Finra Series-6 Exam Questions Instant Access

Question 1

on No: 187

A plan under which employees of state and local governments can contribute part of their salaries such that those earnings will grow tax-deferred until retirement is called a:

Aprofit-sharing plan.

Bmoney purchase plan.

CSection 457 plan.

DSection 501 plan.

Answer : C

A plan under which employees of state and local governments can contribute part of their salaries such that those earnings will grow tax-deferred until retirement is called a Section 457 plan. Profit-sharing and money purchase plans are retirement plans that may be available to employees of for-profit companies. Section 501 of the IRS code covers non-profit corporations.

Question 2

Which of the following is not an advantage that an exchange traded fund (ETF) has over a traditional mutual fund?

AThere are no fees (i.e., loads, commissions) associated with buying and selling ETFs.

BETFs trade continuously throughout the day.

CInvestors can use limit and stop orders when trading ETFs.

DAll of the above are advantages that an ETF has over a traditional mutual fund.

Answer : A

The choice that does not represent an advantage that an ETF has over a traditional mutual fund is Choice A. While ETFs have no load charges, investors do pay commissions when buying or selling these funds. ETFs do offer the advantage of continuous trading, and investors can use limit and stop orders when trading ETFs, options that are not available when trading mutual funds.

Question 3

Under FINRA rules, the variable contract sales agreement must specify that any sales commission is to be returned to the insurance company if the buyer terminates the contract within:

Aone week.

B5 business days.

C7 business days.

D10 business days.

Answer : C

Under FINRA rules, the variable contract sales agreement must specify that any sales commission is to be returned to the insurance company if the buyer terminates the contract within 7 business days.

Question 4

The American Funds family of funds offers numerous funds to investors. Among these are a U.S. government bond fund, a high-yield corporate bond fund, a diversified emerging markets fund, and a large stock growth fund. Of these four, the one that would expose the investor to the most social and political risk is its:

AU.S. government bond fund.

Bdiversified emerging markets fund.

Clarge stock growth fund.

Dhigh-yield corporate bond fund.

Answer : B

An investor will be most exposed to social and political risk in American's diversified emerging markets fund. This fund invests, by definition, in securities offered by firms located in developing countries, whose economies are in transition. Often, the political and social environment of these countries is very unstable.

Question 5

Mr. Big of HiGrow Corporation needs more money to support the exceptional growth rate that his firm is enjoying. He meets with BigFee Investment Banker, who agrees to handle the IPO for HiGrow. As part of the process, BigFee's staff works with HiGrow's accountants to prepare the registration statement that is filed with the SEC . After the issue has been sold to the public, Mr. Sharp, a CPA who has invested in the stock of HiGrow, discovers that there are some accounting irregularities in the financial statements provided in HiGrow's prospectus.

Who can be sued for the misleading statements?

i. Mr. Big

ii. Big Fee Investment Banker

iii. HiGrow's accountants

IV. HiGrow's attorneys

AI and II only

BII and III only

CI, III, and IV only

DI, II, III, and IV

Answer : D

All of the entities can be sued for misleading statements found in HiGrow's financial statements. The Securities Act of 1933 holds any individual who participates in bringing the new issue to the public civilly liable for misrepresentations found in the prospectus.

Question 6

Giant Investments mass mails a single-page, glossy flyer that lists the types of mutual funds it offers, along with a general explanation of what the investment objective of each type of fund is. The flyer also prominently provides Giant's contact information. Given these facts:

AGiant Investments must submit a copy of this brochure within 10 days of its initial distribution date to FINRA.

Ba principal of Giant Investments must sign (or initial) and date the brochure, giving it his official approval.

Cthe brochure will be subject to spot checks by FINRA and will need to be kept on file.

DNone of the above statements is true.

Answer : D

Given the facts about the content of the flyer, none of the statements is true. If Giant Investments mass mails a flyer that only lists the types of mutual funds it offers along with a general explanation of what the investment objective of each type of fund is and Giant's contact information, it has issued only a generic advertisement as defined by Rule 135A of the Securities Act of 1933. As such, it is not considered an offer to sell and does not have to meet the requirements to which more specific advertising material is subject.

Question 7

Tex Payor bought shares of the Stocks4U Mutual Fund on February 26th. During the year, the fund sold some of the stocks in which it was invested, generating long-term capital gain income for the fund. Tex received a distribution of some of these gains at the end of the year, based on his proportio nate ownership of the fund.

Which of the following statements is true regarding the tax consequences of this distribution to Tex?

ATex will have to pay tax on the distribution at his marginal tax rate. Since Tex had not been invested in the fund for over 12 months when the distribution occurred, it is considered to be short -term capital gain income for him, which is taxed as ordinary income.

BTex will have to pay tax on the distribution unless he opts to reinvest the distribution in the fund, in which case the income will not be taxable.

CTex will have to pay tax on the distribution at the tax rate for long-term capital gains, which are currently taxed preferentially.

DThere are no tax consequences to Tex. Mutual fund investors are taxed only on dividend distributions and on capital gains realized when they sell shares of a fund that they own. Capital gains earned by the fund when securities are bought and sold by the fund's manager are taxed to the fund.

Answer : C

When Tex receives distributions of long-term capital gain income earned by a fund that he bought on February 26th, he will have to pay tax on the distribution at the tax rate for long -term capital gains, which are currently taxed preferentially. The amount of time the fund held the securities prior to selling them determines whether the capital gain distribution will be considered long -term or short-term, not the amount of time the investor has owned shares of the fund. All distributions-both dividends and capital gains-are taxable at the shareholder level, not at the fund level.

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