Mastery Exam Series 6

A client purchasing a scheduled premium variable life insurance policy should expect (WRONG) I. level premium for the life of the policy II. a possible reduction in premiums if separate account performance exceeds the policy's AIR III. a death benefit that will never be less than the guaranteed minimum amount IV. Cash value that will never be less than the guaranteed minimum amount A. I and III B. I and II C. III and IV D. II and IV

A

A registered representative would not be permitted to open an account in the name of a(n) A. minor B. court-appointed guardian C. Executor of an estate D. limited partnership

A

ABC broker/dealer must file which of the following with FINRA? I. Website II. Email to prospect reviewing a recommendation for investment III. Radio advertisement IV. Promotion sent to 50 nonprofit organizations A. I and III B. II and IV C. I and IV D. II and III

A

All of the following are correct concerning the tax treatment of variable life insurance to the policyholder EXCEPT A. a minimum of 100% of the cash value may be borrowed without tax consequences after the policy has been in force for 3 years B. on death of the insured, the policy proceeds are income tax exempt C. during the life of the policy, the earning grow tax deferred D. if the policy is surrendered, any value received in excess of the cost basis will be taxed as ordinary income

A

All of the following statements regarding the Code of Arbitration Procedure are true EXCEPT A. Claims involving customers require that the majority of arbitrators be from within the industry B. arbitration is the procedure used to settle disputes between member firms C. a FINRA member failing to abide by the arbitrator's decision will be subject to disciplinary action D. The decision of the arbitrator or arbitrators is final and binding

A

Eight years ago, your client retired at age 65 fro a manufacturing job that he had held since graduating from high school. He is not enjoying retirement and has recently taken a position with a major retailer greeting customers as they enter the store. He would like to contribute to a retirement plan to accumulate additional money to leave his grandchildren. You would advise him to open a: (WRONG) A. Roth IRA B. Keogh plan C. Traditional IRA D. Deferred Compensation

A

If an Open- End Investment Company has a 12b-1 fee, which of the following are TRUE? I. These fees are commonly referred to as asset-based distribution fees. II. The fund may advertise as a no-load if the 12b-1 charges are kept under .75% III. The plan may be terminated by a vote of the shareholders, the board of directors, or the non interested members of the board. IV. To Terminate 12b-1 fees, a majority of the non interested board members of a majority vote of outstanding shares is needed. A. I and IV B. II and III C. I and III D. II and IV

A

If an associated person of a broker/dealer owns a vacation home, under which of the following circumstances is he permitted to rent it out? A. without restriction B. under no circumstances C. Only with prior written approval of the firm D. only after notifying the firm

A

One of your clients is concerned about market volatility and decides to convert a substantial portion of his holdings into cash. Following this liquidation, he has a cash balance in his account of $275,000 and has reduced his securities holdings to $225,000. As his registered representative, you are concerned about his SIPC coverage and should warn him that A. although his securities are fully covered by SIPC, only $250,000 of his cash is covered B. cash in excess of $250,000 is subject to market risk C. he should reinvest the money as soon as possible D. only $100,000 of his securities is covered by SIPC

A

Requirements of the Telephone Consumer Protection Act of 1991 include I. Maintaining a Do-Not-Call List II. using a copy of the national Do-Not-Call List that is no more than 60 days old III. identifying the security that is the purpose of the call IV. supplying the prospect with the contact information A. I and IV B. I and III C. II and III D. II and IV

A

Series 6 registration is known as a limited representative because individuals possessing that registration are limited to sales of variable contracts as well as interest in I. Face-amount certificate companies II. closed-end investment company shares in a primary offering III. bond only of investment grade IV. Only blue-chip stocks A. I and II B. III and IV C. I and III D. II and IV

A

The City of Chicago issued $100 million in GO debt 3 years ago. The bonds were issued with 20- year maturity and carry a 5% coupon. Your client who purchased one of these bonds on the initial offering calls you to get a current quote. You respond that the bonds are selling at a slight premium. This means that the (WRONG) A. nominal yield is higher than the yield to maturity B. yield to maturity is equal to the current yield C. current yield is higher than the nominal yield D. yield to maturity is higher than the current yield

A

The Federal Reserve may alter which of the following in responding to an inflationary trend? I. Broker Call Loan Rate II. Prime Rate III. Discount Rate IV. Reserve Requirement A. III and IV B. I and II C. I and III D. II and IV

A

The RIF Corporation has determined that a new issue of debt securities is the best method for them to raise the additional capital needed for expansion of their facilities. To lower RIF's interest cost, they could add which of the following features to this security? I. Convertibility II. Preemptive Rights III. Voting Power IV. Warrants A. I and IV B. II and III C. I and III D. II and IV

A

The provisions of Regulation T (WRONG) A. require that payment be made 2 business days after settlement date B. require most corporate bond issues to make provision for a trustee C. prohibit the purchase of closed-end funds on margin D. regulate the extension of credit for securities purchases by banks to customers

A

Under the Code of Procedure, the maximum penalty under a minor rule violation is A. a $2,500 fine, censure, or both B. suspension not to exceed 5 business days C. a $1,000 fine and the requirement to requalify by examination D. a fine of any amount deemed appropriate to the violation

A

Under which of the following circumstances may an agent borrow money from a customer? A. If the customer is a bank B. Under no circumstances C. Upon notification to his firm D. with written permission from FINRA

A

Which of the following statements about FINRA's position on the use of electronic communications are correct? I. A broker/dealer's website is exempt from filing requirements with FINRA II. An individualized email message sent to a single customer is considered correspondence III. A group email sent to 100 prospective customers within a 30-day period is considered institutional communication. IV. A group email sent to more than 25 retail investors over a 30- day period is considered retail communication A. II and IV B. III and IV C. I and III D. I and II

A

You have an extremely high-tax bracket customer who is interested in generating income from his investments. His is risk adverse and deeply resents the amounts he must pay in federal taxes every year. He would like you to provide a list of mutual funds for his consideration for possible investment. Which of the following might be on the list you provide? (WRONG) I. The ABC Municipal GO Fund II. The JJF Long-Term Government Bond Fund III. The Smith and Kline Municipal Money Market Fund IV. The Simplex Municipal IDR Fund A. I and III B. II and IV C. III and IV D. I and II

A

Your client has been saving for retirement by investing in a nonqualified variable annuity. The total of her investments is $50,000, and the value of her account is $125,000. Now that she is 65, she wishes to take a lump-sum distribution. This distribution would be taxes as (WRONG) A. $75,000 ordinary income B. long-term capital gain, except for any portion of her contribution that was made in the previous 12 months C. $75,000 long-term gain D. $125,000 ordinary income

A

Your customer is receiving payments during the annuity period of a variably annuity. For tax purposes, which of the following is TRUE? A. Only the amount that represents investment growth and income is subject to tax B. All withdrawals are tax free C. The investment income is taxed and the capital gains rate D. The entire amount is subject to tax

A

The RAN Corporation has a $100 par 4% preferred stock and is not in arrears on its dividends. What is the current yield on this stock when the RAN common stock is selling for $160 per share and the preferred stock is selling for $80 per share? A. 5% B. 2% C. 2.5% D. 4%

A CY = Annual Interest % / Current Market Price

A FINRA member broker/dealer enters into a selling agreement with a mutual fund distributor. Under the terms of that agreement, the member: I. May purchase shares for its own investment account II. Will be able to purchase shares of the fund at a discount from the NAV III. May maintain only a limited inventory of fund shares IV. May purchase shares to fill customer orders already received. A. II and IV B. I and IV C. I and III D. II and III

B

A Public Offering of new securities would exempt from the antifraud provisions of the Securities Act of 1933 in which of the following cases? A. US Treasury Bonds B. Under no circumstances C. Common stock sold at an intrastate basis only D. Commercial paper maturing in 270 days or less

B

A advantage of a non qualified variable annuity compared to a mutual fund is A. voting for the board of directors B. Tax deferral C. diversification D. Receiving Dividends

B

A husband and a wife open a new account as TIC. All of the following statements regarding this account are true EXCEPT: A. Mail may be sent to either party with the permission of the other party B. In the event of death, the decedent's interest in the account goes to the surviving party C. Orders may be given by either party D. If certificates are requested, they must contain the names of both parties.

B

A mutual fund has $100 million in total assets. How much of the $100 million may be invested in one issuer and be defined as a diversified fund? (WRONG) A. $25 million B. $5 million C. $10 million D. $30 million

B

All of the following are true about deferred compensation plans EXCEPT (WRONG) A. these plans are not available to company board B. these types of plans are often offered to highly compensated, younger employees C. if the business fails, the employee becomes a general creditor of the firm D. when the benefit is payable at retirement, it is taxable as ordinary income to the employee

B

An elderly couple has retired with a moderate accumulation of assets. They have several grown children and a number of grandchildren and are investing with your firm. Keeping in mind that every customer is different, which of the following pairs of investment objectives would you expect them to express? A. speculation, diversification B. Preservation of capital, current income C. Growth, liquidity D. Tax advantages, aggressive growth

B

An investor in long-term US Treasury bonds would be most concerned with: A. Legislative risk B. Interest Rate Risk C. Default Risk D. Liquidity Risk

B

An investor purchased 100 shared of the CDL Growth and Income Fund 3 years ago when the POP was $10.00 and the NAV was $9.50. During this period, the investor received dividend distributions totaling $1 per share and capital gains distributions totaling $.50 per share, all of which were taken in cash. The investor submits an order to liquidate this account when the current POP is $11 and the NAV is $10.45. The tax consequences of this liquidation would be a (WRONG) A. capital gain of $45 B. capital gain of $100 C. capital loss of $50 D. capital loss of $105

B

An open-end investment company seeks to achieve maximum income, with little or no pursuit of appreciation. The fund invests in preferred stocks of small-and medium-sized companies that are just below investment grade as well as bonds rated from B to BBB. The fund's management believes that, despite the risks involved with the individual securities, adequate diversification can result in superior investment returns. This information would most likely be describing the A. ACE Balanced Fund B. NaxCo High Yield Fund C. ATF Capital Appreciation Fund D. NaxCo Tax-Free Municipal Bond Fund

B

An open-end investment company with a primary stated objective of conservation of principal using both equity and debt securities is known as a: A. Specialized fund B. Balanced Fund C. Hedge Fund D. Growth Fund

B

During the cooling-off period of a new securities registration, you would be allowed to (WRONG) A. accept binding indications of interest B. send prospectus a preliminary prospectus C. take a check for a proposed purchase provided the check is postdated after the effective date D. send prospectus sales literature relating to the issue if it is accompanied by or preceded by a red herring

B

If a client called a registered representative to ask about a life settlement contract, the discussion would deal with A. the death benefit feature of a variable annuity B. the sale of life insurance policy in the secondary market C. methods of minimizing estate taxes D. which settlement option to choose when unitizing a contract

B

If a customer and his spouse own shares in the ABC Mutual Fund as a JTWROS, and the customer dies, what happens to the shares in the account? A. any surviving children would automatically own his portion B. his spouse would own all the shares C. Ownership of the shares would be determined by probate court D. Fifty percent of the shares would belong to his spouse, the remaining half would be distributed to his estate.

B

If a customer wishes to open a cash account in his name only and allow a 3rd party to make trading decisions, but not withdraw cash and securities, he must instruct his broker/dealer to open a A. cash account B. cash account with limited power of attorney C. cash account with full power of attorney D. Margin Account

B

One common characteristic of all securities products that may be sold by a Series 6 licensed registered representative is that they are: A. Redeemable securities B. Always sold by prospectus in the primary market C. always secondary market trades D. limited in the amount of sales charge by the 5% mark-up policy

B

Rank the following variable annuity payout options in order from typically highest to typically lowest monthly payments I. Life only II. Life with 10 year period certain III. Life with 20 year period certain IV. Joint with Last survivor A. II, II, I, IV B. I, II, III, IV C. I, III, II, IV D. IV, III, II, I

B

The Conduct Rules prohibit all of the following practices EXCEPT A. Encouraging an investor to purchase a mutual fund share just before the ex-date B. presenting third-party research reports to clients with disclosure that they were prepared by others C. borrowing from a customers account without the customer's knowledge but with the intent of paying back the loaning a timely fashion D. failing to state a material fact in making a mutual fund recommendation to a customer

B

The preliminary prospectus for a new offering (WRONG) A. is available only after the effective date of the offering B. cannot be used when taking orders from customers C. includes the final offering price D. declares that an offering has been approved by the SEC

B

Under the Uniform Transfer to Minors Act, a custodian may invest in all of the following EXCEPT A. blue-chip stocks B. commodity features C. corporate bonds D. mutual funds

B

Under the pipeline or conduit theory, taxes payable on dividends and interest collected and distributed by a regulated investment company on the securities in its portfolio are paid. A. only when the dividends are taken in cash rather than reinvested B. only by the shareholder C. by both the investment company and the shareholder D. by the investment company

B

Which of the following are general characteristics of municipal revenue bonds? I. They are backed by the taxing power of the issuer II. They rank somewhat below US Treasury in safety but rank higher than GO municipal bonds III. In many instances, the federal government does not tax revenue bond interest IV. They are backed by the revenue generated from the facility that was built with the proceeds of the bond issue A. I and II B. III and IV C. I and III D. II and IV

B

Which of the following are provisions of the Securities Exchange Act of 1934? I. Regulates the sale of new issues of securities II. Regulates secondary markets III. Regulates investment advisers IV. Registers Broker/dealers A. I and III B. III and IV C. I and II D. II and IV

B

Which of the following companies would generally NOT employ the services of an underwriter to assist them in raising capital? (WRONG) A. Finance company offering and IPO B. No-Load Mutual Fund C. An open-end investment company offering investors a choice of Class A, Class B, or Class C shares D. Closed-end investment company

B

Which of the following is an advantage of dollar cost averaging? A. The investor experiences a lower price per share than the average cost per share B. In a fluctuating market, the investor experiences a lower cost per share than the average price per share C. In a fluctuating market, gains are ensured. D. In a down market, financial loss is prevented

B

Which of the following securities transactions would most likely be accomplished through the use of an ADR? (WRONG) A. 1,000 shared of GE common stock on the NYSE B. 1,000 shares of Sony Corporation common stock on the NYSE C. 1,000 shares of GE common stock on the Tokyo Stock Exchange D. 1,000 shares of Sony Corporation common stock on the Tokyo Stock Exchange

B

Which of the following types of risk cannot be significantly reduced through diversification? I. Market Risk II. Business Risk III. Credit Risk IV. Systematic Risk A. II and IV B. I and IV C. II and III D. I and III

B

Which of the following would be eligible to open a Keogh plan? A. A salaried investment company employee B. A CPA who operates as a sole proprietorship C. The CEO of a publicly traded corporation D. A group of physicians who have incorporated their practice together

B

Your client begins an investment program that has him purchasing $240 of the DCA Balanced Fund each month. The purchase prices for the first four months of this program are $6, $5, $4, and $3 per share. This program will likely be effective as a dollar cost averaging program A. only if the market continues to trend downward over time B. if the client continues to invest regular amounts at regular intervals in a fluctuating market C. If the client tailors his investments to achieve a lower average price per share that the average cost per share D. if the client is successful in timing the market with each purchase

B

Your customer is deeply interested in electronics, in which he has established a successful career. He would like to invest in new companies in this area and has accumulated substantial discretionary funds for the purpose. His objectives for this money include aggressive growth with minimal concern for risk. You might recommend A. A municipal bond fund with emphasis on industrial development revenue bonds used to provide facilities for startup enterprises B. a sector fund specializing in small-cap companies that include electronics companies C. A corporate high-yield bond fund concentrating on manufacturing and heavy industrial companies D. A large-cap growth fund that includes substantial holdings in many of the largest electronics and computer companies in the country

B

A 50 year old widow uses the proceeds of her late husbands life insurance policy to purchase a single premium variable annuity in the amount of $100,000. Five years later, when the account is valued at $130,000, she withdrawals $50,000. If she is in the 25% tax bracket, what is the total tax due on the withdrawal? A. $12,500 B. $17,500 C. $10,500 D. $7,500

B 50,000 x 0.25 = 12,500 (Tax Bracket) PLUS 50,000 x 0.10 = 5,000 (penalty) Total = $17,500

A breakpoint sale is defined as the sale of mutual fund shares in an amount (WRONG) A. at or above the dollar amount at which the sales charge is reduced B. required as the minimum investment in a fund as specified by the SEC C. just below the dollar amount at which the sales charge is reduced D. just below the POP of the fund

C

A client expresses the desire to invest in securities that have minimal credit risk. To meet those wishes, which of the following would be appropriate to recommend? (WRONG) I. Over-the-counter common stock II. Noncumulative Preferred stock III. B rated debentures IV. B rated mortgage bonds A. I and II B. I and III C. III and IV D. II and IV

C

All of the following statements regarding a traditional IRA are true EXCEPT (WRONG) A. withdrawals before age 591/2 because of death or disability are not subject to the 10%tax penalty B. contributions may or may not be tax deductible, but all earnings are tax deferred C. contributions made by individuals under age 50 are limited to the greater of 100% of earned income or a dollar amount that is determined by the IRS D. contributions may be made on behalf of a spouse without earned income

C

An investor reviewing the annual report for the GHI Investment Company notices that the NAV per share increased by $1.21, yet the asking price of the shares dropped during that period. What type of investment company must GHI be? (WRONG) A. Balanced Fund B. Open-end fun C. Bond Fund during a period of rising interest rates D. Closed-end fund

C

An investor who commits a sizable portion of her portfolio to long-term AAA-rated bonds would be exposing herself to (WRONG) A. purchasing power risk B. Less market risk than if the portfolio were invested in money market instruments C. uncertainty about the ability of the issuer to make timely payments of interest and principal D. liquidity risk

C

An investor would be subject to the least interest rate risk when purchasing A. long-term corporate bond B. T- Notes C. T-Bills D. T-Bonds

C

Holders of a common stock listed on the NYSE have all the following rights EXCEPT A. the right to receive an annual audited report describing the corporations operations over the previous year B. the right to vote on an upcoming merger involving the parent company C. the right to share in residual assets with the same priority as participating preferred stockholders in the event of a corporate dissolution D. the right to stock dividends, if declared by the Board of Directors

C

In constructing a profile for your customer, you wish to assemble information on both financial and non financial investment considerations that affect your customer. Which of the following qualify as financial investment considerations? (WRONG) I. You customer's tolerance of various forms of risk II. Your customers tax status III. Your customer's liquid new worth IV. Your customer's monthly credit card payments A. I and II B. I and III C. III and IV D. II and IV

C

Regarding the anti-money laundering rules, which of the following would be considered suspicious activity? I. Moving large sums of money between accounts with the same last names II. Moving large sums of money between non related accounts III. A client not expressing concern about the losses in the client's account IV. A client expressing undue concern about substantial commissions being charge to the account A. I and III B. I and IV C. II and III D. II and IV

C

The 55- year old owner of a traditional IRA would like to move $20,000 from his IRA into a Roth IRA. You advise him of the following A. This transaction is not a taxable event B. He will need to report $20,000 as long-term capital gains on his tax return C. He will need to report $20,000 as ordinary income on his tax return D. There will be a 10% penalty on the distribution

C

The Jeffers Fund provides higher than average, taxable current income to its shareholders. It appeals to investors who like equity income and are willing to assume business risk. Which of the following might describe the Jeffers Fund? (Wrong) I. A speculative Bond Fund II. A preferred stock fund III. A common stock income fund IV. A municipal bond fund A. I or IV B. II or IV C. II or III D. I or III

C

The following information shows the NAV and the ask prices of Investment Company A and Investment Company B on a particular day. Choose the answer that best describes the two companies. (WRONG) -Company A: NAV-$22.00 Ask-$21.20 -Company B: NAV-$9.40 Ask- $10.00 A. A is a closed-end investment company; B could be either an open- or closed-end investment company B. Both A and B are open-end investment companies C. Both A and B are closed-end investment companies D. A is a closed-end and B is an open-end investment company

C

Which of the following has the smallest amount of business risk? A. Corporate Bonds B. Income bonds C. US Treasury bonds D. Common Stock

C

Which of the following statements are characteristics of GNMA securities? I. The minimum issue amount is $25,00 II. Distributions are made semiannually III. These securities are backed by the full faith and credit of the US government IV. Interest Income received on GNMAs is taxable only at the federal level A. II and III B. I and IV C. I and III D. II and IV

C

Which of the following statements best describes the assumed interest rate (AIR) of a variable annuity contract? A. While benefits are largely dependent on separate account performance, the AIR represents a minimum rate of return offered by the insurance company B. it is used by the IRS to determine the taxability of annuity distributions C. it is the rate that the annuity separate account must earn during the payout phase of the contract to keep monthly payments level D. It is the rate that the annuity separate account must earn during the accumulation phase of the contract for monthly payments to remain level

C

Which of the following statements regarding a Section 529 plan is TRUE? A. contributions may be made only by those who fall within certain earning limits B. A beneficiary of a Coverdell Education Savings Account may not also be a beneficiary of a 529 plan. C. Donors may either invest a lump sum or make periodic payments D. The donor must be related to the student

C

Which of the following statements would probably reflect characteristics of the XYZ S&P 500 Index Fund? I. Relatively low portfolio turnover rate II. Relatively low operating expense ratio III. Relatively low correlation to the performance of the S&P 500 Index IV. Relatively low market risk A. I and III B. II and IV C. I and II D. III and IV

C

You are recommending the purchase of the XYZ Growth Fund to one of your clients and you explain that the fund operates pursuant to a 12b-1 plan. Under the terms described in the prospectus, the fee is (WRONG) A. Included in the sales charge when shares are purchased B. reduced on purchases that reach or exceed specific breakpoints C. charged against the assets of the fund D. a part of the fee paid to the fund's investment manager

C

You have made a sales presentation for the XYZ Growth Fund to a prospect. IF the prospect asks if you can furnish any more knowledge before an investment decision is made, you would supply the prospect with A. a current prospectus B. your broker/dealer's most recent balance sheet C. the Statement of Additional Information D. FINRA's mutual fund disclosure form

C

Your client retired from his job 3 years ago and placed all of the proceeds of his 401(k) distribution into a rollover IRA at his location bank. He is unhappy with his return and wishes to transfer the funds to an IRA at your broker/dealer. Which of the following statements regarding this situation is TRUE? A. once the transfer is complete. he may not make another transfer for at least 1 year B. The transfer must be complete within 60 days of opening the account at your firm C. Trustee-to-trustee do not incur any tax consequences D. Your firm may not do the transfer in these circumstances; he is limited to a rollover

C

The XYZ Growth Fund charges no sales charge but has a 1% redemption fee. An investor phones in a redemption request when the next computed POP is $10.50 per share. If 1,000 share are redeemed, the investor will receive a check in the amount of A. $9,450 B. $10,605 C. $10,395 D. $10,500

C $10.50 x 1,000 = 10,500 10,500 x 0.01 = 105 (fee) total = 10,500 - 105 = $10,395

A FINRA member firm could be fined if a registered representative is terminated and the member firm does not notify FINRA within: A. 10 days B. 45 days C. 60 days D. 30 days

D

A major difference between an open-endmanagment investment company and a closed-end company is that the open-end investment company A. offers shares that are not redeemable by the issuer B. has a share price determined by supply and demand C. has a fixed number of shares outstanding D. sells shares through a continuous primary offering

D

A person who, for compensation, engages in the business of advising others about the value of securities or the advisability of investing in or selling securities is known as a(n): (WRONG) A. Registered Representative B. Investment Banker C. Investment Company D. Investment Adviser

D

All of the following are generally considered speculative investments EXCEPT: (Got this wrong) A. Uncovered Call Options B. B Rated Debt Securities C. Short Sales D. Blue- Chip Stocks

D

All of the following information must be obtained from new individual customers EXCEPT A. Residence address B. Social Security Number C. Date of birth D. Education Background

D

An application to open an account with an open-end investment company would be found (WRONG) A. in an advertisement in a financial periodical B. with the Statement of Additional Information (SAI) C. in a Rule 482 omitting prospectus D. in the fun's summary prosectus

D

Distributions from new investment income paid to shareholders by an investment company meeting the requirements to be a regulated investment company are (WRONG) A. taxes and long-or short-term capital gains based on the fund's holding period of the underlying securities B. taxed to the fund, but not to the individual shareholder C. taxed as long-term capital gains to the shareholder, regardless of how long the investor has owned the shares D. nontaxable to the fund, but taxable to the shareholder as dividend income

D

ERISA regulations apply to which of the following? (WRONG) I. Public pension plans for government employees II. Private sector retirement plans III. Corporate retirement plan vesting requirements IV. Municipal retirement plans A. II and IV B. I and IV C. I and III D. II and III

D

If a registered representative wished to make recommendations to a client, it would be most appropriate to limit those recommendations to A. those securities that the registered representative has reasonable ground to expect appreciation in market value B. securities found on the state's legal list C. Securities in which the firm was a market maker because the mark-ups would generally be lower than commissions D. those securities that are deemed suitable for the client

D

John purchased stock of a company in the business of manufacturing yachts. Two years ago his securities had lost most of their value as a result of a congressionally imposed luxury tax on purchases of more than $30,000. John's investment in the yacht-building business suffered a loss due to A. volatility B. interest rate risk C. business risk D. legislative risk

D

One of the ways in which closed-end investment companies differ from open-end investment companies is in their ability to A. issue common stock B. operate as a non diversified management companies C. Lend money D. Issue Preferred Stock

D

Open-end investment companies are referred to as issuers of redeemable securities because the Investment Company Act of 1940 requires them to send the sales proceeds of redeemable shares A. at an amount equal to the next calculated POP B. at the higher of cost or market value C. within 45 days of purchase, refunding the original price in full to the purchaser D. within 7 days after the tender of the shares to the company or its designated agent

D

The XYZ Fund, and open-end investment company, was founded more than 15 years ago. If it wishes to show average annual rates of return in an advertisement, it must show returns for the past (WRONG) A. 1, 3, 5, and 10 years B. 12 months only C. 1, 5, and 10 years D. 1, 5, and 10 years and since inception

D

The declaration of dividend for holders of common stock in a corporation will result in payment of a dividend to holders of that corporation's: I. Convertible Preferred Stock II. Noncumulative Preferred Stock III. Outstanding Warrants IV. Debentures A. II and III B. III and IV C. I and IV D. I and II

D

The forward pricing rule applies to: A. Securities traded in the fourth market B. purchases and redemptions of the shares of closed-end investment companies C. purchases, but not redemtptions, of the shares of open-end investment companies D. purchases and redemptions of the shares of open-end investment companies

D

Under the Conduct Rules, the principal underwriter of an open-end investment company would be permitted to award the registered representative of a broker/dealer under contract with the highest sales totals in each state A. a vacation trip to the Bahamas B. anything of material value C. Monthly dinner and theater tickets for 2 for one year D. up to $100 in any one year

D

Which of the following activities might lead a registered representative with a member firm to suspect a client might be engaging in illegal practices? (WRONG) A. The client still chooses to engage in a transaction once he learns that a currency transaction report will have to be completed B. The client wires money to unrelated accounts C. The client complains frequently about what he feels are overly large commissions D. The client seems unduly concerned about losses in his account.

D

Which of the following are TRUE with regard to contractual plans? I. The maximum sales charge over the life of a plan is 9% II. 1940 companies may deduct a 50% sales charge in the first year III. Spread Load plans may deduct a 20% sales charge in the first year IV. The maximum average sales charge that may be withdrawn over any 4 year period with a spread-load plan is 20% A. I only B. I and II C. I, II, III, and IV D. I, II, and III

D

Which of the following constitutes selling dividends? (WRONG) A. Encouraging investors to postpone purchases of mutual fund shares until the after the ex-date for a dividend distribution B. Encouraging customers to sell their mutual fund shares just before the ex-dividend date C. Withdrawing dividends, rather than reinvesting them in additional shares D. Enticing customers to buy mutual fund shares just before the ex-dividend date

D

Which of the following statements regarding the Investment Company Act of 1940 are TRUE? I. Investment companies must have minimum capitalization of $1 million before they may begin offering shares to the public II. Under most circumstances, selling short or buying on margin is restricted by the act III. An investment company must clearly state its objectives IV. Bank borrowing by an open-end investment company is limited to 200% asset coverage A. I and II B. I and IV C. III and IV D. II and III

D

Which of the following terms best describes a corporate debt instrument secured by a pledge by the issuer of property that consists of stocks or bonds of other corporations? (WRONG) A. Debenture B. Equipment Trust Certificate C. Unit Investment Trust D. Collateral trust certificate

D

Your client wants to increase her purchase of put options. From this, you would expect that the client feels the market outlook is A. bullish B. income-oriented C. neutral D. bearish

D

You have a client who is in the 35% income tax bracket. When looking at a financial periodical, you notice a new State of Vermont GO bond being issued at par with a 4% coupon. You think this is a suitable investment for this client and call her to explain that A. she would receive quarterly interest payments if she purchased the bonds B. this investment is fully backed by the US government C. she should consider funding her IRA with these bonds D. her tax-equivalent yield on this security would exceed 4%

D 4% coupon/ (100-35%)= 6% equivalent

A client owns shares of the ABC Mutual Fund with a total current value of $20,000, and ABC has a sales charge of 5% that reduces to 3% at $25,000. If ABC offers a right of accumulation, how much sales charge will be levied on an additional investment of $10,000? (Wrong) A. $150 B. $500 C. $300 D. $400

D Of 10,000 more: 5,000 x 0.05 = 250 5,000 x 0.03 = 150 Total = $400