Finra Series-6 Exam Questions Instant Access

Question 1

Ms. Newbie, a registered representative employed by Savvy Investments, has received a letter of complaint from a client that Ms. Newbie believes is unfair and illegitimate. More specifically, she believes that the complaint misstates the facts. Under these circumstances, Ms. Newbie:

Acan toss the complaint in the trash.

Bmust respond to the complaint in writing.

Cmust provide a copy of the complaint to Savvy Investments, who can decide whether or not to ignore the letter after hearing Ms. Newbie's side of the story.

Dmust provide a copy of the complaint to Savvy Investments, who is required to respond to the complaint in writing and to keep a record of it.

Answer : D

If Ms. Newbie receives a letter of complaint from a client, she must provide a copy of the complaint to Savvy, who is required to respond to the complaint in writing and to keep a record of it. It doesn't matter whether or not the complaint is deemed to be unfair and illegitimate by Ms. Newbie and/or her employer, Savvy.

Question 2

The ''statement of additional information'' (SAI) that mutual funds and closed-end funds are required to produce:

Amust be provided to prospective investors whenever an offer to sell shares of these funds is made.

Bmust be sent to shareholders of the fund on at least a semiannual basis.

Cusually contains some biographical information on the officers and directors of the fund.

DBoth A and B are true statements.

Answer : C

The ''statement of additional information'' (SAI) that mutual funds and closed-end funds are required to produce usually contains some biographical information on the officers and directors of the fund. The SAI need only be provided to prospective investors upon request, and it is not sent to shareholders of the fund. Shareholders of the fund receive annual and semiannual reports from the fund, however.

Question 3

Ms. Mix always assures her clients that she will be calling them with quarterly recommendations for rebalancing their portfolios if there are any changes that she feels are appropriate. This has worked out well for her pocketbook since she has always been able to tweak each of her clients' investment portfolios a little each quarter by recommending that they redeem their shares in one fund that hasn't performed as well in the last quarter and use the proceeds to invest in another that has. Her clients feel cared for since she is in such regular contact with them.

Is Ms. Mix violating any securities regulations with this policy of hers?

ANo. Ms. Mix is merely providing good service to her customers.

BYes. Mutual funds are not designed to be short-term investments.

CIt depends. There is no violation as long as her clients' portfolios are increasing in value.

DYes. Any recommendation that benefits a registered representative is deemed to be in violation of FINRA's rules regarding fair dealing.

Answer : B

Yes. Mutual funds are not designed to be short-term investments, and Ms. Mix should not be calling her customers quarterly with rebalancing recommendations. Even if one fund has outperformed another in a particular quarter, there is no guarantee that this will happen in the next quarter. This violation falls under FINRA's rules regarding the trading of mutual fund shares, even if the trading results in an increase in the clients' portfolio values. Ms. Mix can certainly call her clients each quarter to see if they have any questions or concerns or to say hello; her clients will still feel cared for. It is not a violation for a registered representative to make a recommendation that benefits her as well as her clients as long as the recommendation is made to benefit the client first and foremost.

Question 4

The AGRO Mutual Fund invests in aggressive growth stocks of midcap corporations. The fund is running an advertisement on the radio that informs the listeners that AGRO earned a 22% return last year while the S&P 500 Index returned only 10%. The ad also contains information regarding how an interested investor can contain a fund prospectus.

Has AGRO violated any securities laws with this advertisement?

ANo. This would be considered a generic advertisement and not an offer to sell.

BNo. In addition to providing the listeners with its own return last year, AGRO appropriately provided the listeners with a benchmark return; thus there has been no violation of any laws.

CYes. Although AGRO provided the return on the S&P 500 as well as its own return, the S&P 500 Index is comprised of average risk stocks and is not an appropriate benchmark for AGRO to use.

DYes. AGRO is required to provide information on the specific investments it made to earn that 22% return, given that the return is unusually high.

Answer : C

Yes. When AGRO runs an advertisement that informs the listeners that it earned a 22% return last year while the S&P 500 Index returned only 10%, it has violated securities laws because although the fund provided the return on the S&P 500 as well as its own return, it failed to mention that the S&P 500 Index is comprised of large company stocks of average risk, which is not an appropriate benchmark for AGRO to use. The appropriate index is one comprised of similar stocks, such as the Russell Mid-Cap Growth Index. Furthermore, any advertisement referencing past returns must contain a statement that past performance is not indicative of future performance.

Question 5

Rank the following entities with regard to the priority of their claims on a firm-from the highest priority to the lowest priority-in the event of bankruptcy.

i. common shareholders

ii. preferred shareholders

iii. secured bondholders

IV. debenture holders

AIII, II, IV, I

BII, III, I, IV

CIII, IV, II, I

DIV, III, II, I

Answer : C

Choice C correctly ranks the entities with regard to the priority of their claims on the firm in the event of bankruptcy, from the highest priority to the lowest priority. Secured bondholders get paid first, then debenture (unsecured bond) holders, followed by preferred shareholders. Common shareholders come in last.

Question 6

Which of the following describes a difference between a unit investment trust (UIT) and a mutual fund?

AUITs have a fixed number of shares; mutual funds do not.

BUITs are not required to distribute dividends and capital gains to their shareholders as mutual funds must.

CUITs must hold non-diversified portfolios; mutual funds may be either non-diversified or diversified.

DAll of the above describe differences between a UIT and a mutual fund.

Answer : A

The difference between a unit investment trust and a mutual fund is that UITs have a fixed number of shares; mutual funds do not. Both UITs and mutual funds are required to distribute dividends and capital gains to their shareholders and both may invest in either diversified or non -diversified portfolios.

Question 7

Which of the following statements regarding CMOs is false?

ACMOs are zero-coupon bonds that are backed by real estate.

BRelative to other bonds, CMOs are illiquid.

CCMO investors are divided into classes, and the class determines when the investor will receive payments of principal.

DCMOs are considered to have lower risk and, therefore, offer lower returns.

Answer : A

The false statement is that CMOs are zero-coupon bonds that are backed by real estate. CMOs are not zero-coupon bonds; they make payments that include both interest and principal.

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