SecuritiesPro QBank Quiz 4

What assets-to-debt ratio must an open-end investment company maintain? a) 2 to 1. b) 1 to 3. c) 3 to 1. d) 1 to 2.

3 to 1. The Investment Company Act of 1940 prohibits a mutual fund from borrowing more than what amounts to 33.33% of its net asset value. In other words, the fund must maintain at least a 3 to 1 assets-to-debt ratio.

The Conduct Rules prohibit which of the following gifts from a mutual fund underwriter to a dealer? a) A cash gift of $200. b) A pair of tickets to the symphony. c) A cocktail reception held in conjunction with a sales campaign kick-off. d) A free seminar discussing the features of various funds within a mutual fund family.

A cash gift of $200. The Conduct Rules prohibit gifts exceeding $100 in value between a mutual fund underwriter and a dealer or person associated with a member. The gift limit does not apply to occasional dinners or occasional tickets to events, seminars, meals, or receptions held in connection with a sales meeting. Season tickets to events are considered violations of this rule.

Which of the following secures an industrial development revenue bond? a) Trustee. b) A corporation. c) Municipal tax. d) State tax.

A corporation. Municipalities issue industrial development revenue bonds to construct a facility that will be used by a corporation. When this occurs, the corporation must sign a long-term lease. Although classified as municipal securities, IDRs are backed by the lease payments of the corporation participating in the project.

Which of the following funds would be required to invest at least 80% of its assets in a particular type of security? a) ABC Technology Fund. b) ABC High-Yield Bond Fund. c) ABC Special Situation Fund. d) ABC Go-Go Fund.

ABC High-Yield Bond Fund. The high-yield bond fund is subject to the Name Rule and must invest at least 80% of its assets in high-yield bonds. The technology fund is a sector fund and must have a minimum of 25% of assets invested in technology companies as defined in the objective of the fund.

Which of the following are NOT considered money market instruments? I. Newly issued debentures rated Aaa. II. Treasury notes. III. Commercial paper. IV. Treasury bonds maturing in six months.

I and II. The money market is made up of short-term, high-quality debt issues. Because the Treasury bond is maturing in less than a year, it is considered a money market instrument. The debenture and Treasury note must be considered intermediate or long-term instruments because their maturity is not stated.

Which of the following constitute a public appearance? I. Interactive electronic forum. II. Radio advertisement. III. Television commercial. IV. Television interview.

I and IV. A public appearance, which is considered a form of communication with the public, involves the personal presence of, or the possibility of interacting electronically with, an officer or other spokesperson of a firm.

For which of the following pairs of customers could a registered representative open a joint account? I. A father and his 13-year-old son. II. Two adults. III. Two business partners. IV. An aunt and her minor nephew.

II and III. An account owner is the person who controls investments within an account and requests distributions of cash or securities from the account. A joint account may be opened only by account owners who can legally exercise such control over the account. Minors may not exercise control over an account.

Which of the following statements regarding 12b-1 charges are CORRECT: I. There is a maximum allowable charge of .25% for marketing and promotion. II. There is a maximum allowable charge of .75% for marketing and promotion III. An additional .25% may be charged as a shareholder servicing fee. IV. Rules allow a fund to market as no-load if its 12b-1 charge exceeds .25%.

II and III. The .75% limitation is for marketing and promotion. FINRA also permits an additional .25% charge for shareholder servicing and also prohibit funds from advertising that they are no load if their 12b-1 charge exceeds .25%.

Which of the following would suffice to verify the identity of a prospective customer? I. Expired driver's license that was good within the last 12 months. II. Unexpired driver's license. III. Major credit card. IV. Valid passport.

II and IV. An unexpired driver's license or valid (i.e. unexpired) passport, or certain government employee identification forms, are required to establish the identity of a new customer.

Which of the following securities documents are NOT prepared by a broker-dealer? I. A research report on a new company II. A prospectus III. An ad for a company's stock IV. A preliminary prospectus

II and IV. The prospectus and the preliminary prospectus are prepared by the issuer of a new security, not the broker-dealer who will sell it.

A registered representative teaches a retirement course at a resort and receives the normal fee from the resort for doing so. Which of the following statements is TRUE? a) The registered representative must also be an investment adviser. b) A copy of the text must be provided to the SEC. c) Prior written notification of the activity to the firm is required. d) Approval of a principal of the firm is necessary.

Prior written notification of the activity to the firm is required. As an outside business activity, prior written notification of the firm is required but not approval (even though the firm may restrict or deny the activity). There is no requirement for a copy of the text to be provided to FINRA or the SEC. Also, it is not necessary for the registered representative to be registered as an investment adviser to engage in such an activity.

Which of the following is among the rights and privileges a mutual fund sponsor must offer in order to charge the maximum sales charge of 8.5%? a) Diversification. b) Reinstatement. c) Forward pricing. d) Rights of accumulation.

Rights of accumulation. A mutual fund must offer rights of accumulation and breakpoints to charge the maximum 8.5% sales load.

Your brother, a successful restaurant manager, approaches you about helping him raise funds to start his own restaurant. You suggest offering limited partnership units and agree to purchase one of the units yourself. Furthermore, you feel several of your clients will be interested in investing as well, and you are considering recommending it to them. You don't expect, however, to be paid anything for your services. Which of the following statements is CORRECT? a) This activity comes under the selling away rules and requires prior written approval from your firm. b) This activity comes under the selling away rules and requires prior notification to your firm. c) Because this is a passive investment on your part, no notification to your firm is necessary. d) Because the offering is of limited partnership units rather than stock, as a Series 6 limited representative you are prohibited from discussing these with your clients.

This activity comes under the selling away rules and requires prior notification to your firm. Regardless of the security type and your license, this is a private securities transaction, sometimes referred to as selling away. Because there is no compensation, all that is required is prior written notification to your employer member. Had there been compensation, approval would have been necessary. If you were simply investing as a passive investment and not bringing in other partners, no notification would have been necessary.

A national financial magazine advertisement for ABC mutual funds is permitted to include all of the following EXCEPT: a) the telephone number of the sponsoring brokerage firm to contact for additional information. b) an application to receive a prospectus. c) past performance of the mutual fund. d) an application to invest.

an application to invest. Mutual fund advertisements may not include an application to invest, since all applications to invest must be accompanied by a prospectus. Mutual fund advertising may include past performance (but no future projections) and a firm's telephone number for obtaining additional information and a prospectus.

When discussing the purchase of a scheduled premium variable life insurance policy with a client, it would be CORRECT to state that: a) premiums will vary based upon performance of the separate account. b) if a policy loan exceeds the policy cash value, the deficiency must be remedied within ten business days to keep the policy from lapsing. c) by surrendering the policy its cash value may be obtained. d) you will receive a statement of your death benefit no less frequently than semiannually.

by surrendering the policy its cash value may be obtained. Surrender of the contract requires the insurance company to pay out its cash value. Death benefit is adjusted annually.

An open-end investment company may do all of the following EXCEPT: a) purchase call option contracts. b) lend money. c) borrow money. d) issue senior securities.

issue senior securities. Open-end companies (mutual funds) only issue one class of security: common stock. They do not issue senior securities such as bonds or preferred stock. They may borrow and lend money and purchase call contracts.

The primary purpose for creating ERISA was to: a) provide all employees, both government and nongovernment, with an additional source of retirement income in the event that the Social Security system defaults. b) establish a means for self-employed persons to provide for their own retirement. c) promote a retirement fund for government employees. d) protect employees from the mishandling of retirement funds by corporations and unions.

protect employees from the mishandling of retirement funds by corporations and unions. ERISA was created to protect the retirement funds of union members and employees of corporations and other private sector employers. ERISA guidelines state that all qualified retirement plans must be in writing, segregate funds from corporate or union assets, make prudent investments, report to participants annually, and not be discriminatory. All of these activities are audited under ERISA.

An investment adviser of a mutual fund may liquidate shares held in the fund's portfolio: a) only with the consent of a majority vote of the shareholders. b) only with the consent of the board of directors. c) only with the consent of the board of directors and a majority vote of the shareholders. d) provided the liquidation is within the guidelines set forth by the fund's objective.

provided the liquidation is within the guidelines set forth by the fund's objective. A mutual fund investment adviser is given authority to select and make investments in the fund portfolio.

All of the following events would have an upward effect on a corporate bond's market price EXCEPT: a) the investing public loses confidence in the stock market. b) inflation eases off. c) the bond's rating changes from A to BB. d) interest rates fall

the bond's rating changes from A to BB. A lower rating for the bond indicates the rating service thinks the company's ability to pay off its debts is less sure. The bond becomes a less desirable investment, and the price drops.

The management fees paid by an investment company are part of: a) the operating expense of the fund. b) the sales load. c) the custodial fees. d) the underwriting agreement.

the operating expense of the fund. The management fees paid by an investment company are part of the operating expenses of the fund. Custodial fees are also part of the operating expenses. A sales load is a selling cost contained within the underwriting agreement.