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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 51:

  Joe Cool is a member of the All Greek Fraternity. A few of the alumni of his fraternity sat for the FINRA Series 6 exam over the past couple of years and, using their cell phones, took pictures of the exam questions. They forwarded these to their fraternity to be included in the test bank file the fraternity keeps in its study room.

  Have there been any violations of FINRA/NASD rules in this instance?

  A. No. It is standard practice for sororities and fraternities to compile test banks of old exams, and since the forwarded tests are not copies of an actual future exam that will be administered, there has been no violation of any rules.
  B. Yes. It is a violation of Rule 2110 for an exam-past or present-to be reproduced and distributed for study purposes.
  C. No. Rule 2110 only prohibits the reproduction and distribution of a previously administered FINRA exam for study purposes if the exams are being sold. As long as there is no compensation involved, a violation has not been committed.
  D. Both A and C are true statements.
  B. Yes. It is a violation of Rule 2110 for an exam-past or present-to be reproduced and distributed for study purposes.

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  Explanation/Reference:

  Yes, there have been violations of FINRA/NASD rules in this instance. It is a violation of Rule 2110 for an exam-past or present-to be reproduced and distributed for study purposes. Whether there has been compensation paid or not is irrelevant.

• Question 52:

  An ADR is:

  A. a bond issued by an American firm that is denominated in dollars, but is sold to foreign investors.
  B. a receipt designating ownership of shares of a foreign stock that are held in a trust.
  C. another name for bankers’ acceptances.
  D. a certificate of deposit offered by a foreign bank that is denominated in U.S. dollars.
  B. a receipt designating ownership of shares of a foreign stock that are held in a trust.

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  Explanation/Reference:

  An ADR is a receipt designating ownership of shares of a foreign stock that are held in a trust. The acronym stands for American Depository Receipt.

• Question 53:

  A brochure advertising the Stocks4U Mutual Fund contains an example illustrating how much an investor who had invested $10,000 with the fund ten years ago would have in his account today, using the fund's historical return data, to illustrate the principle of compound interest. An example of this nature:

  A. is expressly in violation of FINRA rules.
  B. may be used only if there actually was such an investor on record.
  C. may be used as long as there is a clear statement that the illustration in no way predicts or projects what an investor who invests $10,000 today would have in his account in ten years.
  D. may be used only if the fund is expecting to be able to duplicate these returns over the next decade.
  C. may be used as long as there is a clear statement that the illustration in no way predicts or projects what an investor who invests $10,000 today would have in his account in ten years.

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  Explanation/Reference:

  The brochure may contain an example illustrating how much an investor who had invested $10,000 with the fund ten years ago would have in his account today as long as there is a clear statement that the illustration in no way predicts or projects what an investor who invests $10,000 today would have in his account in ten years. Hypothetical illustrations are permitted.

• Question 54:

  Ken has a variable life policy and recently learned that he can borrow against its cash value to help pay for some of the expenses he's incurring while pursuing a graduate degree.

  Which of the following statements about the loan he can get is true?

  A. Ken can borrow at most only 50% of the cash value, and only as long as he's had the policy for at least three years.
  B. Since Ken is essentially borrowing his own money; the loan is interest-free.
  C. Ken never has to repay the loan, but if he chooses not to do so, his wife, Barbie, won't get as much when he dies.
  D. Ken has been misinformed. He cannot borrow against the cash value of a variable life policy because the cash values of these policies fluctuate constantly.
  C. Ken never has to repay the loan, but if he chooses not to do so, his wife, Barbie, won't get as much when he dies.

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  Explanation/Reference:

  The true statement is that Ken never has to repay the loan, but if he chooses not to do so, his wife, Barbie, won't get as much when he dies. He can borrow up to at least 75% of the cash value, but there is interest charged on the loan. (In essence, he's paying interest to himself, though.)

• Question 55:

  Which of the following is not a secured debt issue?

  A. a collateral trust receipt
  B. a subordinated debenture
  C. an equipment trust receipt
  D. a mortgage bond
  B. a subordinated debenture

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  Explanation/Reference:

  A subordinated debenture is not a secured debt issue. All the other choices are. Collateral trust receipts are back by stocks and bonds owned by the issuing firm. An equipment trust receipt is backed by specific equipment owned by the firm. A mortgage bond is backed by real estate.

• Question 56:

  Which of the following statements regarding the required distribution of income by a regulated investment company are true?

  A. Both short-term and long-term capital gains earned by the company can be distributed only once a year.
  B. Under current tax laws, qualifying dividends distributed to the company's investors are taxable to those investors at a preferential rate-i.e., either 0% or 15%, depending on the investor's marginal tax rate.
  C. If an investor in the investment company has elected to reinvest his dividend and capital income in the company rather than receiving a check, then the investor is not required to pay taxes on the reinvested funds.
  D. Both A and B are true statements.
  B. Under current tax laws, qualifying dividends distributed to the company's investors are taxable to those investors at a preferential rate-i.e., either 0% or 15%, depending on the investor's marginal tax rate.

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  Explanation/Reference:

  The statement regarding the required distribution of income by a regulated investment company that is true is that under current tax laws, qualifying dividends distributed to the company's investors are taxable to those investors at a preferential rate-i.e., either 0% or 15%, depending on the investor's marginal tax rate. This preferential treatment is due to expire on Dec. 31, 2010 unless it is extended. Only long-term capital gains earned by the company can only be distributed once a year. Short-term capital gains are generally distributed along with dividends-usually once a quarter. Even if an investor elects to reinvest dividend and capital gain income rather than receiving a check, the investor must still pay taxes on the income he would have received had he not made the election.

• Question 57:

  A FINRA member who is a principal underwriter under the definition provided in the Investment Company Act of 1940 is permitted to sell variable contracts through another broker-dealer only if:

  I. the broker-dealer is also a FINRA member.

  II. there is a sales agreement in effect between the underwriter and the broker-dealer.

  III.

  the broker-dealer is also a principal underwriter as defined by the Investment Company Act of 1940.

  A. either I or II is true.
  B. both I and II are true.
  C. all three statements-I, II, and III-are true.
  D. any one of the three statements-I, II, or III-are true.
  I. the broker-dealer is also a FINRA member. II. there is a sales agreement in effect between the underwriter and the broker-dealer. III. the broker-dealer is also a principal underwriter as defined by the Investment Company Act of 1940.
  B. both I and II are true.

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  Explanation/Reference:

  A FINRA member who is a principal underwriter under the definition provided in the Investment Company Act of 1940 is permitted to sell variable contracts through another broker-dealer only if both statements I and II are true. The broker-dealer must also be a FINRA member, and there must be a sales agreement in effect between the underwriter and the broker-dealer.

• Question 58:

  The difference between a “redemption fee” and a “rear-end load” is that:

  A. the redemption fee is another name for a 12b-1 fee, which is an annual expense associated with the fund.
  B. a rear-end load is used to compensate a salesperson who has sold shares of the fund; a redemption fee is charged to offset the expenses a fund incurs in processing share redemptions.
  C. the redemption fee refers to charges incurred by the fund when it sells securities it owns; the rear-end load is a fee that is incurred by investors in the fund when they redeem their shares of the fund.
  D. There is no difference. These are synonymous terms.
  B. a rear-end load is used to compensate a salesperson who has sold shares of the fund; a redemption fee is charged to offset the expenses a fund incurs in processing share redemptions.

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  Explanation/Reference:

  The difference between a “redemption fee” and a “rear-end load” is that a rear-end load is used to compensate a salesperson who has sold shares of the fund, while a redemption fee is charged to offset the expenses a fund incurs in processing share redemptions.

• Question 59:

  The stock of Hasbro Corporation (HAS) is selling for $44.50 and pays a dividend of $1.00 a share. What is its dividend yield, rounded to the nearest hundredth of a percent?

  A. 1.00%
  B. 2.25%
  C. 4.45%
  D. none of the above
  B. 2.25%

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  Explanation/Reference:

  If Hasbro is selling for $44.50 and pays a dividend of $1.00 a share, its dividend yield is 2.25%. The dividend yield is the dividend divided by the market price: $1.00/$44.50 = 2.25%.

• Question 60:

  A bond has a face value of $1,000, matures in 10 years, and pays an 8% coupon, with interest paid semiannually. If the bond is priced to yield 8.8%, it is selling:

  A. at par.
  B. at a discount.
  C. at a premium.
  D. at its maturity value.
  B. at a discount.

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  Explanation/Reference:

  If the bond is priced to yield 8.8%, it is selling at a discount. Its nominal yield is the same as its coupon rate, 8%, which is what it would yield if it were selling at its par value, which is the same as its maturity value and its face value--$1,000. In order to be yielding more than this, the bond has to be selling for less than its face value, such that investors are also getting a return from capital gains. A bond that is selling below its face value is said to be selling at a discount.