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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 211:

  Which of the following activities are permitted during the “cooling off” period associated with a new offering?

  I. A preliminary prospectus may be provided to prospective investors.

  II. The security can be registered in any states in which it will be sold.

  III. The management of the issuing firm may give interviews in which they discuss the market for their products and future revenue expectations.

  IV.

  The underwriter of the issue may run a tombstone advertisement in the Wall Street Journal to announce the upcoming offering.

  A. I only
  B. I and IV only
  C. I, II and IV only
  D. I, III and IV only
  I. A preliminary prospectus may be provided to prospective investors. II. The security can be registered in any states in which it will be sold. III. The management of the issuing firm may give interviews in which they discuss the market for their products and future revenue expectations. IV. The underwriter of the issue may run a tombstone advertisement in the Wall Street Journal to announce the upcoming offering.
  C. I, II and IV only

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  Explanation/Reference:

  Only the activities described in Selections I, II, and IV are permitted during the “cooling off” period associated with a new offering. A preliminary prospectus can be provided to prospective investors; the security can be registered in any states in which it will be sold, and the underwriter of the issue can run a tombstone advertisement in the Wall Street Journal, or any other publication for that matter. The management of the issuing firm may not, however, give interviews in which they discuss future revenue expectations, among other things.

• Question 212:

  HiTop Investments main office is located in the state of Colorado. A registered representative of the firm sent out an e-mail to his clients, some of whom reside in other states, promoting the firm's Colorado Municipal Bond Fund, which invests exclusively in bonds offered by the state and local governments of Colorado. In the e-mail, the representative states, “These bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if any exists.”

  Is this e-mail in violation of any securities’ laws?

  A. No. Since the fund invests exclusively in bonds offered by the state and local governments of Colorado, the representative's statement contains no misstatement of fact.
  B. Yes. Advertisements referring to a specific fund may not be distributed by electronic means.
  C. Yes. A fund that invests only in bonds offered by state and local governments of one state may not be sold to investors who reside in other states.
  D. Yes. The representative's statement that the” bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if any exists,” is untrue.
  D. Yes. The representative's statement that the” bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if any exists,” is untrue.

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  Explanation/Reference:

  Yes, the e-mail is in violation of the Securities Act of 1933 because the representative's statement that the “bonds provide income that is free from both federal and state taxes and may also be free from local taxation, if any exists,” is an untrue statement of a material fact. Although the income will be free from federal taxation, residents of states other than Colorado will likely be required to pay state and local income taxes on the interest earned. It is not illegal to sell municipal bonds to investors in other states or to distribute advertisements by electronic means.

• Question 213:

  Marge is 57 and wants to retire early. Since she is not yet eligible for social security, she wants to begin tapping a variable annuity to which she has been contributing for the last 20 years.

  Which of the following statements regarding her withdrawals is true?

  A. There is no way that Marge can begin making withdrawals without facing a 10% penalty for early withdrawal unless she is disabled or needs the money for medical expenses.
  B. Marge can begin her withdrawals tax-free and without penalty under IRS rule 72(t) as long as she does so following the specific guidelines until she turns 59 ½, at which point she will no longer have to follow the specific guidelines.
  C. Marge can begin her withdrawals tax-free and without penalty under IRS rule 72(t) as long as she does so following the specific guidelines for a period of five years.
  D. Marge can begin her withdrawals without penalty under IRS rule 72(t) as long as she does so following the specific guidelines for a period of five years; however, the withdrawals will be subject to taxation.
  D. Marge can begin her withdrawals without penalty under IRS rule 72(t) as long as she does so following the specific guidelines for a period of five years; however, the withdrawals will be subject to taxation.

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  Explanation/Reference:

  Since Marge is only 57, she can begin her withdrawals without penalty under IRS rule 72(t) as long as she does so following the specific guidelines for a period of 5 years, but the withdrawals will be subject to taxation. Once she starts the program outlined in rule 72(t), she must remain on it for at least five years or until she turns 59 ½, whichever comes last. This means that although she's already 57 and will be turning 59 ½ in 2 ½ years, she will have to continue to follow the guidelines for a full five years, or until she turns 62, in this case.

• Question 214:

  A mutual fund may not do which of the following, under any circumstances?

  I. buy securities on margin

  II. engage in short sales

  III. change its investment objective

  IV.

  invest in more than 1% of the outstanding voting stock of another investment company

  A. I and II only
  B. I, II, and III only
  C. III and IV only
  D. III only
  I. buy securities on margin II. engage in short sales III. change its investment objective IV. invest in more than 1% of the outstanding voting stock of another investment company
  A. I and II only

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  Explanation/Reference:

  A mutual fund may not buy securities on margin or engage in short sales, under any circumstances. It may change its investment objective, with shareholder approval. It is permitted to invest in up to 3% of the outstanding voting stock of another investment company.

• Question 215:

  A retirement plan under which the benefit to be paid upon retirement is specified when an employee is signed up for the plan is known as a:

  A. 401(k) plan.
  B. SIMPLE-IRA.
  C. defined benefit plan.
  D. defined contribution plan.
  C. defined benefit plan.

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  Explanation/Reference:

  A retirement plan under which the benefit to be paid upon retirement is specified when an employee is signed up for the plan is known as a defined benefit plan. The 401(k) plan and the SIMPLE-IRA are types of defined contribution plans.

• Question 216:

  The total return reported by a mutual fund:

  A. is calculated as the percentage change in the net asset value of the fund.
  B. is equal to the return it earned on the dividend and interest income it received from its investments.
  C. is equal to the annual percentage increase in the dollars invested in the fund by investors.
  D. includes both the dividend and interest income earned by the fund and any increase in the fund's net asset value.
  D. includes both the dividend and interest income earned by the fund and any increase in the fund's net asset value.

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  Explanation/Reference:

  The total return reported by a mutual fund includes both the dividend and interest income earned by the fund and any increase in the fund's net asset value. It includes both the return on dividends and interest income and the return due to the capital appreciation of the fund's value.

• Question 217:

  Which of the following securities laws regulates the organizational structure and day-to-day operations of investment companies?

  A. The Securities Act of 1933
  B. The Securities Exchange Act of 1934
  C. The Investment Company Act of 1940
  D. The Investment Advisers Act of 1940
  C. The Investment Company Act of 1940

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  Explanation/Reference:

  The Investment Company Act of 1940 regulates the organizational structure and day-to-day operations of investment companies. The Act includes requirements regarding a fund's capital structure, the custody of its assets, its investment activities, and the duties of a fund's board of directors, among other things. The Securities Act of 1933 regulates the offering of a fund's shares and requires that prospective investors be provided with a prospectus. The Securities Exchange Act of 1934 regulates secondary market activities in investment company shares and includes laws governing the principal underwriters and brokers and dealers who sell investment company shares. The Investment Advisers Act of 1940 regulates investment advisers and includes laws pertaining to their registration and recordkeeping, custodial, and reporting responsibilities.

• Question 218:

  Jill worked as a registered representative with GoForBroke Broker-Dealers for 8 years. She is married to Jack, whose job made it necessary for them to relocate to Thailand for 3 years. They have now returned, and Jill would like to begin working as a registered representative with GoForBroke again after her 3 -year hiatus. Given this scenario:

  A. Jill can begin working in her previous position with GoForBroke immediately, but GoForBroke will have to register her as one of its representatives with FINRA within 30 days of her hire date, and Jill will have to pay the applicable filing fees within that same period of time.
  B. Jill will have to retake the qualifying FINRA exams for her position, and after she has done so successfully, GoForBroke must register her with FINRA as one of its representatives.
  C. As long as GoForBroke maintained Jill as a registered representative for its firm during her hiatus, Jill can begin working in her previous position immediately. There is no need to file additional paperwork or pay any fees to FINRA.
  D. Both A and C are true statements.
  B. Jill will have to retake the qualifying FINRA exams for her position, and after she has done so successfully, GoForBroke must register her with FINRA as one of its representatives.

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  Explanation/Reference:

  Given that she has been gone for 3 years, Jill will have to retake the qualifying FINRA exams required for her position, and after she has done so successfully, GoForBroke must register her with FINRA as one of its representatives. According to FINRA rules, GoForBroke is prohibited from maintaining Jill as a registered representative after she is no longer active in the securities business.

• Question 219:

  Cliff places an order to sell 500 shares of the stock of Gap, Inc. (GPS) via his broker's website. Cliff does not currently own any shares of GPS. This order is:

  A. illegal, and the broker's website will reject it.
  B. an example of a stop loss order.
  C. referred to as a short sale.
  D. indicating that Cliff expects the price of Gap, Inc. to rise.
  C. referred to as a short sale.

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  Explanation/Reference:

  When Cliff places an order to sell shares of GPS, a stock he doesn't own, on his broker's website, it is referred to as a short sale. A short sale is defined as the sale of borrowed stock and is placed by an investor who expects the price of that stock to fall in the near future, at which point the investor will buy it back at a lower price and return it, profiting from the price differential.

• Question 220:

  In mid-September, the stock of Oracle (ORCL) is selling for $25.60 a share. Ms. Hedge owns shares of Oracle and buys a put option on the stock with a strike price of $27 that expires in October for $2.20 per optioned share. Just prior to expiration, Oracle's stock is selling for $29. Ms. Hedge should:

  A. let her option expire worthless.
  B. exercise her option and sell Oracle for $29 a share.
  C. exercise her option and buy more shares of Oracle for $27 a share.
  D. exercise her option and sell Oracle for $27 a share.
  A. let her option expire worthless.

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  Explanation/Reference:

  If Ms. Hedge owns a put option on Oracle with a strike price of $27 and Oracle's price is $29 just prior to expiration, she should let her option expire worthless. Her put option gives her the right to sell Oracle for $27. If she wants to sell her existing shares of Oracle, she is better off doing so on the open market and receiving $29 a share for them.