FINRA FINRA-SERIES-6 Online Practice Questions and Exam Preparation

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 91:

  Andy and Annie Raggedy own their own graphics art business that they operate out of their home and, happily, generate enough income to meet their current needs. The couple is planning on having children in the not too distant future,

  however, and they want to start putting money aside for their children's college education and also want to start saving for retirement more aggressively.

  Which of the following describes one of their primary investment objectives?

  A. tax-exempt income
  B. preservation of capital
  C. current income
  D. capital appreciation
  D. capital appreciation

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  Explanation/Reference:

  Since Mr. and Mrs. Raggedy's stated goals are to save for their future children's college education and to save for retirement, one of primary investment objectives is capital appreciation. That is, they will want to invest their monies in assets that will grow at a sufficient rate for them to be able to meet these targets. They have enough income to meet their current needs, so Choices A and C are not primary objectives, and although we’d all like to preserve capital, we need to take some risk in order to get the returns we require.

• Question 92:

  Jake's Uncle Zeke gave Jake and his new bride 100 shares of the stock of Southwest Airlines (LUV) when they got married. Uncle Zeke had paid $16.60 for the stock several years earlier, but it was selling for only $12.10 on the day of the wedding. Jake and his bride are unimpressed with the stock's performance a few months later and decide to sell it for $11.00, its market price at that point.

  What are the tax consequences of the sale for the newly wedded couple?

  A. Jake and his bride will have a long-term capital loss of $110 to offset other income.
  B. Jake and his bride will have a long-term capital loss of $560 to offset other income.
  C. Jake and his bride will have a short-term capital loss of $560 to offset other income.
  D. Jake and his bride will have neither a taxable gain nor a capital loss to declare.
  A. Jake and his bride will have a long-term capital loss of $110 to offset other income.

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  Explanation/Reference:

  If Jake and his bride sell the stock of LUV for $11.00 when it was selling for $12.10 on the day that they received it, they will have a long-term capital loss of $110 to offset other income. In this situation, the relevant cost basis is the value of LUV on the day of the wedding. Therefore, the loss is calculated as ($11 - $12.10) x 100 = -$110. The holding period is based on the holding period of the donor, so the loss is considered to be a long-term capital loss. In a gift situation, there are two cost bases. In the case of an asset that has depreciated in value, as in this instance, if the recipient sells the gifted property for less than its market value on the day he received it, the cost basis is considered to be the market price on the day the gift was received. If, on the other hand, the property has appreciated in value and the gift recipient sells the gifted property for more than the cost basis of the donor, then his gain is based on the cost basis of the donor, not the price at which the property was selling on the day the gift was received. If the selling price is somewhere between the two values, there is neither a taxable gain nor a taxable loss for the gift recipient to declare.

• Question 93:

  The AGRO Mutual Fund invests in aggressive growth stocks of midcap corporations. The fund is running an advertisement on the radio that informs the listeners that AGRO earned a 22% return last year while the SandP 500 Index returned only 10%. The ad also contains information regarding how an interested investor can contain a fund prospectus.

  Has AGRO violated any securities laws with this advertisement?

  A. No. This would be considered a generic advertisement and not an offer to sell.
  B. No. In addition to providing the listeners with its own return last year, AGRO appropriately provided the listeners with a benchmark return; thus there has been no violation of any laws.
  C. Yes. Although AGRO provided the return on the SandP 500 as well as its own return, the SandP 500 Index is comprised of average risk stocks and is not an appropriate benchmark for AGRO to use.
  D. Yes. AGRO is required to provide information on the specific investments it made to earn that 22% return, given that the return is unusually high.
  C. Yes. Although AGRO provided the return on the SandP 500 as well as its own return, the SandP 500 Index is comprised of average risk stocks and is not an appropriate benchmark for AGRO to use.

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  Explanation/Reference:

  Yes. When AGRO runs an advertisement that informs the listeners that it earned a 22% return last year while the SandP 500 Index returned only 10%, it has violated securities laws because although the fund provided the return on the SandP 500 as well as its own return, it failed to mention that the SandP 500 Index is comprised of large company stocks of average risk, which is not an appropriate benchmark for AGRO to use. The appropriate index is one comprised of similar stocks, such as the Russell Mid-Cap Growth Index. Furthermore, any advertisement referencing past returns must contain a statement that past performance is not indicative of future performance.

• Question 94:

  When a mutual fund is valuing your pre-existing holdings to see if you qualify for a reduced sales charge under its rights of accumulation program, it must use:

  A. the current NAV of your holdings.
  B. the current public offering price (POP) of your holdings.
  C. the price you paid when you purchased the shares originally.
  D. none of the above.
  D. none of the above.

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  Explanation/Reference:

  When a mutual fund is valuing your pre-existing holdings to see if you qualify for a reduced sales charge under its rights of accumulation program, it is not required to use any specific one of the specified choices. It is allowed to choose from among them. Some funds even allow you to use the higher of either the current NAV or POP or the historical NAV or POP, since the historical value might be higher than the current value in a down market.

• Question 95:

  By investing in a diversified portfolio, an investor will:

  A. lower both his risk and his expected return.
  B. lower his risk without affecting his expected return.
  C. lower his risk and increase his expected return.
  D. eliminate all the market risk associated with his investment portfolio.
  B. lower his risk without affecting his expected return.

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  Explanation/Reference:

  By investing in a diversified portfolio, an investor will lower his risk without affecting his expected return. In diversifying, he selects securities whose returns do not move together. This does not affect the expected returns of the individual securities and, by extension, his portfolio of securities. When he does so, he is diversifying away the unsystematic (non-market) risk associated with the individual securities. Market risk is the risk that all firms face to one degree or another and cannot be diversified away.

• Question 96:

  Ms. Newbie, a newly-minted registered representative with Savvy Investments, just had her first client walk through the door. Before she can do anything, Ms. Newbie must obtain which of the following pieces of information from her client?

  A. age
  B. occupation
  C. taxpayer identification number (TIN)
  D. investment objectives
  A. age

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  Explanation/Reference:

  Before she can do anything, FINRA requires that she ensure that her client is of legal age. Ms. Newbie must also make a reasonable effort to determine occupation, TIN, and investment objectives, and if her client refuses, Ms. Newbie must document the fact that she made an effort to obtain this information.

• Question 97:

  NASDAQ is:

  A. an acronym for Norway's major stock exchange.
  B. the government organization that insures accounts at U.S. brokerage firms.
  C. a computerized system that links together the U.S. regional exchanges.
  D. a computerized quotation system used in the over-the-counter market.
  D. a computerized quotation system used in the over-the-counter market.

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  Explanation/Reference:

  NASDAQ is a computerized quotation system that is used in the over-the-counter market. It allows NASDAQ market makers to enter bid and ask quotes and allows subscribers at lower levels to view the bid and ask quotes available.

• Question 98:

  Regulation D:

  I. enables smaller firms to raise capital more quickly and more cheaply.

  II. exempts the issuing firm from all disclosure requirements as long as the issue is being sold to no more than five investors.

  III.

  has restrictions regarding the resale of the securities being sold.

  A. I only
  B. I and II only
  C. I and III only
  D. I, II, and III
  I. enables smaller firms to raise capital more quickly and more cheaply. II. exempts the issuing firm from all disclosure requirements as long as the issue is being sold to no more than five investors. III. has restrictions regarding the resale of the securities being sold.
  C. I and III only

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  Explanation/Reference:

  Only Selections I and III are accurate statements regarding Regulation D. Regulation D enables smaller firms to raise capital more quickly and more cheaply, but it also restricts the resale of the securities being sold in a Regulation D offering. It does not exempt the issuing firm from all disclosure requirements, even if the issue is being sold to only a single investor. The disclosure requirements are minimal with a Regulation D offering, however.

• Question 99:

  Under FINRA's rules regarding proper supervision, member firms must:

  I. have clear written procedures to supervise the activities of its principals, registered representatives, and other associated persons.

  II. designate as an office of supervisory jurisdiction (OSJ) any office of the member that engages in maintaining custody of the funds and/or securities of the member's customers.

  III. prohibit the use of any electronic communication method, including personal electronic devices, for business-related communications unless the use of the devices can be properly supervised and the communications retained.

  IV.

  regularly evaluate the effectiveness of its supervisory policies.

  A. I and IV only
  B. I, II, and IV only
  C. I, III, and IV only
  D. I, II, III and IV
  I. have clear written procedures to supervise the activities of its principals, registered representatives, and other associated persons. II. designate as an office of supervisory jurisdiction (OSJ) any office of the member that engages in maintaining custody of the funds and/or securities of the member's customers. III. prohibit the use of any electronic communication method, including personal electronic devices, for business-related communications unless the use of the devices can be properly supervised and the communications retained. IV. regularly evaluate the effectiveness of its supervisory policies.
  D. I, II, III and IV

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  Explanation/Reference:

  Under FINRA's rules regarding proper supervision, member firms must engage in the activities described in all four statements, including prohibiting the use of personal electronic devices for business-related communications unless the devices can be properly supervised and the communications retained.

• Question 100:

  Mr. Walt Street has observed that a Treasury note maturing in November of 2019 and paying a 3.375% coupon has a bid price of 105:25 and an ask price of 105:26.

  In this instance, what is the dealers’ spread for every $1,000 of par value?

  A. $0.31250
  B. $0.10000
  C. $0.03125
  D. $0.03375
  A. $0.31250

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  Explanation/Reference:

  For every $1,000 of par value, the dealers’ spread is $0.31250. The prices of Treasury bonds and notes are quoted in 32nds of a dollar per $100 of par value. Therefore, the bid price is $105 25/32, or $105.78125, per $100 of par, and the ask price is $105 26/32, or $105.8125 per $100 of par. The difference between the two is the dealers’ spread per $100 of par value, or $0.03125. The question asks for the dealers’ spread for every $1,000 of par value, so this must be multiplied by 10: $0.03125 x 10= $0.31250.