QUESTION: 25

Asset allocation involves:

selecting the investments that are expected to offer the highest return over your client's investment horizon.
determining the percentages that your client should be investing in various types of investments (e.g., stocks, bonds) based on his investment objectives.
selecting the investments that will expose your client to the least amount of risk.
determining the specific stocks and bonds in which your client should invest his funds.

Answer(s): B

Explanation:

Asset allocation involves determining the percentages that your client should be investing in various types of investments (e.g., stocks, bonds) based on his investment objectives. You should not necessarily select investments that are expected to offer the highest return for a risk-averse client because higher returns entail more risk exposure. Nor should you necessarily select investments that will expose your client to the least amount of risk. These may not offer the client the return he needs to achieve his investment goals. Asset allocation refers only to determining the types of investments, not the specific investments within each category. Specific investment selection is the next step after the asset allocation decision is made.

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QUESTION: 26

The investment banker bears the risk if the securities do not sell in a(n):

firm commitment underwriting agreement.
best efforts agreement.
all-or-nothing commitment.
None of the above selections are correct. The investment banking firm is never exposed to risk if the securities don't sell.

Answer(s): A

Explanation:

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: 27

Joe Cool is a member of the All Greek Fraternity. A few of the alumni of his fraternity sat for the FINRA Series 6 exam over the past couple of years and, using their cell phones, took pictures of the exam questions. They forwarded these to their fraternity to be included in the test bank file the fraternity keeps in its study room.
Have there been any violations of FINRA/NASD rules in this instance?

No. It is standard practice for sororities and fraternities to compile test banks of old exams, and since the forwarded tests are not copies of an actual future exam that will be administered, there has been no violation of any rules.
Yes. It is a violation of Rule 2110 for an exam-past or present-to be reproduced and distributed for study purposes.
No. Rule 2110 only prohibits the reproduction and distribution of a previously administered FINRA exam for study purposes if the exams are being sold. As long as there is no compensation involved, a violation has not been committed.
Both A and C are true statements.

Answer(s): B

Explanation:

Yes, there have been violations of FINRA/NASD rules in this instance. It is a violation of Rule 2110 for an exam-past or present-to be reproduced and distributed for study purposes. Whether there has been compensation paid or not is irrelevant.

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QUESTION: 28

After passing the Series 6 and becoming a registered representative, you will be able to execute transactions in which of the following securities?

I). corporate stocks
II). mutual funds
III). corporate bonds
IV). variable contracts

I, II, III, and IV
I, II, and IV only
II and III only
II and IV only

Answer(s): D

Explanation:

After passing the Series 6 and becoming a registered representative, you will be able to execute transactions in mutual funds and variable contracts only. A passing grade on the Series 6 qualifies you to be registered as a "limited representative."

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QUESTION: 27

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