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FINRA Series 6 Exam
Investment Company and Variable Contracts Products Representative Examination (IR) (Page 7 )

Updated On: 26-Jan-2026
Page 7 of 66
PDF with 325 Questions

Your client is trying to choose between a variable annuity and a fixed annuity. You can tell him that:

I). the fixed annuity will make guaranteed monthly payments, but has more purchasing power risk than a variable annuity.
II). he can expect higher monthly payments from his fixed annuity during a bear market than he would get from a variable annuity.
III). the earnings on both variable and fixed annuities grow tax-deferred.

  1. I only
  2. I and II only
  3. I and III only
  4. I, II, and III

Answer(s): C

Explanation:

Only Statements I and III are accurate. When your client is trying to choose between a variable annuity and a fixed annuity, you can tell him that the fixed annuity will make guaranteed monthly payments, but has more purchasing power risk than a variable annuity, and that the earnings on both variable and fixed annuities grow tax-deferred. You cannot tell him that he can expect higher monthly payments from his fixed annuity during a bear market than he would get from a variable annuity. This will depend on various factors, such as the amount of the fixed annuity payment, the assumed interest rate, and the actual returns earned on the variable annuity investment portfolio.



Rank the following funds in order of their relative risk, from highest to lowest:

I). growth fund
II). high-yield bond fund
III). high-grade bond fund
IV). international fund

  1. IV, I, II, III
  2. I, IV, III, II
  3. II, IV, I, III
  4. IV, II, I, III

Answer(s): A

Explanation:

The funds ordered by their relative risk from highest to lowest are IV, I, II, III). The highest risk is an international fund that invests in foreign securities, which exposes the investor to more currency exchange risk and some social and political risk as well. Next is the growth fund that invests most of its funds in domestic stocks, which are riskier than bonds. The high-yield bond fund is a junk bond fund and, as such, is next in the list. The high-grade bond fund invests mostly in investment-grade bonds, which offer investors a moderate risk exposure and is the least risky of the choices listed.



As her college graduation present, Jennifer's grandmother gave her 200 shares of the stock of IBM. Her grandmother had purchased the shares for $54 a share in October 2002, and the stock was selling for $132 a share on the day of Jennifer's graduation eight years later. Eight months after her graduation,
Jennifer decides to sell the shares to get money to help with the down payment on a condo she is purchasing.
If IBM is selling for $125 on the day of the sale, what are the tax consequences of this sale for Jennifer?

  1. Jennifer will have taxable income of $15,600, which will be taxed as long-term capital gain income at a tax-preferred rate.
  2. Jennifer will have taxable income of $14,200, which will be taxed as long-term capital gain income at a tax-preferred rate.
  3. Jennifer will have a loss of $1,400, which will be treated as a short -term capital loss for tax purposes.
  4. Jennifer will have taxable income of $14,200, which will be taxed as long-term capital gain income at a tax-preferred rate.

Answer(s): B

Explanation:

If Jennifer's grandmother gave her stock that she had purchased for $54 a share on a day it was selling for $132, and Jennifer then sold it eight months later for $125, Jennifer will have taxable income of $14,200, which will be taxed as long-term capital gain income at a tax-preferred rate. The cost basis of a gift is the price that the donor paid for it --$54, in this case. Jennifer's gain is, therefore, ($125 - $54) x 200 shares = $14,200. The holding period of the donor also becomes the holding period for the gift's recipient, so the $14,200 will be treated as long-term capital gain income since her grandmother had owned the stock for eight years prior to gifting it.



In order for the Invest4U Mutual Fund to qualify as a regulated investment company under Internal Revenue Code Subchapter M, it must:

  1. distribute at least 90% of its net investment income to its shareholders.
  2. distribute at least 98% of its net income from capital gains to its shareholders.
  3. invest at least 75% of its monies in diversified securities.
  4. Both A and B are required for Invest4U to qualify as a regulated investment company.

Answer(s): D

Explanation:

To qualify as a regulated investment company, Invest4U must distribute at least 90% of its net investment income to its shareholders and distribute at least 98% of its net income from capital gains to its shareholders. Only 50% of its monies needs to be invested in diversified securities to qualify.



The Invest4U Mutual Fund is a regulated investment company under Internal Revenue Code Subchapter M. This means that:

  1. Invest4U must submit an annually-updated prospectus to the IRS as well as to the SEC.
  2. Invest4U does not itself have to pay taxes on any dividend or capital gain income it receives and distributes to its shareholders.
  3. Invest4U is a UIT.
  4. Invest4U is a non-diversified management company.

Answer(s): B

Explanation:

A regulated investment company under Internal Revenue Code Subchapter M is one that does not itself have to pay taxes on any dividend or capital gain income it receives and distributes to its shareholders. There is no requirement that it file an updated prospectus with the IRS, nor that it be a non-diversified management company. By definition, a mutual fund is not a UIT.



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