Finra Investment Company and Variable Contracts Products Representative Series-6 Exam Questions

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Total 325 questions
Question 1

Yvette is a recently-widowed 63-year-old. The couple had no children, and when her husband died, she was the beneficiary of his $45,000 life insurance policy. She also receives benefits from his retirement plan and social security, but this income falls about $300 short of covering her regular monthly expenses, which includes a sizeable amount for health insurance. In the months since her husband's death, she sold their larger home and purchased a condominium, netting $80,000 from the combined transactions. Yvette was a homemaker all her life, and her husband handled all their finances, so Yvette is just learning how to balance her checkbook. One thing she does know is that she is going to have to purchase a new car within the next few months. Yvette is in good health and expects to live at least another 25 years.

Which of the following types of investments should be included in recommending an asset allocation to Yvette?



Answer : B

Given her age, her stated need to buy a new car within the next few months, and the fact that she is experiencing a monthly cash shortfall, Yvette has a need for liquidity, which the money market fund will provide. She will need the cash to buy a car, and she needs to have cash readily available to pay for some unexpected expenses as well since her income stream is fixed and isn't currently covering her needs. A life insurance policy is definitely not an appropriate choice since it doesn't appear that there is anyone dependent on Yvette for his well-being. An aggressive growth stock fund would be too risky, given her age and background, and based on the facts, her marginal tax rate should be extremely low, which does not make the municipal bond fund a good choice since she would be earning a lower return with little or no benefit.


Question 2

Simple Simon owns 1,000 shares in the Pasty Pie Corporation, which has just declared a stock dividend of 5%. Just prior to this announcement, Pasty Pie was selling for $10 a share. This announcement will:



Answer : C

If Simple Simon owns 1,000 shares of Pasty Pie Corporation when Pasty declares a 5% stock dividend, the stock dividend will increase his number of shares to 1,050, but it will not affect the market value of Simple's holdings since the market price per share will also decrease proportionately. The aggregate market value of the firm stays the same, but the number of shares outstanding increases, resulting in a lower market value per share. Simple's proportionate ownership remains the same because his shares increased in the same percentage as the shares outstanding of the firm did. A stock dividend does not result in any cash payments to the shareholders.


Question 3

Under FINRA's rules regarding proper supervision, member firms must:

i. have clear written procedures to supervise the activities of its principals, registered representatives, and other associated persons.

ii. designate as an office of supervisory jurisdiction (OSJ) any office of the member that engages in maintaining custody of the funds and/or securities of the member's customers.

iii. prohibit the use of any electronic communication method, including personal electronic devices, for business-related communications unless the use of the devices can be properly supervised and the communications retained.

IV. regularly evaluate the effectiveness of its supervisory policies.



Answer : D

Under FINRA's rules regarding proper supervision, member firms must engage in the activities described in all four statements, including prohibiting the use of personal electronic devices for business-related communications unless the devices can be properly supervised and the communications retained.


Question 4

Paul is 36 years old and is married with two children, ages eight and ten. Paul lays carpet for a living, working as an independent contractor, and earns about $35,000 a year. His wife, Paula, is 33 years old, drives a school bus and earns only $18,000 a year, but her job provides the family with low-cost health insurance. They live conservatively and barely make ends meet. Paula recently inherited $180,000, however, and the couple would like to invest it, with the goal that they can both retire when Paul turns 62. The inheritance also included an educational endowment for their children, so they will not have to worry about saving for their children's college educations.

Which of the following would not be a suitable recommendation for the allocation of their investment monies?



Answer : A

Given that their combined income is only $53,000, Paul and Paula's marginal tax rate is low, so a municipal bond fund would not be a good recommendation for the allocation of their investment monies. Municipal bonds offer lower returns, and the couple would get little or no benefit from the tax-free interest income that these bonds provide. Their investment horizon is long enough (26 years) for them to invest some of their money in an aggressive growth stock fund, which has higher risk but also provides the higher expected returns that they may need to be able to retire when Paul turns 62. A Roth IRA is preferred over a traditional IRA in their situation. Although the traditional IRA would allow them to deduct their contributions, they already pay little or no taxes. Contributions to a Roth IRA are made out of after-tax income, but the contributions themselves can be withdrawn at any time without penalty if Paul and Paula run into some unexpected expenses, and the earnings grow tax-deferred and will be completely tax-free if they make no withdrawals until the age of 59 . Given the ages of their children, a life insurance policy that will help provide for them if one or both of the parents die, should be strongly recommended.


Question 5

Which of the following would offer an investor the most protection against purchasing power risk?



Answer : A

A stock mutual fund would offer an investor the most protection against purchasing power risk. Purchasing power risk is the risk that the money received from the investment won't buy as much because of inflation. Stock funds offer higher returns that have historically exceeded the annual rate of inflation, on average. The majority of the return from bond funds is from the fixed interest payment, which does not change regardless of the inflation rate, so the return earned by the investor may end up being less than the inflation rate in any given year. Likewise, money market funds offer very low returns that, in some years, are less than the rate of inflation.


Question 6

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



Answer : D

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 7

A general decrease in price levels in the economy is referred to as:



Answer : D

A general decrease in price levels in the economy is referred to as deflation. Disinflation refers to a decrease in the rate of inflation, but price levels in general are still rising. Stagflation refers to an economic condition characterized by high levels of inflation and high unemployment levels. A recession is a prolonged decline in the general economy, typically measured by a decline in the nation's gross domestic product (GDP).


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Total 325 questions