FINRA Series 6 — All Questions

A closed-end fund has a net asset value of $20.00 a share and its shares trade at $18.00. How should the shares be described?

• a.They trade at a 90% discount to NAV
• b.They trade at a 10% discount to NAV✓
• c.They trade at a 10% premium to NAV
• d.They trade at an 11.1% discount to NAV

The discount is the NAV minus the price, divided by NAV: $2.00 divided by $20.00 is 10%. Dividing by the market price instead gives 11.1%, which is the common error.

During the accumulation phase of a variable annuity, how does the owner's account value change?

• a.The account value is guaranteed by the insurer, so it cannot fall below the premiums paid
• b.The value of each accumulation unit is fixed and the number of units changes with performance
• c.The number of accumulation units is fixed at purchase and the value of each unit is guaranteed by the insurer, whatever the separate account earns
• d.The number of accumulation units grows with purchases, and the value of each unit changes with the separate account's performance✓

In the accumulation phase, premiums buy accumulation units whose value rises and falls with the separate account's investments. Investment risk is borne by the owner, and only separately purchased guarantees would provide a floor.

A money market fund is evaluating a security for purchase. What is the longest remaining maturity that Rule 2a-7 allows for an eligible security?

• a.397 calendar days✓
• b.120 calendar days
• c.60 calendar days
• d.13 months measured from the date of the security's issue

An eligible security under Rule 2a-7 has a remaining maturity of 397 calendar days or less. Sixty days is the limit on the portfolio's weighted average maturity and 120 days is the limit on weighted average life.17 CFR 270.2a-7

Under the Investment Company Act, which feature defines a redeemable security?

• a.The holder may present it to the issuer at any time and receive its original offering price in cash
• b.The holder may present it to the issuer and receive approximately a proportionate share of the issuer's current net assets or the cash equivalent✓
• c.The holder may sell it to the issuer at the price it paid, with the issuer guaranteeing that price
• d.The holder may exchange it for a share of any other fund managed by the same adviser at par

A redeemable security entitles its holder, on presentation to the issuer, to approximately a proportionate share of the issuer's current net assets or the cash equivalent. The amount depends on NAV, not on what the holder paid.Investment Company Act of 1940 Section 2(a)(32)

Which money market fund must compute its price per share using a floating NAV rounded to at least the fourth decimal place for a $1.0000 share price?

• a.A fund that is open only to natural persons and holds tax-exempt securities
• b.Any fund that invests exclusively in U.S. Treasury securities
• c.A fund that is neither a government money market fund nor a retail money market fund✓
• d.Any fund that has a weighted average maturity of under 30 days

Rule 2a-7 lets government and retail money market funds use a stable price through amortized cost or penny rounding, but other funds must price at current NAV rounded to the fourth decimal place for a $1.0000 fund. Institutional prime and tax-exempt funds are the usual examples.17 CFR 270.2a-7

Which description fits a face-amount certificate company?

• a.An investment company with no board of directors that issues redeemable units of a fixed portfolio
• b.An investment company that continuously offers redeemable shares of a managed portfolio
• c.An investment company that sells a fixed number of shares that trade in the secondary market
• d.An investment company that issues face-amount certificates of the installment type✓

The Act divides investment companies into three classes: face-amount certificate companies, unit investment trusts and management companies. The first issues face-amount certificates of the installment type, which are debt-like obligations to pay a stated amount at maturity.Investment Company Act of 1940 Section 4(1)

A bond with a 5% coupon and a $1,000 par value is bought at 80. What is its current yield?

• a.6.25%✓
• b.25.00%
• c.5.00%
• d.4.00%

Current yield is the annual interest divided by the market price: $50 divided by $800 is 6.25%. Dividing by par gives the 5% coupon rate, and 4% comes from dividing the coupon by the price in the wrong order.

An exchange-traded fund holds a foreign security in its redemption basket, and a local market holiday delays delivery. Under Rule 6c-11, by when must the fund deliver that security to a redeeming authorized participant?

• a.On the next business day after the local market reopens, with no outside limit
• b.Within 30 days after the tender, provided the fund first notifies the SEC
• c.Within 7 days after the tender of the ETF shares, with no exemption for holidays
• d.As soon as practicable, and no later than 15 days after the tender of the ETF shares✓

Section 22(e) bars postponing redemption payment for more than seven days. Rule 6c-11 gives an ETF relief for foreign basket securities delayed by holidays or long delivery cycles, but delivery must still occur as soon as practicable and within 15 days of tender.17 CFR 270.6c-11

A mutual fund introduces a new scheduled sales load reduction for purchases above a stated amount, relying on Rule 22d-1. By when must it advise existing shareholders of the new variation?

• a.Within one year of the date the variation is first made available to purchasers✓
• b.Within 30 days of the date the variation is first made available to purchasers
• c.Before the variation is first made available, in a separate mailing to each holder
• d.It need not advise existing holders, because the reduction applies only to new buyers

Rule 22d-1 allows scheduled load variations if the schedule is applied uniformly to the class, the prospectus is revised before the variation is offered, and existing shareholders are told within one year of its first availability.17 CFR 270.22d-1

Which measure of trading cost must an exchange-traded fund publish on its website each business day under Rule 6c-11?

• a.Its creation and redemption fee per unit, shown for the current day only
• b.Its average commission per round lot over the last 12 months, shown in dollars
• c.Its median bid-ask spread over the last 30 calendar days, shown as a percentage✓
• d.Its highest bid-ask spread on any day of the prior quarter, shown in cents

Rule 6c-11 requires daily website disclosure of the ETF's median bid-ask spread, built from the national best bid and offer at 10-second intervals over the last 30 calendar days and rounded to the nearest hundredth of a percent.17 CFR 270.6c-11