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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 131:

  Yvette is a recently-widowed 63-year-old. The couple had no children, and when her husband died, she was the beneficiary of his $45,000 life insurance policy. She also receives benefits from his retirement plan and social security, but this income falls about $300 short of covering her regular monthly expenses, which includes a sizeable amount for health insurance. In the months since her husband's death, she sold their larger home and purchased a condominium, netting $80,000 from the combined transactions. Yvette was a homemaker all her life, and her husband handled all their finances, so Yvette is just learning how to balance her checkbook. One thing she does know is that she is going to have to purchase a new car within the next few months. Yvette is in good health and expects to live at least another 25 years.

  Which of the following types of investments should be included in recommending an asset allocation to Yvette?

  A. life insurance policy
  B. money market fund
  C. aggressive growth stock fund
  D. municipal bond fund
  B. money market fund

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  Explanation/Reference:

  Given her age, her stated need to buy a new car within the next few months, and the fact that she is experiencing a monthly cash shortfall, Yvette has a need for liquidity, which the money market fund will provide. She will need the cash to buy a car, and she needs to have cash readily available to pay for some unexpected expenses as well since her income stream is fixed and isn't currently covering her needs. A life insurance policy is definitely not an appropriate choice since it doesn't appear that there is anyone dependent on Yvette for his well-being. An aggressive growth stock fund would be too risky, given her age and background, and based on the facts, her marginal tax rate should be extremely low, which does not make the municipal bond fund a good choice since she would be earning a lower return with little or no benefit.

• Question 132:

  Which of the following payout options would provide an annuity owner with the biggest monthly check?

  A. joint and last survivor
  B. straight life
  C. life with period certain
  D. unit refund life
  B. straight life

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  Explanation/Reference:

  The straight life payout option would provide an annuity owner with the biggest monthly check. Under this option, the annuity payments stop upon the death of the owner. All of the other options would require that the insurance

  company stand ready to continue payments beyond the owner's death.

  This means more risk to the insurance company and, ergo, lower payments to the owner.

• Question 133:

  GoForBroke Broker-Dealers has distributed a list of ten mutual funds that it suggests are top-notch funds worthy of recommendation by GoForBroke's agents. Coincidentally, all the funds on this list also happen to be those that execute the majority of their trades through GoForBroke.

  Is GoForBroke in violation of any FINRA rules?

  A. No. GoForBroke only distributed a list of fund names; it did not offer its agents any form of additional compensation for selling the funds on that list.
  B. No. As long as the list consists of more than five funds, GoForBroke has not violated any FINRA rules.
  C. Yes. By distributing a list naming specific funds that coincidentally all happen to execute a lot of trades through GoForBroke, the broker-dealer is violating FINRA's anti-reciprocal rule.
  D. Yes. GoForBroke is prohibited from selling shares of mutual funds that execute their trades through the broker-dealer. This rule is in place to avoid conflicts of interest.
  C. Yes. By distributing a list naming specific funds that coincidentally all happen to execute a lot of trades through GoForBroke, the broker-dealer is violating FINRA's anti-reciprocal rule.

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  Explanation/Reference:

  Yes. By distributing a list naming specific funds that coincidentally all happen to execute a lot of trades through GoForBroke, the broker-dealer is violating FINRA's anti-reciprocal rule. Even though GoForBroke does not appear to be offering its agents any additional compensation for selling shares of these funds, it is promoting them above other funds that aren't conducting as many trades through the broker-dealer. Recommendations should be based on a specific client's needs, not on the money the fund generates for the broker-dealer. There is no rule that prohibits a broker-dealer from selling shares of mutual funds that execute their trades through them.

• Question 134:

  A plan under which employees of state and local governments can contribute part of their salaries such that those earnings will grow tax-deferred until retirement is called a:

  A. profit-sharing plan.
  B. money purchase plan.
  C. Section 457 plan.
  D. Section 501 plan.
  C. Section 457 plan.

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  Explanation/Reference:

  A plan under which employees of state and local governments can contribute part of their salaries such that those earnings will grow tax-deferred until retirement is called a Section 457 plan. Profit-sharing and money purchase plans are retirement plans that may be available to employees of for-profit companies. Section 501 of the IRS code covers non-profit corporations.

• Question 135:

  Any compensation earned by a broker-dealer and its registered representative on the sale of mutual fund shares must be returned to the fund's underwriter if the purchaser decides to redeem his shares within:

  A. 30 days.
  B. 1 week.
  C. 7 business days.
  D. 5 business days.
  C. 7 business days.

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  Explanation/Reference:

  Any compensation earned by a broker-dealer and its registered representative on the sale of mutual fund shares must be returned to the fund's underwriter if the purchaser decides to redeem his shares within 7 business days.

• Question 136:

  Jack is an investment adviser representative employed by Giant Investments, a family of mutual funds. Jack has recently read an article posted on the web that he thinks explains some consequences of some tax law changes that are being considered extremely well, and he e-mails his existing retail customers with a summary of the salient facts of the article. Given these facts:

  A. Jack has violated FINRA rules if he did not first have a principal of Giant approve his e -mail prior to hitting the send button.
  B. Jack must submit a copy of the e-mail to a principal of the company, but he did not need to do so prior to sending the e-mail.
  C. a copy of the e-mail must be submitted to FINRA within 10 days of Jack's hitting the send button.
  D. Both A and C are true statements regarding this situation.
  B. Jack must submit a copy of the e-mail to a principal of the company, but he did not need to do so prior to sending the e-mail.

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  Explanation/Reference:

  When Jack e-mails some of his existing retail clients with a summary of the tax article, he must submit a copy of the e-mail to a principal of the company, but he does not need to do so prior to sending the e-mail. Since this was sent to Jack's existing retail customers, it falls under the category of “correspondence,” which does not need to be approved by a principal beforehand, but is subject to review and supervision requirements.

• Question 137:

  After passing the Series 6 and becoming a registered representative, you will be able to execute transactions in which of the following securities?

  I. corporate stocks

  II. mutual funds

  III. corporate bonds

  IV.

  variable contracts

  A. I, II, III, and IV
  B. I, II, and IV only
  C. II and III only
  D. II and IV only
  I. corporate stocks II. mutual funds III. corporate bonds IV. variable contracts
  D. II and IV only

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  Explanation/Reference:

  After passing the Series 6 and becoming a registered representative, you will be able to execute transactions in mutual funds and variable contracts only. A passing grade on the Series 6 qualifies you to be registered as a “limited representative.”

• Question 138:

  Which of the following would offer an investor the most protection against purchasing power risk?

  A. a stock mutual fund
  B. a government bond fund
  C. a high-yield bond fund
  D. a money market fund
  A. a stock mutual fund

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  Explanation/Reference:

  A stock mutual fund would offer an investor the most protection against purchasing power risk. Purchasing power risk is the risk that the money received from the investment won't buy as much because of inflation. Stock funds offer higher returns that have historically exceeded the annual rate of inflation, on average. The majority of the return from bond funds is from the fixed interest payment, which does not change regardless of the inflation rate, so the return earned by the investor may end up being less than the inflation rate in any given year. Likewise, money market funds offer very low returns that, in some years, are less than the rate of inflation.

• Question 139:

  Given the same maturity, which of the following debt instruments would you expect to offer the highest yield-to-maturity?

  A. a debenture issued by Abbott Laboratories
  B. a bond issued by the Federal Home Loan Bank Board
  C. a general obligation bond issued by the state of Massachusetts
  D. a U.S. Treasury bond
  A. a debenture issued by Abbott Laboratories

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  Explanation/Reference:

  Given the same maturity, the debenture issued by Abbott Laboratories would be expected to offer the highest yield -to-maturity. It is unsecured debt offered by a corporation and is the riskiest of the four choices. Bonds issued by the U.S. government and by U.S. government agencies are considered to be free of default-risk and would have lower yields to reflect this. The general obligation bond offered by the state of Massachusetts pays interest that is free from federal taxation and will have a lower yield because of this feature.

• Question 140:

  Which of the following would not constitute a “public appearance,” as defined by FINRA?

  A. A registered representative gives a free seminar on the topic of asset allocation to members of her church.
  B. A registered representative starts a blog that discusses the pros and cons of various types of investments.
  C. The investment adviser of a tech fund that has had phenomenal returns in the past 12 months responds to some questions from a business newscaster via a remote monitor.
  D. All of the above constitute public appearances as defined by FINRA.
  D. All of the above constitute public appearances as defined by FINRA.

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  Explanation/Reference:

  All of the choices constitute public appearances as defined by FINRA.A public appearance is defined by FINRA as “participation in a seminar, forum (including an interactive electronic forum), radio or television interview, or other public appearance or public speaking activity.”