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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 121:

  In order for the Invest4U Mutual Fund to qualify as a regulated investment company under Internal Revenue Code Subchapter M, it must:

  A. distribute at least 90% of its net investment income to its shareholders.
  B. distribute at least 98% of its net income from capital gains to its shareholders.
  C. invest at least 75% of its monies in diversified securities.
  D. Both A and B are required for Invest4U to qualify as a regulated investment company.
  D. Both A and B are required for Invest4U to qualify as a regulated investment company.

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  Explanation/Reference:

  To qualify as a regulated investment company, Invest4U must distribute at least 90% of its net investment income to its shareholders and distribute at least 98% of its net income from capital gains to its shareholders. Only 50% of its monies needs to be invested in diversified securities to qualify.

• Question 122:

  Which of the following is exempt from registering as an investment company under the Investment Company Act of 1940?

  A. a unit investment trust
  B. a non-diversified mutual fund
  C. a company that sells its securities only to accredited investors
  D. a company that has no sales charges or management fees
  C. a company that sells its securities only to accredited investors

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  Explanation/Reference:

  A company that sells its securities only to accredited investors is exempt from registering as an investment company under the Investment Company Act of 1940. All the other choices describe investment companies that are required to file a registration statement with the SEC.

• Question 123:

  Mr. Big of HiGrow Corporation needs more money to support the exceptional growth rate that his firm is enjoying. He meets with BigFee Investment Banker, who agrees to handle the IPO for HiGrow. Subsequently, InTheLoop Brokerage is tapped to be part of the selling group that will handle the sale of the new stock to the public. In this example, the underwriter is:

  A. Mr. Big
  B. HiGrow Corporation
  C. BigFee Investment Banker
  D. InTheLoop Brokerage
  C. BigFee Investment Banker

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  Explanation/Reference:

  BigFee Investment Banker is the underwriter in this example. The underwriter is the investment banking firm that helps a firm with the issue of new securities-which includes helping the firm file a registration statement with the SEC and establishing a selling group to facilitate the distribution of the securities to the public.

• Question 124:

  The URMoney Mutual fund, a no load fund, has 10 million shares outstanding. The market value of its assets is $620 million and its liabilities are $150. Based on this information, an investor who wants to buy shares of the fund will pay:

  A. $62 a share.
  B. $47 a share.
  C. $15 a share.
  D. This cannot be answered without knowing what, if any, the front-end load is.
  B. $47 a share.

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  Explanation/Reference:

  Based on the information provided, an investor who wants to buy shares of the URMoney Mutual Fund will pay $47 a share. Since the fund is a no load fund, the shares can be purchased at the net asset value per share of the fund. Net asset value per share (NAVPS) = (market value of fund's assets - fund liabilities) ÷ total number of share outstanding, so NAVPS = ($620 million - $150 million) ÷ 10 million shares = $47.

• Question 125:

  A passive asset allocation strategy that involves establishing specific targeted percentages for the various asset classes and rebalancing only as necessary to maintain those percentages as long as the investor's investment objectives remain unchanged is called:

  A. strategic asset allocation.
  B. tactical asset allocation.
  C. interactive asset allocation.
  D. dynamic asset allocation.
  A. strategic asset allocation.

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  Explanation/Reference:

  A passive asset allocation strategy that involves establishing specific target percentages for the various asset classes and rebalancing only as necessary to maintain those percentages as long as the investor's investment objectives remain unchanged is called strategic asset allocation. Tactical asset allocation is an active strategy that involves trying to time the market to some extent. Dynamic asset allocation is also an active strategy in which the portfolio mix is adjusted as markets rise and fall, such that the weighting is heaviest in those asset classes that can be expected to perform well under the current economy. Interactive asset allocation is a fictitious strategy.

• Question 126:

  The mortality guarantee of a variable annuity contract:

  A. guarantees a fixed death benefit amount will pay to your beneficiaries upon your death.
  B. guarantees that you can receive a monthly check of a specified amount as long as you live.
  C. guarantees that both you and a person you specify as your beneficiary will continue to receive payments as long as one of the two of you is alive.
  D. None of the above is a true statement about the mortality guarantee of a variable annuity contract.
  D. None of the above is a true statement about the mortality guarantee of a variable annuity contract.

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  Explanation/Reference:

  None of the choices provided is a true statement about the mortality guarantee of a variable annuity contract. The mortality guarantee guarantees that you can receive a monthly check for as long as you live, but it does not guarantee that the check will be for a specified amount.

• Question 127:

  Commercial paper is:

  A. long-term debt issued by commercial banks.
  B. short-term, unsecured debt issued by large corporations.
  C. issued with maturities of 1 to 2 years.
  D. short-term debt that is backed by stocks and bonds that the issuing firm owns.
  B. short-term, unsecured debt issued by large corporations.

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  Explanation/Reference:

  Commercial paper is short-term, unsecured debt issued by large corporations. It generally has a maturity of less than 270 days so that it does not need to be registered with the SEC in order to be offered for sale.

• Question 128:

  Which of the following investor characteristics is inconsistent with an aggressive investment strategy?

  I. short investment horizon

  II. high risk tolerance

  III.

  young

  A. I and II
  B. I, II, and III
  C. I only
  D. III only
  I. short investment horizon II. high risk tolerance III. young
  C. I only

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  Explanation/Reference:

  The investor characteristic that is inconsistent with an aggressive investment strategy is a short investment horizon. The shorter the investment horizon, the less aggressive the investment strategy should be, all else equal, because a shorter investment horizon means the investor has less opportunity to ride the up-and-down waves of the market.

• Question 129:

  Ari Gaunt was affiliated with Savvy Investments and was terminated after some of the female representatives associated with Savvy filed sexual harassment complaints against him. Mr. Gaunt believes that he is still due money for some transactions he executed prior to his termination; Savvy believes otherwise. Under FINRA's Code of Arbitration:

  A. Ari may either sue Savvy in a civil court of law or submit his claim to arbitration. If Ari submits his claim for arbitration and is unhappy with the panel's decision, he can then sue
  B. Savvy in a civil court of law.
  C. Ari has six years to submit his claim to arbitration.
  D. both B and C are true statements.
  C. Ari has six years to submit his claim to arbitration.

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  Explanation/Reference:

  If Mr. Gaunt believes he is still due money from Savvy, and Savvy disagrees, Ari has six years to submit his claim to arbitration under FINRA's Code of Arbitration. Ari cannot sue Savvy in a court of law, and the decision of the arbitration panel is final.

• Question 130:

  Which of the following persons would not fall under the definition of “investment adviser,” under federal guidelines?

  A. an individual who advises only Oprah Winfrey on her investment portfolio and receives a nice salary for doing so.
  B. a Denver-based, broker-dealer that is registered as a broker-dealer with the SEC and provides investment advice to members of the Denver Broncos, the Colorado Rockies, the Denver Nuggets, and the Colorado Avalanche organizations in exchange for box seats at their games. No monetary compensation is expected or given.
  C. an individual who works as an agent for a broker and occasionally gives investment advice to clients who request it, but receives no additional compensation for doing so.
  D. None of the above would fall under the definition of “investment adviser,” as defined by the Investment Advisers Act of 1940.
  C. an individual who works as an agent for a broker and occasionally gives investment advice to clients who request it, but receives no additional compensation for doing so.

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  Explanation/Reference:

  An individual who works as an agent for a broker and occasionally gives investment advice to clients who request it, but receives no additional compensation for doing so would not fall under the definition of “investment adviser,” under federal guidelines. In 1987, Release IA -1092 expanded the definition to include individuals providing investment advice to entertainers or athletes, among others. The compensation need not be monetary. Box seats at athletic events would be considered compensation for advisory services.