Series 6: Mastery Exam UPDATED ACTUAL Questions and CORRECT Answers
require that payment be made two business days after
settlement date
The provisions of Regulation T
Regulation T requires that payment be made within two
business days of settlement date
Jane was excited when you told her you were watching for
an opportunity to acquire an equity position in a five-year Timing risk
old, publicly traded growth company you recently heard
about, which recently released a report on a new ana- Jane must be made aware of timing risk. Timing risk can
lytical computer program it created to more accurately be defined as the potential to incur a loss as a result of
predict weather-related crop impacts. While insisting on buying or selling a particular security at an unfavorable
patience, Jane told you to "get in now." Which of the time
following risks should Jane be made aware of?
Call risk
Reinvestment risk
Investors who purchase callable bonds face what types of Call risk is the risk that the bonds will be called, and the
investment risk? investor will lose the stream of income from the bond.
- Call risk Remember that bonds do not pay interest after they have
- Reinvestment risk been called. The call feature also causes reinvestment risk.
- Principal risk If interest rates are down when the call takes place, what
- Regulatory risk likelihood does the investor have of investing the principal
received at a comparable rate of the bond that was called?
Both call risk and reinvestment risk also apply to callable
preferred stock
assets - liabilities
Which of the following formulas determines a customer's An individual, like a business, has a financial balance
net worth? sheet—a snapshot of her financial condition at a point in
time. A customer's net worth is determined by subtracting
liabilities from assets (assets - liabilities = net worth)
,A mutual fund investor wants to know how closely your
there is no industry standard breakpoint schedule
firm adheres to the industry's standardized breakpoint
the complete breakpoint schedule for a fund is given in
schedule and where he can find out more about break-
the prospectus
points offered with the funds he is investing in. You tell
him
FINRA does not have a standardized breakpoint schedule.
- FINRA's standard breakpoint schedule is available only to
Breakpoints vary from fund to fund but must be described
professionals.
in full in the prospectus, together with how an account is
- there is no industry standard breakpoint schedule.
assessed for breakpoint purposes. The Statement of Ad-
- the breakpoint schedule for a mutual fund is given in full
ditional Information contains more in-depth information
only in the SAI.
than is normally found in the prospectus. Breakpoints are
- the complete breakpoint schedule for a fund is given in
covered in the SIE
the prospectus.
misleading because closed-end fund shares are subject to
A prospect has primary investment objectives of current market pricing
income and safety of principal. During the initial public
offering of a closed-end government bond fund, an agent Though parts of the agent's presentation are factually
explains to the prospect that the fund invests in U.S. gov- accurate, overall, the statements are misleading because
ernment-backed bonds, which keeps principal safe, and the value of the fund is subject to unpredictable change.
plans to make monthly distributions. Therefore, little could Closed-end funds can—and often do—trade below their
go wrong. Taken as a whole, this representation is net asset value, thus subjecting the customer's principal to
risk
At its annual compliance meeting (ACM), ABC Brokerage
decided that an untapped marketing potential presented If ABC believed no further use was to be made of the
itself in the form of a targeted investment program for all survey, it need not be approved prior to communicating
individual customers with $50 million in total assets—a the plan's first use
list of 120 customers. To implement the plan, a resource
oflcer of the firm contacted a sample of 45 customers to As this communication was to customers with total assets
answer a survey as to the least invasive and most impactful of $50 million, they are considered institutional customers.
method to prove the program's worth. When asked by the Therefore, as long as the firm has no reason to believe
CCO of the firm for the survey results, it was determined otherwise, it need not be approved before first use
to be a winning plan and the go ahead was given. The
, next business day, the prospects were contacted about
the plan. Which of the following were needed to be in
compliance with FINRA?
An open-end investment company seeks to achieve max-
imum income with little or no pursuit of appreciation. the NavCo High Yield Fund
The fund invests in preferred stocks of small- and medi-
um-sized companies that are just below investment grade, Only the high yield fund fits the fund characteristics. The
as well as bonds rated from B to BBB. The fund's man- objective of the fund described is income that is derived
agement believes that, despite the risks involved with the from both preferred shares and debt. Because the portfo-
individual securities, adequate diversification can result in lio's risk characteristics are such that a higher element of
superior investment returns. This information would most risk is present, higher yields would be expected
likely be describing
All of the following statements regarding municipal bond
oflcial statements are true except
- a customer must receive an oflcial statement no later an oflcial statement must be delivered only upon cus-
than the settlement date tomer request
- all purchasers of a new municipal bond issue must
receive a final oflcial statement A final oflcial statement must be delivered to all buyers of
- the MSRB does not require the preparation of a final a new issue on or before the settlement date. The MSRB
oflcial statement for new municipal bond issues does not regulate issuers
- an oflcial statement must be delivered only upon cus-
tomer request
10 business days of the request
If a customer requests to see the predispute arbitration Virtually all new account forms contain a predispute arbi-
agreement they have signed, a member firm must supply tration clause that must be signed by customers before
them with a copy within account opening. If requested by a customer to see it,
a member firm must supply them with a copy within 10
business days
require that payment be made two business days after
settlement date
The provisions of Regulation T
Regulation T requires that payment be made within two
business days of settlement date
Jane was excited when you told her you were watching for
an opportunity to acquire an equity position in a five-year Timing risk
old, publicly traded growth company you recently heard
about, which recently released a report on a new ana- Jane must be made aware of timing risk. Timing risk can
lytical computer program it created to more accurately be defined as the potential to incur a loss as a result of
predict weather-related crop impacts. While insisting on buying or selling a particular security at an unfavorable
patience, Jane told you to "get in now." Which of the time
following risks should Jane be made aware of?
Call risk
Reinvestment risk
Investors who purchase callable bonds face what types of Call risk is the risk that the bonds will be called, and the
investment risk? investor will lose the stream of income from the bond.
- Call risk Remember that bonds do not pay interest after they have
- Reinvestment risk been called. The call feature also causes reinvestment risk.
- Principal risk If interest rates are down when the call takes place, what
- Regulatory risk likelihood does the investor have of investing the principal
received at a comparable rate of the bond that was called?
Both call risk and reinvestment risk also apply to callable
preferred stock
assets - liabilities
Which of the following formulas determines a customer's An individual, like a business, has a financial balance
net worth? sheet—a snapshot of her financial condition at a point in
time. A customer's net worth is determined by subtracting
liabilities from assets (assets - liabilities = net worth)
,A mutual fund investor wants to know how closely your
there is no industry standard breakpoint schedule
firm adheres to the industry's standardized breakpoint
the complete breakpoint schedule for a fund is given in
schedule and where he can find out more about break-
the prospectus
points offered with the funds he is investing in. You tell
him
FINRA does not have a standardized breakpoint schedule.
- FINRA's standard breakpoint schedule is available only to
Breakpoints vary from fund to fund but must be described
professionals.
in full in the prospectus, together with how an account is
- there is no industry standard breakpoint schedule.
assessed for breakpoint purposes. The Statement of Ad-
- the breakpoint schedule for a mutual fund is given in full
ditional Information contains more in-depth information
only in the SAI.
than is normally found in the prospectus. Breakpoints are
- the complete breakpoint schedule for a fund is given in
covered in the SIE
the prospectus.
misleading because closed-end fund shares are subject to
A prospect has primary investment objectives of current market pricing
income and safety of principal. During the initial public
offering of a closed-end government bond fund, an agent Though parts of the agent's presentation are factually
explains to the prospect that the fund invests in U.S. gov- accurate, overall, the statements are misleading because
ernment-backed bonds, which keeps principal safe, and the value of the fund is subject to unpredictable change.
plans to make monthly distributions. Therefore, little could Closed-end funds can—and often do—trade below their
go wrong. Taken as a whole, this representation is net asset value, thus subjecting the customer's principal to
risk
At its annual compliance meeting (ACM), ABC Brokerage
decided that an untapped marketing potential presented If ABC believed no further use was to be made of the
itself in the form of a targeted investment program for all survey, it need not be approved prior to communicating
individual customers with $50 million in total assets—a the plan's first use
list of 120 customers. To implement the plan, a resource
oflcer of the firm contacted a sample of 45 customers to As this communication was to customers with total assets
answer a survey as to the least invasive and most impactful of $50 million, they are considered institutional customers.
method to prove the program's worth. When asked by the Therefore, as long as the firm has no reason to believe
CCO of the firm for the survey results, it was determined otherwise, it need not be approved before first use
to be a winning plan and the go ahead was given. The
, next business day, the prospects were contacted about
the plan. Which of the following were needed to be in
compliance with FINRA?
An open-end investment company seeks to achieve max-
imum income with little or no pursuit of appreciation. the NavCo High Yield Fund
The fund invests in preferred stocks of small- and medi-
um-sized companies that are just below investment grade, Only the high yield fund fits the fund characteristics. The
as well as bonds rated from B to BBB. The fund's man- objective of the fund described is income that is derived
agement believes that, despite the risks involved with the from both preferred shares and debt. Because the portfo-
individual securities, adequate diversification can result in lio's risk characteristics are such that a higher element of
superior investment returns. This information would most risk is present, higher yields would be expected
likely be describing
All of the following statements regarding municipal bond
oflcial statements are true except
- a customer must receive an oflcial statement no later an oflcial statement must be delivered only upon cus-
than the settlement date tomer request
- all purchasers of a new municipal bond issue must
receive a final oflcial statement A final oflcial statement must be delivered to all buyers of
- the MSRB does not require the preparation of a final a new issue on or before the settlement date. The MSRB
oflcial statement for new municipal bond issues does not regulate issuers
- an oflcial statement must be delivered only upon cus-
tomer request
10 business days of the request
If a customer requests to see the predispute arbitration Virtually all new account forms contain a predispute arbi-
agreement they have signed, a member firm must supply tration clause that must be signed by customers before
them with a copy within account opening. If requested by a customer to see it,
a member firm must supply them with a copy within 10
business days
