operations over the previous year d) the right to share in residual assets with the same priority as participating preferred stockholders in the event of a corporate dissolution

d) the right to share in residual assets with the same priority as participating preferred stockholders in the event of a corporate dissolution [Glossary, pp. 404]

The XYZ Growth Fund charges no sales charge but has 1% redemption fee. An investor phones in a redemption request when the next computed public offering price is $10.50 per share. If 1,000 shares are redeemed, the investor will receive a check in the amount of a) $10,395 b) $10,500 c) $10,605 d) $9,450

a) $10,395 $10.50 x 1,000 = 10,500 10,500 x 0.01 = 105 (fee) total: 10,500- 105= $10,395

Your client has been saving for retirement by investing in a nonqualified variable annuity. The total of her investments is $50,000, and the value of her account is $125,000. Now that she is 65, she wishes to take a lump sum distribution. This distribution would be taxed as a) $75,000 ordinary income b) $ 125,000 ordinary income c) long-term capital gain, except for any portion of her contribution that was made in the previous 12 months d) $75,000 long-term gain

a) $75,000 ordinary income [3. 9]

Series 6 registration is known as a limited representative registration because individuals possessing that registration are limited to sales of variable contracts as well as interests in I. face- amount certificate companies II.closed -end investment company shares in a primary offering III. bonds only of investment grade IV. only blue-chip corporate stocks a) I and II b) III and IV c) I and III d) II and IV

a) I and II I. face- amount certificate companies II.closed -end investment company shares in a primary offering [3. 2. 1. 1]

You have an extremely high-bracket customer who is interested in generating some income from his investments. He is risk averse and deeply resents the amounts he must pay in federal taxes every year. He would like you to provide a list of mutual funds for his consideration for possible investment. Which of the following might be on the list your provide? I. The ABC Municipal GO Fund II. The JJK Long-Term Government Bond Fund III. The Smith and Kline Municipal Money Market Fund IV. The Simplex Municipal IDR Fund a) I and III b) II and IV c) III and IV d) I and II

a) I and III I. The ABC Municipal GO Fund III. The Smith and Kline Municipal Money Market Fund [suitability tables]

ABC broker/dealer must file which of the following 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 IV c) I and IV d) II and III

a) I and III I. Website III. radio advertisement [4. 1. 7. 1]