Series 6 Questions

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

$120 The formula for calculating dividend yield is annual dividend / current market value. The annual dividend is $6 ($1.50 x 4 quarters). This problem has the CMV as the undefined variable, so $6 / CMV = 0.05. $6 / 0.05 = $120

A customer wishes to redeem 1000 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 The question did not ask how much the customer would receive upon redemption but how much he would pay in redemption fees. Mutual fund shares are redeemed at the NAV (bid): 1000 shares x $15 each = $15,000. 15,000×1% redemption fee = $150 .

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 with a customer be taxed if she chooses a lump sum withdrawal?

$16,000 Payments into a nonqualified deferred annuity are made with after-tax money; Taxes must be paid only on the earnings of $16,000

The WINDMILL GROWTH & 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've fund itself pay income tax?

$900,000 If a mutual fund distributes, at least 90% of its net investment income to its shareholders, it need pay taxes only on the income it retains. If it distributes less, it must pay income tax on 100% of its net investment income. In this case, the fund, distributed 91% ($9,100,000) and retained 9% ($900,000). The shareholders pay income tax on what they received.

A registered representative with a series 6 registration can sell all of the following:

- an ETF as part of an IPO - A mutual fund that redeemed its own shares - A variable annuity The series 6 is a limited license only allowing the sale of investment companies and variable products where a prospectus is required. This would include the initial offering of ETFs and closed-end funds.

A prospectus must accompany or precede which of the following? A. A sales presentation held in person at the representatives office. B. A general information brochure given to a customer to explain the basic features of mutual fund ownership. C. A television advertisement explaining the benefits of investing in mutual funds to accumulate retirement savings. D. A mutual fund seminar invitation mailed to the home of a prospective customer.

A. A sales presentation held in person at the representative's office. The face-to-face meeting between the representative and the Prospect is considered an offer, and must be accompanied by a prospectus. However, generic advertisements or purely informational material are excepted from this requirement. A prospectus must be given to all seminar attendees when they arrive, not when the invitations are mailed .

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. DEF 8% 10-year bond maturing in 5 years. C. BigCo, Inc., 10-year 8% bond maturing in 8 years. D. MNO 5% bond maturing in 8 months.

A. Bryce bridge Inc. zero-coupon bond maturing in 5 years. Because they make no interim payments, zero-coupon bonds have duration equal to maturity. Of the choices offered, only the bridge maker is a zero coupon.

Using a 1035 exchange, a customer may avoid paying taxes and all of the following transfers, except: A. Variable annuity to life insurance policy. B. variable annuity to variable annuity. C. variable life to variable annuity. D. fixed annuity to variable annuity.

A. 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.

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. Life with 20-year certain is an annuitization option. when an annuity is annuitized, ordinary income taxes are paid based on an exclusion ratio (cost basis divided by expected return = how much of the distribution is a return of cost basis and is not subject to income taxes).

Which of the following will not be found in a preliminary prospectus? A. Business plan. B. Date and offering price. C. Statement that the SEC neither approves nor disapproves of the issue. D. Challenges to the business plan.

B. Date and offering price. The preliminary prospectus will include information that is material to investors in order for them to make an informed decision. The release date is determined by the SEC, and the final price is not determine until that time.

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 ask is the registered representative in violation of? A. Securities exchange act of 1934. B. Securities act of 1933. C. Investment advisors act of 1940. D. Investment, advisors act of 1970.

B. Securities act of 1933. A registered representative Maisel primary offerings of non-exempt issues with a prospect is under the securities act of 1933. The securities exchange act of 1934 regulates secondary market trading . (mutual fund shares do not trade on the secondary market.)

Which of the following regarding the antifraud provisions of the securities act of 1933 in 1934 is true? A. Exempt securities, like those ensure issued by municipalities, are exempt from the provisions. B. Exempt issuers, like the federal government, are exempt from the provisions. C. No securities, issuers, or transactions are exempt from the anti-fraud provisions of these acts. D. Exempt transactions, like those offered under regulation, A+, are exempt from the provisions.

C. No securities, issuers, or transactions are exempt from the anti-fraud provisions of these acts.

Regulation D mandates all of the following, except: A. That if the offering is advertised, all purchasers must be accredited. B. That a special inscription or legend on the stock certificate indicates that its transfer is restricted. C. That under no circumstances can more than 20 nonaccredited investors participate in the purchase of shares. D. That investors agree to terms by signing an investment letter.

C. That under no circumstances can more than 20 nonaccredited investors participate in the purchase of shares. A maximum of 35 nonaccredited investors may participate in the purchase of securities offered under a Regulation D exempt offering .

Which of the following equity securities would be most affected by changes in interest rates? A. Treasury stock of a steel company. B. Common stock of a car company with a long history of steady dividends. C. Long-term warrants of an airline. D. 6% preferred stock of a large financial services company.

D. 6% preferred stock of a large financial services company. For most investors, the primary feature of investing in preferred stock is its fixed dividend. Consequently, it is purchased for income and is more sensitive to changes in interest rates than Commons Stock is. Warrants are not affected by interest rate movement, because they are only provide a right to purchase underlying common stock .

A client wants to place an order to buy 100 shares of seabird airlines Inc. common stock. Which of the following is true? A. The trade can only take place in a cash account. B. Most corporate stock trades are cash settlement. C. The trade can only take place in a margin account. D. Regular way settlement is two business days after the trade date.

D. Regular way settlement is two business days after the trade date. You may assume regular way settlement (T +2 business days) for corporate security, unless the question states otherwise.

Which of the following benefits of a variable life insurance policy would make it more suitable for an investor concerned about purchasing power risk? A. An adjustable premium. B. A lower sales charge. C. The availability of policy loans. D. The potential for the death benefit to increase based on the performance of the separate account.

D. The potential for the death benefit to increase based on the performance of the separate account. Premiums of variable life insurance policy holders are invested in the insurer's separate account. This allows for the possibility (no guarantees) that the death benefit may keep pace with inflation

A 45-year-old investor wishes to start saving for her 12 year old son's college education. which of the following would be the least appropriate investment vehicle for this plan? A. 529 plan B. Coverdell ESA. C. Balanced fund. D. Variable annuity.

D. Variable annuity. Of the choices, the variable annuity would be a poor recommendation, because withdraws before age 59 1/2 would be subject to ordinary income taxes plus a 10% penalty tax

Your client explains her understanding of some of the tax ramifications of investing in variable annuities. Which of the following statements is not correct? A. Partial withdraws from nonqualified plans are taxed as a LIFO basis. B. If the client is dissatisfied with one company, section 1035 of the IRS code will permit her to liquidate one variable annuity and place the funds into a different one without being taxed. C. Choice of settlement option will affect the amount of the distributions. D. Withdraws before age 59 1/2 are not subject to tax penalty if the investment has been held for at least 5 years.

D. Withdraws before age 59 1/2 are not subject to tax penalty if the investment has been held for at least 5 years. Withdraws before age 59 1/2 will be subject to a 10% penalty on any gains, regardless of the holding period. Withdrawal from an annuity is tax on a LIFO (last in, first out) basis. The payout option selected (life, only, period certain, joint life, etc) will affect the amount of the period Income. Section 1035 permits investors to change from one annuity to another without tax, as long as the transfer is not directly to the investor. The customer should also be warned that there may be penalties and pose by the insurance company for early withdrawal.

If the value of securities held in a funds portfolio decreases and the amount of liabilities increases, the funds per share net asset value will

Decrease A depreciation in value of fund assets, without a corresponding decrease in liabilities, will lead to a decrease in the funds net asset value (Total assets - liabilities = net assets).

Dividend distributions from an equity income fund would be taxable

If received in cash or reinvested in the fund. Dividend distributions from a bond fund are taxable at the federal and state levels. In addition, dividend distributions represent a taxable event for the investor, whether received in cash or reinvested .

Your customer owns the 5% preferred stock of XYZ corporation. How will the value of this position be affected by an increase in interest rates?

Its value will likely decrease. Preferred stocks are interest rate sensitive, as are other fixed-income investment securities, such as bonds. Thus, if interest rates increase, the fixed return may be surpassed by the return provided by other investments. The value of preferred stock will thus decrease when interest rates rise.

Under the intrastate offering rule (Rule 147), when may a resident purchaser of securities purchased under this rule resell them to a non-resident?

Six months after the investors purchase date.

In order for an investor to realize a long-term capital gain or loss,

The investor must hold the security for more than one year before closing the position. In order for a long-term capital gain or loss to be realized, the position must be closed after being held for more than one year. A gain or loss may be realized by an initial sale (short sale) followed by purchasing the security back (closing purchase).

During the time an S-1 filing was being reviewed, and omission was found that could affect the amount of listed debt obligations of the issuer. In determining the course of action, who would most likely be responsible for correcting the omission?

The issuer The issuer will be tasked with addressing any missing or incomplete disclosures of company matters while the issue is in the cooling-off Period. The underwriters will be involved, but they will look to the issuer to supply the missing data.

Registered representatives may use a preliminary prospectus to

obtain indications of interest from investors