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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 241:

  Which of the following qualifies as an insider under the definition provided by the Securities Exchange Act of 1934?

  I. a member of the board of directors of a firm

  II. the vice-president of marketing of a firm

  III.

  an investor who owns 5% of the voting stock of the firm IV. the daughter of the CEO of a firm

  A. I and II only
  B. I, II, and III only
  C. I, II, and IV only
  D. I, II, III, and IV
  I. a member of the board of directors of a firm II. the vice-president of marketing of a firm III. an investor who owns 5% of the voting stock of the firm IV. the daughter of the CEO of a firm
  C. I, II, and IV only

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  Explanation/Reference:

  Selections I, II, and IV all describe individuals who qualify as insiders under the definition provided by the Securities Exchange Act of 1934. An insider is any director or officer of the firm or any member of their immediate family. An investor who owns 10% of the voting stock of the firm and his immediate family members are also classified as insiders; an investor who owns 5% of the voting stock does not fall within the guidelines of the definition.

• Question 242:

  Which of the following statements about primary market transactions is true?

  A. A primary market transaction is defined as a transaction that is executed on either the NYSE or NASDAQ. Transactions that take place on ECNs are secondary market transactions.
  B. In a primary market transaction, the issuer of the security receives the proceeds from the sale of the security.
  C. A primary market transaction refers to the trading of stocks; a secondary market transaction is defined as a transaction that involves bonds.
  D. Both A and B are true statements.
  B. In a primary market transaction, the issuer of the security receives the proceeds from the sale of the security.

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  Explanation/Reference:

  In a primary market transaction, the issuer of the security receives the proceeds from the sale of the security. A secondary market transaction involves the purchase and sale of a security between investors, and the seller of the security receives the proceeds from the sale. Both stocks and bonds are initially introduced to the market as primary market securities and are then traded in the secondary market.

• Question 243:

  Mr. Donald is the owner and CEO of Just Ducky Broker-Dealers. His wife, Ms. Daisy, handles all the ministerial duties for the firm. The firm has three other employees. Huey is the municipal bond specialist and handles client trades in municipal securities only; Dewey handles only mutual fund sales for clients; Louie handles all aspects of client trading in stocks, corporate bonds, and options.

  Which of the following statements regarding the minimum FINRA registration requirements for these individuals is true?

  A. Mr. Donald, Huey, Dewey and Louie must all be registered as general securities representative s in accordance with FINRA rules.
  B. Mr. Donald, Ms. Daisy, Dewey and Louie must be registered as general securities representatives, and Huey must be registered as a limited securities representative under FINRA rules.
  C. Under FINRA rules, Mr. Donald must register as a principal, Dewey must be registered as a limited securities representative, and Louie must be registered as a general securities representative. Daisy and Huey need not be registered.
  D. Mr. Donald and Ms. Daisy must be registered as principals, and the other three must be registered as general securities representatives under FINRA rules.
  C. Under FINRA rules, Mr. Donald must register as a principal, Dewey must be registered as a limited securities representative, and Louie must be registered as a general securities representative. Daisy and Huey need not be registered.

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  Explanation/Reference:

  The true statement regarding FINRA registration requirements for the individuals is that Mr. Donald must register as a principal; Dewey must be registered as a limited securities representative; and Louie must be registered as a general securities representative. Daisy and Huey need not be registered. Mr. Donald is actively involved in the management of Just Ducky and, as such, he must register as a principal. Dewey handles mutual fund sales and, at a minimum, must be licensed as a limited representative. Louie, who executes stock, bond, and option transactions, must be licensed as a general securities representative. Huey is exempt from registration requirements since he trades in municipal securities only. Daisy is exempt since she handles only the ministerial duties of the firm.

• Question 244:

  Your client, Mr. Whiff, knows nothing about investment companies, and you are educating him about the advantages of investing through one, rather than investing in individual stocks and bonds.

  Which of the following statements could get you in trouble?

  A. “In investing through an investment company you will be able to invest a small amount of money and achieve greater diversification than you could otherwise.”
  B. “Investing through an investment company will result in a lower tax bill than had you invested in individual stocks and bonds.”
  C. “An investment in an investment company gives you an undivided interest in the company, in proportion to the number of shares you own.”
  D. “By investing your money through an investment company, you are getting the benefit of professional management."
  B. “Investing through an investment company will result in a lower tax bill than had you invested in individual stocks and bonds.”

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  Explanation/Reference:

  The statement that could get you in trouble is, “Investing through an investment company will result in a lower tax bill than had you invested in individual stocks and bonds.” Improved tax planning is not a benefit of investing through an investment company since the fund's manager cannot make investment decisions based on the tax status of each of the fund's shareholders. An investor who actively manages his own portfolio is better able to lower his tax bill.

• Question 245:

  Under the Investment Company Act of 1940, an investment company is:

  A. required to register with the SEC.
  B. any company that holds investment securities that have a value that is greater than 40% of the company's total assets.
  C. any issuer whose primary business involves investing, reinvesting, or trading in securities.
  D. All of the above accurately describe an investment company as defined by the Investment Company Act of 1940.
  D. All of the above accurately describe an investment company as defined by the Investment Company Act of 1940.

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  Explanation/Reference:

  All of the choices accurately describe an investment company as defined by the Investment Company Act of 1940.

• Question 246:

  All government bonds and the majority of corporate bonds are traded:

  A. on the floor of the NYSE.
  B. via electronic communication networks (ECNs).
  C. on regional exchanges.
  D. in the over-the-counter market.
  D. in the over-the-counter market.

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  Explanation/Reference:

  All government bonds and the majority of corporate bonds are traded in the over-the-counter market.

• Question 247:

  Your 53-year-old client, Ms. Antsy, just inherited $80,000 from her aunt and has decided to retire immediately. She wants to invest in something that will allow her to begin making withdrawals immediately, and she wants to be certain that she will continue to receive payments at least until she turns 62 ½ and begins drawing social security. You should recommend Ms. Antsy invest in:

  A. a single-payment deferred annuity.
  B. a periodic-payment deferred annuity.
  C. a single-payment immediate annuity.
  D. none of the above.
  D. none of the above.

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  Explanation/Reference:

  If Ms. Antsy is 53 years old and wants to invest in something that will allow her to begin making immediate withdraws and continue to make withdrawals until she turns 62 ½, you should recommend none of the choices provided. They are all annuities, and Ms. Antsy will be subject to a 10% penalty for withdrawing any amount prior to turning 59 ½.

• Question 248:

  Tex Payor has invested in Invest4U Mutual Fund shares at various times over the last eight years. In the past year, he has sold some of the shares purchased. To determine the cost basis of these shares, Tex:

  A. can choose to sell specific shares in order to minimize or maximize his cost basis, whichever is more beneficial given his tax circumstances.
  B. must use last in/first out (LIFO) accounting to determine his cost basis.
  C. must use first in/ first out (FIFO) accounting to determine his cost basis.
  D. should use dollar cost averaging to determine his cost basis.
  A. can choose to sell specific shares in order to minimize or maximize his cost basis, whichever is more beneficial given his tax circumstances.

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  Explanation/Reference:

  To determine the cost basis of share he has bought at various time over the last eight years, Tex can choose to sell specific shares in order to minimize or maximize his cost basis, whichever is more beneficial given his tax circumstances. If Tex doesn't specify shares, the IRS will assume the first shares purchased were the first shares sold (FIFO) in determining Tex's cost basis. The LIFO method cannot be assumed when determining the cost basis of the shares Tex owns, and dollar cost averaging is an investment strategy, not a method used in determining a cost basis.

• Question 249:

  Which of the following is an example of market risk?

  A. the risk that the nation will enter a recession
  B. the risk that a drug company will produce a pill that will cure cancer
  C. the risk that an automobile manufacturer will have to undertake a massive recall of its cars
  D. the risk that competing firms will enter the market when a firm's patent protection expires
  A. the risk that the nation will enter a recession

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  Explanation/Reference:

  The risk that the nation will enter a recession is an example of market risk. A recession will affect the prices of all securities to one degree or another. The other choices are examples of business risk-a risk that is tied to a specific firm. In finance, risk means uncertainty, so even the possibility that a drug company will produce a pill that will cure cancer is referred to as a risk.

• Question 250:

  Which of the following would be the most suitable investment for a client who has retired and needs some current income to augment her social security check?

  A. growth fund
  B. variable life policy
  C. money market fund
  D. U.S. government bond fund
  D. U.S. government bond fund

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  Explanation/Reference:

  Of the choices provided, the most suitable investment for a client who has retired and needs some current income to augment her social security check would be a U.S. government bond fund. The growth fund is mostly invested in stocks that provide their return in the form of capital appreciation, not dividend income. The variable life policy would not offer her the current income she needs and may even have a surrender charge. Furthermore, these policies are insurance, not investments. A money market fund is good for capital preservation and some of her funds should be invested in a money market fund to meet this objective, but it will not provide her with current income. A U.S. government bond fund is less risky than other bond funds--although its value will fluctuate with interest rate changes-and will provide her with the supplemental income she requires.