Finra Series-6 Exam Practice Test Instant Access

Question 1

The stock of eBay, Inc. (EBAY) currently has a beta of 1.67. Based on this, which of the following statements are necessarily true?

i. If the market is up 5%, an investor can expect the returns on eBay to increase by 1.67 times this amount, or 8.35%.

ii. eBay would be a particularly good investment for an investor with a short investment horizon.

iii. The returns on eBay are more volatile than the returns on the market in general.

IV. eBay has more unsystematic risk than the market in general.

AI only

BI and II only

CI and III only

DI, II, III, and IV

Answer : C

Only Selections I and III are necessarily true. eBay's beta of 1.67 means that if the market is up 5%, an investor can expect the returns on eBay to increase by 1.67 times this amount, or 8.35%, and since eBay's beta is greater than 1.0, we can say that the stock's returns are more volatile than the returns on the market in general. Although eBay may have more unsystematic risk than the market in general, beta is not a measure of this. Beta is a measure of the market, or systematic, risk of the stock.

Question 2

Which of the following plans does not have the requirement that its participants must begin withdrawing funds from the plan by April 1st of the year after they turn 70 ?

i. SIMPLE IRA II. 401(k)

iii. Roth IRA

IV. profit-sharing plan

AI and III only

BI, III and IV only

CIII only

DAll of the above have a mandatory distribution requirement.

Answer : C

The Roth IRA does not have the requirement that its participants must begin withdrawing funds from the plan by April 1st of the year after they turn 70 . The Roth IRA does, however, have a mandatory distribution requirement that goes into effect if the participant dies.

Question 3

Any person who willfully acts in violation of the Securities Act of 1933, or any SEC rule, is subject to a penalty of:

A10 years in prison or a $10,000 fine, or both.

B5 years in prison or a $10,000 fine, or both.

C10 years in prison or a $25,000 fine, or both.

D5 years in prison or a $5,000 fine, or both.

Answer : B

Any person who willfully acts in violation of the Securities Act of 1933, or any SEC rule, is subject to a penalty of 5 years in prison or a $10,000 fine, or both.

Question 4

: 202

Sarah Bean is a registered representative with NewWave Investments, a family of mutual funds. She has recommended one of NewWave's funds to a client and given him a prospectus. The prospectus provides information about the fund's breakpoints and indicates that an investment of $25,000 or more will lead to a reduced front-end load. The prospectus also clearly explains the details of a letter of intent. Sarah's client invests $23,000 in the fund then and there without even opening the prospectus.

Has Sarah violated any of FINRA's rules of conduct?

ANo. Sarah properly provided her client with a prospectus prior to selling him shares of the fund.

BYes. Sarah is required to explain the concepts of breakpoints and letters of intent to her client.

CYes. Sarah needed to tell her client that he would have to read through the prospect us to ensure he understood all aspects of the investment before she could take any money from him.

DYes. Sarah is not permitted to accept funds from a client without the presence of her immediate supervisor.

Answer : B

Yes. Sarah is required to explain the concepts of breakpoints and letters of intent to her client and her failure to do so is a violation of FINRA's rules of conduct. A registered representative selling mutual fund shares is required to explain the salient facts contained in a fund's prospectus to a client before selling him the fund shares. Sarah's failure to do so is deemed ''inconsistent with just and equitable principles of trade.''

Question 5

The entity that serves as the auctioneer for trades conducted on an organized exchange floor is known as a:

Aregistered trader.

Bspecialist.

Cfloor broker.

Dcommission broker.

Answer : B

The entity that serves as the auctioneer for trades conducted on an organized exchange floor is known as a specialist. The specialist is assigned stocks by the exchange and is a market maker in those stocks. A registered trader is a private individual who buys and sells on his own account only. Floor brokers and commission brokers execute trades for other investors.

Question 6

Jack is an investment adviser representative employed by Giant Investments, a family of mutual funds. Jack has recently read an article posted on the web that he thinks explains some consequences of some tax law changes that are being considered extremely well, and he e-mails his existing retail customers with a summary of the salient facts of the article. Given these facts:

AJack has violated FINRA rules if he did not first have a principal of Giant approve his e -mail prior to hitting the send button.

BJack must submit a copy of the e-mail to a principal of the company, but he did not need to do so prior to sending the e-mail.

Ca copy of the e-mail must be submitted to FINRA within 10 days of Jack's hitting the send button.

DBoth A and C are true statements regarding this situation.

Answer : B

When Jack e-mails some of his existing retail clients with a summary of the tax article, he must submit a copy of the e-mail to a principal of the company, but he does not need to do so prior to sending the e-mail. Since this was sent to Jack's existing retail customers, it falls under the category of ''correspondence,'' which does not need to be approved by a principal beforehand, but is subject to review and supervision requirements.

Question 7

Cliff places an order to sell 500 shares of the stock of Gap, Inc. (GPS) via his broker's website. Cliff does not currently own any shares of GPS. This order is:

Aillegal, and the broker's website will reject it.

Ban example of a stop loss order.

Creferred to as a short sale.

Dindicating that Cliff expects the price of Gap, Inc. to rise.

Answer : C

When Cliff places an order to sell shares of GPS, a stock he doesn't own, on his broker's website, it is referred to as a short sale. A short sale is defined as the sale of borrowed stock and is placed by an investor who expects the price of that stock to fall in the near future, at which point the investor will buy it back at a lower price and return it, profiting from the price differential.

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