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

FINRA FINRA-SERIES-6 Online Questions & Answers

• Question 61:

  A long-term, unsecured bond issued by a corporation is called:

  A. a debenture.
  B. a general obligation bond.
  C. commercial paper.
  D. an industrial revenue bond.
  A. a debenture.

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  Explanation/Reference:

  A long-term, unsecured bond issued by a corporation is called a debenture. Commercial paper is short-term debt of a corporation, and general obligation and industrial revenue bonds are issued by state and local governments.

• Question 62:

  Mr. Cashout recently sold some mutual fund shares that he owned. The sale resulted in long -term capital gain income of $6,000. He also sold some shares of a stock he had purchased during the year and realized a short-term capital gain on the sale of $2,000. The sale of another individual stock resulted in a short-term capital loss of $3,500. Mr. Cashout also had some bonds that he had bought at a premium mature, resulting in a long-term capital loss of $500.

  What is Mr. Cashout's net capital gain or loss from these transactions?

  A. a net long-term capital gain of $4,500
  B. a net long-term capital gain of $4,000
  C. a net short-term capital loss of $4,000
  D. a net long-term capital gain of $8,000
  B. a net long-term capital gain of $4,000

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  Explanation/Reference:

  If Mr. Cashout sold mutual fund shares for a long-term capital gain of $6,000, had bonds that matured that resulted in a short-term capital loss of $500, and realized a short-term capital gain of $2,000 and a short-term capital loss of $3,500 on the sale of shares of individual stocks that he owned, he has a net long-term capital gain of $4,000. The long-term gains and losses are netted first: $6,000 - $500 = $5500 long-term gain. Then the short-term gains and losses are netted: $2,000 - $3,500 = -$1,500. The short-term capital loss can be used to offset part of the long-term capital gain, resulting in a ($5500 - $1,500 =) $4,000 long-term capital gain.

• Question 63:

  Which of the following types of securities would not be traded in the over-the-counter market?

  I. stock options

  II. government bonds

  III. corporate bonds

  IV.

  corporate stocks

  A. I only
  B. I and IV only
  C. III and IV only
  D. All of the choices are traded in the over-the-counter market.
  I. stock options II. government bonds III. corporate bonds IV. corporate stocks
  D. All of the choices are traded in the over-the-counter market.

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  Explanation/Reference:

  All of the choices listed-and more-are traded in the over-the-counter market: stock options, government bonds, corporate bonds, and corporate stocks. Additionally, securities such as warrants, rights, forward contracts, and foreign currencies also trade in the over-the-counter market.

• Question 64:

  Which of the following pieces of information may not be contained in a tombstone advertisement under SEC rules?

  A. the name of the issuer
  B. the name and address of a place where a prospectus can be obtained
  C. the price of the offering
  D. the type of business in which the issuing firm is engaged
  C. the price of the offering

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  Explanation/Reference:

  A tombstone advertisement may not contain the price of the offering under SEC rules. The final price would not have been set at this point anyway.

• Question 65:

  Giant Investments is introducing a new fund to its family of funds that it plans to name the Asian Fund. Giant may do so only if:

  A. no other family of mutual funds has a fund with this name.
  B. the fund has a policy to invest at least 80% of its assets in investments that are economically tied to Asian countries.
  C. the fund's prospectus provides the specific criteria that will be used by the fund to select its investments.
  D. Giant may do so only if both B and C are true.
  D. Giant may do so only if both B and C are true.

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  Explanation/Reference:

  Giant may only name the new fund the Asian Fund if the fund has a policy to invest at least 80% of its assets in investments that are economically tied to Asian countries and the fund's prospectus provides the specific criteria that will be used by the fund to select its investments.

• Question 66:

  Which of the following statements regarding callable bonds is false?

  A. Callable bonds offer a higher yield than non-callable bonds, all else equal.
  B. Investors in callable bonds are subject to prepayment risk.
  C. The issuer of a callable bond is most likely to redeem the bond early when interest rates fall.
  D. A callable bond protects the investor by allowing him to sell his bond back to the issuer and invest in another, similar-risk bond that pays a higher rate of interest should the investor choose to do so.
  D. A callable bond protects the investor by allowing him to sell his bond back to the issuer and invest in another, similar-risk bond that pays a higher rate of interest should the investor choose to do so.

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  Explanation/Reference:

  Statement D is the false statement. A callable bond does not protect the investor by allowing him to sell his bond back to the issuer and invest in another, similar-risk bond that pays a higher rate of interest should the investor choose to do so. The investor does not have the option to redeem or not in the case of a callable bond. It is the issuing firm that has the option. Therefore, a callable bond must offer a higher-yield than similar non-callable bonds, and the investor in a callable bond is subject to prepayment risk. The bond is most likely to be redeemed when interest rates fall, in which case the issuer will want to call it in and replace it with a bond with a lower coupon rate.

• Question 67:

  SuperDOT is:

  A. an electronic communication network (ECN).
  B. an electronic system whereby trades are executed on NASDAQ.
  C. an electronic system used to place orders on the NYSE.
  D. both A and C.
  C. an electronic system used to place orders on the NYSE.

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  Explanation/Reference:

  SuperDOT is an electronic system used to place market and limit orders on the NYSE whereby the orders are routed directly to the specialist in the assigned stocks. It is not an ECN, which is an electronic network that is designed to allow buyers and sellers to interact directly with each other, thereby bypassing the middlemen.

• Question 68:

  Which of the following statements made by a registered representative selling a variable life insurance policy would be likely to result in disciplinary action?

  A. “If you use the cash value of your existing life insurance policy, Ms. Client, you will be able to purchase this new policy for little or no additional cash.”
  B. “Ms. Client, you should consider this as more of an investment than an insurance policy.”
  C. “This variable life insurance policy offers a death benefit just like your traditional life insurance policy, Ms. Client.”
  D. Both Statements A and B are likely to result in disciplinary action.
  D. Both Statements A and B are likely to result in disciplinary action.

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  Explanation/Reference:

  Both Statements A and B are likely to result in disciplinary action. Members are advised not to recommend that a client finance a variable life policy using the cash value of an existing policy unless that transaction is otherwise suitable for that particular client, and members are warned that proving such a transaction was in the customer's best interest is probably going to be more difficult than an outright sale of the variable life policy would have been. Members are also instructed that in no way should a variable life insurance policy be promoted as an investment, a retirement plan, or a savings account. Members are required to market it as what it is-life insurance.

• Question 69:

  Mr. Schaker hasn't been seeing a lot of clients these days with the recent market downturn-which means he hasn't been generating any commissions, and commissions are his bread and butter. So, Mr. Schaker does some Googling on his computer and notes that a prominent family of load funds has just introduced a new global fund. Scribbling the name and contact information of the fund family on his notepad, he begins calling his existing clients and promoting the new fund, encouraging his clients to redeem some shares in their existing funds to invest in this fund.

  Has Mr. Schaker violated any securities laws?

  A. No. In FINRA's rules regarding fair dealing with customers, the SRO clearly states that “This does not mean that legitimate sales efforts in the securities business are to be discouraged. . . “
  B. Yes. Mr. Schaker is recommending the fund to his existing clients to benefit himself, not them.
  C. No. Research indicates that new funds tend to offer abnormally high returns for the first 12 months of their existence, so Mr. Schaker is doing his clients a favor even if he himself stands to profit.
  D. Yes. A registered representative should always refrain from recommending shares of a load fund; trades involving load funds should always be “unsolicited.”
  B. Yes. Mr. Schaker is recommending the fund to his existing clients to benefit himself, not them.

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  Explanation/Reference:

  Yes. Mr. Schaker has violated securities laws in recommending a fund that he doesn't even seem to have researched very well to his existing clients, some of whom may not be suitable candidates for a global fund, which invests in foreign as well as domestic securities. Although FINRA's rules do indicate that it is not trying to stymie legitimate sales efforts, Mr. Schaker's actions do not fall within this category. There is no research that indicates new funds tend to offer abnormally high funds for the first 12 months of their existence, and if Mr. Schaker would have implied that, he could be up on criminal fraud charges. There is no law, however, that prohibits a registered representative from recommending a load fund to a client, as long as there is a legitimate reason for doing so.

• Question 70:

  12b-1 fees refer to:

  A. the front-end or back-end load that a mutual fund charges.
  B. the management fees of a mutual fund.
  C. fees that some mutual funds charge to pay for certain of its marketing expenses.
  D. fees that mutual funds pay the broker-dealers that execute their trades.
  C. fees that some mutual funds charge to pay for certain of its marketing expenses.

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  Explanation/Reference:

  12b-1 fees are fees that some mutual funds charge to pay for certain of its marketing expenses.