Finra Series-6 Exam Practice Test Instant Access

Question 1

An ADR is:

Aa bond issued by an American firm that is denominated in dollars, but is sold to foreign investors.

Ba receipt designating ownership of shares of a foreign stock that are held in a trust.

Canother name for bankers' acceptances.

Da certificate of deposit offered by a foreign bank that is denominated in U.S. dollars.

Answer : B

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 2

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

Athe name of the issuer

Bthe name and address of a place where a prospectus can be obtained

Cthe price of the offering

Dthe type of business in which the issuing firm is engaged

Answer : C

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 3

Anna Lyst observes that the beta of a certain stock is 0.8. This means that:

Aif the S&P 500 Index loses 10%, this stock can be expected to lose 8%.

Bthe stock is 80% more volatile than the S&P 500 Index.

Cif the S&P 500 Index is up 10%, this stock can be expected to lose 8%.

Dthe stock is riskier than the overall market.

Answer : A

If the beta of a stock is 0.8, it means that if the S&P 500 Index loses 10%, this stock can be expected to lose 8%. Beta is a measure of how a stock or a portfolio of stocks moves with the overall market, and the S&P 500 Index is commonly used as a proxy for the overall market. A beta of 0.8 means that the stock is less risky than the market, which has a beta of 1.0.

Question 4

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.

AI and IV only

BI, II, and IV only

CI, III, and IV only

DI, II, III and IV

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 5

Which of the following would be the most suitable investment for a client who has retired and needs some current income to augment her social security check?

Agrowth fund

Bvariable life policy

Cmoney market fund

DU.S. government bond fund

Answer : D

Of the choices provided, the most suitable investment for a client who has retired and needs some current income to augment her social security check would be a U.S. government bond fund. The growth fund is mostly invested in stocks that provide their return in the form of capital appreciation, not dividend income. The variable life policy would not offer her the current income she needs and may even have a surrender charge. Furthermore, these policies are insurance, not investments. A money market fund is good for capital preservation and some of her funds should be invested in a money market fund to meet this objective, but it will not provide her with current income. A U.S. government bond fund is less risky than other bond funds--although its value will fluctuate with interest rate changes-and will provide her with the supplemental income she requires.

Question 6

Which of the following relationships regarding shares of common stock are necessarily true?

i. shares outstanding > issued shares

ii. authorized shares issued shares

iii. issued shares = treasury shares

IV. issued shares shares outstanding

AI and II only

BII and IV only

CI, II, and III only

DII, III, and IV only

Answer : B

Only Selections II and IV are necessarily true. The number of authorized shares must always be greater than or equal to the number of shares that the firm offers to the public, which are the issued shares. The number of issued shares will be equal to the number of shares outstanding as long as the firm doesn't buy back any of its outstanding shares. Otherwise, the number of issued shares will exceed the number of shares outstanding since issued shares = shares outstanding + treasury shares. The issued shares would only be equal to the treasury shares if the firm repurchased all its shares outstanding.

Question 7

What did the Howey Decision?

Aprovided for fixed annuities to be excluded from the definition of a security.

Bdefined an investment contract as any investment of money in a common enterprise with the expectation of earning a profit from the efforts of others.

Cstipulated that all general partnerships were investment contracts and, therefore, securities, as defined by the Securities Exchange Act of 1934.

Ddetermined that certificates of deposit issued by a bank and insured by the FDIC did not qualify as securities, as defined by the Securities Exchange Act of 1934.

Answer : B

The Howey Decision defined an investment contract as any investment of money in a common enterprise with the expectation of earning a profit from the efforts of others. General partnerships do not fall under the definition of investment contracts since the general partners are actively involved in the business operations. Although both fixed annuities and bank CDs are excluded from the definition of a security, this was not part of the Howey Decision.

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