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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 281:

  An advertisement that provides performance data for which of the following mutual funds would not need to include a statement warning that the principal value of the investment will fluctuate such that the investor's shares may be worth either more or less when redeemed than what the investor originally paid for them?

  A. a U.S. government bond fund
  B. a money market fund
  C. a municipal bond fund
  D. Neither choices A nor B would need to include the stated warning.
  B. a money market fund

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  Explanation/Reference:

  Only a money market fund is exempt from including a statement warning that the principal value of the investment will fluctuate such that the investment may be worth either more or less when redeemed than what the investor originally paid for them. The principal values of both U.S. government bond funds and municipal bond funds will fluctuate, so the warning must be present in the advertisements for those types of funds.

• Question 282:

  A table providing detailed information on the various fees and expenses charged by a mutual fund can be found in the fund's:

  A. Statement of Additional Information (SAI).
  B. prospectus.
  C. financial statements.
  D. annual report.
  B. prospectus.

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  Explanation/Reference:

  A table providing detailed information on the various fees and expenses charged by a mutual fund can be found in the fund's prospectus. The other choices provide a wealth of information regarding such items as investment strategies, fund holdings, and financial statements, however.

• Question 283:

  Which of the following would not be a characteristic associated with stocks in which a growth fund might invest?

  A. high earnings growth
  B. high price-earnings (P/E) ratio
  C. high cash dividends
  D. beta > 1.0
  C. high cash dividends

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  Explanation/Reference:

  The choice that would not be a characteristic of stocks in which a growth fund might invest is high cash dividends. Growth stocks offer returns in the form of capital appreciation (aka price increases.) In order to achieve this growth, the firms reinvest their earnings in their firms rather than distributing the earnings as dividends. Growth firms are those that are experiencing high earnings growth, and as a result, investors who are expecting great things from these firms are paying even higher prices, resulting in high P/E ratios. Growth firms are usually riskier than the average stock and have a beta greater than 1.0 to reflect this.

• Question 284:

  Matt is a registered representative with Fine, Howard, Fine and Associates. Tom, an old fraternity brother, is one of his clients. Business has been bad, and Matt is going to have difficulties making this month's mortgage payment. Tom was commiserating with him when the two hooked up to have a couple of beers together and offered to lend Matt some money to see him through the rough times. Based on these facts:

  A. Matt must refuse Tom's offer since Tom is one of his clients.
  B. Matt can accept Tom's offer, but only after obtaining pre-approval from Fine, Howard, Fine.
  C. Matt can accept the offer without having to obtain pre-approval from his employer since he and Tom are former fraternity brothers and their friendship pre-dates their agent/client relationship.
  D. Matt can accept the offer as long as Tom will not need to sell any investments to lend Matt the money. This would constitute a conflict of interest.
  B. Matt can accept Tom's offer, but only after obtaining pre-approval from Fine, Howard, Fine.

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  Explanation/Reference:

  Since Tom and Matt are old fraternity brothers, Matt may accept Tom's offer, but only after obtaining pre-approval from Fine, Howard, Fine. FINRA's Rule 3240 allows for borrowing and lending between a registered representative and a client if “the lending arrangement is based on a personal relationship with the customer, such that the loan would not have been solicited, offered, or given had the customer and the associated person not maintained a relationship outside of the broker/customer relationship.”

• Question 285:

  Mr. A. D. Venturer owns 10,000 shares of Risky Corporation, which is currently selling for $8 a share. He is leaving shortly for an extended trip to Antarctica and will be out of communication for that time. He doesn't want to liquidate his investment in Risky before he goes, but he doesn't want to return to find that his $80,000 investment is worth little to nothing.

  Which of the following options would make sense for Mr. Venturer?

  A. buy a call option on Risky stock with an $8 strike price and an expiration date that occurs after his return
  B. place a stop sell order at a price less than $8 a share-perhaps $6 or $7 a share
  C. place a limit order to sell Risky at either $8 a share or a price slightly less than $8 a share
  D. enter a good 'til cancelled (GTC) market order to sell Risky
  B. place a stop sell order at a price less than $8 a share-perhaps $6 or $7 a share

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  Explanation/Reference:

  The option that makes sense for Mr. Venturer is to place a stop sell order at a price less than Risky's current market price of $8. A stop loss order becomes a market order when the specified price is reached. If he were to place it for Risky's current market price of $8, his shares would be sold immediately at the next available price. If the specified price is less than $8, the order won't get executed unless the price falls to that level. A limit order specifies the lowest price at which he's willing to sell the shares, so if he places a limit order for $8 or less, the order will be executed immediately at the current market price of $8. A call option would not help him-it would just enable him to buy additional shares for $8 a share. And there is no such thing as a good ‘til cancelled market order. A market order is executed immediately at whatever the prevailing price is at the moment.

• Question 286:

  Which of the following would not be defined as an “interested person,” under the Investment Company Act of 1940?

  A. an employee of the company
  B. a person who owns at least 5% of the voting stock of the company
  C. the spouse of an officer of the company
  D. All of the above would be defined as interested persons under the Investment Company Act of 1940.
  D. All of the above would be defined as interested persons under the Investment Company Act of 1940.

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  Explanation/Reference:

  All of the choices describe entities who would be defined as interested persons under the Investment Company Act of 1940. An interested person includes officers, directors, investment advisers, partners, employees, anyone who owns at least 5% of the voting stock of the company, and any immediate family members of these persons. The definition also extends to the principal underwriter and other investment companies served by that underwriter and anyone who has acted in a professional capacity for the company within the last two years.

• Question 287:

  Which of the following describes a difference between a unit investment trust (UIT) and a mutual fund?

  A. UITs have a fixed number of shares; mutual funds do not.
  B. UITs are not required to distribute dividends and capital gains to their shareholders as mutual funds must.
  C. UITs must hold non-diversified portfolios; mutual funds may be either non-diversified or diversified.
  D. All of the above describe differences between a UIT and a mutual fund.
  A. UITs have a fixed number of shares; mutual funds do not.

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  Explanation/Reference:

  The difference between a unit investment trust and a mutual fund is that UITs have a fixed number of shares; mutual funds do not. Both UITs and mutual funds are required to distribute dividends and capital gains to their shareholders and both may invest in either diversified or non -diversified portfolios.

• Question 288:

  What did the Howey Decision?

  A. provided for fixed annuities to be excluded from the definition of a security.
  B. defined an investment contract as any investment of money in a common enterprise with the expectation of earning a profit from the efforts of others.
  C. stipulated that all general partnerships were investment contracts and, therefore, securities, as defined by the Securities Exchange Act of 1934.
  D. determined that certificates of deposit issued by a bank and insured by the FDIC did not qualify as securities, as defined by the Securities Exchange Act of 1934.
  B. defined an investment contract as any investment of money in a common enterprise with the expectation of earning a profit from the efforts of others.

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  Explanation/Reference:

  The Howey Decision defined an investment contract as any investment of money in a common enterprise with the expectation of earning a profit from the efforts of others. General partnerships do not fall under the definition of investment contracts since the general partners are actively involved in the business operations. Although both fixed annuities and bank CDs are excluded from the definition of a security, this was not part of the Howey Decision.

• Question 289:

  A fund's 12b-1 fees may not be used to pay which of the following?

  A. printing prospectuses
  B. compensating brokers who sell shares of the fund
  C. mailing sales literature to existing and prospective customers
  D. administrative expenses of the fund's investment adviser
  D. administrative expenses of the fund's investment adviser

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  Explanation/Reference:

  A fund's 12b-1 fees may not be used to pay the administrative expense of the fund's investment adviser. This would be part of the fund's management fees. SEC rule 12b-1 authorizes a fund to pay for distribution costs out of a fund's assets only if the fund has adopted a 12b-1 plan. The SEC defines these distribution costs to include the costs of marketing and selling the fund shares, including compensating brokers who help to sell the shares, and printing and mailing prospectuses and sales literature to existing and prospective customers.

• Question 290:

  Which of the following persons is not subject to the fingerprinting requirements of the Securities Exchange Act of 1934?

  I. a registered transfer agent of a securities exchange

  II. a firm that engages only in the sale of mutual fund shares

  III. a receptionist at a brokerage firm who answers phones and directs calls to the agents employed by the firm

  IV.

  a market maker in the over-the-counter market

  A. I and III only
  B. II and III only
  C. II, III, and IV only
  D. III only
  I. a registered transfer agent of a securities exchange II. a firm that engages only in the sale of mutual fund shares III. a receptionist at a brokerage firm who answers phones and directs calls to the agents employed by the firm IV. a market maker in the over-the-counter market
  B. II and III only

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  Explanation/Reference:

  Only Selections II and III are not subject to the fingerprinting requirements of the Securities Exchange Act of 1934. Firms that engage only in the sale of open-end investment company (mutual fund) shares, as described in Selection II, are exempt; and employees who do not engage in the sale of securities or activities involving any aspect of the securities or monies of a non -exempt firm are exempt, which is the case for the receptionist at the brokerage firm described in Selection III.