Series 6 practice missed qs
Any retail communication relating to investment companies must be filed with FINRA within how many days after initial use?
10 days Retail communication relating to investment companies must be filed with FINRA within 10 days after initial use.
In order for a corporation to qualify for the 50% corporate dividend exclusion when they own stock of another corporation, they must own less than what percentage of that corporation's outstanding stock?
20% To qualify for the corporate dividend exclusion, the shareholding corporation must own less than 20% of the dividend-paying corporation's outstanding stock.
A teacher has made contributions to a tax-qualified variable annuity in the amount of $80,000. The account value has appreciated to $150,000. If the teacher is in the 15% tax bracket and withdraws $20,000, how much will be due in taxes?
$3,000 Since the cost basis is $0 in a qualified variable contract, the teacher will owe 15% on the amount withdrawn, which is $3,000.
Under Reg A+ Tier 2, what is the maximum amount of money that may be raised?
$50 million with no more than $15 million by affiliates Under Reg A+ Tier 2, the maximum amount of money that can be raised is $50 million with no more than $15 million by affiliated persons. This is to allow emerging growth companies to raise money.
How long are broker/dealers required to maintain Currency Transaction Reports and other records related to the Currency and Foreign Transactions Reporting Act?
5 years Broker/dealers subject to the Currency and Foreign Transactions Reporting Act of 1970 are required to maintain records related to the Act for 5 years.
ABC Equity Fund charges a 12b-1 fee. The fund's Board of Directors must be made up of at least
51% unaffiliated directors. When a fund charges a 12b-1 fee, the majority of the board (51%) must be made up of unaffiliated or outside directors.
G is in his 70s and is interested in investing. His registered representative could legitimately recommend all of the following EXCEPT
A bonus annuity in which G would receive extra interest credits in the first year. Although the bonus annuity may have features that would be attractive to G, his registered representative should not recommend a bonus fund. Bonus funds traditionally have higher fees associated with them and longer-term surrender charges and are considered inappropriate for senior investors as a general rule.
All of the following are correct statements about broker/dealer branch offices EXCEPT
A registered representative's home office is normally considered a branch office. A registered representative's home office is not a branch office as long as it is not advertised or presented to the public as a branch office.
A broker/dealer with a numbered account name on its books is required to keep which of the following on file?
A signed statement from the customer attesting to his or her ownership of the account According to FINRA rules, members must hold each customer's account in the customer's name. If the account is identified with a number or symbol, the member must have documentation signed by the customer attesting to his or her ownership of the account.
All the following are appropriate options that a broker/dealer can offer customers to allow them to opt out of Reg S-P Privacy Rules EXCEPT
A written letter. It is too cumbersome to ask a customer to write a letter requesting to opt out of allowing the broker/dealer to send their personal nonpublic information to nonaffiliated third parties.
An investor has rights that allow him cumulative discounts on mutual fund shares. These rights are known as
Accumulation rights. The right of accumulation must be made available to an investor for at least 10 years.
Per the customer's request, the name of his account was changed from "John Smith" to "John Smith Revocable Trust." The customer can enter a trade order
After the account name change is approved by a qualified registered principal who is aware of the circumstances that led to the change. FINRA requires that account name and designation changes be approved in writing by a qualified registered principal who is aware of the facts and circumstances that led to the change. A copy of the trust document would be required; however, even if provided, the customer must still wait to enter a trade until the account name change is approved by a qualified registered principal
Costs associated with variable annuities that are not included in the sales charge may include
All of the above. (Investment management fees, premium taxes, mortality risk fee and expense risk fee) These charges are not included in the sales charge. Depending upon the contract, all are possible expenses or ongoing charges that are deducted from the separate account.
All of the following are true statements regarding the Code of Procedure EXCEPT
An expulsion of a member goes into effect 30 days after the member receives notice of the disciplinary action. If FINRA expels a member, the decision is effective immediately upon serving notice to the respondent.
Which of the following statements is NOT true concerning a nonqualified deferred compensation plan?
Any investments grow on a tax-free basis. Nonqualified deferred compensation plans may be discretionary and therefore do not require IRS approval. These plans are contractual agreements between employees and employers for the deferral of constructive receipt of a portion of their earnings.
An investment company can perform certain activities only with the approval of a majority of the shareholders. Which of the following is a board of directors allowed to do without a shareholder vote?
Appoint officers of the investment company The board is elected by the shareholders but the board has the authority to appoint officers to perform the company's activities.
After the first annuity payment is calculated in a variable annuity, future payments are calculated
By multiplying the number of annuity units by the current redemption value of a unit. The redemption value of an annuity unit changes with the performance of the separate account compared to the Assumed Interest Rate. For example, if the separate account outperforms in a given month, the resulting increase in redemption value will increase the amount of the next month's payment.
An investor purchased 100 shares of an investment company and paid the market price plus a commission. What did the investor purchase?
Closed-end investment company shares Closed-end shares are purchased at market price plus a sales commission, which differs from open-end shares, which are purchased at the NAV plus a sales charge.
When is a variable annuity exempt from the requirement that mutual funds pay redemption proceeds to investors within 7 days?
During annuitization period The Investment Company Act of 1940 exempts variable annuity separate accounts from the 7-day payment requirement for redemptions. This is because when the annuity is annuitized, it is a life contingency, meaning the annuitant will receive a payment for the rest of his or her life.
Which of the following bonds is normally issued by a transportation company?
Equipment trust certificate A transportation company will normally issue equipment trust certificates and secure them by pledging airplanes or railroad cars as collateral.
When a member offers an investment analysis tool to retail customers, it must make the investment analysis tool available to
FINRA within 10 business days of its first use by the public. The analysis tool must be made available to FINRA within 10 business days of its first use, as well as reports that the tool generates and any other retail communicates related to the investment tool.
A beginning investor has limited funds, but wants immediate exposure to a variety of investment styles. The investor should consider which of the following funds?
Fund of funds A fund of funds invests in other mutual funds. With a small investment, an investor gains exposure to several different mutual funds with different investment objectives. Alternately, the investor would need more money to invest the required minimum in several different funds to achieve the same exposure.
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 Fund performance figures are not allowed in retail communication. This information goes beyond the limited scope of allowable information disclosed in a circular.
A man is 52 years old. He is terminating his employment at a state university. He is fully vested in a 457(b) plan. If he withdraws the money from his 457(b) plan,
He must pay income tax. He must pay income tax. There is no 10% penalty on early withdrawal from a 457(b) plan.
Mutual funds offer systematic withdrawal plans. Allowable types of withdrawal plan payouts include I. Fixed dollar periodic payments. II. Dollar cost averaging. III. Fixed shares periodic payments. IV. Life with period certain.
I and III Fixed dollar, fixed percentage, and fixed shares periodic payments are the withdrawal plan payout options. Dollar cost averaging is a plan of systematic investing into a fund. Life with period certain is a variable annuity payout option.
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 Municipal securities discretionary accounts require prior written authorization that has been accepted by the principal. A transaction that is not suitable or in line with the customer's investment objectives is permitted if initiated by the customer. The registered person should mark the trade ticket as "unsolicited."
Mutual fund investment income and capital gains distributions I. May be taken in cash. II. Can be reinvested into the fund at the POP. III. Are taxable whether taken in cash or reinvested. IV. May be tax deferred upon election.
I and III Mutual fund investors may choose to take distributions in cash or reinvest them at NAV. In either case, distributions are currently taxable. The only way to defer tax on distributions is to own fund shares in a tax-deferred account such as an IRA.
Which factors may an agent use with a client to compare different mutual funds? I. The fund's beta; II. The fund's Sharpe ratio; III. The fund's risk coefficient; IV. The fund's expense ratio.
I, II, III and IV All of these factors are useful during a comparison of mutual funds, and allowable for use with a client.
Dollar cost averaging I. Will allow an investor to purchase a fixed number of shares periodically. II. Is not as effective as market timing. III. Does not protect the investor against loss in steadily declining markets. IV. Does not guarantee a profit.
III and IV Dollar cost averaging utilizes fixed dollar amounts, not fixed share amounts and is more effective than market timing over the long term. Loss is always a possibility in a steadily declining market
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. J should not encourage his clients to trade short-term in mutual funds. Mutual funds are designed to be held long-term and encouraging clients to trade mutual funds short-term is an illegitimate trade practice. J could also be accused of switching funds by going from ACME to ACADEMY growth funds, which have similar performance records. There is no legitimate investment reason to make the switch.
What ratio would an analyst consider when evaluating a corporation's ability to service its debt?
Interest coverage ratio The interest coverage ratio measures how easily the entity can pay interest on its outstanding bonds. A higher number is better.
Which of the following is NOT true regarding DCA?
It is not available to large investors. Dollar cost averaging is available to both small and large investors.
Which of the following is NOT true regarding a nonqualified retirement plan?
It needs IRS approval. Nonqualified retirement plans do not meet the IRS requirements for favorable tax treatment of deductions and contributions; therefore, they do not need IRS approval.
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 The joint and last survivor annuity would make payments to the son and then the granddaughter as long as one of them survives.
All of the following are true of the organizational structure of a balance sheet EXCEPT
Liquid items appear on the left and illiquid and fixed items appear on the right. The balance sheet follows the balance sheet equation Assets - Liabilities = Shareholders' Equity. It starts with current items at the top and flows to long-term items below. Net worth, or shareholders' equity is below the liabilities section on the right side of the balance sheet.
Which of the following is NOT a risk associated with life settlements?
Long surrender periods A life settlement is a transaction between a permanent life insurance policy and an investor, and has no surrender charges or 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
Management fees. Section 12b-1 of the Investment Company Act of 1940 allows the imposition of a distribution fee to cover expenses associated with the promotion and distribution of fund shares, known as a 12b-1 fee. This fee covers such costs as printing of prospectuses and sales materials as well as certain sales commissions.
If a mutual fund publishes investment performance charts, the information presented must include
Maximum sales charges. Published performance charts reflect maximum sales charges.
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 The MBS fund has less credit risk than a corporate bond fund because it generally invests in mortgage-backed securities, issued by a government agency. The other three funds have significantly more risk than the MBS fund.
The term "mutual fund retail communication" includes all of the following EXCEPT
Mutual fund trade confirmations. Trade confirmations are not retail communications. Any other offer to sell, or communication meant to induce a sale is an investment company retail communication.
A member's office that performs functions including order execution, market-making activity, and new account approval is a/an
Office of Supervisory Jurisdiction. Any office of a member that performs any one of these functions is an Office of Supervisory Jurisdiction (OSJ). Additional functions include approval of retail communications, supervising associated persons and branch offices, and structuring private placements and public offerings.
Where would an Investor find the SEC disclosure statement?
On the first page of the prospectus The SEC disclaimer needs to be on the first page of every prospectus in big bold type. "The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense."
The term for active stock that represents the number of shares owned by the public is
Outstanding stock "Outstanding stock" is the term for issued stock less any treasury stock reacquired by the corporation.
Joseph Herrara was the owner and insured of a variable life insurance policy at his death. Which of the following statements is most accurate concerning the taxation of the policy proceeds?
Policy value will be included in his estate for tax purposes. The death benefit is not taxable to the beneficiary, but is included in the insured's estate for tax purposes.
The securities in the separate account of a variable annuity include common stocks because
Prices of common stock tend to reflect increases or decreases in the cost of living. Common stocks tend to reflect the changes in the cost of living, which gives the investor some protection against inflation. For this reason, separate accounts can include common stocks.
What is the most common method of acquiring restricted stock?
Private placement Private placements are more commonly used to acquire restricted stock. Rights offerings (registered offerings), Employee Stock Ownership Plans (ESOP), and mergers are less common.
Discretionary accounts require a higher degree of monitoring. When handling these accounts, a FINRA member is NOT required to
Provide same-day trade confirmations. All of these are a member firm's responsibilities in the handling of discretionary accounts, but confirmations are not required until the settlement date.
All of following types of transactions are generally seen as prone to money laundering EXCEPT
Purchases of stock. Stock purchases are not generally seen as susceptible to money laundering.
An investor opens a mutual fund account with $3,000. After 45 days, she signs a letter of intent for a $10,000 breakpoint. Nine months later, the investor deposits $12,000 into the fund. Which of the following will the investor receive?
Reduced sales charges on $15,000 worth of shares Letters of intent are valid for 13 months and can be backdated up to 90 days prior to their signing. The investor will receive the reduced sales charges on the entire $15,000 worth of shares.
An investment company that distributes at least a minimum percentage of its net investment income back to its shareholders is known as
Regulated. A regulated investment company distributes at least 90% of its net investment income back to its shareholders.
One way an analyst evaluates management efficiency is by reviewing the
Return on common equity. Return on common equity measures the return which management achieves on common stockholders' equity. A higher ratio is better.
Customer account transactions made by registered representatives must be
Reviewed by a principal. A representative's supervisor must review and endorse all transactions. All transactions are not written, some are electronic or telephoned. FINRA does not review or approve customer transactions.
A mutual fund's custodian
Safeguards fund cash and securities. The custodian safeguards the mutual fund's portfolio assets, not customer assets. The transfer agent processes shares and the investment adviser maintains portfolio records.
In accordance with the Securities Exchange Act of 1934, if an individual discovers that he has suffered damages due to a price manipulation, he may
Sue the manipulator for recovery of damages. The individual may sue the manipulator for recovery of damages, provided that the action is taken within 5 years of the activity and within 2 years of discovery.
In a defined contribution plan,
The contribution is known and the benefit is unknown. In a defined contribution plan the contribution is defined (known) and the benefit is undefined (unknown).
Mutual fund distributions or dividends must be accompanied by a separate written statement that indicates the portion of the distribution attributable to all of the following sources EXCEPT
The investor's individual cost basis. Investment companies (mutual funds) distributions or dividends must be accompanied by a separate written statement that indicates the source(s) of the dividend/distribution income. The investor's cost basis is not included in the statement.
An associated person of a member cannot accept compensation from anyone other than
The member with which the person is associated OR a nonmember, assuming that a compensation agreement has been reached. No associated person of a member can accept compensation from anyone other than the member with which the person is associated. The only exception is payment by a nonmember to a member, where the member agrees to the compensation arrangement.
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. Partial surrenders of variable life policies are treated as premium first and are not taxable up to the amount of the net premiums paid.
Taxes due from the distribution of dividends and interest from a regulated investment company are paid by
The shareholder. Under the conduit theory, taxes on distributed earnings are paid only by the shareholder. The company is liable for taxes only on nondistributed earnings.
The following statements are true concerning 12b-1 fees EXCEPT
They are limited to a maximum of 0.25% of assets. Fees may not exceed 0.75% of assets. If a fund markets itself as "no-load", its 12b-1 fee may not exceed 0.25%.
Which of the following is contracted by a mutual fund to issue new shares and cancel redeemed shares for the fund?
Transfer agent The transfer agent is in charge of issuing new shares, cancelling redeemed share as well as the disbursement of dividend and capital gain distributions.
Under what circumstances would it be permissible to demand commissions as a condition to a sale?
Under no circumstances It is a violation to demand commissions or solicit a promise of commissions as a condition to the sale.
When is it permissible to circulate information regarding the amount of brokerage commissions received by the member from any investment company?
Under no circumstances It is illegal to circulate information regarding the amount of brokerage commissions received by the member from any investment company.
An underwriter of the securities of an investment company is allowed to sell securities to a member firm at a price other than the public offering price under what circumstances?
When a selling agreement is in effect No member firm who is underwriter of the securities of an investment company is allowed to sell securities to another member firm at a price different from a public offering price, unless a selling agreement is in effect.
All of the following apply to exchange privileges within a family of funds EXCEPT
even though shares are redeemed, it is not a taxable event because the shareholder does not receive the proceeds. 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.
