Missed Qs

Contributions to a 403(b) plan may be made by which method? A By salary reduction agreement B By transfer of stocks and bonds and other securities owned by the employee to a custodial account C By withdrawing a draft from the employee's account D By a check from the employee

A 403(b) is a pretax salary reduction plan. Contributions must be made by payroll deduction. The other choices are distractors.

A registered representative is meeting with a client discussing investing in ABC Mutual fund. In which scenario may a breakpoint sale violation have occurred? A The registered representative recommends that the client diversify between several different fund families B The registered representative recommends that the client invest in the same fund family that the client's IRA is currently invested with C The registered representative recommends that the client diversify between different funds within the same fund family D The registered representative recommends that the client not invest a lump sum immediately but suggests dollar-cost averaging over the next 12 months and sign a letter of intent

A A breakpoint sales violation occurs when a registered representative purposely makes a sale just below the breakpoint to earn a higher sales load (or divides investable dollars among different fund families). This is a violation of SEC and FINRA rules and is prohibited.

All the following statements are false regarding open-end management companies, except: A They are structured as corporations and issue common shares B They issue shares of beneficial interest C They are not managed D They have a fixed portfolio of securities

A A management investment company (or management company) is organized as a corporation, operates under the direction of a board of directors, and issues shares of undivided interest to investors. Open-end management companies are mutual funds. A mutual fund can only issue one class of security, which is common stock, and must have a clearly defined investment objective that is stated in the prospectus. The portfolio is actively managed to meet the investment objective of the fund.

All the following statements are true regarding qualified retirement plans, except: A Withdrawals are taxed at preferential rates B Employer contributions are tax deductible C Qualified plans grow tax deferred D Employees make contributions on a pretax basis

A A qualified plan receives certain tax advantages for both the employer and employee. Employees can contribute on a pretax basis and have earnings grow tax deferred. Employer contributions can be deducted for the year in which the contribution was made. All contributions consist of money that has not been taxed by the IRS yet, so the account has a cost basis of zero. The account will grow tax deferred (not tax-free), and upon withdrawal the amount will be taxed at the investor's current ordinary income rate.

Whenever an individual receives monies from a qualified plan, the IRS allows the individual to place the monies into an IRA without having to pay income tax on the amounts placed into the IRA. What is this procedure? A Rollover B Qualified transfer C Spillover D Sinking fund

A A rollover is the proper way to reinvest qualified plan money once it has been received to avoid current income-tax liability. Only one rollover (where the participant receives the funds) is permissible per year. However, an unlimited number of plan trustee to trustee transfers is allowed. A sinking fund is a way of saving to repay a bond. 'Spillover' is a distractor.

All the following items will be found in the prospectus of ABC's Small-Cap Fund, except: A Credit ratings B A fee table C Principal risks D Performance information

A A small-cap fund invests in equities. Credit ratings typically apply to bonds.

For an additional charge, all the following optional features may be available on a variable annuity, except: A Waiver of fund expenses B Guaranteed minimum income benefit C Long-term care rider D Stepped-up death benefit

A Additional optional features may be available for an extra premium charge. A guaranteed minimum income benefit guarantees a minimum monthly benefit, even if there's not enough money in the account to support the payout. A long-term care rider provides long-term care insurance in the event the annuitant qualifies for home health care or nursing home care. A stepped-up death benefit may also be available on variable annuities. This feature locks in contract values on specific dates allowing for a greater death benefit.

All the following would be approved methods of funding a variable annuity contract, except: A Taking out a home equity loan B Withdrawing funds from a bank savings account C Using the funds from a mature CD D Paying with a check drawn on a money market account

A All of the answer choices shown are considered cash except for the home equity loan. Using or withdrawing money from an existing home or property for the purchase of a variable annuity is considered unsuitable.

Which debt instrument involves using the issuing corporation's asset as collateral? A Equipment trust certificate B Commercial paper C Refunding agreement D Repurchase agreement

A An equipment trust certificate is backed by equipment owned by the issuer. Commercial paper is a corporation's short-term, unsecured debt. A repurchase agreement is a short-term agreement, which involves selling government securities and agreeing to buy them back at a higher price, usually the next day. The other choice is a distractor.

All the following are found in an income statement, except: A Liabilities B Gross sales C Net income before taxes D Cost of goods sold

A An income statement, also called a profit and loss statement, shows the incoming revenues and outgoing expenses over a specified period, such as the fiscal quarter or year. This is used to determine the profitability of a company. Items listed on an income statement include gross sales, operating expenses, interest expense, tax expense, and net income. The 3 main components of the income statement are gross sales, cost of goods sold, and net income before taxes. Liabilities would be found on the balance sheet.

The legal agreement that outlines the terms of the bond issue is called: A Trust indenture B Lending pledge C Loan closing document D Bond agreement

A An indenture, or trust indenture, is a legal agreement outlining the terms of the loan between the corporation and the bondholders. A trustee is appointed to represent the bondholders and protect their interests.

A conservative investor has a small brokerage account at ABC Investments. The investor informs their registered representative that they have recently come into a large inheritance due to the death of an uncle. What is the first step the RR should take based on this investor's new circumstances? A Update the account record to reflect their recent good fortune B Recommend a municipal bond fund to shelter them from taxes C Recommend an aggressive asset allocation D Change their investment objectives to speculative

A Anytime a client has a major life change (e.g., marriage, inheritance, new job), the RR should change the account records to reflect the change. After updating the paperwork, the RR should look to meet with the client to determine if their objectives have changed. In no way should the RR assume that the life change automatically changes the client's goals or objectives.

Most retirement accounts require distributions to start upon reaching the age of 72. Which one does not? A Roth IRA B 403(b) C 401(k) D Traditional IRA

A Because Roth IRA distributions are traditionally tax-free, the tax law does not require that Roth IRA holders take distributions.

The TBD Corporation is experiencing a problem with cash flow and is short on funds to increase its product inventory for a special order. TBD could alleviate this problem by issuing: A Commercial paper B Mortgage bonds C A bankers' acceptance D Debentures

A Commercial paper is unsecured, short-term debt up to 9 months in maturity. It is used to fill short-term cash flow needs. Debentures are long-term, unsecured debt. Mortgage bonds are long-term debt secured by real estate or mortgages on real estate. Bankers' acceptances are used to facilitate import/export operations.

Which of the following are prohibited investments for an IRA investor? A Life insurance B Variable annuities C Cash D REITs

A Contributions may be invested in many forms of investments. However, life insurance and collectibles (e.g., art) cannot be placed in an IRA. The exception to this rule is U.S. minted gold coins, which are eligible for IRAs.

Which of the following statements concerning money market mutual funds is the most accurate? A These funds are often used by investors seeking capital preservation B These funds are typically sold with a 1% sales charge C No prospectus is required when soliciting the sale of these funds D All money market funds must have a stable NAV of $1.00

A Due to the conservative nature of their portfolios, money market funds are suitable for investors that have capital preservation as their primary investment objective, also described as a defensive investment posture. While most funds do maintain a $1.00 NAV, this is not guaranteed. The prospectus delivery rule applies to the sale of money market mutual funds as it would for any other type of mutual fund sale. Most money market funds are offered on a no-load basis.

Which of the following is not considered financial information? A Investment objectives B Value of current assets C Income D Current insurance coverage

A Financial information quantifies the investor's present financial condition. Investment objectives define the investor's financial goals for the future.

An investor purchases 100 shares of ABC Corp common stock at $30 per share. Two years later the investor sells the 100 shares for $20 per share, generating a $1,000 loss. All the following would be considered substantially the same security under the wash sale rule, disallowing the loss, except: A ABC Corp 10-year bond B ABC Corp convertible preferred stock C ABC Corp warrants D Call options on ABC Corp

A For purposes of determining substantially the same security under the wash sale rule, call options and warrants on a security are substantially the same as the security. Convertible bonds or convertible preferred stock are substantially the same as the common stock into which they are convertible. If this investor reestablishes substantially the same position in ABC Corp either 30 days prior to the sale or 30 days after the sale, the loss will be disallowed.

If an investor learns of market moving information and can purchase or redeem mutual fund shares at prices set before the market moving information was released, this practice: A Violates federal securities laws and is known as late trading B Does not violate federal securities laws and is considered short swing profits C Does not violate federal securities laws but is unethical and is known as late trading D Violates federal securities laws and is known as insider trading

A Late trading refers to the practice of placing orders to buy or redeem mutual fund shares after the time a mutual fund has calculated its NAV, usually 4pm EST, but receiving the price based on the prior NAV already determined as of that day. Late trading violates the federal securities laws concerning the price at which mutual fund shares must be bought or redeemed and defrauds innocent investors in those mutual funds by giving the late trader an advantage not available to other investors. In particular, the late trader obtains an advantage when they learn of market moving information and can purchase or redeem mutual fund shares at prices set before the market moving information was released.

The owner of a nonqualified annuity decides to annuitize their contract and chooses the unit refund life payout option. The annuitant has a cost basis of $40,000 and the account value at annuitization is $120,000. After receiving $1,000 monthly, the owner suddenly dies after having received their 32nd check. How much will their beneficiary receive? A $8,000 B $88,000 C $0 D $32,000

A Life income with refund, sometimes called unit refund life, is payable for the lifetime of the annuitant. Upon death, if the annuitant has not received an amount equal to the premiums paid into the annuity, the balance is refunded to the beneficiary. The investor has a cost basis of $40,000 and has received $32,000 in payments. The beneficiary will receive $8,000.

All the following statements are true regarding LGIPs, except: A LGIPs are subject the Investment Company Act of 1940 registration requirements B LGIPs are established for the investment of public funds C Objectives of LGIPs include safety of principal and liquidity D The public cannot invest in an LGIP

A Local government investment pools (LGIPs) are investment pools that are established by state or local government entities to allow for the investment of public funds. They are municipal fund securities regulated by the MSRB. The public cannot invest in an LGIP. The objectives include safety of principal and daily liquidity. They are modeled after mutual funds or UITs, but the pools are not subject to the Investment Company Act of 1940 registration requirement.

Which of the following is not a valid exception to the premature withdrawal penalty assessed on early withdrawals of IRA assets? A Financial hardship B First-time home purchase C Disability D Certain medical expenses

A Money held in retirement plans cannot be withdrawn prior to age 59½ without consequences. If the money is withdrawn and not reinvested in an IRA, the person will incur a 10% penalty on the taxable portion of the withdrawal, which also must be reported and taxed as income that year. The penalty will be waived for death, disability, purchase of first home (with a $10,000 lifetime limit), higher education expenses, certain adoption or birth expenses, substantially equal periodic payments, and to pay certain medical expenses or qualifying medical insurance premiums.

Which of the following is not a money market instrument? A U.S. savings bond with 4 weeks until maturity B T-bill with 6 weeks until maturity C Commercial paper D Negotiable CDs

A Money market securities are always short term, investment grade, and liquid. Savings bonds are not short term when issued, and they are illiquid because they must be redeemed by the U.S. government. There is no secondary market for savings bonds. Treasury bills, commercial paper, and negotiable CDs are money market instruments. When T-bonds and T-notes have less than 1 year to maturity, they are considered money market securities.

A registered representative meets with a new client that lives in state A. In building the client profile, the representative noted the client is in the 32% tax bracket. This client is seeking income and is generally conservative. Which of the following securities would be the most appropriate for this client, given this information only? A Municipal issues from state A B Investment grade corporate bonds C Government bond fund D Municipal issues from any state

A Municipal bonds are popular with high-income investors because they are not subject to federal income tax. For investors that purchase municipal bonds issued in their state of residence, the bonds are also exempt from state tax. The investment choice that would provide the greatest benefit would be municipal issues from state A.

A business typically experiences periods of high profits followed by periods of little or no profit. What may the business want to consider as a qualified plan to offer to employees? A Keogh plan B Defined contribution plan C Profit-sharing plan D Simplified employee pension

C The business has no fixed contribution obligation in a profit-sharing plan but does with each of the other choices.

Municipal fund securities include all the following, except: A Coverdell ESAs B LGIPs C Section 529 plans D ABLE programs

A Municipal fund securities are funds or trusts that are offered by individual states or local governments. Municipal fund securities include Section 529 plans, ABLE programs, and local government investment pools (LGIPs). Coverdell ESAs are established to help fund a child's education and are not municipal fund securities.

Which statement concerning a preliminary prospectus is not correct? A It may be accompanied by the firm's most recent research report B It may contain information that has been corrected or clarified at the request of the SEC C It does not contain the public offering price D It may be sent to persons who have indicated an interest in the issue

A Nothing may accompany the red herring during the cooling-off period. It is true that the preliminary prospectus may be sent to persons who have indicated an interest in the issue. It does not contain the public offering price, but it may contain information that has been corrected or clarified at the request of the SEC.

Which of the following regarding tenants in common (TIC) registrations is correct? A A trade may be authorized by any account owner B Upon the death of an owner, the interest passes to a beneficiary C Ownership is always equal D Each party's interest is divided based on deposits

A Ownership of the account may be equal (50/50) or unequal, but each party's interest in the account is always specified. When 1 of the account owners dies, that owner's portion of the account passes to their estate, not to a beneficiary. Any owner may act for the entire account and place trades.

A registered representative with DEO Securities has a discretionary account with a customer that owns shares of the ABC Growth Fund but is seeking more stable growth. The RR agrees that a more conservative investment would be in the client's best interest. For the next 10 months, the RR moves the client's money, a month at a time, into a new blue-chip fund at a different fund family to see which investment product is a "good fit." Which of the following suitability standards did the RR violate? A Quantitative suitability B Customer-specific suitability C Reasonable-basis suitability D Short-term trading

A Quantitative suitability requires the number of transactions performed for the client to be appropriate based on the client's profile. While the RR has discretion and can do transactions in the account, each exchange to a different fund family will incur a sales charge imposed on the client. These activities could be a direct violation of quantitative suitability.

Which of the following statements describe the difference between open- and closed-end funds? A Open-end funds can only be capitalized with common stock while closed-end funds may issue common stock, preferred stock, and bonds B Closed-end funds may only be capitalized with common stock while open-end funds may issue common stock, preferred stock, and bonds C Closed-end funds have continuous issuance of shares with no fixed number of shares, while open-end funds have a continuous issuance of shares with a fixed number of shares D Open-end funds have a one-time issuance of shares with a fixed number of shares, while closed-end funds have a one-time issuance with no fixed number of shares

A Share structure and capitalization are major differences between open and closed-end funds. Closed-end funds operate much like the equity securities of a publicly traded company. They are typically offered once to the public with a fixed number of shares. Open-end funds are offered on a continual basis and have no limit as to the number of shares they may issue. Open-end funds may only issue common stock, while closed-end funds may issue common stock, preferred stock, and bonds.

A 57-year-old would like to retire at age 62. They have built up an acceptable nest egg for retirement but are interested in using the next 5 years to improve upon what they already have. Which of the following would be a suitable investment mix for their retirement assets? A 80% into fixed income and 20% into equities B 80% into equities and 20% into fixed income C 100% into a U.S. government mutual fund D 60% into high yield bonds and 40% into equities

A Since they are close to retirement and have already established ample assets, their goal for the next 5 years is to protect and build upon those assets. At their age, the most prudent thing to do is to move most of the money into safe, fixed-income securities with the remainder in high quality equity securities. Investing a small portion of the account into equities will afford the client the ability to keep up with inflation while retired. Investing most of the portfolio into junk bonds and equity would create too much principal risk for their retirement goals. A U.S. government bond fund, although it invests in safe securities that will not default, can lose substantial value if interest rates rise significantly. Mutual funds, in general, are long-term investments that are very susceptible to timing risk even if the underlying securities are very safe.

When investment advisers direct their portfolio trades to broker-dealers that give them products and services that help them manage their investments, this is known as: A A soft dollar arrangement B Selling away C Hard dollar payments D A selling agreement

A Soft dollars are an alternative way for investment advisers to pay for products and services received from a broker-dealer using client commission revenue. The key in a soft dollar arrangement is that it must benefit the investment advisers' clients.

A 63-year-old is ready to begin withdrawing from their traditional IRA. They contributed $15,000 into the plan over the years, all pretax. The account is now worth $60,000. How will their withdrawals be treated for tax purposes? A 100% ordinary income B 25% taxable as ordinary income; 75% taxable as capital gain C Tax-free D 25% tax-free; 75% taxable as ordinary income

A Taxable withdrawals from IRAs are taxed as ordinary income. That is the key to identifying what portion of withdrawals are taxable. Since all capital in an IRA grows tax-deferred, the growth portion of the account is taxed as ordinary income at retirement. But what about the contributions? This person was able to deduct their contributions (i.e., make them pretax), which means the contributions have never been taxed. Therefore, none of the money in the IRA has been taxed by the IRS. It is fully taxable as ordinary income when withdrawals are made.

All the following statements are true regarding ABLE accounts, except: A ABLE accounts must be opened in the state of residence of the disabled individual B Contributions into an ABLE account can be made by anyone C The account may hold up to $100,000 for the beneficiary to still maintain their Medicare benefits D Only 1 ABLE account can be opened per eligible person

A The ABLE (Achieving a Better Life Experience) Act established 529A plans, or ABLE accounts, and are intended to help individuals and their families living with disabilities. An ABLE account permits an account to be established to pay for the ongoing expenses of a disabled person. Like 529 plans, nondeductible contributions can be made by anyone on an after-tax basis, and qualified withdrawals are federally income tax-free. There may be only 1 ABLE account for each eligible person; the plan does not need to be in the person's state of residence.

A client bought shares in XYZ Fund on the record date. The fund's quarterly dividend was $0.28 per share. The client has elected to re-invest dividends. This investor: A Will purchase additional shares B Will receive a check for the number of shares they own multiplied by $0.28 per share C Will have a lower proportional interest in the fund D Is not entitled to the dividends since the purchase was not made 2 business days prior to the record date

A The client elected to reinvest the distributions, so no check is sent. The ex-date for a mutual fund is usually the day after the record date (R+1). Since the client elected to reinvest dividends, they will use the proceeds of the dividend distribution to purchase additional shares of the fund at NAV. Assuming the other investors are reinvesting, the investor will maintain their proportional interest in the fund as long as they reinvest as well.

A retired 67-year-old received $44,000 from Social Security and pension this year. The retiree also works part-time as a doorman and earned $4,500. What is the maximum this person can contribute to a traditional IRA? A $4,500 B $0.00 C $5,500 D $6,000

A The fact that this person is receiving Social Security has no bearing on their ability to contribute to an IRA. Their earned income level, however, does have an impact. The total earned income, $4,500, is the maximum that can be contributed to a traditional IRA.

Where can you look in a company's financial statements to determine whether a company has any lease agreements that might affect their financial results? A Footnotes B Auditor's report C Income statement D Liability section of the balance sheet

A The footnotes allow the company to fill in any information that wouldn't be contained in the financial statements. It will tell how the company defines and values things. It is also the place that contains information on when debts mature, payments begin and cease, the methods of depreciation used, how the inventory is valued, details on lease agreements, and any other information needed to make the financial statements complete and easily understood.

An investor purchased a nonqualified variable annuity and invested $45,000 over the years. At retirement, the annuity is worth $450,000. If the investor takes a full cash distribution for the entire amount, how will this be taxed? A 90% is taxed as ordinary income, while the remainder is considered a return of capital and, therefore, is not taxed B The entire withdrawal is taxed at ordinary income rates C 10% is taxed as ordinary income, while the remainder is considered a return of capital and, therefore, is not taxed D The entire withdrawal is taxed as a long-term capital gain

A The full cash distribution is a lump sum distribution. Since the investor is withdrawing the entire amount, the contributions, which have already been taxed, are not taxed upon withdrawal (this is the cost basis). Only the growth (90% of the account) is taxed as ordinary income ($45,000 ÷ $450,000 = .10 or 10%. Therefore, 10% of the contract value is a tax-free return of principal (the cost basis), and the remaining amount is taxable at ordinary income tax rates.

Which statement regarding aggressive growth fund portfolios is not true? A Such a portfolio offers little potential protection to investors against loss of purchasing power B The amount of current investment income generated by such a portfolio tends to be insignificant C There is a potential for long-term appreciation of invested capital D Fluctuations in the value of the portfolio will generally exhibit greater volatility than stock market indexes

A The greater the risk, the greater the potential reward. All growth funds tend to move with inflation or outpace it. Therefore, there is little purchasing-power risk.

Which of the following is the formula for calculating the net asset value (NAV) of an accumulation unit of a variable annuity? A Total net assets divided by total units issued B Assets minus liabilities divided by the value of the separate account C Current assets divided by current liabilities D Net assets times total units outstanding

A The means for calculating the net asset value of a variable annuity accumulation unit is: total net assets divided by total units issued. Net assets are assets minus liabilities. This calculation is done at least once each trading day, usually at the close of trading.

The fund manager of ABC Mutual Fund reported unrealized appreciation of 12%, and a 3% increase in net income. The net result is: A An increased value in the portfolio B Available for distribution to the outstanding shareholders regardless of the board's decision C A decreased value in the portfolio D Available for distribution to the outstanding shareholders when declared by the board of directors

A The net results are not ready for distribution since 12% was unrealized appreciation. Unrealized appreciation cannot be distributed until the assets are sold. The portfolio increases in value when the securities increase or when the fund receives income. There was an increase in income but no increase in capital gains. Capital gains occur (are realized) when a security is sold at a gain. An increase in the value of a security is called unrealized appreciation until it is sold. Once it's sold, it's called a capital gain.

An investor has $100,000 and wishes to invest in 2 funds in different fund families - a growth fund and an income fund. What should the registered representative do? A Explain to the investor that investing the entire amount in one family of funds will result in lower sales charges B Mark the order as unsolicited and process the transaction C Request approval from a principal at the firm prior to placing the order D Follow the customer's instructions

A The representative must explain to the investor that there are qualifying breakpoints available by investing in the same fund family. By splitting the money among multiple fund families, the customer will pay higher sales charges on each purchase. If, after proper disclosure, the investor still wishes to split into different fund families, the representative should follow the customer's instructions and mark the order as unsolicited.

Under which of the following federal laws does a variable annuity separate account register? A The Securities Act of 1933 and the Investment Company Act of 1940 B The Securities Exchange Act of 1934 and the Investment Advisers Act of 1940 C The Investment Company Act of 1940 and the Securities Exchange Act of 1934 D The Investment Advisers Act of 1940 and the Securities Act of 1933

A The separate account of a variable annuity is registered as an investment company under the Investment Company Act of 1940. As securities, variable annuities are registered under the Securities Act of 1933. Variable annuities, which are funded through separate accounts, are regulated by the SEC and state insurance laws, whereas annuities based on the general account (i.e., fixed annuities) are not securities-they are regulated under state insurance laws only. The 1933 Act requires broker-dealers to deliver a prospectus to customers purchasing variable annuities. Those selling variable annuities are regulated under the Securities Exchange Act of 1934.

An investor owns shares in a mutual fund, purchased nine months ago. The investor receives the annual capital gains distribution from the fund. Which of the following statements is true regarding the taxation of the distribution? A The investor must pay taxes at the capital gains rate B The fund is responsible for all taxes under Subchapter M of the IRC C This is an unrealized gain and will be taxable when the investor redeems shares of the fund D The investor must pay taxes at ordinary income tax rates

A This is a capital gain distribution which occurs when the fund manager sells securities in the portfolio for a profit and then shares the profit with fund investors. Funds pay out capital gain distributions on an annual basis. Capital gain distributions are considered long term and are taxable to the investor in the year received at preferential rates (capital gains rate), usually 15%. The holding period is based on the fund's holding period for the underlying security, not the investor's holding period on the fund shares.

A person has received a check representing retirement money that they must reinvest within 60 days to avoid a taxable event. What term is used to describe what this person is in the process of doing? A A rollover B A switch C An exchange D A transfer

A This person is in the process of a rollover. In a rollover, the individual receives a check for their retirement funds and has 60 days to place the funds in another retirement account to avoid being taxed as a withdrawal and to avoid potential IRS penalties. In a transfer, retirement dollars move from trustee to trustee without the individual ever handling the funds. Exchanges and switches are terms normally reserved for reallocation of money invested in mutual funds and variable annuities.

An investor bought 400 Class A shares in ACE Growth Fund. After 15 days, the investor regrets the purchase and wishes to liquidate the shares. The investor will receive: A The next calculated NAV for each of their 400 shares B Refund of all sales charges plus NAV C The most recently calculated NAV for each of their 400 shares D The next calculated NAV for each of their 400 shares plus 50% of sales charges paid

A Unlike purchasers of variable life insurance policies or investors in contractual plans, purchasers of Class A shares are not entitled to a "free look" provision. If they choose to redeem their shares, even immediately, they will not receive a refund of any of their sales charges. Redemption of the shares is made at NAV and there is no refund of sales charges to the shareholder. However, if a redemption occurs within 7 days of purchase, the broker-dealer or representative must return the selling concession to the fund underwriter.

What is the typical waiting period that must be fulfilled for a variable annuity long-term care rider to begin paying benefits? A 60-120 days B 20-90 days C 15-30 days D 30-35 days

A Variable annuity long-term care rider benefits will not be paid until the annuitant meets specific qualifications. This usually means that they must meet the definition associated with needing chronic care and fulfill a waiting period, typically 60-120 days.

All the following statements regarding variable contracts are true, except: A The insurance company that issues the contract retains the investment risk B Variable contracts require delivery of a prospectus prior to or at the time of the sale C Variable contracts offer the contract owner voting rights on matters affecting the separate account D Variable contracts are regulated at the federal and state level

A Variable contracts are products sold through insurance companies that contain investment options that subject the owner to market risk. Variable contracts are regulated at the state level, by the state insurance department, and at the federal level by the SEC. The contract owner of a variable product has the right to vote on matters affecting the separate account. The insurance company agrees to vote, by proxy, the shares of each contract owner based upon the instructions received from those owners. A customer must be furnished with a copy of the prospectus prior to or at the time of the sale and cannot be altered in any way. The prospectus will detail all fees and risks associated with the product and explain the various investment choices available.

An individual owns a variable life insurance policy. They are looking to purchase a new sailboat. The individual is considering taking a loan against their life insurance policy to complete the transaction. Which of the following statements concerning variable policy loans is correct? A Typically, policyowners are only able to borrow a portion of their policy's cash value B Variable life policies do not have loan features C Policyowners are only permitted to take loans if they are first-time home buyers D Policyowners are permitted to borrow 100% of their policy's cash value

A Variable life insurance contracts typically allow the owner to borrow a portion of the contract's cash value. Many policies will allow the owner to borrow 75%-90% of the cash value once the contract has been in force for a minimum time period (typically three years). There are no restrictions regarding the use of the borrowed funds. These loans must then be paid back to the policy with interest. On the death of the insured, unpaid loans cause a reduction in the amount paid to the beneficiaries. The outstanding loan amount plus accumulated interest is deducted from the death benefit.

When dividends and capital gain distributions are reinvested in a mutual fund to buy new shares, the holding period of each new share begins: A The day after the share was purchased B The day before the share was purchased C 3 business days after the settlement date D The day the share was purchased

A When dividends and capital gain distributions are reinvested in a mutual fund to buy new shares, the holding period of each new share begins the day after the share was purchased. An investor who sells both the original shares and the new shares might have both short-term and long-term gains and/or losses in the same transaction.

During the cooling-off period, if the SEC issues a deficiency letter, what action must the issuer take? A The issuer must file an amendment B The issuer must cancel the issue C The issuer must file a new registration statement D The issuer must cease taking indications of interest

A When reviewing the registration statement, the SEC looks to see whether the document seems clear and complete. If the SEC believes changes are necessary, it will send the issuer a deficiency letter describing its objections. The issuer will then file an amendment to its registration statement, which restarts the cooling-off period.

An investor started a withdrawal program with $9,600 worth of fund shares. The investor's first monthly payment of a 10 year, self-liquidating program will be: A $50 B $48 C $80 D $100

C The customer's account balance of $9,600 divided by 120 withdrawals (10 years x 12 months/year) = $80. Each month the withdrawal is recalculated.

All the following statements are true about 529 plans, except: A To take advantage of the full benefits of a prepaid tuition plan, students need to attend an in-state public college B 529 prepaid tuition plans promise to keep pace with tuition to any college in the state C 529 prepaid tuition plans have no risk to the principal amount invested D 529 prepaid tuition plans are operated by state governments

B 529 prepaid tuition plans promise to keep pace with the tuition of in-state public colleges. There is no risk to the principal amount invested. They are operated by state governments and offer better returns than the investor would find with bank savings and CDs. The plan returns, however, are based on in-state public tuition averages. To take advantage of the full benefits of these plans, students need to attend an in-state public college. If the student attends an out-of-state college or a private institution, they only receive the average of the in-state colleges' annual tuition.

A registered representative has been found guilty by a Hearing Panel of violating FINRA Conduct Rules by misusing discretion in a customer's account. To whom should the RR direct their first appeal of this decision? A The Supreme Court B The National Adjudicatory Council C The Securities and Exchange Commission D Their broker-dealer

B A Hearing Panel decision can be appealed within 25 days of the decision to the National Adjudicatory Council (NAC). Appeals of NAC decisions may be made to the SEC, and the Commission's decision may be appealed to a federal court.

Which of the following is a capital loss event? A A mutual fund investor holds XYZ Fund, the value of the fund has increased $1,500 over the past 4 months B A mutual fund investor purchases XYZ Fund shares for $20 per share, and redeems the shares for $17 per share C A mutual fund investor holds XYZ Fund, the value of the fund has declined $2,000 over the past 3 months D A mutual fund investor purchases XYZ Fund shares for $22 per share, and redeems the shares for $23 per share

B A capital loss event for a mutual fund investor occurs when the investor redeems fund shares for less than the cost basis.

What is a corporate retirement plan that will provide $800 per month retirement income when a participant turns 65? A Employee savings plan B Defined benefit plan C Deferred contribution plan D Profit-sharing plan

B A plan that details the exact retirement income an employee will receive is a defined benefit plan. In a defined contribution plan, the contribution is known, but the future benefit depends upon investment performance. In a profit-sharing plan, the employer makes contributions based on corporate profits, but annual contributions are not required.

Which of the following statements is false regarding retirement plans? A Contributions into qualified plans are made with pretax dollars B Qualified retirement plans grow tax-free C Qualified retirement plans have a cost basis of zero D Employer contributions may be tax deductible in the year the contribution is made

B A qualified plan receives certain tax advantages for both the employer and employee. Employees can contribute on a pretax basis and have earnings grow tax deferred. Employer contributions can be deducted for the year in which the contribution was made. All contributions consist of money that has not been taxed by the IRS yet, so the account has a cost basis of zero. The account will grow tax deferred (not tax-free), and upon withdrawal the amount will be taxed at the investor's current ordinary income rate.

Which of the following is true regarding a sole proprietorship? A A sole proprietorship has an unlimited life B The owner of a sole proprietorship is personally liable for all debts of the business C The sole proprietorship is a legal entity that has a tax identification number D The sole proprietor must file a separate tax return for the business Excellent!

B A sole proprietorship is a business owned by 1 person. It is not a separate entity, and therefore it does not have a separate tax ID number. While the owner has complete control over the business, they also have personal legal liability, since the business and the owner are the same. All profits and losses of the operation are filed on the owner's personal tax return. A sole proprietorship has a limited life as it is based on the life of the owner.

DND Funds would like to use investment company rankings in a new mutual fund ad campaign. All the following are required disclosures when using rankings, except: A The publisher of the ranking data B A full description of each fund's expense ratio C An explanation of the fund's five-star ranking system D The fact that past performance is no guarantee of future results

B All advertisements and sales literature containing an investment company ranking must include all of these, except a description of the expense ratio. An explanation of the expense ratio would be found in the prospectus.

A registered representative has a client that is preparing to buy their first home in about 2 years. According to the client profile, their main investment goal is aggressive growth. Which of the following investments would be suitable for the majority of the client's savings? A NASDAQ equities B T-bills C A high yield bond fund D Blue-chip equities

B Although the client's profile states that they are looking for aggressive growth, the 2-year time frame for the house purchase must take precedence. With such a short time horizon, any equity investment would be too risky for them. In addition, a high-yield bond fund has a portfolio of junk bonds which would also be too risky based on the imminent home purchase. The only choice that protects the client's capital and is short-term enough to allow liquidity, is the T-bills.

What would be a suitable investment for an investor with a long-term time horizon seeking a high-risk investment with a potentially high return trade off? A Index fund B Aggressive growth fund C Tax-free money market fund D U.S. government bond fund

B An investor with an aggressive growth objective has an aggressive strategy and is willing to accept a high risk with high return trade off. Therefore, an aggressive growth fund would be the best choice for the investor.

What would be a suitable investment for an investor with a long-term time horizon seeking a high-risk investment with a potentially high return trade off? A Tax-free money market fund B Aggressive growth fund C Index fund D U.S. government bond fund

B An investor with an aggressive growth objective has an aggressive strategy and is willing to accept a high risk with high return trade off. Therefore, an aggressive growth fund would be the best choice for the investor.

The betas for 4 different stocks are .5, .8, 1 and 1.5. Which is considered the lowest risk? A .8 B .5 C 1 D 1.5

B Beta measures the volatility of a security or a portfolio in relation to the volatility of the overall market. A stock index, like the S&P 500, is used as a measurement of the overall market. If the beta of a security is more than 1.00, it is expected to move more than the overall market and would be considered to have higher risk than the market. If the beta of a security is less than 1.0, it is expected to move less than the overall market and would be considered to have less risk than the market.

If an individual held a portfolio that consisted exclusively of U.S. government debt of varying maturities, the portfolio would be subject to all the following risks, except: A Purchasing-power risk B Capital risk C Interest-rate risk D Market risk

B Capital risk is the risk of losing some or all the capital used to purchase an investment. Every investment that is not guaranteed is subject to capital risk. This portfolio consists exclusively of securities guaranteed by the U.S. government so there is no capital risk. The portfolio will still be subject to purchasing-power risk, interest-rate risk, and market risk.

Which of the following may be purchased using margin? A Open-end fund B Closed-end fund C Stock IPO D Unit investment trust

B Closed-end funds may be purchased using margin once they are traded in the secondary market. Open-end funds, stock IPOs, and unit investment trusts are new securities when they are offered to the public. SEC regulations and Regulation T prohibit the use of margin to purchase initial public offerings. This is especially important for shares of open-end funds, which are in continuous issuance even though the fund itself may have been in business for 40 years. Closed-end funds may be bought on margin only after 30 days have elapsed since their initial public offering. At that point, they are trading on exchanges and are subject to Reg T like any other publicly traded security.

All the following monetary disputes must be settled by arbitration, except: A Registered representatives and registered representatives B Members and their customers C Members and their employees D Members and other members

B Customers are only required to settle disputes in arbitration if they have agreed in writing. FINRA member firms (broker-dealers) and registered representatives MUST settle disputes in arbitration; they may NOT sue.

All the following expenses may be paid from 12b-1 charges, except: A Distribution fees B Legal expenses C Advertising fees D Dealer compensation

B Distribution expenses that are allowed under 12b-1 fees include marketing, distributing, dealer compensation, direct mailings, fees to advertising agencies, annual reports, and prospectus charges. 12b-1 fees used specifically to pay marketing and distribution expenses, including compensation to broker-dealers and registered representatives, cannot exceed 0.75% of a fund's average net assets per year. 12b-fees used specifically for existing shareholder services cannot exceed 0.25% of a fund's average net assets per year. Legal expenses are included in the fund's administrative costs but not included in 12b-1 charges.

Two individuals open an account and have it registered as TIC. Individual A contributes $100,000 to the account, and individual B contributes $25,000. On individual A's death the account value is $200,000. What amount will be distributed to individual A's beneficiaries? A $180,000 B $160,000 C $200,000 D $100,000

B Distributions of a TIC (tenants in common) account are based on the percentage of ownership. When the account was established, the total contributions were $125,000. Individual A contributed $100,000 or 80% of the account assets (100,000/125,000), and individual B contributed $25,000 or 20% of the account assets (25,000/125,000). At the time of individual A's death, the account value was $200,000, so 80% will be distributed to the named beneficiaries of individual A. ($200,000 x .80= $160,000)

Which of the following would be covered under ERISA? A A Roth IRA B A 401(k) plan for employees of a chocolate factory C A police department's defined benefit plan D An army major's pension

B ERISA covers private sector retirement plans, such as corporate defined benefit plans and 401(k) plans. It does not govern government plans or individual retirement accounts.

An investment company must send reports to shareholders at least every: A 12 months B 6 months C Quarter D 18 months

B Every fund must furnish shareholders with semiannual financial reports that cover the performance of the fund over the prior 6 months and contain a balance sheet and income statement in addition to detailed information concerning the fund's holdings. Each fund is also required to furnish the audited annual report (Form 10K) to the SEC and shareholders.

A brokerage firm has been found guilty of failure to supervise a group of registered representatives under FINRA rules. After an appeal to the NAC, the decision was upheld. What is the next step the firm can take to defend itself? A Appeal to the Supreme Court B Appeal to the SEC C File a motion under the Code of Arbitration D Nothing - no further appeals are allowed

B FINRA Code of Procedure allows for multiple appeals of adverse decisions. The decision can first be appealed to the National Adjudicatory Council (NAC). The next appeal is to the SEC and then to the federal courts if the SEC upholds.

All the following would be found in a company's annual report, except: A Income statement B Current price of its bonds outstanding C Balance sheet D Footnotes

B Fundamental analysis derives the value of securities through public information that is available regarding a corporation's financial status. Balance sheets, income statements, statement of cash flow, and footnotes are all found in the annual report.

Which statement is false regarding the taxation of an annuity if the annuitant dies during distribution? A If the annuitant chose the life income option, nothing is included in the gross estate B Interest earned during the accumulation period is not taxable C If annuity payments are to continue to another person upon an annuitant's death, the survivor's proceeds are included in the gross estate D If a lump sum goes to a beneficiary, only the amount in excess of the policyowner's investment is included in the beneficiary's gross income for federal tax purposes

B Interest earned during the accumulation period is tax deferred, not tax-free. The other statements are accurate.

A registered representative with ABC Brokerage met with a new customer and immediately told them that they need to purchase $20,000 worth of XYZ stock right away. Which of the suitability standards did the RR violate? A The RR did not violate the suitability standards B Customer-specific suitability C Quantitative suitability D Reasonable-basis suitability

B It is the duty of the RR to make sure that the security is suitable for an investor, based on their specific investment goals. Without determining the suitability of the customer, the RR violated the customer-specific suitability requirement under FINRA Rule 2111.

Which of the following is permitted to invest in an LGIP? A Publicly owned corporation B School district C Retail investor D There are no restrictions on who may invest in an LGIP

B Local government investment pools (LGIPs) are investment pools that are established by state or local government entities to allow for the investment of public funds. They are municipal fund securities regulated by the MSRB. The public cannot invest in an LGIP.

Under the Investment Company Act of 1940, which of the following would not be considered a management company? A Nondiversified mutual fund company B Unit investment trust C Open-end fund D Closed-end fund

B Management companies include both open- and closed-end funds, whether diversified or not. Management companies and unit investment trusts are the most common types of investment companies under the Act.

Which of the following statements about interest on U.S. government agency issues is true? A Interest is exempt from all taxation B Interest is always subject to federal income tax C Interest is exempt from federal income tax but may be subject to AMT D Interest is always subject to state tax

B Most agency securities are fully taxable. There are only 2 GSE issues that are exempt from taxation at the state and local levels. Those are securities issued by the Federal Farm Credit Banks and Federal Home Loan Banks.

Which of the following statements is an accurate description of what happens upon annuitization? A The contract is surrendered, and the earnings are now taxable in a lump sum B The accumulation period ends, and the contract begins to make payments to the annuitant based partly on the payment option selected C The contact is converted to a life insurance contract with a death benefit D The contract adds all investment earnings to the premium payments

B Once a contract is annuitized, the insurance company takes ownership of funds in the account. In return, the annuitant is entitled to a guaranteed income stream based on the terms of annuitization. Annuity income is based on annuity tables, which are similar to mortality tables used for life insurance. Other factors that determine the income include the accumulation amount, interest rate return, age and gender of the annuitant, and the payment option selected.

When the SEC has cleared an issue for sale, which of the following statements is true? A The SEC has verified the accuracy of the information in the prospectus B The issuer has filed the registration statement with no further comments or requirements from the SEC C The SEC has approved the security for sale to the public D The SEC has approved the prospectus for full and fair disclosure

B Once the SEC has no further comments on the registration statement, it will set an effective date for the issue. The SEC does not approve, disapprove, endorse, or guarantee a registration statement's accuracy. The SEC does not have the time or resources to confirm that the contents of a registration statement are accurate. Instead, the SEC is simply looking to see if a registration statement contains enough information to provide a potential investor with full and fair disclosure. The SEC informs customers that it does not vouch for the adequacy or accuracy of the information contained in the prospectus via the "no approval clause," which is prominently displayed on the front cover of each prospectus.

How does a corporation increase its capitalization over time? A Through paying dividends and interest on securities outstanding B Through retained earnings C Only through additional stock offerings D Only through additional bond offerings

B Over time, a profitable corporation increases its capitalization through retained earnings, such as cash savings and investments. It can also issue bonds and stock when and if necessary, but that is not the only way for a corporation to increase its capitalization.

Under the Investment Company Act of 1940, all the following are considered investment companies, except: A Unit investment trusts B Primary stock offerings C Mutual funds D Management companies

B Primary stock offerings are IPOs. These would be either common or preferred stock and not investment companies. The other three are investment companies defined by the Act.

A client established a nonqualified variable annuity 5 years ago with a single premium payment of $100,000. The contract is in the accumulation phase and has a current value of $138,000. The client just retired at age 65 and wants to take a withdrawal of $10,000 for a dream vacation. Which of the following statements is true? A A 10% penalty tax will be imposed on the distribution B The entire $10,000 will be taxable as ordinary income C The withdrawal is treated as FIFO and no taxes will be due D The entire $10,000 will be taxable as a capital gain

B Prior to annuitizing the contract, partial surrenders or withdrawals may be made at any time, or as a lump sum. All money withdrawn from nonqualified annuities comes from earnings first, then as a return of cost basis. This is also known as "last-in, first-out" or LIFO. In this question, the entire $10,000 withdrawal will be subject to ordinary income tax. The client is over the age of 59 ½, so the 10% penalty tax will not be assessed.

All the following would be considered retail communications, except: A Research reports B Sales literature sent to institutional investors C Advertisement place in the local newspaper D Form letters distributed to 20 prospects per week

B Retail communication is any printed or electronic communication directed to more than 25 retail investors in any 30-day period. A retail investor is any investor other than an institutional investor.

An investor withdrew from their IRA at age 55 because of a financial emergency, and they did not qualify for any exemption from the IRS early withdrawal penalty. What penalty will they pay? A 25% B 10% C 6% D 50%

B Retirement money, including IRAs, cannot be withdrawn prior to age 59 1/2. If the money is withdrawn and not reinvested in an IRA, the person may incur a 10% penalty on the taxable portion of the withdrawal. In addition, the taxable portion of the withdrawal also must be reported and taxed as income that year.

All the following statements are true about variable insurance policy valuations, except: A The death benefit is calculated on an annual basis B The cash value must be calculated at least daily C The cash value changes based on market fluctuation D The separate account NAV is calculated daily

B Similar to a mutual fund, the separate account net asset value (NAV) is calculated daily at 4 p.m. Eastern, the close of the NYSE. The policy's cash value will fluctuate based on the performance of the underlying investments held in the separate account and must be calculated at least monthly. The death benefit on a variable life insurance policy is calculated on an annual basis.

A married couple would like to put some money aside for their one-year-old child in an UGMA account. What would be the most appropriate fund for them to choose? A U.S. government bond fund B Domestic growth fund C Emerging markets small-cap growth fund D High-yield fund

B Since the couple is investing in an account for their 1-year-old child, we assume they are investing for a long-term period. The longer the term, the higher the risk they can take on the investment. Since the child is only 1, they would most likely not choose to invest in debt securities. Traditionally, debt securities are more suitable for someone closer to retirement. On the flip side, they also will not want to put their child's money into something overly aggressive like the emerging markets small-cap growth fund. Therefore, the domestic growth fund is the best choice for this investor.

An individual earns $23,500 each year in income. They have a retirement plan where they work and have contributed an average of $3,000 into their traditional IRA for the last six years. The IRA account balance is $28,000. If this person decides to do a lump-sum withdrawal at age 60, how much is taxable? A $4,000 B $28,000 C Zero D $18,000

B Since we can assume that the investor made deductible contributions (they have a retirement plan at work and a relatively low income), they have paid no tax. The entire amount is taxable.

What is a unique feature of a Roth IRA compared to a traditional IRA? A Catch up provisions allow people age 50 or older to make contributions greater than the normal annual maximum B Tax-free distributions may be postponed beyond reaching the age of 72 C Penalty free distributions may be taken before reaching the age of 59½ D Earnings grow on a tax-deferred basis

B The age 72 minimum distribution rules ensure that qualified plan covered individuals take some taxable income in retirement. Because Roth IRA distributions are traditionally tax-free, there is no need for such rules.

All the following information is contained in the financial reports submitted by mutual funds, except: A Detailed information concerning the fund's holdings B Shareholder information C Balance sheet D Income statement

B The annual and semiannual reports are financial report cards for the fund that contain information like that found in the prospectus. Each of these reports covers the performance of the fund over the prior 6 months and contains a balance sheet (assets and liabilities report) and income statement (profit and loss report), as well as detailed information concerning the fund's holdings.

ABC mutual fund has an NAV of $18.50 and a sales charge of 7%. What is the POP? A $19.79 B $19.89 C $18.90 D $19.50

B The formula to calculate the POP when the NAV and sales charge percentage are given is NAV ÷ (100% - Sales Charge %) in this example $18.50 ÷ .93 = $19.89

Which of the following is true regarding the consequence to an investor who violates the wash sale rule? A Violation results in no penalty, except an additional sales charge may be imposed B Violation of the wash sale rule results in disallowance of a tax loss, but will increase the cost basis

B The wash sale rule occurs when an investor sells a security for a loss and purchases "substantially the same security" back within 30 days of the sale. Violation of the rule results in the loss being disallowed and will increase the cost basis on the new purchase by the loss per share.

Which of the following is NOT a characteristic of a profit-sharing plan? A Annual contributions are not required B Annual contributions are not subject to limits C Contributions are tax deductible in the year made D Growth is tax deferred

B There are annual limits on profit-sharing plan contributions. Contributions must be recurring and substantial but are not required every year. Contributions are tax deductible, growth is tax deferred, and withdrawals are taxed at ordinary income rates in the year withdrawn.

All the following securities are exempt from the 5% Markup Policy, except: A Mutual funds B NYSE listed stocks C Municipal bonds D IPOs

B There are several specific occasions that FINRA recognizes as ones that the 5% Policy may not apply. Those include securities that are difficult to locate, very low-priced securities, small dollar transactions, and the offer of additional services in connection with doing business. In these cases, higher charges may be justified. Securities that require the delivery of a prospectus or offering document are exempt from this policy. Those would include IPOs, municipal bonds, and mutual funds.

State-sponsored qualified tuition programs that permit contributions without income limitations are known as: A Coverdell ESAs B Section 529 plans C Section 403(b) plans D Section 457 plans

B Under Section 529 of the IRC, Congress authorized the creation of state-sponsored qualified tuition programs. Contributions to these qualified plans are considered gifts under the federal tax code, and eligibility for participation is not subject to income limitations.

Under the Customer Identification Program (CIP), what happens if a broker-dealer does not receive the information requested or the customer identity cannot be verified? A The customer cannot place any more trades but may sell positions already acquired B The broker-dealer cannot open an account or carry out any transactions C The member firm must immediately inform the SEC D The member firm must immediately inform FINRA

B Under the CIP, the customer must be notified of the intent to verify identity, and that the firm cannot open an account or carry out transactions without proper verification. The customer's identification is traditionally verified through unexpired government-issued identification cards, such as an investor's driver's license, military ID card, or passport. Additionally, a firm can use non documentary procedures to verify an investor's identity. Common forms of non-documentary identification include contacting the customer, obtaining the information from a consumer reporting agency, and checking references from other financial institutions.

When considering placing variable annuities in retirement accounts all the following are true, except: A There may be guaranteed income benefits that make them suitable B Additional tax savings may make them suitable for a retirement account C They may be recommended for their guaranteed death benefit D Investors should maximize retirement account contributions before funding a VA

B Variable annuities are often seen as unsuitable vehicles for placement within a retirement account. There are no additional tax savings to place them in a retirement account. Therefore, the tax-deferral status of a VA provides no additional tax savings if held within a retirement account. Valid reasons for recommendations of VAs within retirement accounts are the guaranteed death benefits and guaranteed income benefit riders that may be included. In most circumstances, it should be recommended that retirement account contributions are maximized prior to making contributions to a VA.

What is the typical waiting period that must be fulfilled for a variable annuity long-term care rider to begin paying benefits? A 30-35 days B 60-120 days C 15-30 days D 20-90 days

B Variable annuity long-term care rider benefits will not be paid until the annuitant meets specific qualifications. This usually means that they must meet the definition associated with needing chronic care and fulfill a waiting period, typically 60-120 days.

An individual that purchases a variable product has the right to vote for all the following, except: A Approval of investment advisers B Approval of investment decisions within the subaccounts C Approval of independent accounting firm D Members of the board of managers

B Voting rights are described in the prospectus for the contract. Typically, one vote is obtained for every $100 of contract value. The policyowner instructs the insurance company on how to vote for members of the board of managers, ratification of the election of an independent registered public accounting firm, approval of investment advisers, and any other matters subject to the vote of contract owners. The owner of a variable contract does not approve investment decisions within the subaccounts.

All the following are true when a person associated with a broker-dealer opens an account at another broker-dealer, except: A The broker-dealer employee must have written consent from their employing firm before opening an account at another broker-dealer B The firm opening the account has 30 days in which to notify the employing broker-dealer C Transactions in UITs and mutual funds are exempt from this regulation D The firm opening the account must supply the employing broker-dealer with duplicate account information upon request

B When a broker-dealer employee wants to open an account at another firm, the associated person (employee) must obtain written consent from their employer before opening an account at another firm. Duplicate account information must be sent to the employing broker-dealer if the firm requests it. Certain transactions are exempt from this FINRA regulation including transactions in UITs and mutual funds.

All the following are true when a person associated with a broker-dealer opens an account at another broker-dealer, except: A The firm opening the account must supply the employing broker-dealer with duplicate account information upon request B The firm opening the account has 30 days in which to notify the employing broker-dealer C The broker-dealer employee must have written consent from their employing firm before opening an account at another broker-dealer D Transactions in UITs and mutual funds are exempt from this regulation

B When a broker-dealer employee wants to open an account at another firm, the associated person (employee) must obtain written consent from their employer before opening an account at another firm. Duplicate account information must be sent to the employing broker-dealer if the firm requests it. Certain transactions are exempt from this FINRA regulation including transactions in UITs and mutual funds.

All the following statements regarding wrap accounts are true, except: A Wrap accounts do not charge a separate commission or load B Trades are subject to capital gains taxation C Only a broker-dealer is permitted to sell wrap accounts D Wrap accounts charge a fee that covers investment advice, administrative fees and trades processed through a broker-dealer

C Wrap accounts are established and sold through investment adviser firms. A broker-dealer can only establish such accounts if also registered as an investment adviser.

ABC Brokerage has just increased its registered representative count twofold by acquiring the offices and sales personnel of IMO Investments, a firm that was recently shut down by FINRA due to willful misconduct. ABC has been notified that based on the new hires, the firm will be subject to the FINRA tape-recording rule. This action requires that the firm: A Spot check and record a reasonable percentage of phone calls placed by those RRs hired from IMO B Tape 100% of the telephone conversations conducted by its RRs C Record all the telephone conversations of those RRs hired from IMO and sample at least 10% of those conducted by members of the firm's original RR staff D Record at least 25% of all telephone conversations conducted by its RRs

B When a broker-dealer hires a significant number of RRs from a disciplined firm, the tape-recording rule often comes into play. A firm subject to this rule is required to record every telephone conversation between all its RRs and current or potential customers. Procedures must be established to review these tapes which are reasonably based on the firm's size, structure, and customer base.

Which of the following is true regarding a whole life insurance policy? A It offers low premium payments for younger applicants that will increase annually B There is a fixed death benefit that is guaranteed for the insured's entire life C The cash value increases based upon the performance of the separate account D The policy has flexible premiums

B Whole life insurance remains in force for the life of the insured if the premiums are paid. The death benefit is fixed, and the premiums remain level throughout the insured's lifetime.

During your interview with your prospect, you determine that their investment objective is growth of invested capital. To best meet that objective using a mutual fund accumulation plan, you would suggest that: A All dividend and capital gains distributions should be taken in cash B Only dividends should be taken in cash and capital gains distributions should be reinvested in additional shares C All dividend and capital gains distributions should be reinvested in additional shares D The prospect invests in a money market fund

C By reinvesting rather than withdrawing distributions, the investor has the potential to achieves maximum growth. A money market fund will have very little growth.

A registered representative is recommending the purchase of a variable annuity inside the IRA of a 68-year old client. The contract has a 7-year declining surrender charge. What is the sales practice issue associated with this sale? A This practice is prohibited because annuities do not offer death benefits to new contract holders who are above 65 years of age B This practice is permissible, but the client must be made aware that they would be forced to take mandatory distributions after age 72 C This practice is prohibited since annuities may not be sold to investors above 65 years of age D This practice is prohibited since annuities may not be placed into IRAs

B. Placing a variable annuity inside of an IRA is permissible but is often viewed as a suspect sales practice due to the higher fees and expenses associated with a variable annuity versus a mutual fund. Reasons for such a placement may include the annuity's death benefit or guarantee of lifelong income to the policyholder. The client must be apprised that these benefits will come at the expense of higher fees. In this case, the client is already 68 years old so theoretically, they must wait until age 75 to avoid the contract's surrender charges. Unfortunately, they must begin taking distributions at age 72. However, some annuities will waive surrender charges for RMDs.

Which retirement plan was designed for public school teachers? A Coverdell B Defined benefit C 403(b) D 529

C 403(b)s cover schools and nonprofits. Defined benefit plans are a type of qualified plan that is a traditional pension plan. Coverdell and 529 plans fund expenses for K-12 and higher education.

What is an advantage of a 403(b)? A Distributions are tax-exempt B Employees of states, counties, and municipalities may reduce their pay by a specified amount to invest in 1 or more 403(b) investments C All money is invested, and the accumulation of growth is tax-deferred until withdrawn D They are profit-sharing plans

C A 403(b) is designed for employees of nonprofit organizations and public schools under which all contributions and growth are tax-deferred until withdrawn. Funds are taxed at ordinary income rates when withdrawn. 457 plans are traditionally for government employees. Profit-sharing plans are for corporations.

Which of the following statements is correct regarding a SIMPLE plan? A Employee contributions are required, and all contributions must be fully vested B An employee that already has either a traditional or Roth IRA are not eligible to participate in a SIMPLE plan C Employers with 100 or fewer employees may establish a SIMPLE plan D SIMPLE plans may be adopted in addition to another qualified plan

C A SIMPLE plan can be adopted by small businesses (self-employed, sole proprietors, partnerships, and corporations) that employ 100 or fewer employees and do not have another qualified plan available. SIMPLE plans may be established as either an IRA or a 401(k) plan. Employees may make elective contributions based on a stated percentage within the allowable annual contribution limits. All contributions must be fully vested.

Which of the following statements regarding unit investment trusts is false? A A UIT has a finite life B A UIT has a static portfolio C The UIT's investment adviser is passive D UITs issue shares of beneficial interest

C A UIT has no investment adviser because the portfolio is static (fixed). A portfolio of securities is selected and then remains static for the life of the UIT. UITs issue shares of beneficial interest.

A geographically concentrated fund is a mutual fund which has: A Its assets allocated evenly throughout a specified geographic region B The ability to move strategically between geographic regions C At least 80% of its assets invested in a specified country or region D Above average interest-rate risk

C A geographic fund must have at least 80% of the value of its assets in investments that are tied economically to the country or geographic region suggested by its name. A long-term bond fund has greater than average interest-rate risk.

A recently married couple with no investment experience wishes to invest the $3,327 in cash they received in wedding gifts. Considering the couple has no additional liquid assets, what investment option is the best recommendation? A Invest the entire amount in an index fund to provide broad market exposure at a reasonable cost B Invest 50% in a growth fund and 50% in a high-grade corporate bond fund C Keep the funds liquid (in the bank) to meet emergencies that may arise in the future D Invest all the funds in a U. S. government bond fund for maximum safety

C A recently married couple with no investment experience wishes to invest the $3,327 in cash they received in wedding gifts. Considering the couple has no additional liquid assets, what investment option is the best recommendation? A Invest the entire amount in an index fund to provide broad market exposure at a reasonable cost B Invest 50% in a growth fund and 50% in a high-grade corporate bond fund C Keep the funds liquid (in the bank) to meet emergencies that may arise in the future D Invest all the funds in a U. S. government bond fund for maximum safety

When a broker-dealer receives a written customer complaint, all the following are true, except: A An original record of the complaint must be at the OSJ B A principal must monitor the resolution of the complaint C A record of the complaint must be kept for 3 years D The complaint must be filed with FINRA within 30 days if it involves theft of funds

C A registered principal must monitor the resolution of each written customer complaint, and a record must be kept for 4 years. The broker-dealer is not required to notify FINRA unless the complaint involves theft of funds or securities. In that case, it must be filed with FINRA within 30 days of the discovery of the event., but FINRA routinely reviews the complaint files of broker-dealers. The original record of the complaint must be maintained at the OSJ for a minimum of 4 years.

An investment company desires to maintain its regulated status under the Internal Revenue Code. This is the financial data for the current year: long-term capital gains $5,000,000, dividend income received $1,000,000, and interest income received $1,500,000. Assuming the fund had $500,000 in expenses, what amount must be distributed to meet the fund's objectives? A $1,940,000 B $2,000,000 C $1,800,000 D $6,300,000

C A regulated investment company must distribute 90% of its net investment income (dividends and interest). Since dividend income = $1,000,000 and interest income = $1,500,000, total income = $2,500,000. When you subtract expenses of $500,000, net investment income = $2,000,000. To remain regulated, the fund must distribute 90%. 90% of $2,000,000 = $1,800,000. Capital gains are not included in NII.

All the following are true regarding a traditional 401(k) retirement plan, except: A Contributions may be made by the employer and/or employees B Employer contributions are usually tax deductible C Contributions may only be made by the employees D Employee contributions are considered pretax

C A traditional 401(k) plan is a type of defined contribution plan in which the employee makes elective pretax contributions through payroll deductions. In some cases, the employer may make tax-deductible matching contributions. Earnings accumulate on a tax-deferred basis, and, since the plan is funded with pretax dollars, all benefits are taxable upon distribution as ordinary income.

All the following can initiate arbitration proceedings, except: A A registered representative against a firm B A firm against another firm C FINRA against a firm D A customer against a registered representative

C All industry members can initiate arbitration proceedings. Broker-dealers and registered representatives must settle disputes in arbitration. Customers are not bound by arbitration if they have not signed an arbitration agreement. FINRA settles disputes with members through the Code of Procedure.

An investor is considering purchasing life insurance and would like a permanent policy with the most flexibility possible in terms of premium payments and investment choices. The best choice for this investor would be: A Variable life B Universal life C Variable universal life D Whole life

C All the mentioned policies are permanent insurance. Whole life has fixed premiums, and any cash value is invested in the insurance company's general account. Universal life has flexible premium options, but the cash value must also go to the general account. Variable life offers investment choices but, again, has fixed premiums. Variable universal life (VUL) would provide the greatest flexibility in terms of both premium payments and investment choices.

A registered representative is meeting with an older couple who have been clients for many years. This couple has been quite successful in accumulating wealth over their years, and they wish to help their grandchild by contributing to the 529 plan that was established for the grandchild. The representative should advise the couple that they can: A Make a one-time contribution of $16,000 per beneficiary without incurring a gift tax B Make a lump sum contribution of $160,000 which will be federally tax deductible C Make a lump sum contribution of $160,000 without incurring a gift tax D Make an unlimited contribution to the plan without incurring a gift tax

C An investor can contribute up to $16,000 per year into a 529 plan without incurring a gift tax. A gift tax is a tax assessed to the donor if they contribute more than what the IRS allows. Additionally, the IRS will allow an individual to give a lump sum into a Section 529 plan that is equal to 5 years' worth of $16,000 contributions, or $80,000, per donor ($160,000 for those filing jointly) without incurring a gift tax.

What would be a suitable investment for an investor with a long-term time horizon seeking a high-risk investment with a potentially high return trade off? A Tax-free money market fund B Index fund C Aggressive growth fund D U.S. government bond fund

C An investor with an aggressive growth objective has an aggressive strategy and is willing to accept a high risk with high return trade off. Therefore, an aggressive growth fund would be the best choice for the investor.

An investor who purchases municipal securities will receive which type of disclosure document? A ODD B Official notice of sale C Official statement D Statutory prospectus

C An official statement is used for new municipal securities. These disclosure documents are sometimes referred to as the offering documents and are exempt from the prospectus delivery requirements of the Securities Act of 1933.

A client who has annuitized a contract is entitled to an initial payment of $3,000 based on an AIR of 5%. In the first month after annuitization, the separate account earned 4%, resulting in a reduced second payment of $2,700. The next month, the separate account earns 0%. What will be the dollar amount of the third payment? A More than $2,700 B $2,700 C Less than $2,700 D $0, since the account had no earnings

C Anytime the performance of the separate account underperforms the AIR, the next payment will decrease compared to the prior period. Anytime the performance of the separate account outperforms the AIR, the next payment will increase. Anytime the performance of the separate account equals the AIR, the next payment will be the same amount as the prior period.

All the following are defined as a control relationship that must be disclosed, except A A registered representative working for LMN Brokerage wants to sell the common stock of LMN brokerage to their high net worth clients B QRS Investments is encouraging its representatives to sell common stock of TUV brokerage firm, a subsidiary of QRS. C The research department of a broker-dealer has issued a buy recommendation for XYZ Corporation, a NYSE listed common stock D JKL Corporation is the parent company for both ABC Investment Group and DEF Brokerage. ABC and DEF are both soliciting sales of JKL Corporation common stock

C Broker-dealers that have a control relationship in the security that they are offering or selling, must disclose that relationship to the investor. This would be considered a conflict of interest. This means that the broker-dealer is somehow affiliated with the issuer of the security involved, such as selling stock in the broker-dealer's parent company.

An investor is 75 and has not taken any withdrawals from their IRA. What percentage penalty will the IRS assess on the amount of the insufficient distribution? A 6% B 20% C 50% D 10%

C By April 1st of the year following the year they attain age 72, IRA holders must begin withdrawing from their accounts and report the withdrawals as income. Failure to do so will result in the taxpayer being assessed a 50% IRS penalty on the amount that should have been withdrawn.

An investor is considering the differences between ABC fund and DEF fund. ABC fund has a NAV of $9.20 and a POP of $9.90. DEF fund has a NAV of $10.85 and the current market price is $10.10. Which of the following statements is most likely true? A ABC fund is charging a higher sales charge than DEF fund B ABC fund is an open-end fund and DEF is a no-load fund C ABC fund is an open-end fund and DEF is a closed-end fund D ABC fund is a closed-end fund and DEF is an open-end fund

C Closed-end fund shares have pricing that is determined by market value (supply and demand) and investors are charged a commission for the purchase or sale. The fund will calculate the NAV at the end of each trading day, but the shares can trade at, above, or below the NAV per share. Open-end funds are purchased at POP and redeemed at NAV. The POP can never be lower than NAV. With no-load funds the POP is equal to the NAV. Though ABC fund could be a closed-end fund, DEF cannot be an open-end fund nor a no-load fund.

Contributions made into Section 529 plans are considered: A Tax-deductible contributions B Revocable deposits into a trust C Gifts D Income to the beneficiary

C Contributions made into Section 529 savings plans are considered gifts under the federal tax code.

How are qualified withdrawals from tax sheltered annuities taxed? A A flat 10% B At the income tax rate paid during the contract holder's last year of employment C At the investor's ordinary income tax rate during each distribution year D 15% since distributions are deemed to be long term

C Contributions to qualified variable annuities are tax deductible or pretax, and earnings are tax deferred. Therefore, everything is subject to ordinary income taxation upon withdrawal. This is because the investor has no cost basis in the plan, that is, there are no monies in the plan that were previously taxed. Therefore, all the monies withdrawn are subject to taxation. The rate applied against these distributions is based on the annuitant's income tax rate during each year of their retirement.

LWhen a customer holds multiple brokerage accounts within the same firm, how can they transfer securities between the accounts? A By selling them out of one account and buying them back in the other account B By instructing the registered representative on the account to do so on their behalf C By using a firm specific internal transfer form or a signed letter of instruction D Only with specific authorization granted by the firm's principal

C Customers that hold multiple brokerage accounts within the same firm can transfer securities between the accounts by using a firm specific internal transfer form or a signed letter of instruction. The accounts must be titled the same and be registered under the same tax I.D. Some firms require a medallion guarantee or notarization of the customer's signature.

A defined benefit pension plans allows employees to do all the following, except: A Rollover the account balance into an IRA B Take a lump-sum payment C Transfer the account balance directly into a life insurance policy D Receive a pension annuity

C Defined benefit pension plans usually give employees the option of receiving a pension annuity or taking a lump-sum payment. A pension annuity is distributed through the pension plan, not an insurance company, but offers the same payout options. A lump-sum distribution is also an option. This allows the retiree to control the assets and gives them the option of continued tax-deferral with a rollover to an IRA. Taxes are due immediately on any cash payout that is not rolled over.

When an investor does not own specific securities in a portfolio, but they do own a specific number of shares of the portfolio, it is referred to as: A Diversification B Premium interest C Undivided interest D Consolidation

C Diversification is a main advantage of an investment company. Each investor has an undivided interest in the investment. The issued shares of the investment company are the pro rata value of the net asset value of all the securities held by the fund in its investment portfolio. Shareholders own that value, not any specific portion of those securities, which is why it is called an undivided interest. For example, if a mutual fund shareholder owns 10% of the fund, they do not directly own 10% of each security in the mutual fund portfolio.

What is an Employee Stock Ownership Plan (ESOP)? A It is a nonqualified plan for highly compensated executives to receive their annual bonuses in employer company stock instead of in cash B It is a nonqualified defined contribution plan where employees can determine with stocks to buy with the plan's cash C It is defined contribution qualified retirement plan funded at least in part with employer company stock D It is a defined benefit retirement plan whereby retirees can exchange monthly benefit checks for employer company stock

C Employee stock ownership plans, ESOPs, are defined contribution type retirement plans. They are qualified plans subject to ERISA regulations. With many ESOPs, all or part of the employer contributions are used to purchase stock in the employer's company and contribute that stock to the employee's qualified retirement plan. ESOP shares could also be held in trust for the employee until the employee retires or resigns.

Which of the following statements concerning FINRA's review of communications policy is correct? A A log of all individual correspondence related to investment companies must be submitted to FINRA on a quarterly basis B All advertisements pertaining to guaranteed contracts must be submitted to FINRA within 10 days of first use C All retail communications regarding investment company products must be submitted to FINRA within 10 days of first use D An investment company advertisement must be submitted to FINRA 10 days prior to first use

C FINRA rules require that all retail communications (sales literature and advertising) be approved by a principal prior to use. Special rules apply to retail communications pertaining to investment companies, UITs, or variable contracts. Copies of these communications must be filed with FINRA within 10 days of first use. FINRA rules require member firms to create a system to supervise both incoming and outgoing correspondence (correspondence may include letters, emails, or text messages). Firms are not required to file a correspondence log with FINRA. Fixed (guaranteed) contract sales are not regulated by FINRA, since these investments are not considered to be securities products.

All the following redemptions from a 529 plan would not be subject to a 10% withdrawal penalty, except: A Withdrawal due to the beneficiary's death B Withdrawal due to the beneficiary receiving a scholarship C Withdrawal for expenses relating to an injury that occurred on campus D Withdrawal for the beneficiary's higher education

C In a 529 plan, traditionally all withdrawals from the plan that are not used for higher education are subject to a 10% penalty. However, in the event the beneficiary receives a scholarship, becomes disabled and therefore unable to attend college, or is deceased, the penalty is waived.

If interest rates go from 8% to 9%, which would be most adversely affected? A 10-year U.S. Treasury bond B 5-year U.S. Treasury note C 20-year zero-coupon Treasury bond D 15-year U.S. Treasury bond

C Interest rate changes have a much greater effect on long-term bonds than on short-term bonds. If market prices increase by 1%, short-term bonds tend to decrease only slightly in price, while long-term bonds will generally have a much greater price decrease. The short-term bond would only drop slightly because the holder will be able to receive the par value of the bond to reinvest in one year or less. The 20-year bond will drop much more because its holder will receive the below-current interest rate for 20 years, rather than one. Also, a zero-coupon bond has a longer duration than a bond with coupon payments. Duration is a measure of the effective term in which the investor will receive their investment back. The higher the duration of a bond, the more its price will change when rates change. In other words, the longer the duration of a bond, the more volatile its price is.

An annuity is payable for as long as the annuitant lives and, upon death, all the payments cease. Which payout option was chosen? A Joint life option B Life income with refund option C Straight life option D Life with period certain

C Life income, or straight life, is the payment option that provides the highest monthly income. The annuitant will receive payments for their life, and payments cease upon death. There is no payment to a beneficiary with this payout option.

Which of the following include loan provisions? A Variable annuities B 529 plans C Variable life policies D Roth IRA

C Loans may NOT be taken out against variable annuities, 529 plans, or Roth IRAs. Variable life policies traditionally have loan provisions.

An investor noticed that the ABC Fund historically has done very well following the U.S. economy's emergence from a trough in the economic cycle. They believe that the economy is poised to turn for the better and would like to invest in the fund for a 3-month period. The investor has contacted their RR for a recommendation on this idea. Which of the following is true regarding the RR's responsibility in this situation? A The RR can make this recommendation if the investor's claims about the historical performance of the fund can be substantiated B The RR cannot make this recommendation because past performance is no indication of future returns C The RR cannot make a recommendation for short-term mutual fund investing D The RR can make the recommendation as they must always follow customer's intuition

C Mutual funds are long-term investment vehicles. Recommendations relating to funds should be for an investment goal sometime in the future. In this case, the RR needs to explain the fact that investing in a mutual fund for trading purposes is not a good idea and that they cannot endorse such a decision.

The XYZ Mutual Fund has an underwriter's concession of 5 cents, a sales charge of 25 cents, and a NAV per share of $4.75. Assuming an investor has $2,500 to invest, how many shares could they purchase? A 526.3 B 495 C 500 D 532

C NAV (4.75) plus sales charge (.25) equals POP equals $5.00. $2,500 ÷ 5 = 500 shares. The underwriter's concession is included in the sales charge.

A 23-year-old recent college graduate has just inherited $28,000 from a family member. The recent graduate is a novice investor whose only exposure to the market consists of a few shares of a local utility company given as a gift 15 years ago. After seeking advice from a registered representative, the investor is unsure if the suggested 50% stock, 30% bond, 20% cash allocation is the right investment. Which investment should be made with the funds until the new investor decides? A Execute the original plan, since the investor is not knowledgeable enough to hold a valid opinion B Invest 25% of the money until the investor gets accustomed to the fluctuations of the market C Place the funds in a taxable money market D Place the funds in a tax-free money market

C RRs should place an undecided investor's funds into a money market account until the client decides on the allocation of their funds. Tax-free money market funds are for investors in a high tax bracket, in this case the investor is likely in a low enough tax bracket that the most suitable recommendation is a traditional money market fund.

All the following are true regarding technical analysis, except: A If the market is rising on increasing volume, it would be expected to continue B If stock values are decreasing while volume is decreasing, the market is said to be oversold and a bullish market is expected C If the market is rising on decreasing volume, the market is said to oversold and an upturn is expected D If stock values are decreasing while volume is increasing, the fall will be expected to continue

C Technical analysts look at the volume of stocks to predict where the market will go in the future. If stock values are decreasing while volume is increasing, the fall will be expected to continue. If this is occurring while volume is decreasing, the market is said to be oversold and a bullish market is expected. This all works the same for increasing stock values, or a rising market. If the market is rising on increasing volume, it would be expected to continue. If it is occurring with decreasing volume the market is said to be overbought and a downturn is expected.

A schoolteacher has invested $8,000 into a 403(b) plan over a 10-year period. The annuity now has a current value of $12,000. If the teacher completely liquidated this amount, how much may be excluded from taxable income? A $8,000 B $4,000 C $0 D $12,000

C The $8,000 contributions were made on a pretax basis and the $4,000 was appreciation, so the entire $12,000 is taxable. The question is asking for the amount not subject to taxation.

What is a unique feature of a Roth IRA compared to a traditional IRA? A Catch up provisions allow people age 50 or older to make contributions greater than the normal annual maximum B Penalty free distributions may be taken before reaching the age of 59½ C Tax-free distributions may be postponed beyond reaching the age of 72 D Earnings grow on a tax-deferred basis

C The age 72 minimum distribution rules ensure that qualified plan covered individuals take some taxable income in retirement. Because Roth IRA distributions are traditionally tax-free, there is no need for such rules.

Fund A's quote is $9 - $10. Fund B's quote is $4- $4.30. From these two quotes, what can be determined? A Fund A is an open-end investment company and fund B is closed end B Fund A is either an open-end or closed-end investment company and fund B is closed end C Fund A is a closed-end investment company and fund B is either open end or closed end D Fund A is a closed-end investment company and fund B is open end

C The difference between the 2 prices in a quote is either the spread or sales charge depending on the type of security. Mutual funds are priced using the terms NAV and POP, (POP = NAV + Sales Charge). Closed-end funds trade in the secondary market and are quoted with a bid and ask, the difference between the bid and ask is the spread. Mutual funds have a maximum sales charge of 8 ½%. Fund A exceeds the 8 ½% maximum, which means it must be a closed-end fund ($10 - $9) ÷ $10 = 0.1 or 10%. Fund B charges 7%, which means it can be either an open-end fund or closed-end fund ($4.30 - $4) ÷ $4.30 = 6.97%.

When recommending securities, disclosure must be made to customers of all the following, except: A Soft dollar arrangements B Control relationships C Fiduciary relationships D Method of calculating advisory fees

C The existence of control relationships must be disclosed to customers when a broker-dealer recommends a security of an issuer where the relationship exists. Non-discretionary fee-based advisory accounts traditionally charge customers based on assets under management. This fee is generally stated as an annual percentage. The adviser must disclose the method of calculating their fees. If those fees cause any type of conflict of interest, that too must be disclosed in writing. Potential conflicts of interest involved with compensation include, but are not limited to, receiving commissions in addition to the advisory fee and having soft dollar arrangements with broker-dealers. Fiduciary information is confidential and cannot be disclosed without the express consent of the customer.

An investor believes that their registered representative has been churning their account, and in the process has caused them to lose $200,000. To whom would the investor direct a claim to recoup their losses? A FINRA's Department of Enforcement B The SEC C FINRA's Code of Arbitration D SIPC on the new purchase by the loss per share C Violation of the wash sale rule is considered market manipulation and the investor may face civil penalties D Violation results in tax penalties imposed by the IRS

C The investor will need to file an arbitration claim to try to recover losses from the RR and/or the broker-dealer. They may also file a complaint with FINRA's Department of Enforcement about the rep's alleged churning, but this complaint will not result in any monetary recovery. SIPC is concerned with losses caused by a broker-dealer's bankruptcy, not the actions of unethical representatives.

A conservative 30-year-old investor is preparing to fund a college education investment program for their 3-year old son. The investor has the financial ability to make one investment right now. Which of the following investments would be deemed suitable for such a program? A Variable annuity B 500 shares of a financial services company C Index fund D Biotechnology fund

C This investor has a 15-year time horizon. Since they are conservative, a biotechnology fund is likely too risky and not well diversified as the only holding. Buying one stock (putting all the eggs in one basket) is generally not a good idea for a long-term investment program. Since withdrawals from the variable annuity cannot be taken without potential income taxation and there are penalties prior to age 59 ½, the index fund is the best choice. Index fund portfolios are created to track an index, and they are well diversified. In addition, index funds have relatively low annual expenses, which is also favorable for a long-term investment.

(POP-NAV)÷ POP is the formula used to calculate: A NAV B POP C Sales charge percentage D Sales charge in dollars

C This is the formula used to calculate the sales charge percentage. To calculate the sales charge in dollars, that would be POP ($) x Sales Charge (%) = Sales Charge ($).

Regulation Best Interest (BI) was created by: A FINRA B Congress C The SEC D NASAA

C To bring more transparency to investors regarding their relationships with broker-dealers, the SEC created Regulation Best Interest (BI) and mandated the use of the Customer Relationship Summary Form (Form CRS). Investment advisers are currently under similar regulation based on fiduciary obligation standards. Regulation BI established new standards for investment firms when dealing with retail customers. The goal was to increase transparency when recommending an investment or investment strategy and insure that firms are acting in the best interest of all customers.

Arbitration awards: A Can be appealed if the dispute involves a customer B Can be appealed if the disputed involves a registered person C Cannot be appealed D Can be appealed if the dispute involves another member firm

C Under the FINRA Code of Arbitration, all arbitration awards are made in writing and the decision reached by the arbitration panel is final and binding. Arbitrators are not required to explain their reasoning when rendering a decision. By agreeing to use arbitration, all parties abandon (vacate) the right to sue in the event they are dissatisfied with the decision.

Under a withdrawal plan: A An investor could take out any amount as long as they did not dip into principal B An investor would be restricted to earnings on their shares, plus capital gain C An investor could take out a specific amount, even though it may exceed the earnings D An investor would be restricted to taking out only what their shares earned

C Withdrawal plans are voluntary and may be changed at any time. The investor chooses how to withdraw the funds and is not restricted in any way. Many withdrawal plans assume cashing out the entire fund.

All the following statements are true regarding a firm acting in a broker or dealer capacity, except: A A firm that acts in a broker capacity is paid a commission for the transaction B Acting in a principal capacity means the firm is buying and/or selling out of inventory C The 5% Policy does not apply when very low-priced securities are involved, or additional services are included in connection with doing business D A firm is permitted to act as both a broker and dealer in the same trade if proper disclosure has been made to the client of the conflict of interest

D A broker-dealer that acts in a broker capacity is acting as a middleman, matching their client with a buyer or seller on the other side of the trade. They would be paid a commission for the transaction. When a broker-dealer acts in a dealer or principal capacity, they are buying or selling securities in their own account out of inventory. They must still treat their clients fairly in such trades and charge reasonable markups or markdowns. A firm may not act as both a broker and a dealer in the same transaction. There are several specific occasions that FINRA recognizes as ones that the 5% Policy may not apply. Those include securities that are difficult to locate, very low-priced securities, small dollar transactions, and the offer of additional services in connection with doing business. In these cases, higher charges may be justified.

A corporation's capital does not include: A Bonds B Common stock C Preferred stock D Options

D A corporation's capitalization includes its equity and long-term debt: common stock, preferred stock, and bonds. Options are derivative securities and are not issued by the corporation. Therefore, options are not part of a corporation's capitalization.

If an investor needed fixed income from their mutual fund investment, which systematic withdrawal plan would best meet the investor's needs? A Fixed percentage of the value B Fixed time period C Fixed number of shares D Fixed-dollar amount

D A fixed-dollar amount is the only systematic withdrawal plan that would give the investor a fixed income at regular intervals. All the other plans would vary in the amount paid out.

What is a prime broker? A A firm that provides on-line trading services for all their customers and is highly rated B A firm that ranks in the top 10 nationally in terms of trading volume C A firm that only caters to institutional investors D A firm that traditionally handles the complex needs of a hedge fund

D A prime brokerage account is established by institutions, such as hedge funds, or high net-worth individuals. A prime broker is a firm that traditionally handles the complex needs of large institutions. These institutions may use multiple executing brokers to handle trades, preventing a single firm from seeing the activities and duplicating the strategies. All trades are then settled through the prime broker. A prime brokerage account is required to maintain a minimum of $500,000 in equity.

Which two of the following are true regarding Roth IRAs? A A required minimum distribution is not required beginning at 72 and contributions are tax deductible B A required minimum distribution must be made beginning at 72 and contributions are not tax deductible C A required minimum distribution must be made beginning at 72 and contributions are tax deductible D A required minimum distribution is not required beginning at 72 and contributions are not tax deductible

D All contributions into a Roth IRA are nondeductible. There is no required minimum distribution beginning April 1st of the year following the year the investor reaches age 72 as in other retirement accounts.

A key individual within a small manufacturing business receives the benefit of a company-funded annuity for their retirement enjoyment. None of the other employees receives this same benefit. What type of retirement plan is this? A Key person insurance plan B 401(k) plan C SEP plan D Nonqualified deferred compensation

D Discriminatory plans like this one are usually nonqualified deferred compensation plans. SEPs are for more than one employee, and 401(k)s are for corporations. Key person insurance reimburses the company for loss due to the death of an important employee.

A 61-year-old small business owner is planning to retire next year and let the children run the family business. The original business owner will continue to receive a small monthly income from the business to live on and is looking to invest their life savings of $316,000. Considering their age and financial situation, which of the following investment mixes would be most suitable? A Place 80% in high-yield income funds to maximize the income and invest the residual 20% in equity funds B Place 100% in a municipal bond fund to limit the tax liability C Place 100% in a U.S. government bonds to protect the principal D Place 80% in high-grade fixed-income funds and 20% in equity funds

D Although most of this person's assets should be invested conservatively, a portion should be placed in stock funds so their (potential) growth may act as an inflation hedge, since this person could easily live another 20 years. Their modest retirement income does not make them a likely candidate for tax-free (municipal) bonds and high-yield bonds are not a suitable investment for the majority of a retired person's assets.

All the following are true concerning Roth IRAs, except: A Contributions may be made after 72 B Individuals may have an unlimited number of accounts, but the combined contributions cannot exceed a set limit C Traditional IRAs can be converted to Roth IRAs without penalty, but conversion is a taxable event D Minimum distributions are required

D An individual may establish as many IRAs as they see fit. However, the individual's combined contribution for all the IRAs (both traditional and Roth) is the lesser of 100% earned income or the current specified limit. Contributions can be made after age 72, and there are no minimum distribution requirements. A person is never required to withdraw the money, so the assets could be passed on to a beneficiary. Traditional IRAs may be converted to Roth IRAs without penalty, but the growth portion of the converted amount is subject to ordinary income tax in the year converted.

What is taxable on a periodic payment made to the annuitant in the payout period? A The payment less its proportionate share of the cost basis B No payments until the cost basis has been paid out C All payments until the value of the account falls to below the cost basis D The payment less: the cost basis for the entire contract divided by a mortality factor

D Annuity payments received upon annuitization are a combination of the original principal and earnings. The original principal is distributed tax-free and earnings are taxable as ordinary income. The exclusion ratio determines the return of cost basis. Exclusion Ratio = Cost Basis ÷ Expected lifetime payments

All the following are considered current assets, except: A Inventory B Accounts receivable C Cash D Equipment

D Assets are defined as what is owned by the company and are listed in order of liquidity. Assets are separated into 3 categories: current, fixed, and intangible assets. Current assets include cash and accounts receivable, marketable securities and inventory. Inventory is the least liquid of the current assets.

A registered representative of a broker-dealer has a territory that includes four bank branch offices of an affiliated financial institution. The RR visits each branch once a week where customers are scheduled for appointments by the bank's staff. All the following must be true for this arrangement to be acceptable, except: A The location at each bank branch where the RR meets with customers should be separate from where deposits are taken B The RR is prohibited from taking bank deposits and discussing loans while transacting securities business at a financial institution C When recommending securities transactions, the RR must disclose that they are acting as a representative of the broker-dealer and not the bank D The broker-dealer and bank must be under joint control

D Broker-dealer services cannot be conducted on the premises of a financial institution (bank) unless a clear distinction between bank and brokerage products is defined. BD services should be conducted in a separate area from where retail deposits are taken. It is permissible for the RR to be employed both by the broker-dealer, to conduct securities transactions, and by the financial institution, to sell and service traditional bank products. However, they can only act in one capacity at a time. The RR must disclose that, in any securities transaction, they are acting as a representative of the broker-dealer and not the financial institution.

Broker-dealers can compensate publishers for communications designed to influence the price of a security in all the following situations, except: A The communication describes the amount and nature of the compensation B The communication is clearly described as "paid advertising" C The communication is a research report D The communication is created by a broker-dealer insider but submitted to a publisher through a ghost-writer for general public distribution

D Broker-dealers generally cannot compensate publishers for communications designed to influence the price of a security. This includes communications in websites, magazines, newspapers, and any other method. This prohibition does not apply when compensation is paid to a publisher and one of the following criteria is met: The communication is clearly described as "paid advertising", the communication describes the amount and nature of the compensation, and the communication is a research report.

Over their career, a teacher has had $60,000 deducted from their salary and invested in a 403(b) plan. The plan is now worth $300,000. This teacher is ready to retire and has decided to withdraw $4,000/month for as long as the money lasts. What will be the tax treatment of these withdrawals? A Partially tax-free and partially taxed as ordinary income B Completely tax-free C Partially taxed as ordinary income and partially taxed as capital gain D Fully taxable as ordinary income

D Contributions into 403(b)s are pretax (within limits) and earnings are tax deferred. Taxation of withdrawals, whether as annuity payments or lump sums, are relatively simple. All withdrawals are taxable as ordinary income. This is because the investor has no cost basis in the plan. That is, there are no monies in the plan that were previously taxed. Therefore, all the monies withdrawn are subject to taxation.

A dollar-cost averaging strategy applied to the purchase of a variable annuity through a flexible premium plan has all the following characteristics, except: A Periodic investments B Fixed-dollar amount C Automatic reinvestment of dividends D Tax-free growth of earnings

D Dollar-cost averaging is a strategy where an investor makes periodic investments, of a fixed- dollar amount. The investor will buy more shares or units when values are low, and fewer when prices are high. By combining dollar-cost averaging with a variable annuity, the investor can take advantage of automatic reinvestment and tax-deferred, but not tax-free, growth of earnings.

All the following are true, except: A Each order entered must identify the account name or designation (customer's name or account number) prior to execution B All necessary document changes must be approved by a principal C If an account change takes place before execution of a trade, the principal's documentation and approval must be done before execution of the trade D All changes in account name or designation must be initiated, reviewed, and approved by a registered representative

D Each order entered must identify the account name prior to execution. All changes in account name or designation must be approved by a principal. All necessary document changes must be approved by a principal. If this account change takes place before execution of a trade, the principal's documentation and approval must be done before execution of the trade.

An individual, age 53, wants to take a lump sum distribution from their 401(k) plan to buy a boat. Which of the following statements is correct? A This distribution is taxable as ordinary income, but no penalty tax B This distribution is subject to a 10% penalty only C This distribution is taxable as long-term capital gain D This distribution is subject to a 10% penalty and the entire amount is taxable as ordinary income

D Early distributions (distributions prior to age 59½) may be subject to a 10% penalty on the taxable amount of the distribution. The 10% tax doesn't apply in the case of death or disability of the employee, qualified medical expenses, or a Rule 72(t) withdrawal. In this question, the individual is 53 years old and looking to buy a boat, so the 10% penalty will apply. All distributions will be taxed as ordinary income based on the employee's tax bracket in the year the withdrawal is taken, if subject to taxation per the IRS.

How many days does a firm have to provide a retail customer a Form CRS upon request? A 60 B 45 C 90 D 30

D Existing retail customers opening new accounts must receive Form CRS prior to the new account opening. Firms must update their form CRS with the SEC within 30 days of the event causing a material change. Customers must receive the updated Form CRS within 60 days. Firms must deliver Form CRS to a retail customer within 30 days of a request. The recordkeeping requirement for Form CRS is 6 years from date of last use for broker-dealers and 5 years for investment advisers.

All the following are exempt from the FINRA 5% Markup Policy, except: A Mutual fund sales charges B Markups charged on principal transactions of municipal bonds C Underwriting spreads charged on IPOs D Commissions charged on OTC transactions

D FINRA developed the 5% Markup Policy. This policy applies to markups, markdowns, and commissions and applied to broker-dealers acting in a principal or agency capacity. There are several specific occasions that FINRA recognizes as ones that the 5% Policy may not apply. Those include securities that are difficult to locate, very low-priced securities, small dollar transactions, and the offer of additional services in connection with doing business. In these cases, higher charges may be justified. Securities that require the delivery of a prospectus or offering document are exempt from this policy. Those would include IPOs, municipal bonds, and mutual funds. Some transactions handled OTC may fall into this category, but not as a rule.

An individual has just passed their securities qualification exam and is now registered with FINRA as a Limited Securities Representative with QRS Securities. This person wishes to acknowledge this accomplishment on their business cards. Which of the following imprints would most likely be viewed as a potential violation of FINRA's rules? A Registered Representative B Sales Agent C Registered Limited Securities Representative D Retirement Specialist for Seniors

D FINRA rules prohibit the misuse of professional designations or credentials in a way that may be misleading to customers. Abbreviations or acronyms which indicate that an individual has achieved a recognized certification or degree, such as MBA, CFP, Ph.D., and ChFC, may be used in customer communications, provided that the individual using them has earned the right to display the designation. Since such acronyms and abbreviations are generally recognized as proof of achievement or expertise in a specific area, using similar abbreviations without accreditation is generally considered to be misleading and is prohibited. Use of "Retirement Specialist for Seniors" also implies that the person has expertise that they have not earned and is misleading.

All the following are true regarding FINRA's Code of Mediation, except: A The mediator facilitates the proceedings but does not have the power to pass judgement on either party B It is a means of settling disputes between member firms and their customers C The process is completely voluntary on both parties D It cannot run concurrently with an arbitration involving the same matter

D FINRA's Code of Mediation is designed to settle disputes between member firms, and between members and their customers. This process is a lot more flexible than the traditional arbitration process, which often leads to a resolution which may be fraught with resentment by the losing party. Through mediation, which may run concurrently with an arbitration proceeding, the parties can compromise and find a middle ground unavailable through arbitration. In addition, no one can be forced in mediation. Both parties must agree to it.

Under FINRA rules, communications that are applicable to retail communication rules apply to all the following situations, except: A An officer of a member participates in a television program on investments B A registered representative serves as a guest speaker on investments at a local club meeting C A registered representative sends a form letter to all their clients D The member sponsors an investment seminar for the institutional investors

D FINRA's communication rules apply to all forms of retail communication. Institutional communications do not apply.

An account is registered to 5 individuals as tenants in common. How many Social Security numbers will receive tax reporting information? A All 5 B 3 C At least 2 D 1

D Under a tenants in common arrangement, there is 1 Social Security number for tax reporting without regard to the number of tenants contributing assets to the account. It is up to the owners to make sure that each tenant pays their fair share of taxes.

Which of the following is not true when a broker-dealer opens an account for an employee of another FINRA member firm? A Account statements must be made available to the employer upon request B Prior written consent of the employer C The employee must be told that the employer will be notified of the account opening D Security transactions in preferred stock are exempt from this FINRA rule

D For employees of FINRA member firms, prior written consent is required to open an account at another broker-dealer. FINRA's rules require that the firm opening the account notify the employing broker-dealer of the intent to open the account and furnish to the employer, upon request, copies of trade confirmations as well as copies of account statements. The firm must also disclose to the person opening the account that their employer will be notified. Security transactions exempt from this rule include investment company transactions, transactions in 529 plans, retirement accounts, and all accounts at a broker-dealer solely investing in these types of securities.

Under the wash sale rule, a security that is substantially the same as the security sold at a loss can include all the following, except: A Same underlying common stock B Convertible securities of the same company C Same mutual fund ownership D Preferred stock of the same company

D For purposes of determining substantially the same security under the wash sale rule, call options and warrants on a security are substantially the same as the stock or bond. Convertible bonds or convertible preferred stock are substantially the same as the common stock into which they are convertible.

A client is in the process of changing jobs and has received a rollover check from their former employer's retirement plan for $80,000. How long does this client have to reinvest that money to avoid paying taxes on the rollover? A 30 days B 1 year C 6 months D 60 days

D In a rollover, the plan participant takes physical possession of the retirement assets (receives a check). Then they would have 60 days to reinvest those funds in another retirement account to avoid a taxable event. A taxable event would require that the distribution be reported as income, which would subject the money to income taxation and, if the client is not 59 1/2, a 10% penalty.

Index funds typically possess which of the following characteristics? A Higher-than-average expense ratios and high portfolio turnover B Higher-than-average expense ratios and low portfolio turnover C Lower-than-average expense ratios and high portfolio turnover D Lower-than-average expense ratios and low portfolio turnover

D Index funds are passively managed portfolios designed to replicate the performance of an index like the S&P 500 stock index. Index funds, due to their low trading activity and lower personnel costs, usually have lower cost structures and management fees as compared to actively managed funds. Index fund managers are usually required to stay fully invested and do not attempt to time the market.

Which of the following is false regarding individual retirement accounts? A Individuals may have both traditional and Roth IRAs and may put a portion of their annual contribution into both accounts B You may convert traditional IRAs to Roth IRAs C Senior citizens may contribute more money each year than young people D Married couples may set up a joint account to cover both spouses

D Individuals, including spouses, may not share an IRA account with anyone else. Both spouses would have to set up separate IRAs.

Which of the following statements is true regarding interval funds? A Interval funds trade on exchanges B Interval funds are registered as open-end management companies C Shareholders are required to accept tender offers D Interval fund shares are not redeemed daily

D Interval funds are registered closed-end management companies because the shares are not redeemed daily. Despite being registered as closed end, these funds are permitted to continuously offer their shares based on the fund's NAV. Interval fund shares do not trade in the secondary market. The fund periodically offers to buy back, or repurchase, its shares every 3, 6, or 12 months as stated in the prospectus. Shareholders are not required to accept these offers, which are called tender offers.

Who would most likely purchase an S&P 500 inverse ETF? A An investor who is bullish on the U.S. stock market B An investor who is long the equity markets C An investor looking to reduce investment costs and risks D An investor who is bearish on the U.S. stock market

D Inverse ETFs use shorting techniques to receive a return from the opposite or inverse move of an underlying index. For example, the S&P 500 Inverse Fund will make money when the S&P 500 Index loses value. This strategy is used instead of shorting stock in a margin account. They are often referred to as "short" funds.

When must investment advisory firms deliver the customer relationship summary form (Form ADV Part 3)? A To retail customers prior to placing any orders B At the time of making a recommendation of a retail customer account type C At the time of any retail customer securities transaction D To retail customers before or at the time the advisory contract relationship is established

D Investment advisory firms must deliver the document to retail customers before or at the time the advisory contract relationship is established. Broker-dealers must deliver the document to retail customers at the time of making a recommendation of an account type, securities transaction, or an investment strategy involving securities. The document must be delivered before placing an order or opening an account for a retail customer.

Four years ago, the ABC Fund purchased 10,000 shares of XYZ Associates common stock at $45 per share. After a series of accounting scandals, the stock is trading at $2.10. ABC Fund's portfolio manager has decided to liquidate the losing position. What effect does the portfolio manager's action have on the ABC Fund's NAV? A The NAV will rise B The NAV will fall C NAV will only fall if ABC has not claimed a tax loss on this position in a prior year D NAV will remain unchanged

D Liquidations of portfolio holdings have no impact on NAV, since the position is marked to market on a daily basis and therefore the current price is already a part of the NAV. A fund's NAV will rise when the value of its underlying positions increases and decreases as portfolio positions fall in value. Customer deposits and withdrawals also do not affect the NAV.

A customer owns a variable life insurance contract and wishes to utilize the conversion privilege. How long is the conversion window available for the customer? A 30 days from the date of issuance of the variable life insurance contract B 7 business days from the date of issuance of the variable life insurance contract C The conversion privilege is a permanent feature of the contract that does not expire D 24 months from the date of issuance of the variable life insurance contract

D Variable contract owners may convert or exchange their policy to whole life within 24 months from the date of issuance without evidence of insurability.

In March, a client invested $100,000 in the ABC Ultimate Fund, an aggressively managed technology fund with a 5% front-end load. By year-end, the fund reported net realized trading losses of 10%. Assuming the client continues to hold onto their original shares and makes no additional investments, what result may the client claim on their personal tax return? A A $10,000 capital loss B A $9,500 capital loss C A $3,000 capital loss and $7,000 loss carry forward D The client may not claim any loss for this period

D Mutual fund investors have a tax liability from capital gains earned by the fund if a capital gains distribution is paid out. Investors are never able to claim a capital loss from fund activity. The only time that a mutual fund investor can take a capital loss on a fund investment is when they redeem their shares for less than they paid for them.

An investor has begun to receive monthly payments from a variable annuity contract. The contract has an AIR of 4%. The first payment of $400 was received in March. In April, the separate account performance was 5% and the investor received $420. In May, the separate account performance was 4.5%. What can the investor expect for May's payment? A The payment will be less than $420 B The payment will be less than $400 C The payment will be $420 again D The payment will be greater than $420

D Once the initial payment amount has been calculated, each additional monthly payment will depend on the actual performance of the separate account compared to the original AIR benchmark. If the separate account outperforms the AIR, the payment will be higher than the previous month. If the separate account underperforms the AIR, the payment will be lower than the previous month. If the performance of the separate account is exactly the same as the AIR, the payment will remain the same as the previous month (not the initial payment). In this example, the performance in May was 4.5%, which means the separate account outperformed the AIR, so the May payment will be higher than the April payment.

Sales literature that includes investment company performance data is limited to quotations of all of the following except: A Current yield B The average annual total return for 1, 5, and 10 years or since the inception of the fund if less than 5 or 10 years C Tax-equivalent yield D Nominal yield and yield to maturity

D Sales literature that includes investment company performance data is limited to quotations of: the average annual total return for 1, 5, and 10 years or since the inception of the fund if less than 5 or 10 years; current yield; and tax-equivalent yield.

An investor purchased 1,000 shares of QPR stock at $35 per share 10 years ago. The investor died 18 months ago, when the stock was worth $50 per share. In their will, the securities were left to the investor's niece, who sold the stock for $52 per share one month ago. Which of the following are true regarding the tax consequences of the transaction? A There is a short-term capital gain of $17 per share B There is a long-term capital gain of $17 per share C There is a short-term capital gain of $2 per share D There is a long-term capital gain of $2 per share

D Securities that are inherited have a basis equal to the value of the shares at the time of the decedent's death. The holding period for the securities is long-term regardless of how long either the decedent or the recipient holds the shares. At death, the stock was worth $50 per share and was later sold for $52. This generated a long-term capital gain of $2 per share.

What is the taxable-equivalent yield of a 4% municipal bond for a client in the 35% tax bracket? A 6.42% B 5.17% C 2.60% D 6.15%

D Tax-Equivalent Yield = Interest on municipal bond ÷ (100% - tax bracket %) = 4% divided by 65% = 6.15%.

Technical analysis patterns and trends are used to predict short-term price levels for stocks, usually no more than how many weeks into the future? A 12 B 18 C 9 D 6

D Technical analysis is a method of analyzing the value of securities by studying historical prices, price movement, and the trading volume of a specific security. The tools used by technical analysts involve various charts where price data and volume are plotted on a graph over time. Historical price data that has been plotted, recorded, and charted begins to form patterns and trends. These specific patterns and trends are used to predict short-term price levels for stocks, usually no more than 6 weeks in the future.

A client is about to take a 2-week adventure into the mountains of Western Alberta. The client has informed their registered representative that within the next 2 weeks, they would like to purchase $40,000 of ABC Inc. The order: A May be accepted if approved by a principal B May be accepted if the client agrees to provide "verbal discretion" while the registered representative's compliance officer is on the phone C May be accepted as is D May not be accepted unless the RR has previously been granted a limited or full power of attorney

D The client would need to provide written instructions to their RR to have the trade outstanding for longer than the current business day. An RR may accept a verbal authorization to choose the price or time of execution (price/time discretion), if the customer specifies the asset, the amount, and the action (whether to buy or sell). However, without a written indication, limited or full power of attorney, signed and dated by the customer, price/time discretion granted by customer is only good for the day on which the order is entered.

Which of the following contains the trade date, identity of the security traded, price at which the trade was executed and amount of commission or markup/markdown? A Account statement B Order ticket C Delivery receipt D Confirmation

D The confirmation is written documentation of a trade. It includes the trade date and the settlement date and must be provided to the customer on or before the settlement date. Additional information found on the confirmation includes identity of the security, execution price, quantity of securities traded, markup or markdown if effected as a principal transaction, commission if effected as an agency transaction, identity of the selling agent, and any other regulatory fees or taxes applicable to the transaction. While the order ticket has much of the same information, amount of commission or markup/markdown would not be included on the order ticket.

In dollar-cost averaging: A The average price of the shares is always less than the average cost of the shares B The plan may not be altered C Calculate the average cost/share by dividing the net assets by the price earnings ratio D The average cost of the shares is always less than the average price of the shares in a fluctuating market

D The fact that the average cost of the shares is always less than the average price of the shares in a fluctuating market is a major advantage of dollar-cost averaging. Dollar-cost averaging is a voluntary purchase method that may be changed at any time. The investor's personal average cost per share is found by dividing the total dollar amount of the investor's periodic purchases by the total number of shares bought. The average price is found by adding all the prices and dividing by the number of prices.

All the following securities must be sold with a prospectus, except: A IPOs B Mutual funds C Variable annuities D Universal life insurance

D The full prospectus is an "offer to sell" an initial public offering (IPO), a subsequent primary offering of securities, or mutual funds and variable insurance products. Universal life insurance is not a security.

All the following may be deducted from a variable life insurance premium, except: A State premium taxes B Administrative fees C Cost of riders D Investment management fee

D The investment management fee is deducted from the separate account, not the premium. The charges that may be deducted from the premium include administrative fees, state premium taxes, and sales charges. A rider modifies the policy typically by expanding its benefits. Policy riders are available for an additional premium in most cases.

An investor buys 100 shares of ABC Mutual Fund on October 1 at $15 per share. The investor receives the annual capital gains distribution of $1 per share on December 1. The investor redeems all the shares on December 15 for $20 per share. What will the tax consequence for this investor? A $600 capital gain taxable as ordinary income B $600 capital gain taxable at preferential rates C $500 capital gain distribution taxable at ordinary income rates and $100 capital gain distribution taxable at ordinary income rates D $500 capital gain event taxable at ordinary income rates and $100 capital gain distribution taxable at preferential rates

D The investor receives the annual capital gain distribution of $100 which is considered long term and is taxable to the investor in the year received at preferential rates, usually 15%. The holding period is based on the fund's holding period for the underlying security, not the investor's holding period on the fund shares. The investor then sells the shares for more than the cost basis ($5 gain per share), in less than 12 months. This is a short-term capital gain taxable at ordinary income rates.

ABC Mutual Fund has an NAV per share of $12. What is the maximum public offering price per share? A $13.05 B $12.90 C $12.85 D $13.11

D The maximum sales charge on a mutual fund is 8.5%. In order to calculate the public offering price this is the formula to use: NAV ÷ (1-SC in decimal format) or in this example 12 ÷ (1 - .085) = $13.11.

Which of the following is true of the death benefits of variable life insurance? A The amount of the death benefits paid are not included in the owner's estate for estate tax purposes B Proceeds from the death benefits are taxed as ordinary income to the beneficiary C The death benefit may be more or less than the policy's face amount depending on its actual investment return D The minimum death benefit is shown on the face of the policy

D The policy value may become part of the owner's estate when computing the estate tax and the death benefits pass income tax-free to the beneficiary. The policy's front page indicates the minimum death benefit although the death benefit will increase or decrease depending on the investment return of the separate account but will never be less than the minimum guarantee.

What information is not found in the preliminary prospectus? A Information about the issuer B Risk factors C Estimated price range D Application to invest

D The preliminary prospectus (red herring) contains material information about the offering. It can contain an estimated price range but not the official price. It cannot contain an application to invest.

A preliminary prospectus may be used: A Prior to filing the registration statement through the effective date B After the effective date to solicit orders C Only during a stop order D From the filing date until the effective date

D The preliminary prospectus is used during the cooling-off period (from the registration filing date to the effective date) to solicit indications of interest. After that, the prospectus is used to solicit and make sales. Once the SEC issues a STOP order, all activity must come to an end until the STOP order is fully addressed to the SEC's satisfaction. After all, they are looking out for the investor.

A summary prospectus contains all the following information, except: A Ticker symbol B Share class C Fund's name D Current share price

D The summary prospectus includes on its cover the fund's name and the share classes that are offered, the fund's exchange ticker symbol, and the date of the summary. A mutual fund's share price is calculated daily and is not included in the summary prospectus.

A registered representative is meeting with a client to discuss the features of a variable annuity. The representative is trying to determine if the client would benefit from the tax-deferred growth, underlying subaccounts, contract riders, and other product features and enhancements. What type of suitability is the representative attempting to determine? A Qualitative suitability B Broker-dealer suitability C Institutional suitability D Customer-specific suitability

D To ensure the product is appropriate, prior to the recommendation the RR must obtain adequate information about the customer as required by the FINRA "Know Your Customer" Rule. The representative in this example is determining customer-specific suitability.

Which of the following statements is true regarding wrap accounts? A This account is established by hedge funds to prevent a single firm from seeing the activities and duplicating the fund's strategies B Broker-dealers establish these accounts which charge a commission for every investment transaction C This account requires a properly executed hypothecation agreement D These accounts are established by investment advisers and usually charge an annual fee

D Wrap accounts are established by an investment adviser firm, not a broker-dealer. In a wrap account, the client does not pay commissions or sales charges but is assessed a fee (usually annually) that covers all investment advisory fees, administrative fees, and any trades processed through a broker-dealer.