Series 6 Investment Information and Recommendations Practice Questions
Question 1
Priya purchased fund shares on March 10, 2025. What is the earliest sale date that would qualify for long-term holding period treatment?
- A. March 11, 2026
- B. March 10, 2026
- C. September 10, 2025
- D. March 10, 2027
Show answer and explanation
Correct answer: A. March 11, 2026
The holding period begins the day after purchase, and long-term treatment requires holding more than one year. A sale on March 11, 2026 is the first day that qualifies; March 10, 2026 is exactly one year.
- A. Right: more than one year, starting the day after purchase.
- B. Wrong: this is exactly one year, not more than one year.
- C. Wrong: six months is only a short-term holding period.
- D. Wrong: two years is longer than needed.
Question 2
A rep proposes that a client replace her variable annuity, now in year 2 of an 8-year surrender schedule, with a new annuity from another insurer whose surrender period restarts. What is the most important consideration?
- A. Only whether the new insurer has a higher claims-paying rating than the current insurer, as reported by the rating agencies
- B. Whether the new contract's benefits justify new surrender charges, lost benefits, added fees and tax effects
- C. Whether the exchange qualifies under Section 1035, which by itself makes it suitable for the client
- D. Whether the exchange will pay the rep a higher commission than keeping the current annuity, which the client should know
Show answer and explanation
Correct answer: B. Whether the new contract's benefits justify new surrender charges, lost benefits, added fees and tax effects
Variable annuity exchanges require a reasoned review of costs and benefits, including surrender charges, a new surrender period, loss of benefits and fees. A tax-free exchange can still be unsuitable.
- A. Wrong: insurer rating matters, but it is only one of many factors.
- B. Right: the rep must weigh the full cost-benefit picture for the client.
- C. Wrong: tax-free status does not establish suitability.
- D. Wrong: compensation to the rep is a conflict, not a consideration in favor of the exchange.
Question 3
Which of the following is generally classified as a leading economic indicator?
- A. The national unemployment rate reported monthly
- B. Building permits issued for new housing units
- C. The Consumer Price Index
- D. The prime lending rate charged by commercial banks
Show answer and explanation
Correct answer: B. Building permits issued for new housing units
Leading indicators change before the economy turns, and building permits are a standard example. Unemployment, the CPI and the prime rate are lagging indicators that confirm trends after they develop.
- A. Wrong: unemployment usually peaks or bottoms after the economy has turned.
- B. Right: permits are issued before construction and so tend to turn ahead of the economy.
- C. Wrong: consumer prices are a lagging measure of inflation.
- D. Wrong: the prime rate follows moves in policy rates rather than leading them.
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Under the Investment Company Act of 1940, which type of investment company issues certificates promising a stated sum at maturity in exchange for installment payments?
- A. Unit investment trust
- B. Face-amount certificate company
- C. Closed-end management company
- D. Open-end management company
Show answer and explanation
Correct answer: B. Face-amount certificate company
The 1940 Act recognizes three classes: management companies (open-end and closed-end), unit investment trusts and face-amount certificate companies. Face-amount companies issue certificates payable at a stated amount at maturity.
- A. Wrong: a UIT issues redeemable units in a fixed portfolio.
- B. Right: these certificates promise a fixed face amount.
- C. Wrong: a closed-end fund issues a fixed number of shares that trade in the market.
- D. Wrong: an open-end fund issues redeemable shares continuously.