Unit 10 Practice Test

XYZ Technology Fund permits rights of accumulation. A shareholder has invested $9,000 and has signed a letter of intent for a $15,000 investment. Her reinvested dividends during the 13 months total $720. How much money must she contribute to fulfill the letter of intent? A. $5,280 B. $6,000 C. $9,000 D. $15,000

B. $6,000 must pay in full. 15,000-9,000=6,000 dividends do not calculate in letter of intent

According to the Investment Company Act of 1940, a diversified mutual fund may hold, at most, what percentage of a corporation's voting securities? A. 5% B. 10% C. 50% D. 75%

B. 10%

What kind of investment company has no provision for redemption of outstanding shares? A. Open-end company B. Closed-end company C. Unit investment trust D. Mutual fund

B. Closed-end company

All of the following investors can take advantage of breakpoints EXCEPT A. an individual B. an investment club C. a trust D. a corporation

B. an investment club

If a mutual fund's net asset value is $9.30 and its sales charge is 7%, its public offering price (POP) is A. $9.95 B. $9.97 C. $10 D. $10.70

C. $10 POP=9.3/(1-.07) POP=9.3/.93 =10

A certain mutual fund has a bid price of $9.15 and a sales charge of 8.5%. What is the price an investor will pay (rounded to the nearest cent) for each share of this fund? A. $8.37 B. $9.93 C. $10.00 D. $10.76

C. $10.00 9.15/(1-.085)

The role of a mutual fund's underwriter is to A. hold the fund's assets and perform clerical responsibilities B. administer and supervise the investment portfolio C. market shares D. provide investment advisory services

C. market shares

When a customer transfers the proceeds of a sale from one fund to another within the same family of funds, what are the tax consequences? A. No gains or losses are recognized until the final redemption. B. Gains are taxed at the time of the transfer, but losses are deferred until the final redemption C. Losses are deducted at the time of the transfer, but gains are deferred until the final redemption. D. All gains and losses are recognized on the transfer date.

D. All gains and losses are recognized on the transfer date.

Redemption of a no-load fund may be made at the A. NAV minus the sales charge B. POP minus the sales charge C. NAV plus the sales charge D. NAV

D. NAV

An open-end investment company may do all of the following EXCEPT A. continuously offer shares B. borrow money C. redeem shares D. issue bonds

D. issue bonds

Net asset value per share for a mutual fund can be expected to decrease if A. the securities in the portfolio have appreciated in value B. the issuers of securities in the portfolio have made dividend distributions C. the fund has experienced net redemption of shares D. the fund has made dividend distributions to shareholders

D. the fund has made dividend distributions to shareholders

Which of the following are covered under the Investment Company Act of 1940? I. Unit investment trusts II. Face-amount companies III. Open-end management companies IV. Closed-end management companies

I, II, III, IV

A customer purchased mutual fund shares with a net asset value of $7.82 and an 8% sale charge. The sales charge is A. $.68 B. $.74 C. $.80 D. $.87

A. $.68 100%-8%=92% 7.82/.92=$8.50 $8.50-7.82=.68

An investment representative may describe dollar cost averaging to a customer as A. a program for investing that will ensure profits even in a declining market B. a funding technique that will cause the average cost per share to be less than the average price per share C. a form of a mutual fund withdrawal plan D. a means of purchasing more shares when share prices are high

B. a funding technique that will cause the average cost per share to be less than the average price per share

All of the following statements regarding dollar cost averaging are true EXCEPT A. dollar cost averaging results in a lower average cost per share B. dollar cost averaging is not available to large investors C. more shares are purchased when prices are lower D. in sales literature, dollar cost averaging cannot be referred to as averaging the dollar

B. dollar cost averaging is not available to large investors

The redemption price of a mutual fund is equal to A. its offering price B. its net asset value C. its bid price plus the sale charge D. its asked price plus the sales charge

B. its net asset value

A mutual fund is quoted at $16.56 NAV and $18.00 POP. The sales charge is A. 7% B. 7 1/2% C. 8% D. 8 1/2%

C. 8% 16.56 + = 18 1.44 16.56/18= 8%

All of the following may receive breakpoint discounts EXCEPT A. a pension plan trustee B. an investor in an individual retirement account C. an investment club D. a husband and wife in a joint account

C. an investment club

Mutual funds are like corporations in which of the following ways? I. They may issue equity and debt II. The board of directors makes policy decisions III. Shareholders have ownership rights IV. Their shares trade in the secondary market

II and III

An investor has requested a withdrawal plan from his mutual fund and currently receives $600 per month. This is an example of what type of plan? A. Variable withdrawal B. Fixed-share periodic withdrawal C. Fixed-dollar periodic withdrawal D. Fixed-percentage withdrawal

C. Fixed-dollar periodic withdrawal

Which of the following is a risk of a withdrawal plan? A. The sales charge for the service is high B. The cost basis of the shares is high C. The plan is illegal in many states D. The investor may outlive his income

D. The investor may outlive his income

If a customer purchases shares in a municipal bond fund, which of the following statements are TRUE? I. Dividends are taxable II. Dividends are not taxable III. Capital gains distributions are taxable IV. Capital gains distributions are not taxable

II and III

The custodian of a mutual fund usually A. approves changes in investment policy B. holds the cash and securities of the fund and performs clerical functions C. manages the fund D. provides accounting services for companies whose securities are in the fund

B. holds the cash and securities of the fund and performs clerical functions

Exchange traded funds (ETFs) are A. closed-end fund companies B. open-end fund companies C. mutual funds D. priced no more than once per trading day

B. open-end fund companies

According to the Investment Company Act of 1940, an investment company with a fixed portfolio, redeemable shares, and no management fee is A. a face-amount certificate company B. a management company C. a unit investment trust D. a closed-end investment company

C. a unit investment trust

An open-end investment company may change its basic investment policies only if this change has been A. recommended by the investment adviser B. approved by the SEC C. approved by the directors and a majority vote of the shareholders D. made by the principal underwriter in an effort to increase lagging sales of new fund shares

C. approved by the directors and a majority vote of the shareholders

For a company to charge the maximum sales charge of 8 1/2%, it must offer all of the following EXCEPT A. automatic reinvestment of dividends and capital gains at NAV B. breakpoints C. automatic reinvestment at POP D. rights of accumulation

C. automatic reinvestment at POP

Closed-end investment companies I. continuously issue new shares II. generally make a one-time public offering of shares III. may issue debt securities IV. may not issue preferred stock

II and III

Which of the following statements regarding a letter of intent and breakpoints are TRUE? I. The letter of intent can be backdated a maximum of 30 days II. The letter of intent is valid for 13 months III. The investor is legally bound to meet the terms of the agreement IV. The fund holds the additional shares in escrow

II and IV

When a bank is serving as the custodian of a mutual fund, it A. manages the portfolio B. signs all margin agreements C. holds the cash and securities and performs other clerical functions D. serves as the distributor of the fund and manages interactions with other underwriters

C. holds the cash and securities and performs other clerical functions

Typically, the largest single expense of a mutual fund is the A. custodian fee B. registration fee C. management fee D. brokerage fee

C. management fee

Investment company financial statements are sent to the shareholders A. monthly B. quarterly C. semiannually D. annually

C. semiannually

If a relatively high rate of current return is the stated objective of an open-end investment company, it would be known as A. a specialized common stock fund B. a special situation fund C. a growth fund D. an income fund

D. an income fund

According to investment company rules, open-end investment companies may not distribute capital gains to their shareholders more frequently than A. monthly B. quarterly C. semiannually D. annually

D. annually

The major difference between an open-end and a closed-end investment company is that A. the closed-end shares are sold on a registered stock exchange B. the open-end company is regulated by the SEC C. the shares of open-end companies are sold at NAV plus a sales commission D. the open-end companies continuously offer their shares, whereas closed-end companies have a limited number of shares outstanding.

D. the open-end companies continuously offer their shares, whereas closed-end companies have a limited number of shares outstanding.

Under the definition of a management company, all of the following would qualify EXCEPT I. face-amount certificate companies II. unit investment trusts III. closed-end investment companies IV. open-end investment companies

I and II

Open-end investment companies, but not closed-end investment companies I. may make continuous offerings of shares, provided the original registration statement and prospectus are periodically updated II. may be listed on registered national exchanges III. always redeem their shares IV. may issue only common stock

I, III, and IV

Which of the following events will affect the NAV per share of a mutual fund? I. Changes in the market value of the fund's portfolio of securities II. Wholesale redemption of fund shares III. The fund receives cash dividends on the securities in its portfolio IV. The fund pays dividends to its shareholders

I, III, and IV

Diversified management companies must be invested so that within the minimum 75% of assets invested in securities other than those of the investment company I. they own no more than 5% of the voting stock of a single company II. no more than 5% is invested in any one company III. they own no more than 10% of the voting stock of any one company IV. if they own more than 25% of a target company, they do not vote the stock

II and III

If a customer transfers the proceeds from one fund to another within the same family of funds, what is the tax consequence? A. None B. Gains are taxed, and losses are deferred C. Losses are deducted, and gains are deferred D. On the transaction date, any gain or loss is recognized for tax purposes

D. On the transaction date, any gain or loss is recognized for tax purposes

An open-end investment company I. can sell new shares in any quantity at any time. II. must redeem shares in any quantity within 7 days of request III. provides for mutual ownership of portfolio assets by shareholders

I ,II, and III

All of the following qualify as management companies EXCEPT I. face-amount certificate companies II. unit investment trusts III. closed-end investment companies IV. open-end investment companies

I and II

Under which of the following circumstances will dollar cost averaging result in an average cost per share lower than the average price per share? I. The price of the stock fluctuates over time II. A fixed number of shares is purchased regularly III. A fixed dollar amount is invested regularly IV. A constant dollar plan is maintained

I and III

Which of the following statements are TRUE of mutual fund dividend distributions? I. The fund pays dividends from net investment income II. A single taxpayer may exclude $100 worth of dividend income from taxes annually III. An investor is liable for taxes on distributions or is reinvested in the fund IV. An investor is not liable for taxes if he automatically reinvests distributions

I and III

Which of the following statements are accurate regarding exchange traded fund (ETF) shares purchased in the secondary market? A. The shares are priced continuously throughout the trading day and can be purchased on margin B. The shares are priced continuously throughout the trading day and can not be purchased on margin C. The shares use a forward pricing model like mutual funds and can not be purchased on margin D. The shares use a forward pricing model like mutual funds and can be purchased on margin

A. The shares are priced continuously throughout the trading day and can be purchased on margin

A purchase or redemption order for mutual fund shares must be executed at a price based on A. the net asset value next computed after the fund receives the order B. the net asset value last computed before the fund receives the order C. the net asset value computed at the close of trading on the NYSE the day before the fund receives the order D. the best net asset value computed the same day the fund receives the order

A. the net asset value next computed after the fund receives the order