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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 271:

  Doc purchased shares of the MedTech Fund at its net asset value of $9.66 a share at the beginning of the year. The fund distributed dividends of $0.12 a share and capital gains of $0.10 a share during the year.

  The net asset value at the end of the year was $12.00. The fund's total return was:

  A. 21.3%.
  B. 26.5%.
  C. 25.5%.
  D. 10.1%.
  B. 26.5%.

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  Explanation/Reference:

  The fund's beginning NAV was $9.66, its ending NAV was $12.00, and its distributions during the year totaled $0.22 a share, so the total return on the MedTech Fund over this period was 26.5%. Total return can be calculated as: [(ending NAV + distributions) - beginning NAV]/beginning NAV = [($12.00 + $0.22) -$9.66]/$9.66 = 26.5%.

• Question 272:

  Which of the following is not a cost associated with an investment in a variable annuity contract?

  A. mortality and expense risk fee
  B. investment management fee
  C. state premium tax
  D. All of the above are costs associated with an investment in a variable annuity contract.
  D. All of the above are costs associated with an investment in a variable annuity contract.

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  Explanation/Reference:

  All of the choices are costs associated with an investment in a variable annuity contract. Nor is this an exhaustive list of the costs.

• Question 273:

  Which of the following statements regarding zero-coupon bonds is true?

  A. An advantage of investing in zero -coupon bonds is that the bondholder does not receive interest income that he must pay taxes on each year and instead receives profits from the bond investment in the form of tax-preferred capital gain income when the bond matures.
  B. Only governments at the federal, state, or local levels, or government agencies are permitted to issue zero-coupon bonds.
  C. All else equal, zero-coupon bonds will have less price fluctuation when interest rates change.
  D. Although the bondholder receives no interim interest payments from his investment in zero -coupon bonds, the difference between the purchase price and the maturity value of the bond is considered to be interest income, and the bondholder must pay taxes on a percentage of this amount each year.
  D. Although the bondholder receives no interim interest payments from his investment in zero -coupon bonds, the difference between the purchase price and the maturity value of the bond is considered to be interest income, and the bondholder must pay taxes on a percentage of this amount each year.

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  Explanation/Reference:

  The true statement about zero-coupon bonds is that although the bondholder receives no interim interest payments from his investment in zero-coupon bonds, the difference between the purchase price and the maturity value of the bond is considered to be interest income, and the bondholder must pay taxes on a percentage of this amount each year.

• Question 274:

  In 2004, your Uncle Oscar purchased 300 shares of Hasbro, Inc. for $19 a share. Uncle Oscar died earlier year and left his Hasbro stock to you. The stock was selling for $44 on the day he died, but by the time you learned that you were the beneficiary of the stock, the price was $47.

  What is your cost basis in Hasbro?

  A. $19
  B. $44
  C. $47
  D. $28
  B. $44

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  Explanation/Reference:

  Since Hasbro was selling for $44 on the day Uncle Oscar died, this is your cost basis. The cost basis of an inherited investment is the market value of the investment on the date that the person died.

• Question 275:

  Annie Vestor owns shares of the URMoney Mutual Fund. Annie lives on the west coast in Seattle, Washington. URMoney reported a net asset value per share of $10.10 on October 9th. On October 10th, its reported net asset value per share was $10.20. Upon arriving home at 12 P.M. (her time) on October 9th, Annie logged into the URMoney website and entered an order to redeem 500 shares of her holdings in the fund. This order will be transacted at:

  A. the net asset value of the fund at the end of the trading day on October 11th.
  B. $10.20
  C. $10.10
  D. The price at which this order will be transacted cannot be estimated based on the information provided.
  C. $10.10

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  Explanation/Reference:

  If Annie, who lives on the west coast, enters an order to redeem 500 shares at 12 P.M. her time on October 9th, the order will be executed at the net asset value calculated at the end of that trading day, which is $10.10. Orders received prior to 4 P.M. Eastern Standard Time (EST) are required to be processed at the net asset value of the fund determined at the end of that some trading day, and 12 P.M. in Seattle is 3 P.M. on the east coast.

• Question 276:

  Jack purchased a new bond of the Candlestick Corporation for its face value of $1,000. The bond has a coupon rate of 3.5%, makes semiannual interest payments, and matures in fifteen years. A year after purchasing the bond, Jack needs to sell the bond to offset some major expenses he incurred when his home caught on fire. Interest rates in the economy at this time have fallen to 3.0%.

  Given this scenario, when Jack sells the bond, he can expect to receive which of the following?

  A. more than what he originally paid for the bond.
  B. less than what he originally paid for the bond.
  C. exactly what he paid for the bond.
  D. $965, which is what he paid for the bond less the $35 in interest he received during his year of owning the bond.
  A. more than what he originally paid for the bond.

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  Explanation/Reference:

  Since interest rates in the economy have decreased, Jack can expect to receive more than what he originally paid for the bond. Bond prices move inversely with interest rate changes, all else equal.

• Question 277:

  Mr. R. Retired recently turned 61 and has decided to annuitize a variable annuity contract in which he had been investing. When he does so:

  A. he will have to pay a 10% penalty for annuitizing the contract before he turned 62 ½.
  B. his accumulation units will be converted into a fixed number of annuity units.
  C. the value of his annuity units becomes fixed.
  D. Both B and C are true statements.
  B. his accumulation units will be converted into a fixed number of annuity units.

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  Explanation/Reference:

  When Mr. R. Retired decides to annuitize his variable annuity contract at the age of 61, his accumulation units will be converted into a fixed number of annuity units. The value of these units will depend on the actual returns earned by the account and the actuarially-determined assumed interest rate; it is not fixed. Mr. Retired will not be subject to a 10% penalty since he is over 59 ½ years old.

• Question 278:

  Eddie and Edith open a JTWROS account with you. This means that:

  I. You can accept a buy or sell order from either Eddie or Edith.

  II. Any check that is drafted upon a request to withdraw funds can be written to either Eddie or Edith, or both.

  III. If either Eddie or Edith die, the account assets will pass to that individual's estate, based on his or her percentage ownership of the account.

  IV.

  Correspondence concerning the account can be sent to either Eddie or Edith.

  A. I only
  B. I and II only
  C. I and IV only
  D. I, II, III, and IV
  I. You can accept a buy or sell order from either Eddie or Edith. II. Any check that is drafted upon a request to withdraw funds can be written to either Eddie or Edith, or both. III. If either Eddie or Edith die, the account assets will pass to that individual's estate, based on his or her percentage ownership of the account. IV. Correspondence concerning the account can be sent to either Eddie or Edith.
  C. I and IV only

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  Explanation/Reference:

  Only Selections I and IV are true statements. If Eddie and Edith open a JTWROS account with you, you can accept a buy or sell order from either one of them, and any correspondence concerning the account can be sent to either one of them. However, a check must be made out to both of them, in the same manner that the account is titled. A JTWROS account is a “joint tenants with rights of survivorship” account, which means that if either Eddie or Edith die, the account assets pass directly to the other one and do not go into the deceased's estate.

• Question 279:

  Joel has a 28-year-old client who has been promoted to the elevated position of senior software engineer with a large, well-known, software company at her relatively young age. She has come to Joel for investment advice, explaining to him that she is risk-averse, having been influenced by parents who grew up in a foreign country and had little, prior to immigrating to America and working hard to achieve their dreams for themselves and their children. She has $50,000 that she wants him to invest for her, and her primary goal is to be able to have enough money, beyond what she expects to have in her employer's retirement program, to return to her home country and help others achieve their dreams. Joel explains to her that she may have to invest in riskier securities in order to achieve her goal, but his client is adamant that she wants her portfolio to be invested to target growth with the least risk exposure possible. Given the facts:

  A. Joel should divide his client's monies among growth, aggressive growth, and foreign stock funds. Regardless of what she says, she has a long investment horizon and can afford to take on more risk.
  B. Joel should invest his client's monies in a fund that specializes in stocks of his client's home country to avoid the exchange rate risk that she will be exposed to when she returns.
  C. Joel should invest his client's monies in a U.S. government bond fund since she is risk-averse.
  D. Joel should invest his client's monies in a growth fund to target her growth objective.
  D. Joel should invest his client's monies in a growth fund to target her growth objective.

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  Explanation/Reference:

  Because Joel's client is adamant about being risk-averse, but also desires growth, Joel should invest his client's monies in a growth fund to target her desired objective. He should avoid the riskier aggressive growth and foreign stock funds. Although her long-term investment horizon indicates that she is able to tolerate more risk, her desires trump that. Investing in stocks of her home country doesn't make sense at this point since no one knows what the future exchange rate will be. Investing in a U.S. government bond fund has less risk, but does not target her growth objective.

• Question 280:

  Common stock and preferred stock differ in that:

  A. the firm is legally mandated to make the dividend payments on its preferred stock; there is no legal obligation to make dividend payments on its common stock.
  B. common stock pays a fixed dividend while the dividend associated with preferred stock will typically increase as the earnings of the firm increases.
  C. preferred stockholders have more voting rights than the common stockholders of the firm.
  D. preferred stockholders will receive their part of the proceeds if the firm is liquidated before the common shareholders receive anything.
  D. preferred stockholders will receive their part of the proceeds if the firm is liquidated before the common shareholders receive anything.

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  Explanation/Reference:

  Common stock and preferred stock differ in that preferred stockholders will receive their part of the proceeds if the firm is liquidated before the common shareholders receive anything. Neither preferred stock nor common stock

  dividends are legal obligations of the firm. Preferred stock typically pays a fixed dividend that does not vary with the firm's earnings, while the common stock dividend may.

  Except in special circumstances specified in the preferred stock agreement, preferred shareholders have no voting rights.