FINRA Series 6 Exam Practice Questions (P. 3)
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Question #21
The investment banker bears the risk if the securities do not sell in a(n):
- Afirm commitment underwriting agreement.
- Bbest efforts agreement.
- Call-or-nothing commitment.
- DNone of the above selections are correct. The investment banking firm is never exposed to risk if the securities don’t sell.
Correct Answer:
A
The investment banker bears the risk if the securities do not sell in a firm commitment underwriting agreement. In this type of agreement, the investment banker purchases the security from the issuing firm and is fully exposed to any risk associated with the issue.
A
The investment banker bears the risk if the securities do not sell in a firm commitment underwriting agreement. In this type of agreement, the investment banker purchases the security from the issuing firm and is fully exposed to any risk associated with the issue.
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Question #22
Which of the following steps in the underwriting process will occur last?
- AThe underwriting syndicate is formed.
- BThe selling group is organized.
- CThe public offering price is set.
- DA red herring prospectus is circulated to the public.
Correct Answer:
C
The public offering price is set at the latest possible minute. The underwriters want to have the most current information available when setting the price, especially since they will experience the loss if the securities fail to sell for at least that price.
C
The public offering price is set at the latest possible minute. The underwriters want to have the most current information available when setting the price, especially since they will experience the loss if the securities fail to sell for at least that price.
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Question #23
Which of the following is not a feature associated with an investment in preferred stock?
- AThe dividend is typically a fixed amount.
- BIf a dividend payment is skipped, it must typically be made up before common shareholders can receive any dividends.
- CPreferred shareholders usually have the right to vote on members of the board of directors, mergers, and shareholder proposals.
- DThe preferred stock may be convertible to common stock.
Correct Answer:
C
Choice C describes a feature that is not associated with an investment in preferred stock. Preferred shareholders usually have no voting rights whatsoever. Preferred stock usually pays a fixed dividend and is usually cumulative, which means that missed dividends must be made up before common shareholders can receive any dividends. Preferred stock sometimes has a convertible feature, which allows the preferred stockholders to convert their shares to common stock.
C
Choice C describes a feature that is not associated with an investment in preferred stock. Preferred shareholders usually have no voting rights whatsoever. Preferred stock usually pays a fixed dividend and is usually cumulative, which means that missed dividends must be made up before common shareholders can receive any dividends. Preferred stock sometimes has a convertible feature, which allows the preferred stockholders to convert their shares to common stock.
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Question #24
Nat Informed places a market order to buy 200 shares of Abercrombie & Fitch (ANF) on Thursday, September 16th.
When will Nat be required to pay for this Transaction?
When will Nat be required to pay for this Transaction?
- Aby the end of the trading on September 15th.
- Bon the next trading day, September 16th.
- Con Tuesday, September 21st.
- Don Friday, September 17th.
Correct Answer:
C
If Nat places an order to purchase 200 shares of Abercrombie & Fitch on Thursday, September 16th, payment will be due on Tuesday, September
21st. The settlement date for stock transactions is T + 3, which means the third business day after the trade. Saturday is not a business day.
C
If Nat places an order to purchase 200 shares of Abercrombie & Fitch on Thursday, September 16th, payment will be due on Tuesday, September
21st. The settlement date for stock transactions is T + 3, which means the third business day after the trade. Saturday is not a business day.
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Question #25
Connie Serve placed an order to purchase five, $1,000 Treasury bonds in the secondary market on Tuesday, October 12th.
Connie will be required to pay for this purchase on which day?
Connie will be required to pay for this purchase on which day?
- ATuesday, October 12th.
- BWednesday, October 13th.
- CThursday, October 14th.
- DFriday, October 15th.
Correct Answer:
B
Connie will be required to pay for this purchase on Wednesday, October 13th. The settlement date for Treasury securities and exchange-listed options is one business day after the trade date, or T + 1.
B
Connie will be required to pay for this purchase on Wednesday, October 13th. The settlement date for Treasury securities and exchange-listed options is one business day after the trade date, or T + 1.
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Question #26
On Monday, August 2nd, the Board of Directors of Baldor Electric (BEZ) announced that the firm would pay a dividend of $0.17 a share. Payment will be made on
Friday, October 8th to shareholders of record as of Friday, September 17th.
In order to receive this dividend check, an investor would have to purchase shares of Baldor Electric before which day?
Friday, October 8th to shareholders of record as of Friday, September 17th.
In order to receive this dividend check, an investor would have to purchase shares of Baldor Electric before which day?
- AMonday, August 2nd.
- BWednesday, September 15th.
- CFriday, September 17th.
- DFriday, October 8th.
Correct Answer:
B
In order to receive the dividend check, an investor would have to purchase shares of Baldor Electric before Wednesday, September 15th, the ex- dividend date. The ex-dividend date of a stock is two business days prior to the date of record.
B
In order to receive the dividend check, an investor would have to purchase shares of Baldor Electric before Wednesday, September 15th, the ex- dividend date. The ex-dividend date of a stock is two business days prior to the date of record.
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Question #27
On Friday, August 6th, the Board of Directors of Ecolab (ECI) announced that it would pay a dividend of $0.155 a share to shareholders of record as of Tuesday,
September 21st.The dividend checks were scheduled to be mailed on Friday, October 15th. In this scenario, the ex-dividend date is:
September 21st.The dividend checks were scheduled to be mailed on Friday, October 15th. In this scenario, the ex-dividend date is:
- AFriday, August 6th.
- BFriday, September 17th.
- CTuesday, September 21st.
- Dnone of the above.
Correct Answer:
B
The ex-dividend date is Friday, September 17th in this scenario. It is two business days prior to the date of record, which is Tuesday, September 21st in this example. Saturday is not considered a business day, so the ex-dividend date is the preceding Friday.
B
The ex-dividend date is Friday, September 17th in this scenario. It is two business days prior to the date of record, which is Tuesday, September 21st in this example. Saturday is not considered a business day, so the ex-dividend date is the preceding Friday.
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Question #28
On Friday, August 6th, the Board of Directors of Ecolab (ECI) announced that it would pay a dividend of $0.155 a share to shareholders of record as of Tuesday,
September 21st.The dividend checks were scheduled to be mailed on Friday, October 15th. In this scenario, the payment date is:
September 21st.The dividend checks were scheduled to be mailed on Friday, October 15th. In this scenario, the payment date is:
- AFriday, August 6th.
- BFriday, September 17th.
- CTuesday, September 21st.
- Dnone of the above.
Correct Answer:
D
The payment date is none of the choices listed. The payment date is the day the checks are scheduled to be mailed-Friday, October 15th.
D
The payment date is none of the choices listed. The payment date is the day the checks are scheduled to be mailed-Friday, October 15th.
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Question #29
Given the same maturity, which of the following debt instruments would you expect to offer the highest yield-to-maturity?
- Aa debenture issued by Abbott Laboratories
- Ba bond issued by the Federal Home Loan Bank Board
- Ca general obligation bond issued by the state of Massachusetts
- Da U.S. Treasury bond
Correct Answer:
A
Given the same maturity, the debenture issued by Abbott Laboratories would be expected to offer the highest yield -to-maturity. It is unsecured debt offered by a corporation and is the riskiest of the four choices. Bonds issued by the U.S. government and by U.S. government agencies are considered to be free of default-risk and would have lower yields to reflect this. The general obligation bond offered by the state of Massachusetts pays interest that is free from federal taxation and will have a lower yield because of this feature.
A
Given the same maturity, the debenture issued by Abbott Laboratories would be expected to offer the highest yield -to-maturity. It is unsecured debt offered by a corporation and is the riskiest of the four choices. Bonds issued by the U.S. government and by U.S. government agencies are considered to be free of default-risk and would have lower yields to reflect this. The general obligation bond offered by the state of Massachusetts pays interest that is free from federal taxation and will have a lower yield because of this feature.
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Question #30
Jack purchased a new bond of the Candlestick Corporation for its face value of $1,000. The bond has a coupon rate of 3.5%, makes semiannual interest payments, and matures in fifteen years. A year after purchasing the bond, Jack needs to sell the bond to offset some major expenses he incurred when his home caught on fire. Interest rates in the economy at this time have fallen to 3.0%.
Given this scenario, when Jack sells the bond, he can expect to receive which of the following?
Given this scenario, when Jack sells the bond, he can expect to receive which of the following?
- Amore than what he originally paid for the bond.
- Bless than what he originally paid for the bond.
- Cexactly what he paid for the bond.
- D$965, which is what he paid for the bond less the $35 in interest he received during his year of owning the bond.
Correct Answer:
A
Since interest rates in the economy have decreased, Jack can expect to receive more than what he originally paid for the bond. Bond prices move inversely with interest rate changes, all else equal.
A
Since interest rates in the economy have decreased, Jack can expect to receive more than what he originally paid for the bond. Bond prices move inversely with interest rate changes, all else equal.
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