Series 6 Study Cards
A customer wishes to redeem 1,000 shares of a mutual fund. The NAV is $15 and POP is $15.45, and a redemption fee of 1% will be charged. How much will the customer pay in redemption fees?
$150. (Mutual fund shares are redeemed at the NAV (bid): 1,000 shares × $15 each = $15,000. $15,000 × 0.01 (1% redemption fee) = $150.)
When a Form U4 is filed requesting an exam, how many days does that window remain open?
120 days
If a FINRA member firm maintains an inventory in a security and derives income from trading in and out of that inventory with other broker-dealers and customers, that firm is acting as
A dealer
Which of the following is not a category of public communication under FINRA's rules? A) Retail communication B) Correspondence C) Internal communication D) Institutional communication
Internal communication
Which of the following activities is not an unethical trade practice?
Interpositioning, as long as customers aren't harmed by action
All of the following are exempt securities except
Municipal Bond Funds. key word FUNDS
Which of the following statements regarding municipal bonds is not true?
Municipal bond interest is generally taxed at the federal level and is always tax free at the state level.
Which of the following types of communication require principal approval before use?
Retail communication
Increasing diversification in a customer's portfolio will tend to decrease the impact of which of the following types of risk?
Unsystematic Risk
Which of the following would not be sufficient to remove a power of attorney (POA) from an account? A) Death of the appointed person B) Written revocation of the POA C) Verbal revocation of the POA D) Death of the grantor of the power
Verbal revocation of the POA
When a brokerage firm acts as a principal in a transaction with a customer it is acting as
a dealer
Dividend distributions from an equity income fund would be taxable
if received in cash or reinvest in the fund
Nonpublic personal information includes all of the following except
the customer's name.
If two customers are tenants in common in a joint account, which of the following statements regarding this arrangement are true? If one of the tenants dies, the survivor will automatically assume full ownership. They need not make equal investments in the account. They need not have equal interests in the property in the account. If one of the tenants dies, the account need not be frozen.
they needn't make equal investments in the account. they needn't have equal interests in the property in the account
All of the following may require a specific disclosure regarding liquidation costs except
Class A shares. Class A shares do not have surrender or liquidation fees.
Which of the following may contribute to a 457 plan? A) Groundskeeper for a religious cemetery B) Custodian at a county sheriff's station C) A volunteer (nonpaid) docent at a county museum D) Custodian in a corporate headquarters
Custodian at a county sheriff's station
When a customer wants income from an annuity and chooses the income option of life with a cash refund guarantee, how will distributions be taxed?
As ordinary income based on an exclusion ratio
The Securities and Exchange Commission (SEC) regulates all of the following except
Intrastate securities offerings
Which of the following is not a money market instrument?
Newly issued treasury notes issued to meet a specific government funding requirement
If a broker-dealer requests an extension for settlement of a trade, to which of the following will the request will be made?
The Designated Examining Authority (DEA)
A brokerage order ticket must contain all the following except
The date the account was opened
During the time an S-1 filing was being reviewed, an omission was found that could affect the amount of listed debt obligations of the issuer. In determining the course of action, which of the following would most likely be responsible for correcting the omission?
The issuer
Which of the following is not a suitability consideration when recommending a variable annuity to a customer? A) The payout to the representative for the sale B) The source of the money used to fund the purchase of the variable annuity C) The customer's tolerance for risk D) The customer's funding of other retirement options, like employer plans and IRAs
The payout to the rep for the sale
A legal entity that is taxed like a partnership but provides liability protection to the investors is
a Limited Liability Corporation (LLC).
A registered representative with a Series 6 registration can sell all of the following except
a REIT on its IPO
Each of the following is a characteristic of money market funds except
a beta if 1.00.
In connection with an investigation of a customer complaint, the association may require an associated person to agree to all the following except
be represented by council
When comparing stock market and mutual fund definitions, the bid price is similar to the NAV, and the ask price is similar to
public offering price
A generic ad for an investment company placed by a broker-dealer would contain
the name of the BD placing the ad but no the investment co. name
The Windmill Growth and Income Fund, Class A, has an NAV of $48 and a POP of $50. What is the sales charge? A) 4% B) 4 ⅙% C) $2 D) 2%
4%. calculate sales charge is just price difference divided by POP amount
Under the conduit theory of taxation, which of the following statements are true? A fund is not taxed on earnings distributed to shareholders if it distributes at least 90% of its net investment income. Investors are not taxed on earnings they reinvest. A fund is only taxed on interest income. Investors are taxed on earnings they receive in cash.
A fund is not taxed on earning distributed to shareholders if it distributes at least 90% of net. And investors are taxed on earnings they receive in cash
If an investor wishes to open a cash account in her name only and allow her spouse to make trading decisions, as well as withdraw cash and securities, she must instruct her broker-dealer to open
A cash account w/ full power of attorney
Which of the following is a nonfinancial consideration?
A customer's risk tolerance
BigCo, Inc., common shares pay a quarterly dividend of $1.50 and have a dividend yield of 5%. BigCo, Inc., shares have a current market value of A) $30. B) $60. C) $120. D) $240.
$120. (The formula for calculating dividend yield is: annual dividend / current market value (CMV). The annual dividend is $6 (1.5 × 4 quarters). This problem has the CMV as the undefined variable, so $6 / CMV = 0.05. Solving this leads you to (6 / 0.05 = 120).
The transfer of an account from one broker-dealer to another is normally done through which of these systems?
Automated Customer Account Transfer Service (ACATS)
All purchases and redemptions of mutual funds are based on A) the NAV calculation at settlement on the second business day (T+2). B) the next NAV calculation after the order is received. C) the average of the NAV calculations for the day before the order is received. D) the last NAV calculation before the order was received.
next NAV calculation after the order is received
On September 1, Natalie purchased 300 shares of Sierra Verde Coffee stock at $33 a share. On October 1 of the same year, she purchased another 300 shares at $31 a share. The stock continued to decline, and Natalie sold 300 shares at $28 a share on October 25. For tax purposes, Natalie realizes
no gain or loss. She created a wash sale, Though she experienced a loss on October 25, she had re-established the position within 30 days of the loss (on October 1). She may not claim this loss for tax purposes.
A customer has invested a total of $20,000 in a nonqualified deferred annuity through a payroll deduction plan offered by the school system where she works. The annuity contract is currently valued at $36,000, and she plans to retire. On what amount will the customer be taxed if he chooses a lump-sum withdrawal?
$16k. (Payments into a nonqualified deferred annuity are made with after-tax money; taxes must be paid only on the earnings of $16,000.)
Your customer purchased 100 shares of Jim's Burger Shack, Inc. at $72 a share. After holding the shares for two months and collecting $0.50 in cash dividends, they sell the shares for $71.50. What is their capital gain or loss?
$50 loss. (Cash dividends are not part of the capital gain/loss calculation. To determine the result of the trade subtract the cost basis ($72) from the sales proceeds ($71.50). This was a 50 cent per share loss, which you then multiply by the number of shares (100) to get to a $50 loss.)
Your customer, Ben, purchased 100 shares of SuperNuTech, Inc., (SNTI) on May 1 at a price of $23 a share. The following April, Ben had a larger-than-expected tax bill and sold the shares of SNTI at $30 a share to raise cash to pay taxes. What are the tax implications of the sale of SNTI?
$700 short-term capital gain
The Windmill Growth and Income Fund experienced $10 million in net investment income last year. Of this, it distributed $9.1 million to its shareholders. On how much of its net investment income must the fund itself pay income tax?
$900k. (the fund distributed 91% ($9,100,000) and retained 9% ($900,000). The shareholders pay income tax on what they received.)
Your customer purchased 220 shares of BuyStuff, Inc., at $40 a share. They sold the shares after one year for $43 a share. During the year, BuyStuff paid a $0.25 quarterly dividend. What was your customer's total return on this position?
10%. Total return includes capital gains and dividends. The customer realized a $3 per share gain (43 - 40 = 3) and received $1 in dividends ($0.25 a quarter for four quarters). A $4 return divided by the cost basis of $40 = 0.10 (10%).
Your customer purchased 250 shares of Seabird Airlines at $32 a share. Seabird pays a $0.40 dividend. What is the dividend yield for Seabird stock?
5%. dividends from common stock are paid quarterly. Dividend yield (current yield) is an annual figure. $0.40 times four quarters equals an annual dividend of $1.60. $1.60 divided by $32 is 0.05 (5%). The formula is (quarterly dividend × 4) ÷ current market value.
Which of the following equity securities would be most affected by changes in interest rates? A) Treasury stock of a steel company B) 6% preferred stock of a large financial services company C) Common stock of a car company with a long history of steady dividends D) Long-term warrants of an airline
6% preferred stock of a large financial services company
After a variable life policy has been in force for three years, the insurance company must make policy loans available to the policyowner. What is the minimum amount of the cash value that must be made available for a loan?
75%
For a person who does not have a physical street address, a customer identification program will accept all of the following as alternatives except
private mailbox (PMB) number.
In July, a customer invested $10,000 in the ABC mutual fund. In December of the same year, ABC announced a long-term capital gains distribution. In May of the next year, the customer decided to redeem his shares for a capital gain. How are both of the capital gains treated for tax purposes? The capital gain distribution is treated as long term. The capital gain from redemption is treated as long term. The capital gain from redemption is treated as short term. The capital gain distribution is treated as short term. A) I and II B) I and III C) III and IV D) II and IV
Cap gain distribution treated as long term, and cap gain from redemption is treated as short term. (When long-term capital gains are distributed, the length of time an investor has owned the fund is not relevant; it's still a long-term distribution. However, redemption of shares follows the normal holding period rules. Therefore, when this customer sold shares 10 months (July to May) after the purchase, the gain—like any other gain from a holding period that does not exceed 12 months—is short term.)
Which of the following must be registered as investment companies under the Investment Company Act of 1940? Closed-end investment companies Separate accounts of insurance companies offering variable products Variable annuity contracts Variable life insurance policies A) I and IV B) II and III C) III and IV D) I and II
Closed end investment co, seperate account of insurance companies offering variable products
If a firm and its associated persons are unable to acquire some points of a customer's suitability information, which of the following is allowed? A) The firm must refuse to do business and close the account. B) The firm needs to document its attempts to acquire the information and then is free to make recommendations as if it had all the information. C) The firm may narrow the range of recommendations it makes to that customer. D) The firm is not allowed to make any recommendations to that customer whatsoever, per the KYC rule.
The firm may narrow the range of recommendations it makes to that customer
If a customer does not pay for a trade settling regular way, how much additional time does Regulation T give the broker-dealer to deal with the problem?
Two business days
Using a 1035 exchange, a customer may avoid paying taxes in all of the following transfers except A) variable annuity to life insurance policy. B) variable annuity to variable annuity. C) fixed annuity to variable annuity. D) variable life to variable annuity
Variable annuity to life insurance policy. (The 1035 exchange provision applies to transfers between life policies, between annuities, and from life policies to annuities, but it may not be used to transfer from an annuity to a life insurance policy.)
If a variable life insurance policy features a minimum death benefit, the premiums for the policy will be deposited into A) the escrow account. B) the separate account. C) the general account. D) both the separate and the general account, with the split determined by the policy.
both separate and general account, with split determined by policy
All of the following securities would be suitable investments for a traditional IRA except
AAA municipal bonds.
A measure of an investment's actual return, compared to its expected return, is called
Alpha
All of the following regarding discretionary trading are required except
a principal of the brokerage house must approve each order before entry.
An investor who prefers an active strategy of timing the market, with an emphasis on long-term capital growth, is most likely
an aggressive investor. (speculative is short term)
Which of the following statements regarding dollar cost averaging (DCA) is correct? A) DCA is a type of mutual fund withdrawal plan B) DCA will result in the customer having a lower cost per share than the average price over a given period. C) DCA can guarantee a profit. D) DCA will result in the customer paying a higher cost per share than the average price over a given period.
DCA will result in customer having lower CPS than avg. price over a given period
Under which of the following terms does the underwriter act in a dealer capacity?
Firm commitment
Similarities between an open-end investment company and the insurance company separate account used to fund a variable annuity include which of the following? The issuing company accepts the investment risk. Full-time portfolio management is provided. Both offer a choice between a distribution method that guarantees a monthly income for life or for a certain period. Purchase payments are made in accordance with the forward-pricing rule.
Fulltime port management is provided. AND purchase payments are made in accordance w/ forward-pricing rule
After an issuer files an S-1 registration statement, a cooling-off period begins. All of the following activities are allowed during the period except
Gathering nonbinding indications of interest with a refundable deposit. (no funds may be brought in during cooling-off period)
FINRA Rule 3160 requires certain disclosures to customers from member firms that are in a networking arrangement with another financial institution such as a bank. Which of the following is not a required disclosure under Rule 3160?
Investments aren't SIPC insured
For a mutual fund Class A share, the public offering price is determined by which of the following?
NAV divided by Sales Charge
A unit investment trust has 90% of its portfolio invested in high-grade bonds with an average maturity of almost 25 years. If the industry consensus were that long-term interest rates were about to increase sharply, which of the following actions would most likely be taken by the UIT?
No action taken (its a UIT)
Provisions in the Employee Retirement Income Security Act (ERISA) include all of the following except A) vesting. B) participation. C) promotions. D) beneficiaries
Promotions
Which of the following actions would normally require the opening of a new account?
Removing a living tenant from a joint tenants account
All of the following actions are potential violations except A) sending a copy of a newspaper article (with supervisory approval) about a company whose stock is being solicited. B) assuring customers that an investment will outperform a market index over the next year. C) comparing a bond fund to an equity fund for a customer whose objective is growth. D) avoiding mention of recent negative publicity regarding an investment being offered to customers.
Sending a copy of a newspaper article (with approval) about a company whose stock is being solicited.
Your customer wants to buy 1,000 shares of a little-known oil company based in Texas but drilling for oil in Israel. The shares trade on Nasdaq, but instead of securing them in that market from several different firms, your trading department contacts a different firm they know has the stock as a market maker for the oil company. The price to your customer is slightly more than the Nasdaq system, but all 1,000 shares are purchased in one lot. In this case, which of the following is true?
This is a violation called interpositioning
A registered representative places an ad in her church newsletter promoting her services as an expert retirement planner. Does this advertisement need to be preapproved by a principal?
Yes, the ad will be defined as retail communication requiring preapproval of a principal.
Which of the following companies is most likely part of a defensive industry?
Odiferous Tobacco Co. (Defensive industries are generally producers of consumable goods like food, pharmaceuticals, tobacco, and energy)
How often must member firms submit a summary report to FINRA of all written customer complaints?
Quarterly
Which of the following statements is true for a joint tenants in common (TIC) account but not for a joint tenants with rights of survivorship (JTWROS) account?
The account owners may not have equal ownership interest in the account
Which of the following is a financial consideration?
The value of a customer's vacation property
All of the following are institutions under FINRA's rules on public communication except
natural person w/ net worth of 47$ mill. (must have 50$mill)
Employee stock purchase plans are a type of
nonqualified payroll deduction plan.
The tax rule that allows a mutual fund to avoid taxation on the money paid out as dividends is called
pipeline theory
A preliminary prospectus will include all the information found in the final prospectus except
the final price and the release date
If the value of securities held in a fund's portfolio decreases and the amount of liabilities increases, the fund's per share net asset value will
Decrease
An agreement between an employer and an employee where the employee agrees to defer receipt of a portion of their pay in favor of collecting that pay after retirement is what type of retirement plan? A) Salary reduction plan B) Defined contribution plan C) 401(k) plan D) Deferred compensation plan
Deferred compensation plan
Which of the following disputes must be resolved using the Code of Arbitration? Dispute between two FINRA members Dispute between two banks Dispute between a member and an associated person Dispute between two customers
Dispute between 2 FINRA members and a Dispute between a member an associated person
If an investment representative hosts an investment seminar and intends to discuss general investment concepts and a specific mutual fund for which he has performance charts, which of the following are true? He may discuss the investment returns of the mutual fund in general, provided he does not use a specific time frame. He may discuss the investment returns of the mutual fund using a specific time frame. He must disclose all material facts regarding the mutual fund to the audience. He may emphasize the positive aspects of the mutual fund and refer prospective investors to the prospectus for further details.
He may discuss the investment returns of the mutual fund using a specific time frame He must disclose all material facts regarding the mutual fund to the audience
On which of the following are financial considerations found?
Balance sheet income and statement
Your customer, Tony, recently won a contest and has a $2 million prize to invest. He has no immediate plans to retire, nor does he have an immediate need for the money. He would like to set the money aside to provide income when he does decide to retire in about 10 years. Which of the following recommendations is the most suitable for Tony?
Balanced growth mutual fund
Your customer sells 1 BSTF October 80 call @ 6. Which of the following best describes your customer's attitude towards BuyStuff Corp. (Ticker: BSTF)?
Bearish, expecting the stock to go down. A short call is a bearish positions and bears expect the price to go down.
The measurement of a security or portfolio's volatility as compared to market risk is
Beta coefficient
The maximum sales charge imposed on the sale of a variable annuity
Must be fair and reasonable
A measurement of an investment's expected return, based on the risk the investment carries, is
The CAPM (capital asset pricing model)
All of the following are required when opening an account for a U.S. citizen who does not have Social Security or taxpayer identification number except A) the number must be provided in a reasonable time frame. B) the account form must be marked SS or TIN applied for. C) there is no exception to this requirement. D) an application for the number must have already been submitted.
There is no exception to this requirement
Which of the following investments would be an acceptable comparison to the Macro Large Cap Growth Fund?
Windmill Growth Fund
Regulation D mandates all of the following except
that under no circumstances can more than 20 nonaccredited investors participate in the purchase of shares.
An investor who has purchased a variable annuity has the right to vote on proposed changes in investment policy. approve changes in the plan portfolio. vote for the investment adviser. withdraw principal without any tax consequences.
vote on proposed changes in investment policy and vote for the investment adviser
If a customer withdraws a written complaint, how long must the firm keep a record of the withdrawn complaint?
Four years
To receive long-term capital gains treatment, a position must be held for how long? A) More than two years B) More than one year C) No less than one year D) One year or more
More than one year
Which of the following regarding the antifraud provisions of the Securities Acts of 1933 and 1934 is true? A) Exempt issuers, like the federal government, are exempt from the provisions. B) No securities, issuers, or transactions are exempt from the antifraud provisions of these acts. C) Exempt transactions, like those offered under Regulation A+, are exempt from the provisions. D) Exempt securities, like those issued by municipalities, are exempt from the provisions.
No securities, issuers or transaction are exempt from antifraud provisions of these acts
Your client wishes to invest $50,000 into shares of the ACE mutual fund. This morning's financial news indicated that the POP for ACE was $10.86, while the NAV was $10 per share. The client's order is placed at 2:00 pm ET. On the basis of this information, you could confirm to the client a purchase of
Nothing because you have to wait for POP to be computed on day's closed
Which of the following plans would come under the rules set by the Employee Retirement Income Security Act of 1974 (ERISA)?
Seabird Airlines Employee Pension Plan. (ERISA covers corporate retirement plans, not plans for government employees.)
While cold calling, a registered representative encounters an individual interested in buying open-ended investment company shares. The representative and the client meet to discuss alternative investment choices. The individual then writes a check for the purchase of open-ended investment company shares without receiving a prospectus. Which of these federal acts is the registered representative in violation of?
Securities Act of 1933.
Which of the following regarding a closed-end management company is true? A) The sale price is set by the NAV plus a sales charge. B) They may not issue bonds. C) The shares are purchased and sold in the secondary market. D) The shares are purchased from and redeemed by the issuer.
Shares are purchased and sold in 2ndary market
According to the conduct rules, a FINRA member must do which of the following?
Authorize a registered representative to share in a client's profits or losses in writing only
The ABC Corporation would like to raise capital via a Regulation D private placement. To qualify for an exemption from registering with the SEC under Rule 506, which of the following is true? Advertising is allowed if only accredited investors may purchase the securities. Advertising is not allowed if selling to a minimum of 35 nonaccredited investors. If selling to a minimum of 35 accredited investors, general solicitation is allowed. If selling to nonaccredited investors, general solicitation is not allowed.
Advertising is allowed if only accredited investors may purchase; If selling to nonaccredited, general solicitation isn't allowed
Which of the following debt securities has a duration equal to its maturity? A) Bryce Bridge, Inc., zero-coupon bond maturing in 5 years B) MNO 5% bond maturing in 8 months C) BigCo, Inc., 10-year 8% bond maturing in 8 years D) DEF 8% 10-year bond maturing in 5 years
Bryce Bridge, Inc. zero-coupon bond maturing in 5yrs. (Because they make no interim payments, zero-coupon bonds have duration equal to maturity.)