FINRA Investment Company and Variable Contracts Products Representative Examination (IR) Sample Questions:

1. Which of the following statements about primary market transactions is true?

A) In a primary market transaction, the issuer of the security receives the proceeds from the sale of the
security.
B) A primary market transaction is defined as a transaction that is executed on either the NYSE or
NASDAQ. Transactions that take place on ECNs are secondary market transactions.
C) Both A and B are true statements.
D) A primary market transaction refers to the trading of stocks; a secondary market transaction is defined
as a transaction that involves bonds.

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

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

3. A person's discretionary income is:

A) his income after tax.
B) the amount of his income that is needed to pay his regular monthly bills, e.g., rent, food, gasoline,
utilities, health insurance, etc.
C) the amount that can be allocated to speculative investments.
D) the income that he has left to spend or save after having paid taxes on the income and for all of the
necessities, e.g., housing, food, clothing, transportation, utilities, etc.

4. Which of the following statements about non-qualified employer-sponsored retirement plans is false?

A) An employer does not have to offer the plan to all employees over 21 years old.
B) The plan does not have to abide by ERISA's vesting requirements.
C) The plan may be either funded or unfunded.
D) The earnings on the plan's contributions remain untaxed until they are withdrawn.

5. Ms. Ears is an investment adviser representative. During lunch today, she overheard two men talking
about a hostile takeover that their firm was preparing to undertake. Based on this information, Ms. Ears
does not hesitate to advise the client she meets with immediately after lunch-Mrs. Clueless-- to invest a
sum of money in the firm the men had named as the target firm. Ms. Ears remembers that the price of
target firms, on average, increases significantly with an announcement of this sort, but she does not
inform Mrs. Clueless of the reason underlying her recommendation. Has there been any violation of
insider trading laws in this scenario, as described?

A) No. Ms. Ears is not considered to be an insider of the company preparing the hostile takeover.
B) Yes. Both Ms. Ears and the two men have violated insider trading laws. The two men are prohibited
from discussing such private information in a public setting, and Ms. Ears is prohibited from making a
recommendation based on that information.
C) No. The scenario does not suggest that Ms. Ears herself made any investment in the target firm, and
Mrs. Clueless was not made aware of the basis for Ms. Ears' recommendation.
D) Yes. In making a recommendation based on information that was not publicly available, Ms. Ears has
violated insider trading laws and is subject to both civil and criminal penalties.

Solutions: