Investment Vehicle...

which of the following statements regarding a mutual fund that offers class A, B, and C shares are TRUE 1. Class A shares have a front-end sales charge and a low 12b-1 fee 2. Class B shares have a declining contingent- deferred sales charge and a high 12b-1 fee. 3. Class C shares have a high 12b-1 fee and a level contingent-deferred sales charge 4. Class B and C shares allow investors to put the shares back to the fund for their original purchase price for up to 1 year after purchase.

1, 2, & 3 There is no put provision that guarantees the return of an investor's purchase price associated with mutual fund shares

all of the following statements regarding convertible bonds are true except a. holders may share in the growth of the common stock b. holders receive a higher interest rate c. holders have a fixed interest rate d. the issuer pays a lower interest rate

b. holders receive a higher interest rate. Because of the possibility of participating in the growth of the common stock through an increase in the market price of the common, the convertible can be issued with a lower interest rate.

A customer is interested in an exchange-traded fund. with regard to the trading of ETFs, the customer should be aware that 1. ETFs can be purchased throughout the trading day 2. ETFs use forward pricing, as all mutual funds do 3. real-time quotes are available for ETFs 4. the NAV calculated at the end of the day, plus a sales charge, will equal the trading price

1 & 3 ETFs can be traded throughout the trading day. changing price quotes are available in real time as investors buy and sell. although ETFs have an NAV that is calculated on the basis of the portfolio holdings, the trading price is determined by supply and demand in the open market, with customers paying comissions.

An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks? 1. Loss of principal 2. price volatility of preferred stock is closely related to interest rates 3. preferred stock cannot be traded as readily as bonds 4. if the stock is callable, the client's income can be suddenly lowered

1, 2, and 4 Because bonds have priority over any equity security, there is a greater risk of loss of principal with preferred stock. The price volatility of preferred stocks is impacted by interest rate changes. preferred shares, particularly those listed on the exchanges, are generally easier to trade than corporate bonds.

Ms. Foster is retiring in 2 years and will need income. which of the following mutual fund types would most likely be the lease attractive for her? a. a special situation fund b. a growth and income fund c. a bond fund. d. a balanced fund

a. a special situation fund. special situation funds are risky and would not be suitable for a potential retiree looking for income.

your client has the following bonds in her portfolio: -XYZ 3s of 44 -TUV 6s of 45 -QRS 9s of 43 -NOP 12s of 42 If interest rates were to suddenly rise, which of her bonds would suffer the greatest decline in market price? a. NOP 12s of 42 b. XYZ 3s of 44 c. QRS 9s of 43 d. TUV 6s of 45

b. XYZ 3s (coupon rate) of 44 (duration) The technical method for answering this question is to compare the duration of each of the bonds. the one with the longest duration will be impacted the most by a change is interest rates. Invariably, when the length of time to maturity if relatively close, the bond with the lowest coupon rate will have the longest duration. Long duration= most change from interest rates. low coupon= longest duration= most change from rates

The offering document for a fund states that the minimum initial investment is $500k. This is most likely what type of fund? a. Small-cap growth b. Balanced c. Hedge d. Specialized

c. Hedge Hedge funds, due to their much higher risk, usually limit their investors to those who can afford to take that higher risk. Hedge funds do NOT register with the SEC or the state.

A technical analyst would be most interested in which of the following a. Capitalization ratios b. Working capital c. Price-to-earnings ratios d. 200-day moving averages

d. 200-day moving averages technical analysts try to predict the market by examining price and volume trends. they expect the market to act in the future as it has in the past. technical analysts are not interested in the fundamental aspects of a company, such as its financial statement ratios.

which of the following statements about dividends on common stock NOT true? a. Dividends may be paid in cash, property, or stock b. Dividends represent a pro rata distribution of corporate profits to shareholders c. Only those who are owners of the stock on the record date will receive dividends d. Corporations are contractually obligated to pay dividends to their shareholders each year

d. Corporations are contractually obligated to pay dividends to their shareholders each year Dividends are not contractually obligated to be paid each year. they are declared by the board of directors, who then may choose to pay the dividend in cash, property, or stock

an ADR (American depository receipts) is used to a. finance foreign trade in which U.S. citizens are engaged b. facilitate trading in U.S. securities in foreign markets by U.S. citizens living abroad c. reduce currency risk when investing in foreign securities d. facilitates trading in foreign securities in U.S markets by U.S citizens living in the U.S.

d. facilitates trading in foreign securities in U.S markets by U.S citizens living in the U.S. ADRs make trading in foreign securities easier in U.S markets for U.S investors

A corporation issued a bond with a coupon of 6%, callable at 103. The bond matures in 2059. current interest rates are 8%. it is MOST likely that a. the bond will go into default. b. the bond will be called. c. the coupon will be increased. d. the bond is selling at a discount

d. the bond is selling at a discount For this question, the call price and the maturity date are irrelevant. We have a 6% bond when current market interest rates are 8%. the inverse relationship between interest rates and bond prices teaches us that this bond is going to be selling at a discount. higher interest rate= cheaper bond aka discount

A retiree contacts an agent and wants to invest $2.1 million with a long-term growth objective. The agent made the following recommendations after discussing the pros and cons of diversifying among 5 different mutual funds within 2 fund families. XYZ Emerging Growth Class B $495,000 XYZ Research Class B $310,000 XYZ Investors Growth Stock Class B $495,000 ABC Capital Enterprise Class B $495,000 ABC Capital Opportunity Class B $310,000 Total $2,105,000. These recommendations are: a. suitable because the customer fully understands all of the ramifications and is satisfied b. unsuitable because the investments are not equal in amount c. suitable because they achieve the diversification the customer seeks d. unsuitable because class A shares in either (or both) fund family could be purchased for a sales charge breakpoint discount at or near zero percent

d. unsuitable because class A shares in either (or both) fund family could be purchased for a sales charge breakpoint discount at or near zero percent Class A shares provide breakpoint sales charge discounts so there is no sales charge when purchasing $1 million worth of shares. Class A shares also have lower operating expenses than Class B shares. this retired investor would be subject to back-end loads with class B shares if the funds were needed unexpectedly within a few years.