FINRA FINRA-SERIES-63 Online Practice Questions and Exam Preparation

FINRA FINRA-SERIES-63 Online Questions & Answers

• Question 181:

  Which of the following is not considered to be a security, as defined by the Uniform Securities Act (USA)?

  A. a debenture
  B. a certificate of deposit (CD)
  C. a put option
  D. an annuity contract wherein an insurance company promises to pay a fixed sum, either in a lump amount or through periodic payments.
  D. an annuity contract wherein an insurance company promises to pay a fixed sum, either in a lump amount or through periodic payments.

  ---

  Explanation/Reference:

  The Uniform Securities Act excludes annuity contracts wherein an insurance company promises either to pay a fixed sum, either in a lump amount or through periodic payments, from its definition of a security. Debentures, CDs, and option contracts are all classified as securities under the USA.

• Question 182:

  Which of the following compensation arrangements between an investment adviser and an individual client with a net worth of $600,000 would be disallowed?

  A. The client agrees to pay the investment adviser an hourly fee of $60.00.
  B. The investment adviser will receive 0.1% of the total value of the client's assets under management as of the end of each month.
  C. The investment adviser will receive 0.1% of the gross capital gains earned on the portfolio each quarter.
  D. All of the above are legitimate compensation arrangements between and investment adviser and an individual client with a net worth of $600,000.
  C. The investment adviser will receive 0.1% of the gross capital gains earned on the portfolio each quarter.

  ---

  Explanation/Reference:

  A compensation arrangement between an investment adviser and an individual client with a net worth of $600,000 that stipulates the adviser will receive 0.1% of the gross capital gains earned on the portfolio would be disallowed. An investment adviser of an individual client cannot be compensated with a share of the capital gains earned on the portfolio unless that client has a net worth of at least $1.5 million or has at least $750,000 invested through that investment adviser.

• Question 183:

  You are an agent with a broker-dealer and have learned of limited partnership interests being sold by a small company that is planning to come out with a product that you think is going to "wow" the market. You would like to get in on the action, but the minimum investment needed is $10,000, and you don't have that kind of dough lying around. You talk to your brother, who is also one of your clients, and get him interested in investing in the firm, too. The two of you decide to pull your money together, each putting in $5,000, and you agree to split any profits or losses.

  Is this permitted?

  A. Yes. This is permitted since the agreement is between you and a family member.
  B. Maybe. But it will require written consent from both your brother and your firm.
  C. Yes, as long as your brother provides your firm with his written consent.
  C. Yes, as long as your brother provides your firm with his written consent.

  ---

  Explanation/Reference:

  It may be permissible for you and your brother to open a joint account to invest in this partnership since he is a family member, but it will require the written consent of both your brother and your firm, and your firm is under no obligation to give its consent.

• Question 184:

  The state of Massachusetts has issued a general obligation (G.O.) bond that pays 3% interest. As an agent selling this bond, you can legitimately tell the investor that

  A. the bond is guaranteed by the state of Massachusetts and is, therefore, a risk-free investment.
  B. the interest income the investor receives from the bond will be free from federal taxation.
  C. all state general obligation bonds are also guaranteed by the federal government.
  D. all of the above statements are true.
  B. the interest income the investor receives from the bond will be free from federal taxation.

  ---

  Explanation/Reference:

  An agent selling a Massachusetts general obligation bond can legitimately tell the investor that the interest income he receives from the bond will be free from federal taxation. It is not, however, a risk-free investment. States may default on their bond issues, and bonds issued by states are not guaranteed by the federal government.

• Question 185:

  BondsRUs is a broker-dealer that (unsurprisingly) specializes in bonds. The firm has found that it is able to sell Treasury bonds that it buys for $90 per $100 of par value for $99 per confirmation statements BondsRUs sends them. BondsRUs is guilty of

  A. nothing. It is acting as a dealer in bonds and, as such, can charge its clients whatever the clients are willing to pay.
  B. overcharging its clients by unreasonable markups. A $9 dealer's spread on Treasury bonds is unwarranted.
  C. fraud.
  D. both B and C.
  B. overcharging its clients by unreasonable markups. A $9 dealer's spread on Treasury bonds is unwarranted.

  ---

  Explanation/Reference:

  BondsRUs is guilty of overcharging its clients by unreasonable markups. A $9 dealer's spread on a risk-free investment such as a Treasury bond is unwarranted, and this practice is prohibited. Based on the information provided, BondsRUs is not guilty of fraud since it appears that the firm is revealing the markup in its confirmation statements. The clients just aren't paying attention.

• Question 186:

  Newbie Corporation is considering the possibility of an interstate initial public offering (IPO) of its stock. In the initial meetings with BigFee Investment Bankers, Newbie has learned that the underwriting spread will be 15%. Although the actual offering price won't be set until Newbie's registration statement is approved by the SEC, BigFee has indicated that the offer price will probably be between $3 and $4 a share and that the stock will initially be listed on the OTC Bulletin Board.

  What methods for state registration does Newbie have available?

  I. registration by coordination

  II. registration by notification

  III.

  registration by qualification

  A. Newbie may elect to register by any one of the above methods although registration by qualification would be the most burdensome choice.
  B. Method I only
  C. Methods I and III only
  D. Method II only
  I. registration by coordination II. registration by notification III. registration by qualification
  C. Methods I and III only

  ---

  Explanation/Reference:

  Newbie may apply for state registration using either the registration by coordination or the registration by qualification method, although the latter method is the most burdensome of the three. The firm is not eligible to register by notification. To be eligible, the offer price of the IPO would have to be at least $5, and the underwriting spread would need to be no greater than 10%.

• Question 187:

  A limited power-of-attorney gives the designated person the right to

  I. order the sale of an asset owned by the account holder and have a check written to the account holder for the amount of the proceeds.

  II. obtain account statements, including tax statements, on behalf of the account holder.

  III.

  order the purchase of an asset for the account holder's account.

  A. I, II, and III
  B. I and II only
  C. II and III only
  D. I and III only
  I. order the sale of an asset owned by the account holder and have a check written to the account holder for the amount of the proceeds. II. obtain account statements, including tax statements, on behalf of the account holder. III. order the purchase of an asset for the account holder's account.
  C. II and III only

  ---

  Explanation/Reference:

  Only Selections II and III are true. A limited power-of-attorney gives the designated person the right to obtain account statements, including tax statements, on behalf of the account holder and to order the purchase of an asset for the account holder's account. Only a full (or unlimited) power-of-attorney allows the designated person to withdraw any proceeds from the account.

• Question 188:

  If a person has had its license revoked by the Administrator of the state and has appealed the decision to a court of law, that person

  A. can continue business as usual pending the resolution of the appeal.
  B. must notify the Administrator of the state that it has appealed the decision.
  C. is considered to have a revoked license until the courts rule otherwise.
  D. Both B and C are true statements.
  D. Both B and C are true statements.

  ---

  Explanation/Reference:

  If a person has had its license revoked by the Administrator of the state and has appealed the decision to a court of law, that person must notify the Administrator of the state that it has appealed the decision, but that person is considered to have a revoked license until the courts rule otherwise and may not continue "business as usual."

• Question 189:

  The Administrator of a state will deny the registration of a security if

  I. the mandated filing fee has not been paid.

  II. the compensation of the underwriters is excessive.

  III. the registration statement is incomplete.

  IV.

  the issuer is registering the security through the registration by coordination process and has not complied with all the stipulated requirements.

  A. I, II, III, or IV
  B. I or III only
  C. III or IV only
  D. I, III or IV only
  I. the mandated filing fee has not been paid. II. the compensation of the underwriters is excessive. III. the registration statement is incomplete. IV. the issuer is registering the security through the registration by coordination process and has not complied with all the stipulated requirements.
  A. I, II, III, or IV

  ---

  Explanation/Reference:

  The Administrator of a state will deny the registration of a security under any of the situations described in Selections I, II, III, and IV-if the mandated filing fee has not been paid; if the compensation of the underwriters is excessive; if the registration statement is incomplete; or if the issuer is attempting to use registration by coordination and has not complied with all the stipulated requirements of that process.

• Question 190:

  When selling shares of an investment company to a client, an agent must provide the client with

  I. the fund's prospectus, which provides information on any loads or other fees as well as historical return information.

  II. information about any breakpoints if it is a load fund along with an explanation of a letter of intent

  III.

  information regarding the investment adviser used by the fund IV. an explanation of the various loads and fees outlined in the fund's prospectus

  A. I, II, III, and IV
  B. I, II, and III only
  C. I and II only
  D. I, II, and IV only
  I. the fund's prospectus, which provides information on any loads or other fees as well as historical return information. II. information about any breakpoints if it is a load fund along with an explanation of a letter of intent III. information regarding the investment adviser used by the fund IV. an explanation of the various loads and fees outlined in the fund's prospectus
  D. I, II, and IV only

  ---

  Explanation/Reference:

  When selling shares of an investment company to a client, the agent must provide the client with the fund's prospectus and provide the client with an explanation of the various loads and fees and any breakpoints that, if reached, will result in a lower load charge for the client, along with information on a letter of intent, which the client can execute. The agent need not provide any information regarding the investment adviser used by the fund although that information is contained in the prospectus as well.