Unit 10 Quiz 2

When discussing mutual funds with a customer, each of the following statements are prohibited EXCEPT: A) Buy shares of different funds in the same fund family and you may qualify for a breakpoint on the total purchase. B) Buy the shares on record date in order to receive the dividend. C) The income yield of the fund consists of both dividends and capital gains. D) Get a few friends to join with you to form an investment club and you may qualify for a breakpoint.

A) Buy shares of different funds in the same fund family and you may qualify for a breakpoint on the total purchase.

Which of the following funds is most likely to contain within its portfolio securities of issuers who have NOT specified the use of the capital they are raising? A) Hedge fund containing blank-check and blind-pool offerings in its portfolio B) Income fund offered by an investment company registered under the 1940 Investment Company Act C) No-load fund offered by a no-load mutual fund company D) Exchange-traded growth fund

A) Hedge fund containing blank-check and blind-pool offerings in its portfolio

All of the following describe the price of a no-load mutual fund EXCEPT: A) POP. B) book value. C) NAV. D) bid.

A) POP.

Closed-end investment company shares can be purchased and sold: A) in the secondary market. B) from the sponsor. C) only over the counter. D) from the closed-end company.

A) in the secondary market.

A broker/dealer selling open-end investment company shares will be required to return its entire selling concession if the principal underwriter has to repurchase those shares from a customer within how many business days of trade date? A) 60. B) 7. C) 30. D) 15.

B) 7.

If a mutual fund's objective is income, it would NOT hold which of the following securities in its portfolio? A) U.S. T-notes. B) Income bonds. C) Corporate bonds. D) Preferred stock.

B) Income bonds.

Which of the following statements regarding a unit investment trust is NOT true? A) It invests according to stated objectives. B) Overall responsibility for the fund rests with the board of directors. C) It charges no management fee. D) It is considered an investment company.

B) Overall responsibility for the fund rests with the board of directors.

A customer owns shares in ACME Income Fund and decides to exchange them for shares in ACME Growth Fund within the same family of funds. Which of the following statements is TRUE? A) Tax or loss on the exchange cannot be determined until ACME Growth Fund is sold. B) The exchange is a taxable event. C) The exchange is a nontaxable swap. D) The exchange results in a deferral of tax.

B) The exchange is a taxable event.

When is the sales charge deducted from purchases of mutual fund shares made under a letter of intent? A) Monthly. B) When each purchase is made. C) When each letter of intent is completed. D) Annually.

B) When each purchase is made.

A father opens 4 custodial accounts for each of his children with the same mutual fund company. He invests $15,000 in each account. The fund company has breakpoints at $50,000, $100,000, and $200,000. The sales charge is: A) based on a $15,000 investment and is charged for each account. B) based on the total $60,000 investment and qualifies for the $50,000 breakpoint. C) ineligible for a breakpoint discount because these are custodial accounts. D) based on the total $60,000 investment and qualifies for the $100,000 breakpoint.

B) based on the total $60,000 investment and qualifies for the $50,000 breakpoint.

An investor who makes transactions once a month using dollar cost averaging would: A) buy the same number of shares of a stock. B) buy the same dollar amount of stock. C) allocate assets equally among cash, stocks, and bonds. D) put equal amounts of money in a bond and stock mutual fund.

B) buy the same dollar amount of stock.

Under the Investment Company Act of 1940, redemption payments for mutual fund shares must be made within how many days? A) 15. B) 10. C) 7. D) 5.

C) 7.

Which of the following is true regarding a "summary section" and a "statement of additional information" for management investment companies? A) Neither are required to be in the prospectus of a mutual fund. B) A summary section need not be included in the prospectus of a mutual fund. C) A statement of additional information (SAI) need not be included in the prospectus of a management company. D) Both must be included in the prospectus of a management company.

C) A statement of additional information (SAI) need not be included in the prospectus of a management company.

For a customer interested in buying an inverse exchange traded fund (ETF) tracking the performance of the Standard & Poor's 500 index, which of the following market views would make that purchase most inappropriate? A) Neutral B) Both bullish or bearish C) Bullish D) Bearish

C) Bullish

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

C) issue bonds.

Encouraging a customer to purchase mutual fund shares in an amount just under the next dollar volume bracket (which entitles the customer to a reduction in sales charges) or remaining silent on the matter is called: A) selling away. B) front running. C) interpositioning. D) a breakpoint sale.

D) a breakpoint sale.

Mutual fund Class B shares assess A) a level load B) no load C) a front-end load D) a deferred sales load

D) a deferred sales load

If an index is up 2%, a 3X leveraged inverse ETF tracking that index should be A) up 2% B) down 3% C) up 6% D) down 6%

D) down 6%

If the value of securities held in a fund's portfolio increases, and the amount of liabilities stays the same, the fund's net assets: A) are more liquid. B) stay the same. C) decrease. D) increase.

D) increase.

Holding Company Depository Receipts (HOLDRs) are I. traded on exchanges in round lots II. redeemable by the issuer, just as mutual funds shares are redeemable by an investment company III. investments that will distribute the cash dividends of the companies held in the portfolio directly to the investor IV. investments that allow no flexibility in managing the tax consequences related to holding shares of the companies within the portfolio

I and III

Which of the following statements describe the conduit theory of taxation? I. A fund is not taxed on earnings it distributes provided distributions equal 90% or more of net investment income. II. Earnings distributed by a regulated investment company are taxed three times. III. Dividends and interest are passed through to the investor without the fund being taxed. IV. Dividends and interest accumulate tax free to the shareholder.

I and III

Potential investment company clients should be advised to investigate a fund by looking at which of the following? I. Investment policy. II. Number of shares outstanding. III. Custodian bank. IV. Portfolio.

I and IV

A registered representative (RR) has just explained to a customer that to purchase a particular security the customer would pay the asking price plus a commission, not a sales charge. Which of the following is the RR is speaking of? A) All open-end funds B) All management company offerings C) Mutual funds D) Any closed-end fund

D) Any closed-end fund

If a client prefers mutual fund investments in companies that primarily generate capital appreciation to companies that pay a steady dividend, what type of mutual fund and associated investment objective would you recommend? A) A growth fund. B) An index fund. C) An income fund. D) A growth and income fund

A) A growth fund.

A transfer agent is responsible for all of the following EXCEPT: A) issuing new shares. B) safeguarding the physical assets of the investment company. C) distributing dividends and capital gains. D) canceling shares.

B) safeguarding the physical assets of the investment company.

Mutual fund shareholders are NOT taxed on: A) reinvested dividends. B) unrealized capital gains. C) capital gains distributions. D) interest distributions.

B) unrealized capital gains.

A mutual fund has a net asset value (NAV) of $7.80 per share, and the fund pays its underwriter a concession of $0.12 per share. If the fund has a sales load of $0.50 per share and an administrative fee of $0.15 per share, how much does the investor pay per share to purchase a Class A share of this fund? A) 8.42. B) 7.8. C) 8.57. D) 8.3.

D) 8.3. The investor pays the public offering price (POP) when purchasing mutual fund shares. For a Class A share upon purchase, the POP is the NAV plus the sales charge.

Which of the following constitutes selling dividends? A) Encouraging customers to sell their mutual fund shares just before the ex-dividend date. B) Encouraging investors to postpone purchases of mutual fund shares until after the ex-date for a dividend distribution. 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) Enticing customers to buy mutual fund shares just before the ex-dividend date.

A client invests $2,200 in an open-end investment company and signs a letter of intent for a $10,000 breakpoint. If he deposits $11,000 6 months later, which of the following statements is TRUE? A) He will not receive any reduction in the sales load. B) He will receive a reduced load on $10,000 worth of the shares. C) He will receive a reduced load on $8,800 worth of the shares. D) He will receive a reduced load on $13,200 worth of the shares.

D) He will receive a reduced load on $13,200 worth of the shares.

The POP for a mutual fund as quoted in the financial press reflects: A) the average sales charge for the preceding 3 months. B) the minimum sales charge the fund distributor collects. C) no sales charge because the offering price depends on the quantity purchased. D) the maximum sales charge the fund distributor collects.

D) the maximum sales charge the fund distributor collects.

A broker/dealer with a sales agreement with a mutual fund must return all concessions to the underwriter if a customer redeems his shares: A) under no circumstances. B) within 5 business days of purchase. C) within 10 business days of purchase. D) within 7 business days of purchase.

D) within 7 business days of purchase.

A customer wishes to redeem 1,000 shares of a mutual fund. The NAV and POP are $10, and a redemption fee of 0.5% will be charged. How much will the customer pay in redemption fees? A) 9950. B) 9500. C) 500. D) 50.

D. 50

A customer wishes to redeem 1,000 shares of a mutual fund. The NAV and POP are $10, and a redemption fee of 0.5% will be charged. How much will the customer pay in redemption fees? A) 9950. B) 9500. C) 500. D) 50.

D. 50 The question did not ask how much he would receive upon redemption, but how much he would pay in redemption fees. Mutual fund shares are redeemed at the NAV (bid): 1,000 shares × $10 each = $10,000. $10,000 × .005 (.5% redemption fee) = $50.

Closed-end investment company shares may be: I. traded in the secondary markets, including the exchanges and OTC markets. II. sold in the OTC primary market only. III. redeemed by the closed-end investment company. IV. traded by institutional investors.

I and IV

For a mutual fund that collects a 12b-1 fees, which of the following statements are TRUE? I. The fund may use the money to pay for mailing sales literature. II. Advertising materials must always state that the fund is no-load. III. The fund may use the money to pay for commissions on portfolio transactions. IV. The fund's prospectus must disclose the fee.

I and IV