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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 181:

  Which of the following stock funds would you expect to be the least risky?

  A. growth
  B. value
  C. balanced
  D. income
  C. balanced

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  Explanation/Reference:

  A balanced stock fund would be expected to be the least risky of the choices listed. Balanced funds have a stated policy of investing in both stocks and bonds, making them more diversified than the other choices that primarily invest in stocks.

• Question 182:

  Upon receiving a complaint about one of its member firms, FINRA may:

  I. require any person associated with the member firm to provide information to FINRA and to testify under oath.

  II. inspect and copy the books, records and accounts of the member firm.

  III.

  share information obtained from its investigation of a member firm with a foreign regulatory agency.

  A. II only
  B. I and II only
  C. II and III only
  D. I, II, and III
  I. require any person associated with the member firm to provide information to FINRA and to testify under oath. II. inspect and copy the books, records and accounts of the member firm. III. share information obtained from its investigation of a member firm with a foreign regulatory agency.
  D. I, II, and III

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  Explanation/Reference:

  Upon receiving a complaint about one of its member firms, FINRA may require any person associated with the member firm to provide information and to testify under oath; it may inspect and copy the books, records, and accounts of the member firm; and it may share information obtained from its investigation of a member firm with a foreign regulatory agency. The foreign regulator must agree to treat the information confidentiality, and the agreement with the foreign regulator is predicated on two requirements: “(A) the other regulator party to the agreement must have jurisdiction over common regulatory matters; and (B) the agreement must require the other regulator to reciprocate and share with FINRA information of regulatory interest or concern to FINRA.”

• Question 183:

  MoeMoney Investments is a diversified management company. This means that:

  A. it is a closed-end company.
  B. it is a mutual fund.
  C. it may invest no more than 5% of its investment monies in one issuer.
  D. it must be invested in a variety of industries and geographic regions.
  C. it may invest no more than 5% of its investment monies in one issuer.

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  Explanation/Reference:

  Since MoeMoney is a diversified management company, it may invest no more than 5% of its investment monies in one issuer. It may be either a closed-end or an open-end company (mutual fund), and it need not necessarily be invested in a variety of industries and geographic regions.

• Question 184:

  Your client is trying to choose between a variable annuity and a fixed annuity. You can tell him that:

  I. the fixed annuity will make guaranteed monthly payments, but has more purchasing power risk than a variable annuity.

  II. he can expect higher monthly payments from his fixed annuity during a bear market than he would get from a variable annuity.

  III.

  the earnings on both variable and fixed annuities grow tax-deferred.

  A. I only
  B. I and II only
  C. I and III only
  D. I, II, and III
  I. the fixed annuity will make guaranteed monthly payments, but has more purchasing power risk than a variable annuity. II. he can expect higher monthly payments from his fixed annuity during a bear market than he would get from a variable annuity. III. the earnings on both variable and fixed annuities grow tax-deferred.
  C. I and III only

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  Explanation/Reference:

  Only Statements I and III are accurate. When your client is trying to choose between a variable annuity and a fixed annuity, you can tell him that the fixed annuity will make guaranteed monthly payments, but has more purchasing power risk than a variable annuity, and that the earnings on both variable and fixed annuities grow tax-deferred. You cannot tell him that he can expect higher monthly payments from his fixed annuity during a bear market than he would get from a variable annuity. This will depend on various factors, such as the amount of the fixed annuity payment, the assumed interest rate, and the actual returns earned on the variable annuity investment portfolio.

• Question 185:

  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. As part of the process, BigFee's staff works with HiGrow's accountants to prepare the registration statement that is filed with the SEC. After the issue has been sold to the public, Mr. Sharp, a CPA who has invested in the stock of HiGrow, discovers that there are some accounting irregularities in the financial statements provided in HiGrow's prospectus.

  Who can be sued for the misleading statements?

  I. Mr. Big

  II. Big Fee Investment Banker

  III. HiGrow's accountants

  IV.

  HiGrow's attorneys

  A. I and II only
  B. II and III only
  C. I, III, and IV only
  D. I, II, III, and IV
  I. Mr. Big II. Big Fee Investment Banker III. HiGrow's accountants IV. HiGrow's attorneys
  D. I, II, III, and IV

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  Explanation/Reference:

  All of the entities can be sued for misleading statements found in HiGrow's financial statements. The Securities Act of 1933 holds any individual who participates in bringing the new issue to the public civilly liable for misrepresentations found in the prospectus.

• Question 186:

  Ms. Pye has quit her job to become a full-time mother and wants to roll over the funds from her 401(k) plan into an IRA. As her financial adviser, you should tell her that:

  A. this is unwise since she will have to pay both taxes and a penalty on the funds that are rolled over.
  B. if she has the funds transferred directly from her 401(k) plan to the IRA, she will avoid having 20% withheld.
  C. if she opts to take possession of the funds herself prior to depositing them in the IRA account, she must make the deposit within 30 days to avoid a 10% penalty.
  D. both B and C.
  B. if she has the funds transferred directly from her 401(k) plan to the IRA, she will avoid having 20% withheld.

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  Explanation/Reference:

  If Ms. Pye wants to rollover the funds from her 401(k) plan into an IRA, you should tell her that if she has the funds transferred directly from her 401(k) plan to the IRA, she will avoid having 20% withheld. She will not have to pay either taxes or a penalty on the funds that are rolled over if she follows specified guidelines, and if she opts to take possession of the funds herself prior to depositing them in the IRA account, she has 60 days in which to do so before a 10% penalty is assessed.

• Question 187:

  Steve Sharp sees a quote for a mutual fund that indicates the fund has a net asset value (NAV) of $26.60 and a public offering price (POP) of $28.00. Based on this, Mr. Sharp quickly ascertains that this fund must have:

  A. a front-end load of 5.0%.
  B. a front-end load of 5.3%.
  C. either a front-end or rear-end load of 5.0%.
  D. either a front-end or rear-end load of 5.3%.
  A. a front-end load of 5.0%.

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  Explanation/Reference:

  A mutual fund that is reported to have a NAV of $26.60 and a POP of $28.00 must have a front-end load of 5.0%. Front-end load = (POP - NAV)/POP = ($28.00 - $26.60)/$28.00 = 5.0%.

• Question 188:

  Ms. Fortune died at the relatively young age of 60. Which of the following options are available to her 65-year-old spouse, the beneficiary of her IRA?

  I. withdraw the entire balance in a single lump sum

  II. continue to make contributions to the IRA as if it were his own

  III.

  roll his deceased wife's IRA into an existing IRA that he owns

  A. I only
  B. I and II only
  C. I and III only
  D. I, II, and III
  I. withdraw the entire balance in a single lump sum II. continue to make contributions to the IRA as if it were his own III. roll his deceased wife's IRA into an existing IRA that he owns
  D. I, II, and III

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  Explanation/Reference:

  If Ms. Fortune died at the age of 60 and her beneficiary is her 65-year-old spouse, he can choose to withdraw the entire balance in a single lump sum, continue to make contributions to the IRA as if it were his own, or roll the IRA into another existing IRA. If he opts to withdraw the entire balance in a single lump sum, he will have to pay tax on that distribution at his marginal tax rate.

• Question 189:

  Tex Payor purchased 1,000 shares of Stocks4U, a mutual fund with a 5% front-end load, on February 26th.The fund's net asset value on that date was $30.40 and its offer price was $32.Tex sold his shares on March 15th of the following year for $45 a share.

  What were the tax consequences for Tex?

  A. Tex must pay taxes on $14,600, which will be taxed at a preferential long-term capital gain rate under current tax law.
  B. Tex must pay taxes on $45,000, which will be taxed at a preferential long -term capital gain rate under current tax law.
  C. Tex must pay taxes on $13,000, which will be taxed at a preferential long-term capital gain rate under current tax law.
  D. Tex must pay taxes on $14,600, which will be taxed as ordinary income at Tex's marginal tax rate.
  C. Tex must pay taxes on $13,000, which will be taxed at a preferential long-term capital gain rate under current tax law.

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  Explanation/Reference:

  If Tex purchased 1,000 shares of Stocks4U at its offer price of $32 on February 26th, and sold his shares the following year on March15th for $45 a share, he must pay taxes on $13,000, which will be taxed at a preferential longterm capital gain rate under current tax law.

  Tex's gain is calculated based on the price he paid for the shares, which included the front -end load, or $32. Since he sold the shares for $45, his gain was $13 a share, or $13,000 for his 1,000 shares. His holding period began the day after

  his purchase, or February 27th, and ended on the day he sold his shares on March 15th. Since this is longer than twelve months, his gain will be taxed at a preferential long-term capital gain rate under current tax law.

• Question 190:

  Which of the following persons is not permitted to open an investment account?

  I. a general partnership

  II. a corporation

  III. the executor of an estate

  IV.

  a 16-year-old entrepreneur

  A. I and II only
  B. I, II, and III only
  C. I, II, and IV only
  D. IV only
  I. a general partnership II. a corporation III. the executor of an estate IV. a 16-year-old entrepreneur
  D. IV only

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  Explanation/Reference:

  Only the 16-year-old entrepreneur is not permitted to open an investment account. As a minor, he is not a legal person. All the other selections are legal persons and can establish investment accounts.