Series 6 Exam
An investor owned stock in the corporation where he was an officer. Two days before it was made public that the company would file for a financial restructure, he sold his stock for $50,000. After the news became public, the stock would have been worth $10,000. What is the maximum civil penalty that can be imposed on this investor according to the Insider Trading Act of 1988?
$120,000
An investor's mutual fund account is currently worth $48,000. The sales charge was 8½%. If she withdraws 6% per year, her monthly payments will be
$240. This is an example of fixed-percentage periodic payments, where an investor requests that a fixed percentage of shares be liquidated at fixed intervals. The 8½% sales charge has no effect on the amount the investor receives in monthly payment. $48,000 x 6%=$2,880 annual amount ($2,880/12=$240 monthly payment).
An associated person may borrow money from a customer if
An associated person may borrow money from a customer who is a member of the registered person's immediate family. In addition, they can borrow from a customer who is a money lending business, or from persons with whom they have either a personal or a business relationship outside the broker/dealer.
An investment adviser receives a fee for his services. This fee is classified as
An operating expense of the fund.
Variable annuities generally include an assumed interest rate. This is the
Annual rate of return required to maintain the level of annuity payments.
How often does the fund's 12b-1 fee need to be approved by the board of directors?
Annually
An investment company can perform certain activities only by approval of a majority of shareholders. Which of the following is a board of directors activity that is allowable without a shareholder vote?
Appointment of officers of the investment company
Employer contributions made to a qualified plan
Are subject to vesting requirements.
An investor wishes to invest $50,000 into a diversified portfolio of stocks, bonds, and money market securities. He wants to shift the percentages invested in each category as market conditions change but does not believe he has the time or resources to make the appropriate adjustments. Which of the following mutual funds would best suit his objectives? S&P 500 index fund Target date fund Strategic income fund Asset allocation fund
Asset allocation fund
One of the significant advantages of investing in mutual funds is
Automatic reinvestment of dividends and capital gains at NAV.
Which of the following is true regarding a nonqualified deferred compensation plan? Contributions are tax deductible. It is a qualified plan and as such requires IRS approval. Any funds are received tax-free by employees. Employer may discriminate among employees.
Employer may discriminate among employees.
How often must performance statistics in a prospectus be updated?
Every 12 months
Which of the following is NOT a risk associated with life settlements? Long surrender periods Possible legal challenge Unpredictable maturities Lack of liquidity
Long surrender periods
Which of the following is NOT a risk associated with life settlements? Unpredictable maturities Lack of liquidity Long surrender periods Possible legal challenge
Long surrender periods
The Investment Company Act of 1940 allows the 12b-1 fee to cover normal operating expenses of a mutual fund, which includes all of the following EXCEPT Sales commissions. Fees for printing prospectuses. Sales material. Management fees.
Management fees.
Your client is primarily concerned with liquidity of his investment. Which of the following would be the most appropriate recommendation?
Money-market account
An investor likes the safety of a government bond fund, but will forfeit a portion of this safety for a slightly higher return. She would most likely choose which of the following?
Mortgage-backed security fund
An investor has a very high annual income. One of her friends told her that she needs to find some investments that will help her earn a good return without having to pay so much in taxes to the federal and state governments. Which of the following would be a good choice for this investor?
Municipal bond funds Municipal fixed income investments generate federally tax-exempt interest income and may be exempt from state tax if the holder is a resident of the issuing state.
Audits of broker/dealers' Anti-Money Laundering Programs must be conducted by
Must be conducted by an independent third party.
Cash values in variable life policies are required to be made available to the policyholder if the premium payments stop. This is the contractual feature known as the
Nonforfeiture provision.
FINRA rules require that, in the conduct of business, members
Observe high standards of commercial honor and just and equitable principles of trade.
In which qualified plan is the employer required to make a contribution to the plan regardless if the company realized a profit during the year or not?
Pension
When considering an investment for an ERISA (Employee Retirement Income Security Act of 1974) account, the primary consideration is
Potential risk.
Bob Smith owns a fully paid-up variable life insurance policy. He wishes to take a partial surrender by lowering the death benefit and taking the maximum cash available. What is the tax consequence of this partial surrender?
The money received will not be taxable up to the amount of net premiums because of "premium first" rules.
The best definition of "current yield" is
The most recent annualized dollar amount of income, divided by the security's current market value and expressed as a percentage. The term "current" always implies a yield figure based on current market value rather than the price paid for a security or its anticipated value at maturity. For a bond, annualized dollar yield is always the same because it is the nominal yield expressed in dollars. For a stock or mutual fund, the most recent annualized dollar yield is the sum of the most recent four dividends.
Taxes due from the distribution of dividends and interest from a regulated investment company are paid by
The shareholder.
Mrs. Smith is in the 28% tax bracket. She owns a corporate bond with 10% coupon rate and a market price at 110 points. All of the following statements are correct EXCEPT
The taxable yield on the bond is $110 annually. The taxable yield on the bond is coupon rate expressed as a percentage of the par value of the bond, not the market price. The correct taxable yield is therefore $100 (10% of the par value).
Under what circumstances is it legal for members who sell shares of an investment company to execute its portfolio transactions?
This is perfectly legal.
Which entity within a mutual fund's structure is responsible for customer name and address changes?
Transfer agent
Which of the following is contracted by a mutual fund to issue new shares and cancel redeemed shares for the fund? Board of directors Transfer agent Custodian Investment adviser
Transfer agent
Which of the following individual accounts bypasses probate and allows transfer of assets to a named beneficiary?
Transfer on Death
Which of the following individual accounts bypasses probate and allows transfer of assets to a named beneficiary? Tenants in Common Transfer on Death Fiduciary account UGMA
Transfer on Death
Which of the following instruments trades on a discount yield basis?
Treasury bills
If you own securities that represent an undivided interest in a fixed portfolio, with which type of investment company are you invested?
Unit investment trust
A long-term investor who is comfortable with moderate risk believes that the best way to make money in the stock market is to buy low. The investor is skeptical of stocks that look overvalued and carry high P/E ratios. An appropriate mutual fund for this investor is
Value fund.
Warrants can be detachable from the security with which they were issued. All of the following characteristics about warrants are true EXCEPT Warrants are issued above the current market price of the stock. Warrants initially have no intrinsic value. Warrants may last for several years or even be perpetual. Warrants attached to bonds make the bond more attractive, thus increasing the bond's coupon rate.
Warrants attached to bonds make the bond more attractive, thus increasing the bond's coupon rate. A warrant reduces the coupon rate of the bond it was issued with because it offers the added privilege of purchasing the issuer's stock at a specified price. This additional feature allows the issuer to pay a lower coupon rate but still attract investors. The warrants have no intrinsic value at the time they are issued because the exercise price of the warrant is above the current trading price of the stock.
What are the tax consequences of changing from one fund to another within a family of funds?
Will have a taxable consequence because it is a purchase and sale
Jim made contributions to his Keogh plan in excess of the allowable amount for the current year. To avoid a tax penalty, Jim can
Withdraw the excess before the tax due date.
With regard to sales breakpoints, any schedule changes must be communicated to existing shareholders within what period of time?
Within 1 year
Which of the following best describes a variable annuity? -The method of payment can change, but the amount of payment is fixed. -The method of payment is fixed, but the amount of the payment changes. -Both the method and amount of payment are fixed. -The method of payment and amount of payout can change.
-The method of payment is fixed, but the amount of the payment changes.
What is the maximum 12-b1 fee a no-load mutual fund can charge?
0.25 of average net assets per year
The owner of a variable life policy has the right to a refund of some of the sales charges if the policy is surrendered within
2 years.
What is the maximum allowable annual contribution into a non-corporate Keogh Plan (HR-10) for a self-employed individual?
20% of pre-tax earnings up to a specified limit
Face amount certificates issue debt certificates that offer predetermined interest rates. The certificates may be purchased by either periodic installments or with a lump-sum payment. These certificates have a maturity of at least
24 months.
Commercial paper carries a maximum maturity of
270 days.
A customer who purchases securities in a cash or margin account must pay for the securities in
4 business days.
The LRH Growth Fund has a net asset value (NAV) of $16.84 and a maximum offering price listed at $18.11. The sales charge for this fund is
7%.
Your client has not paid for a stock purchase in the allotted time period. According to Regulation T, this account will be frozen for
90 days.
John owns a Keogh plan. Which of his employees must be included in the plan? A 24-year-old full-time employee with one year of full-time service A 20-year-old full-time employee with two years of full-time service A 21-year-old full-time employee who was hired 3 months ago All of the above must be included.
A 24-year-old full-time employee with one year of full-time service The standards of eligibility for a qualified retirement plan are 21 years of age with at least 1 year of full-time service.
Sales charges for an annuity contract are limited to
A fair and reasonable amount over the life of the contract.
A premature distribution from a Roth IRA made before the individual reaches age 59½ is subject to a 10% penalty tax unless the distribution was for
A first-time home purchase.
An account under the Uniform Gift to Minors Act earned $8,500 in interest income from bonds. The minor is 13 years old. How is this interest income taxed?
A portion is taxed at the minor's rate and a portion is taxed at the parent's rate.
A broker/dealer with a numbered account name on its books is required to keep which of the following on file? A statement from a registered principal attesting to the account owner's name A signed statement from the registered representative listed on the account attesting to the identity of the account owner A certified copy of the account owner's current state-issued ID card A signed statement from the customer attesting to his or her ownership of the account
A signed statement from the customer attesting to his or her ownership of the account
What are tombstone advertisements?
A tombstone advertisement cannot solicit the sale of a security. They serve as an announcement of an upcoming offering.
When is a policyholder allowed to surrender a variable annuity contract?
During the accumulation period
A member allowed an unregistered associated person to sell securities to the public. The firm may be deemed to have committed.
An act inconsistent with just and equitable principles of trade.
What money market instrument is used to provide a means of payment for merchandise in import and export transactions?
Bankers' acceptances
Which of the following is NOT guaranteed? Interest on a fixed annuity contract Interest and principal on direct U.S. government obligations Death benefit on a whole life insurance policy Cash value on a variable life insurance policy
Cash value on a variable life insurance policy
A client with $1,000 to invest in a mutual fund for his IRA account is concerned about front-end loads reducing the size of the already small investment. The client plans on holding the investment until retirement (20 years or more). Class B shares may be more appropriate for this client than Class A shares for all of the following reasons EXCEPT After a specified holding period of time, Class B shares convert to Class A shares. Class B shares have a lower expense ratio than Class A shares. Class B shares' CDSC declines over time. Class B shares have no front-end load.
Class B shares have a lower expense ratio than Class A shares.
What is required of a discretionary account that differs from a nondiscretionary account?
Closer supervision
Which of the following describes the tax advantage of a qualified retirement plan? -Employer contributions are not taxed when paid out to the employee. -Contributions and earnings of the plan are exempt from the employee's current income taxation. -Distributions prior to age 59½ are tax-deductible. -Employer contributions are deductible business expense when the employee receives benefits.
Contributions and earnings of the plan are exempt from the employee's current income taxation.
Which type of stock would a person own for the best assurance of receiving dividend income? Participating preferred Callable preferred Convertible preferred Cumulative preferred
Cumulative preferred Cumulative preferred stocks give the best assurance of dividend income because no dividends can be paid to common stockholders if any preferred stock dividends are in arrears (owed).
A mutual fund that charges the maximum sales charge of 8½% allowable by the Investment Company Act of 1940 does NOT have to offer
Exchange rights.
Which type of investment company issues discounted or premium shares that can be redeemed for a fixed amount on a specified date? Closed-end management company Face amount certificate Unit investment trust Open-end management company
Face amount certificate Face amount certificate holders own debt instruments that offer a predetermined rate of interest.
Which of the following factors will most likely create reinvestment risk? Short-term investments Decreasing asset values Opportunity cost Falling interest rates
Falling interest rates
A mutual fund wants to send out a brochure about its new income fund but does not want the piece to be considered a prospectus. According to FINRA rules, the brochure may NOT contain which of the following?
Fund performance charts
In accordance with the Uniform Gift to Minors Act, a donor may
Give an unlimited amount of cash.
For a regulated investment company, what is the 90% regulation test based upon?
Gross interest and dividend income, less expenses
Which type of stock will generally pay little or no dividends?
Growth stock
Which of the following is true about a defined benefit plan? -Low-salaried employees are excluded from the plan. -All participating employees are vested immediately following a contribution to the plan. -Contributions are made in regular fixed amounts. -High-salaried employees with only a few years until retirement receive the highest contribution.
High-salaried employees with only a few years until retirement receive the highest contribution.
A signature guarantee is usually required for which of the following types of transactions? I. Wire transfers; II. Redemptions to addresses different than the address of record on the account; III. Redemptions on a two-party account; IV. For dollar amounts below certain limits
I and II
The death benefit payable during the accumulation period of an annuity contract I. Is based on the greater of the gross payments to date or the value of the account at the time of death. II. Is not payable after annuity payments have started. III. Is the annuity feature that guarantees payments for the life of the annuitant. IV. Is available only with fixed annuity contracts.
I and II
Which of the following would be characteristic of an Exchange Traded Fund (ETF)? I. ETFs aren't sold directly to investors. II. ETFs provide intraday liquidity. III. ETFs are redeemable by the fund and the fund will pay the investor within seven days of redemption. IV. ETFs allow small dollar amounts of investment.
I and II
Variable life policy provisions allow for I. Changing among investment alternatives in the separate account without tax liabilities. II. Converting the policy to a whole life policy. III. Converting the policy to a term policy at certain intervals. IV. Changing among investment alternatives within the separate account subject to current capital gain/loss consequences.
I and II Changes in investment alternatives within the separate account are not taxable events. Variable policies may be converted to another type of permanent policy such as whole life or universal life, not to a term policy.
Which of the following statements are true of municipal securities transactions in a discretionary account? I. They require the customer's prior written authorization and a written acceptance by a broker/dealer principal. II. They are subject to different suitability requirements than nondiscretionary account municipal securities transactions. III. Transactions that are not suitable are prohibited unless initiated by the customer. IV. Transactions that are not suitable are always prohibited.
I and III
Which statement(s) is/are true concerning Series EE and Series HH bonds? I. They are low-risk savings products. II. They are highly marketable because they are government issues. III. They are subject to federal but not state or local taxation. IV. Interest is accrued and reported as income annually.
I and III only Savings bonds are non-marketable because they are not transferable to another party. Interest can be accrued and reported annually but may also be deferred until redemption.
Which of the following statements are accurate concerning zero-coupon bonds? I. Zero-coupon bonds pay no annual interest. II. Zero-coupon bonds are issued only by municipalities and the U.S. Government. III. Taxes on a zero-coupon bond are paid at maturity. IV. Zero-coupon bonds are redeemed at face value at maturity.
I and IV only
Which two of the following are characteristics of warrants? I. Short term; II. Long term; III. Exercise price above the current market value; IV. Exercise price below the current market value
II and III Warrants are long-term and have an exercise price above the market price of the stock initially. Warrants are long-term and will have value if the trading price of the stock appreciates so that it is greater than the exercise price of the warrant.
Which types of variable annuities use accumulation units to track the owner's interest in the separate account? I. Immediate annuity; II. Single premium deferred annuity; III. Periodic payment deferred annuity.
II and III only
Which of the following are characteristics of a SEP-IRA? I. A vesting schedule applies. II. A SEP-IRA is a qualified plan. III. Contributions are made by the employee. IV. The maximum allowable deductible contribution is greater than a personal IRA account.
II and IV A SEP-IRA is a Simplified Employee Plan for the self-employed and for small employers. A SEP-IRA is a qualified retirement plan in which all contributions are made by the employer and are tax deductible. The employee is immediately vested in the program. An additional benefit of a SEP-IRA is that the maximum allowable deductible contribution to the plan is greater than in a normal IRA.
Which of the following is (are) NOT true concerning exchange privileges within a family of funds? I. It is a taxable event. II. Even though shares are redeemed, it is not a taxable event because the shareholder does not receive the proceeds. III. There may be an exchange fee involved. IV. The shareholder will purchase shares in the target fund at POP.
II and IV When shares are redeemed in the first fund, a capital gain or loss is realized. Therefore, the IRS defines an exchange as a sale even though the proceeds are reinvested in another fund. Some funds charge a modest exchange fee. Shares in the target fund are purchased at NAV.
J, a registered representative, has been encouraging his clients to sell the ACME Growth Funds he sold to them at the end of last year to purchase shares in ACADAMY Growth Funds. The two funds are similar, but J believes that ACADAMY Growth Funds are more suited to his client base. This is a
Illegitimate trades practice because J should not encourage short-term trading in mutual funds and shouldn't encourage clients to switch from one growth fund to another, similar growth fund.
A grandfather wants to buy an annuity that will be the best benefit to both his son and granddaughter. What annuity type would best suit his needs?
Joint and last survivor
Liability to contemporaneous traders for insider trading means
Liability from lawsuits, that those guilty of illegal insider trading may be subject to, from traders who lost money because of their insider trading violations.
Which of the following is reduced by using various asset classes in an investment portfolio? Liquidity risk Credit risk Inflation risk Selection risk
Selection risk Selection risk can be offset by diversification of asset classes.
Which types of securities are involved in money market transactions?
Short-term debt Money market instruments (short term debt) are considered highly liquid and safe investments. Other choices may be more appropriate for an income or growth-oriented portfolio.
Which of the following settlement options will give the annuitant the highest periodic payment?
Straight life Straight-life annuity option gives the annuitant the highest periodic payment because it carries the most risk. The annuitant receives payments as long as he or she lives. Upon the annuitant's death, all payments end.
What sub-chapter of the IRS code defines the conduit or pipeline theory that applies to investment companies?
Sub-chapter M
When exercising a preemptive right, at what price is the shareholder allowed to purchase the new stock?
Subscription price
Failure to promptly pay a fine or other monetary sanction imposed as a result of proceedings under the Code of Procedure may result in
Summary suspension or expulsion of a member notice in writing.
Which of the following statements is NOT correct concerning the taxation of accounts under the Uniform Gift to Minors Act? -If the minor is 19 or older, all income is taxed to the minor. -If the minor is younger than 19, the income up to the ceiling amount is taxed at the minor's rate and the remaining portion is taxed at the parent's tax rate. -If income from the account is below the minimum income limits, the minor is not required to file a return. -Taxes on the account are the responsibility of the custodian.
Taxes on the account are the responsibility of the custodian.
Which of the following statements is NOT correct concerning the taxation of accounts under the Uniform Gift to Minors Act?
Taxes on the account are the responsibility of the custodian. The custodian is not financially responsible for the taxes on an UGMA account. The minor is the responsible entity, and taxation occurs as outlined in the other answer choices.
A customer owns 500 shares of XYZ Mutual Fund A shares. She can redeem her shares at
The NAV.
All of the following are associated with negotiated or over-the-counter transactions EXCEPT The New York Stock Exchange. The National Market System. Non-NASDAQ listings on the pink sheets. NASDAQ.
The New York Stock Exchange. The NYSE is an auction market, and trades of NYSE listed securities take place on the floor. The other markets listed here are where negotiated or over-the-counter transactions take place.
Who sets fiscal policy?
The President and the U.S. Congress
The Federal Act that established procedures for the protection of customer funds and securities in the event that a broker/dealer becomes insolvent is called The Securities Act of 1933. The Securities Exchange Act of 1934. The Securities Advisers Act of 1940. The Securities Investor Protection Act of 1970.
The Securities Investor Protection Act of 1970.
Which of the following characteristics applies to defined benefit plans but not defined contribution plans? -They are qualified plans. -Employers can choose not to make contributions for a particular year. -They are subject to the rules of ERISA. -The amount of contributions made by the employer is determined by an actuarial formula.
The amount of contributions made by the employer is determined by an actuarial formula.
In compliance with FINRA conduct rules, customer recommendations should be based on
The customer's suitability for the investment.
The separate account for a variable life policy had a 3% rate of return over the past year. The AIR for the policy is 6%. How did this affect the death benefit of the policy?
The death benefit will decrease but not below the face amount of the policy.
Which of the following is a risk associated with a mutual fund withdrawal plan? There are no dividends or capital gains. Investors have no control over the liquidation process. The investor may outlive his or her income. The sales charge for the service is high.
The investor may outlive his or her income.