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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 141:

  Which of the following statements regarding the separate account of an insurance company is true?

  A. The monies in the separate account are used to make payments to all the policyholders of the company when a payment is triggered.
  B. The separate account contains the monies from which the company pays its operating expenses, e.g., salaries, etc.
  C. Funds from the separate account are used to make payments to fixed annuity investors.
  D. The separate account must register as an investment company under the Investment Company Act of 1940.
  D. The separate account must register as an investment company under the Investment Company Act of 1940.

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  Explanation/Reference:

  The true statement is that the separate account must register as an investment company under the Investment Company Act of 1940. The premiums paid by investors for variable life insurance (less numerous charges) are invested in subaccounts within the separate account, and the earnings of the subaccounts are used, in turn, to make payments to the owners of variable life insurance policies, but not to any of the other policyholders of the company, such as the fixed annuity investors. The insurance company pays its operating expenses out of its general account.

• Question 142:

  You have a young client whose primary investment objective is to be able to retire early. Really early. She's thinking 40. She has more than sufficient income to meet her current needs for cash.

  Which of the following types of stock funds would be most suitable for her?

  A. balanced
  B. value
  C. growth
  D. All of the above. All stock funds invest in stocks, which can be expected to appreciate in value.
  C. growth

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  Explanation/Reference:

  The most suitable stock fund for your young client who is targeting an early retirement is the growth fund. Growth funds are primarily invested in stocks that pay no dividends since growth firms reinvest their earnings to support their higher-than-average growth rates. Your client doesn't need dividend income and will have to pay taxes on any dividends she receives even if she reinvests them. Both balanced funds and value funds can be expected to pay higher dividends.

• Question 143:

  GoForBroke Investments has registered with the SEC to be a market maker in certain NASDAQ-listed securities. In order to be able to enter bid and ask quotes for the securities in which it is going to make a market, GoForBroke must subscribe to which level of NASDAQ?

  A. Level I
  B. Level II
  C. Level III
  D. Level IV
  C. Level III

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  Explanation/Reference:

  In order to enter bid and ask quotes, GoForBroke must subscribe to NASDAQ's Level II I. Level I simply allows the user to view the highest bid and lowest ask price for a security, and Level II allows the user to view all the bid and ask quotes from all the market makers in a security, but only Level III allows the subscriber to enter quotes. There is no Level IV.

• Question 144:

  Which of the following share classes do not have front-end loads?

  A. Class A
  B. Class B
  C. Class C
  D. Neither Class B nor Class C shares have front-end loads.
  D. Neither Class B nor Class C shares have front-end loads.

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  Explanation/Reference:

  Neither Class B nor Class C shares have front-end loads. Class B and Class C shares typically have higher 12b -1 fees, however, with Class C having the highest 12b-1 fees of the three classes.

• Question 145:

  Sam's neighbor has just inherited some bonds from his uncle. The neighbor, knowing that Sam is a registered representative with a brokerage firm, asks Sam if he would like to handle the sale of these securities. Sam agrees to do so and calls his existing clients with an offer to sell the bonds at a price that he researches to be the average “ask” price of dealers in the same bonds. In this situation:

  A. Sam has engaged in the illegal practice of “front running.”
  B. Sam has engaged in the illegal practice of “selling away.”
  C. Sam has engaged in no illegal practices as long as he markets the bonds only to existing clients. This is referred to as a private placement.
  D. Sam has engaged in no illegal practices since he is licensed to sell bonds and is doing so at an established “ask” price. Sam is a good neighbor.
  B. Sam has engaged in the illegal practice of “selling away.”

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  Explanation/Reference:

  If Sam sells his neighbor's bonds by calling his existing clients with an offer to sell them the bond, he has engaged in the illegal practice of “selling away.” This practice is defined as a broker or agent offering securities for sale that are not owned or offered by his member firm and is in violation of NASD Rule 3040.

• Question 146:

  Main Street Capital Corporation (MAIN) is registered as a non-diversified investment company under the Investment Company Act of 1940.Based on this, which of the following statements regarding MAIN are true?

  I. MAIN may not invest more than 5% of its investment monies in any single issuer.

  II. The net asset value of MAIN's shares is likely to fluctuate more than that of a diversified investment company.

  III.

  MAIN's returns are more likely to be affected by any single, specific economic occurrence or regulatory change.

  A. I only
  B. I and II only
  C. II and III only
  D. I, II, and III
  I. MAIN may not invest more than 5% of its investment monies in any single issuer. II. The net asset value of MAIN's shares is likely to fluctuate more than that of a diversified investment company. III. MAIN's returns are more likely to be affected by any single, specific economic occurrence or regulatory change.
  C. II and III only

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  Explanation/Reference:

  Only Selections II and III are true. Because MAIN is a non-diversified investment company, it may invest more than 5% of its investment monies in a single issuer. This results in less risk diversification, so its net asset value is likely to fluctuate more than that of a diversified investment company. In addition, this means its returns are more likely to be affected by any single, specific economic occurrence or regulatory change.

• Question 147:

  One difference between a unit investment trust (UIT) and a closed-end fund is that

  A. shares of closed-end funds trade on the exchange floors, unlike shares of UITs.
  B. unlike UITs, closed-end funds have a fixed number of shares.
  C. the shares of UITs are redeemable, whereas the shares of closed-end funds are not.
  D. closed-end funds are established with a termination date, unlike UITs.
  C. the shares of UITs are redeemable, whereas the shares of closed-end funds are not.

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  Explanation/Reference:

  A difference between a UIT and a closed-end fund is that the shares of UITs are redeemable, whereas the shares of closed-end funds are not. Shares of UITs also trade on exchange floors, like the shares of closed-end funds. Both UITs and closed-end funds have a fixed number of shares, but UITs are established with a termination date, while closed-end funds have no termination date.

• Question 148:

  Asset allocation involves:

  A. selecting the investments that are expected to offer the highest return over your client's investment horizon.
  B. determining the percentages that your client should be investing in various types of investments (e.g., stocks, bonds) based on his investment objectives.
  C. selecting the investments that will expose your client to the least amount of risk.
  D. determining the specific stocks and bonds in which your client should invest his funds.
  B. determining the percentages that your client should be investing in various types of investments (e.g., stocks, bonds) based on his investment objectives.

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  Explanation/Reference:

  Asset allocation involves determining the percentages that your client should be investing in various types of investments (e.g., stocks, bonds) based on his investment objectives. You should not necessarily select investments that are expected to offer the highest return for a risk-averse client because higher returns entail more risk exposure. Nor should you necessarily select investments that will expose your client to the least amount of risk. These may not offer the client the return he needs to achieve his investment goals. Asset allocation refers only to determining the types of investments, not the specific investments within each category. Specific investment selection is the next step after the asset allocation decision is made.

• Question 149:

  Which of the following is not a potential advantage associated with investing through a mutual fund?

  A. lower cost associated with portfolio management
  B. simplified recordkeeping
  C. price discovery
  D. diversification
  C. price discovery

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  Explanation/Reference:

  Price discovery is not a potential advantage associated with investing through a mutual fund. The net asset value of the fund determines its price, not the interaction of buyers and sellers in the market. All the other choices are advantages of investing through a mutual fund.

• Question 150:

  Which of the following correctly describes how the holding period of a security is calculated when determining whether its sale will result in a short-term or a long-term capital gain?

  A. The holding period begins the day after the buy order is submitted and ends the day the sell order is submitted.
  B. The holding period begins on the settlement day of the purchase and ends on the settlement day associated with the sale.
  C. The holding period begins on the settlement day of the purchase and ends on the day the sell order is submitted.
  D. The holding period begins on the settlement day of the purchase and ends on the day the sell order is submitted.
  A. The holding period begins the day after the buy order is submitted and ends the day the sell order is submitted.

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  Explanation/Reference:

  In determining whether its sale will result in a short-term or long-term capital gain, the holding period of a security begins the day after the buy order is submitted and ends the day the sell order is submitted.