Chapter 9

To determine how much of a mutual fund's distributions are required to be included in taxable income, the shareholder should examine:

Form 1099

An equity fund invests in the stocks of companies whose earnings are projected to increase greatly over the next 10 years. This is an example of a:

Growth fund

A specialized or specialty fund invests in stocks that are primarily:

In a particular industry or geographical area

If the benchmark for a 2x leveraged index ETF rises 10%, then falls 10%, an investment in the ETF will be down 4%. o If the benchmark for a 2x inverse index ETF rises 10%, then falls 10%, an investment in the ETF will be down 4%.

Investors who are interested in adding leverage to their accounts without opening a margin account could purchase leveraged ETFs.

The most significant factor affecting the net asset value of a fund on a day-to-day basis is the:

Mark to market of the portfolio

Which of the following objectives is the least suitable reason for investing in a mutual fund?

Short-term trading

An individual has been purchasing shares of a mutual fund and has chosen to reinvest all distributions rather than take the payments. If the individual chooses to sell the shares purchased through these reinvestments, the cost basis will be:

The purchase price of these shares

A closed-end investment company share may sell:

at, above, or below its net asset value.

If the benchmark for a 2x leveraged index ETF rises 10%, then falls 10%, an investment in the ETF will be:

down 4%.

ETFs are normally listed on NASDAQ or a traditional exchange and may:

fluctuate in price throughout the day as a regular stock would.

Investors who are interested in adding leverage to their accounts without opening a margin account could purchase ___________________.

leveraged ETFs.

If the issuer's financial condition deteriorates and the credit rating agencies downgrade the issuer of the ETN, it would impact the value of the ETN ________________,

negatively.

Mutual fund shares do not trade on exchanges and do not have a fixed settlement date. For this reason, the ex-dividend date for a mutual fund will:

not automatically be one day before the record date, as it is for common stock.

Gold equity mutual funds (precious metals funds) tend to do well when the economy is:

performing poorly.

An investor purchases a face-amount certificate on a periodic payment basis. The certificate is scheduled to mature in ten years. After the fifth year, the investor stops making payments. The investor may:

redeem the certificate for its current cash value less any surrender charges or receive a paid-up certificate for a smaller face amount.

dividend and capital gain distributions of mutual funds can be:

reinvested automatically in additional shares if the shareholder chooses to do so

Sector funds focus their investments in specific areas of industry or geography. As a result the funds tend to have more:

risk and volatility (less stability), than money-market mutual funds, short-term bond funds or index funds that track the broad market indices such as the Standard & Poor's 500.

Exchange-traded funds (ETFs) are investments that resemble UITs. These products may be:

sold short, may be purchased on margin, and may invest in either equity or debt instruments.

Appreciation in the value of fund shares is not taxable until the shares are:

sold to establish a capital gain.

Reinvested dividends must be declared as income and are thus:

taxable.

Mutual funds are required to disclose in the front of a prospectus a standardized fee table of all its fees. The fee table must include:

the expense ratio, which is the percentage of a fund's assets that is used to pay its operating costs.

Client deposits or redemptions do not affect:

the net asset value per share.

A gold equity mutual fund buys shares of gold mining companies and, when the price of gold rises, so do:

the profits of companies that mine gold.

A mutual fund has an NAV of $26.85 and a sales charge of 8%. In order to find the asked price, the investor should divide the $26.85 NAV by:

100% minus the 8% sales charge

A client redeems shares of a mutual fund. According to current regulations, a check must be sent within how many days of submitting a redemption notice?

7 days

Mutual fund Class _____ shares assess a front-end sales charge and qualify for breakpoints.

A

_____________________ is generally suitable for investors who are willing to assume significant risk.

A gold equity fund

Which investment company does NOT charge a management fee?

A unit investment trust

Mutual fund Class ____ shares assess a back-end sales charge and do NOT qualify for breakpoints.

B

A mutual fund that has a diversified portfolio that includes a significant percentage of both stocks and bonds would most likely be a:

Balanced fund

Class A shares of an open-end investment company are different from Class B shares in that:

Class A shares have a front-end sales charge, while Class B shares have a contingent deferred sales charge

If the NAV of the Greenwich Fund is 90% of its offer price, this must be a(n):

Closed-end fund

___________________ is a systematic method of investing that results in the average cost of the securities purchased being less than the average of the prices paid (not the other way around).

Dollar cost averaging

A customer buys 100 shares of a fund and pays the market price plus a commission. The investor has bought:

ETF shares

The Investment Company Act of 1940 regulates:

ETFs

When an investor buys shares of a mutual fund (open-end investment company), the investor pays the:

Offering Price

Taxable income normally includes:

Reinvested dividends paid on a mutual fund investment

An inverse equity exchange-traded fund (ETF) is most similar to:

Selling short

A customer contacts a registered representative and wants to invest a large sum of money in four different mutual fund families. Which of the following statements is the MOST important disclosure the RR should make to the client?

The customer will not be able to receive sales breakpoints

When analyzing a mutual fund's expenses, an analyst does consider:

The management fees charged by the investment adviser The fees charged by the fund's custodian The fund's expense ratio

The determination of when the NAV of a mutual fund is calculated, is stipulated by:

The prospectus

Investors who intend to make large dollar purchases of mutual fund shares should purchase Class A shares in order to qualify for:

a breakpoint.

The market price for a closed-end investment company is based upon:

supply and demand for the shares in the marketplace.

The net asset value of an ETF is recalculated each day using:

the value of the securities in the underlying index.

The day-to-day business activities of a unit investment trust (UIT) are the responsibility of the:

Trustee

A mutual fund that invests in stocks that are currently trading below their intrinsic market value is a(n):

Value fund

The Statement of Additional Information is supplied to a client:

When a customer requests it

On B shares, if the back-end load declines over time based on how long an investor owns the shares, it is referred to as:

a contingent deferred sales charge (CDSC).

An individual purchases a $1,000,000 of a 2x leveraged Oil & Gas ETF. On the first day, the underlying index rises by 10%, which results in the ETF's value rising to $1,200,000 (up 2x or 20%). On the next day, the underlying index falls by 10%, which results in the ETF's value falling to $960,000 (down 2x or 20% of $1,200,000). After two days, the result is:

a loss of $40,000.

A 10% increase in the value of an ETF and a subsequent 10% decrease in the same ETF on the next day will result in:

a loss on the investment.

To be considered a regulated investment company, a mutual fund must Distribute:

a minimum amount of its net investment income to shareholders

A FINRA member firm may not sell the fund at a discount ($9.10) to:

a nonmember firm or to one of the firm's customers (the public).

a confirmation sent by a member firm selling a fund with a back-end load (CDSC) must include:

a statement that a sales charge may be assessed upon redemption.

ETNs do not usually pay:

an annual coupon or specified dividend.

An alternative to selling short is to purchase:

an inverse ETF.

According to the Conduct Rules, a member firm can only give a discount from the public offering price to:

another member firm.

If the benchmark for a 2x inverse index ETF rises 10%, then falls 10%, an investment in the ETF will be:

down 4%.

An investor places an order to buy shares of a mutual fund after that investment company has determined its net asset value for the day. The RR instructs the fund company to purchase the shares at that day's NAV for the investor. This is a sales practice violation known as:

late trading

When signing a letter of intent (LOI), all purchases over a 13-month period are accumulated and the sales charge on the first and subsequent purchases are based on the:

letter of intent amount.

The value of an inverse ETF that perfectly tracks the index will fall at the same percentage that the index rises, also it will:

rise at the same percentage that the index falls.

Emerging markets funds invest in securities issued by countries with unsure economic, political, and social climates. This leads to significant:

volatility in share prices.