Series 6 Exam 8

Under what circumstance may a variable annuity be recommended as a short-term investment? a. only where the annuity is a no load contract b. only if the annuity is being purchased inside of a 403n plan c. only if the client signs a nonbinding CDSC reduction agreement d. never, since this practice is prohibited under industry rules

d. Under industry rules, mutual funds or annuities may not be recommended as short-term investments or trading vehicles. The fact that a product is no load does not change this SRO prohibition. There is no such thing as a CDSC reduction agreement

Why would a load mutual fund reduce or eliminate the sales charge on a purchase of fund shares? a. the shareholder was reinvesting a capital gains distribution b. the shareholder has purchased a large amount of fund shares c. this purchase of fund shares is large d. all of the above

d. Each of the circumstances listed would reduce or eliminate the sales charge. Capital gains distributions, if automatically reinvested, are reinvested at NAV. Rights of accumulation allow a shareholder to pay reduced sales charges based on cumulative past purchases. Also, the sales charge is reduced when a large dollar amount is purchased under quantity discount privileges, as described in the prospectus

If an investor expects the federal reserve board to take action to raise interest rates significantly in the next two years, which of the following would be the most appropriate investment a. 30-year Treasury STRIPS b. 30-year treasury bonds c. pass-through certificates backed by 15 year mortgages d. 1 year treasury bills

d. To reduce interest-rate risk, the investor should purchase treasury bills. As the bulls mature, higher rates of return may be obtained by renewing (rolling over) the bills. Long-term maturities have a high degree of interest-rate risk- when interest rates rise, their values will fall much more than those of short-term securities. They should be avoided in times of rising interest rates

Which of the following investors are considered owners of a company? a. convertible bondholders b. preferred stockholders c. call option holders d. all of the above

b. Common and preferred stockholders are both considered owners of the company. Options, rights and other derivative holders are potential owners but are not considered such until they exercise their contracts and actually purchase the stock

The purchase of a no-load fund is determined by the a. net asset value plus a sales charge b. net asset value plus a commission c. net asset value d. supply and demand for the fund

c. A no-load fund has no sales charge and the purchase price is equal to the fun's net asset value

An individual works for the ABC company. The company provides a retirement plan for their employees. The amount deposited into the plan will vary the most from period-to-period if the plan is a a. defined contribution pension plan b. defined benefit pension plan c. profit-sharing plan d. the amount cannot vary in any plan

c. Of the choices given, contributions made into a profit-sharing plan would vary the most from year to year. This is because contributions into the plan are based on the company's profits

Ms. Taylor invested 25,000 in mutual fund shares which are now worth 26,200. To date, the fund has paid her 1000 of net investment income and 500 of capital gains distributions. If Ms. Taylor reinvested all of those monies in the fund, the cost basis of her total investment would be a. 25,000 b. 25,500 c. 26,000 d. 26,500

d. All dividends and capital gains reinvested in a mutual fund are added to the investor's total cost basis. The 1000 Ms. Taylor received in net investment income and the 5000 she received in capital gains are added to her original purchase of 25,000 when reinvested in the fund

Which of the following statements concerning breakpoints is correct? a. all qualifying purchases must be made by the same person b. all qualifying purchases must be made within the same fund c. all qualifying purchases must be made within the same calendar year d. none of the above

d. Purchases may be made by related persons (husband and wife, minor children) and still qualify for inclusion in a breakpoint. All purchases must be made within the same fund family, not necessarily within the same fund. By using a letter of intent, purchases could easily occur in separate years and still qualify

According to the code of arbitration, arbitrations proceedings against a registered representative may be initiated by a. an employer b. a customer c. any other member of FINRA d. all of the above

d. a customer, an employer, or any other member of FINRA may initiate arbitration proceedings against a registered representative

A bond has a 6% coupon and is trading at a 6,78% basis. The bond is trading at which of the following price levels? a. par b. discount c. premium d. 106 7/8

b. Basis is a different method of expressing yield to maturity. In this case, the yield to maturity is greater than the coupon rate. The only time a client's yield to maturity is greater than the coupon is when the bond has been purchased at a price less than par. Therefore, the bond must be trading at a discount

A customer is considering the purchase of a bond fund in hopes of profiting from appreciation in the bond market. The customer is least likely to receive a capital gain distribution if I. the bonds in the portfolio have short maturities II. the bonds in the portfolio have long maturities III. interest rates are rising IV. interest rates are falling a. I and III b. I and IV c. II and III d. II and IV

a. A bond fund investor is most likely to receive a capital gain distribution when bonds are appreciating substantially in value. This would occur if interest rates were falling. When rates fall, long-term bonds appreciate more than short-term bonds. Therefore, the investor is least likely to receive a capital gain distribution if rates are rising and the portfolio contains short-term bonds

Al Jackson has 20,000 to invest and would like to hold a diversified portfolio of stocks, bonds, and money-market instruments. He would like to change the percentage invested in each of these categories as the financial markets change. However, he does not believe he will have the time to monitor the markets and make change in his portfolio. The type of mutual fund that would be most suitable for Mr Jackson is a. asset allocation fund b. stock index fund c. bond index fund d. option income fund

a. Asset allocation funds hold diversified portfolios of stocks, bonds and money-market instruments. The fund manager from time-to-time shifts the percentage of the portfolio invested in each of these categories as market conditions warrant, often according to computer models

A customer sends a registered representative an email with a question about the objectives of a mutual fund the customer is thinking about purchasing. The RR then sends an email reply to answer the customer's question and recommends the purchase of the fund. Which of the following statements is true regarding the RR's email? a. it is considered correspondence and is subject to review by his firm b. the email is considered official firm business only if sent through the firm's system but it is not subject to firm rules if sent from the RR's home computer c. an email is treated like a phone conversation for regulatory purposes and is not subject to review by the firm d. the email would be considered retail communication and is subject to review by both the firm and FINRA

a. Email to a particular client is considered correspondence and is subject to review under the broker-dealer's supervisory procedures. This is true regardless of whether it is sent from the firm or the RR's home. Some broker-dealers require a review of all correspondence, including email, while other firms employ a spot-check approach. Regardless of which system a broker-dealer uses, its RRs must comply with the firm's internal rules for correspondence when sending email. Some firms may prohibit RRs from sending email to clients. Remember, group email is considered retail communication, not correspondence. Retail communication that refers to investment companies must be reviewed by both the broker-dealer and filed with FINRA

Jerri is a series 6 licensed registered representative. Which of the following items may she receive from empire distributors, a mutual fund wholesaler? a. a gift certificate for a sporting goods store valued at 100 b. a certificate for a one-week stay at a ski lodge c. reimbursement of seminar expenses if Jerri produces 5000 in grow commissions from selling empire funds d. Jerri may receive any type of noncash compensation as long as such items are disclosed in the prospectus

a. In general, RRs may not receive compensation, cash or noncash, from anyone except their broker-dealer for investment company or variable product sales. However, there are certain exceptions. One exception allows RRs to receive gifts from someone affiliated with a distributor if the gift is worth no more than 100. In addition, the gift may not be conditioned on the attainment of a sales target. Another exception allows RRs to receive reimbursement from distributor for attending meetings that serve an educational function if several conditions are met - RRs must have their broker-dealer's permission to attend the meeting - attendance cannot be tied to the achievement of sales - the location of the meeting must be appropriate, such as the office of the distributor or the broker-dealer - payments or reimbursements of guests of RRs, such as spouses are not permitted

Which of the following choices is considered a qualified retirement plan? a. 401k b. an IRA b. a 529 plan d. all of the above

a. Qualified is an ERISA term associated with certain work sponsored retirement plans. Typically, these qualified plans grow tax-deferred and are funded with pretax dollars through employee and/or employer contributions. IRAs and 529 plans are individually funded vehicles that have nothing to do with the client's employer or ERISAA

A registered representative hears that one of her clients has won the lottery. Which of the following statements is correct regarding the updating of the client's information? a. thee RR should update the paperwork promptly after speaking with the client b. the RR should update the paperwork within two business days of discovery of the information c. the RR must update the information promptly d. upon speaking with the client, the RR has two business days to update the account information

a. SRO rules require a registered representative to update his client's financial information promptly whenever a client informs him of a change in his status. There is no specific time requirement, such as the ones mentioned in choices b and d. The reason choice a is a better answer than choice c is simply that choice c does not mention that the RR has spoken with the client. Choice a has confirmation of the news from the client directly. That is why choice a is the most correct answer

Mike's spouse died recently. Mike has two small children, ages two and four. Mike's spouse was covered by a variable life insurance policy. Rather than take a lump sum payout of the death benefit, Mike would prefer a payout that would supplement his income until the children have finished college. Which of the following settlement options would best meet Mike's needs? a. fixed-period option b. fixed-amount option c. life income with period certain d. joint and last survivor income

a. Since Mike wants supplemental income only until his children have finished college, the fixed-period option would probably be most appropriate. Under this option, the insurance company pays thee beneficiary equal installments, at regular intervals, over a specified period of time

Which of the following clients would be most suitable for a bonus annuity? a. a 20 year old freelance photographer who has already contributed the maximum annual amount to his IRA b. a couple saving for their 14 year old son's college education c. a 75 year old woman who is considering exchanging an annuity that she purchased 9 years ago d. a newly retired couple in their sixties seeking income

a. The 29 year old photographer would be the most suitable candidate for a bonus annuity. His time horizon is long enough and he has already exhausted his opportunities for saving for retirement on a pretax basis. An annuity would not be a good choice for a couple with a time horizon of only 4 years. Neither is it a good idea for a couple who wants income. If the 75 year old exchanged her existing annuity, the surrender period would start again. her money would be tied up for an additional 5 to 10 years

An individual worked for Worthington Corporation for 20 years and was covered under a qualified pension plan. During the accumulation period, the employer made all of the contributions. During the payout period, the pension plan participant would treat distributions as a. part return of capital and part ordinary income b. all capital gains c. all ordinary income d. tax-exempt income

c. When the employer has made all of the contributions to an employee's pension plan, the employee has a zero cost basis and the entire payout is treated as ordinary income

A client has a variable annuity with an assumed interest rate of 4%. The client received a first benefit check of $110. The separate account rate of return between the first and second month was 10%. The client received a second check for $125. What was the actual rate of return of the separate account between the second and third month if the client's third check was also for $125? a. 4% b. more than 4% but less than 10% c. 10% d. more than 10%

a. The amount of a benefit check that is received by an annuitant is based upon the relationship of the assumed interest rate and the actual performance of the separate account. if the performance of the separate account equals the AIR, the benefit payment will be the as the last payment. If it is higher than the AIR, the benefit payment will increase. If the performance will be lower than the AIR, the benefit payment will be lower. In this question, the client received a first check of $110. In the subsequent payment period, the separate account experienced a growth rate of 10% which yielded a payment of $125. As you can see, since the actual growth rate of the separate account was greater than the AIR, the benefit payment increased. In order to receive a $125 payment for the third payment period, the separate account must experience growth rate equal to the AIR. Therefore, this growth must be 4%

A bond's nominal yield I. does not change II. indicates the amount per thousand that bondholders will receive as income III. needs to be approved by the board of directors IV. will go up if interest rates go down a. I and II b. I and III c. II and III d. III and IV

a. The nominal yield is set at the time of issuance and does not change. It indicates the dollar amount of income the bondholder will earn on each 1000 of principal invested. For example, a 6% nominal yield indicates 60 per year. Prices of bonds of up if interest rates go down. However, the nominal yield will remain the same

Fisherman's Firsst Bank, a member of the Federal Reserve system, is looking to borrow funds from Lumberman's fifth third, another member bank. The interest rate charged on the loan is referred to as the a. fed funds rate b. discount rate c. member's rate d. bilateral rate

a. When a member bank needs money it can go to either the federal reserve itself of another member bank. When a bank borrows from the fed directly, it is called borrowing at the window and they are charged the discount rate. When a bank borrows from other member banks, the interest percentage charged is referred to as the Fed funds rate

The day-to-day business activities of a unit investment trust are the responsibility of the a. trustee b. board of directors c. investment adviser d. distributor

a. While mutual funds are often structured as corporations with a board of directors, a UIT is a trust. A trustee is responsible for overseeing the operation of a UIT. Since a UIT is not actively managed, it has no investment adviser

A client who invests the same amount of money per month in a mutual fund over a period of time is a. dollar cost averaging b. dollar averaging c. averaging the dollar d. none of the above

a. a client investing the same amount of money each month in a specific security over a period of time would be dollar cost averaging

The New Age Trust Series A is a unit investment trust. This means that it is a. an investment company that issues only redeemable securities, each of which represents an undivided interest in a unit of specified securities b. an investment company with a portfolio that contains bonds only c. an investment company that invests in a specified industry d. none of the above

a. a unit investment trust is an investment company that issues only redeemable securities, each of which represents an undivided interest in a unit of specified securities. While many UITs have portfolios that contain bonds only, this is not required by definition under the investment company act of 1940. For example, some UITs have a fixed-equity portfolio that is liquidated on a specified date

Which of the following phrases best describes the term production? a. the difference between Nava and POP b. how well an RR does in getting people to attend seminars c. the number of taxable events generated by a given fund d. the level of income generated by a particular fund

a. production is a term that is sometimes used to describe the difference between NAV and POP. In effect, production is the sales charge

The Miser family of funds would like to place an ad regarding the yield on its Golden Opportunities money-market fund. Which of the following time frames is appropriate to use? a. 7 days b. 30 days c. 365 days d. 1, 5 and 10 years

a. the SEC permits yield based advertising. For money-market mutual funds, a standardized SEC 7-day yield must be employed. For longer-term bond mutual funds, a 30-day time frame is used

The item that determines the amount of money that an individual is entitled to withdraw from a pension or profit-sharing plan once that person leaves the company is the a. vesting schedule b. eligibility schedule c. funding requirement d. fiduciary requirement

a. the item that determines the amount of the pension or profit-sharing plan that individuals leaving the company can take with them is the vesting schedule

Goliath Capital is a broker-dealer that offers a number of packaged products. The sale of which of the following products by Goliath would require the delivery of a prospectus to the purchaser? I. a variable annuity II. a unit investment trust III. a mutual fund IV. a face-amount certificate a. I and III b. II and IV c. I, II and III d. I, II, III and IV

d. All of the securities listed are considered new issues under the securities act of 1933 and would require the delivery of a prospectus when sold by dealers

A SEP is a type of retirement plan in which a. each employee receives a defined benefit upon retirement b. each employee is vested immediately in all of the employer's contributions c. the employer must contribute a set amount to the employee's SEP IRA each year d. the employer may exclude all part-time employees

b. A SEP plan is a type of defined contribution retirement plan in which an employee is immediately vested for all the contributions that the employer makes on her behalf

Which of the following is the most likely reason that a mutual fund might borrow money from a bank? a. it needs the cash to pay the minimum guaranteed rate to shareholders b. it needs the cash to fund shareholder redemptions, but the manager does not want to sell securities in the portfolio at this time c. the manager has found a good investment and wants to purchase it on margin d. sales of the fund have not been up to expectations and the manager needs the cash to make up for shortfalls in sales charge revenue

b. A mutual fund must stand ready to redeem its shares at NAV. If the manager needs to raise cash to fund shareholder redemptions, but thinks that this would not be a good time to sell securities in the fund's portfolio, she might borrow money form a bank to fund the redemptions. To do this, the fund must maintain 300% asset coverage

An individual who has passed the series 6 exam and is now working in a mutual fund call center may solicit the purchase and/or sale of the I. redeemable shares of registered investment companies II. original distribution of closed-end investment companies III. secondary distribution of closed-end investment companies IV. variable contracts offered by insurance companies a. I and II b. I, II and IV c. I, II, III and IV d. none of the above

b. A person who has passed the series 6 limited registered rep exam may only solicit business in redeemable shares of registered investment companies, the original distribution of closed-end investment companies and variable contracts offered by insurance companies. In order to solicit business in the secondary market of closed-end investment companies, a person must have another FINRA registration, 7 or 62

Which two of the following would cause US exports to become more competitive than foreign exports? I. the US dollar weakens when compared to foreign currencies II. the US dollar strengthens when compared to foreign currencies III. the price of US goods in foreign countries increased IV. the price of US goods in foreign countries decreased a. I and III b. I and IV c. II and III d. II and IV

b. A weakening or devaluation of the dollar would make US exports more competitive with foreign exports. The US dollar would be worth less in relation to foreign currencies. Foreigners would spend a relatively smaller amount of their currency to purchase US products making US products more competitive. Likewise, a strengthening in foreign currencies relative to the US dollar would cause foreign products to increase in price compared to US products, making US products more competitive

An individual wishes to invest in a mutual fund. During your conversation with this person, you mention the possibility of buying shares at a reduces sales charge. Which of the following statements may be included in your discussion? I. the fund offers a letter of intent feature II. the fund allows a reduced sales charge on purchases over the breakpoint, even if made into the account of a minor child under the UGMA III. the fund recommends that the investor borrow money from a bank to make purchases which are large enough to qualify for a reduced sales charge IV. the fund offers rights of accumulation a. II and III b. I, II and IV c. I, III and IV d. I, II, III and IV

b. An individual may obtain a reduced sales charge through signing a letter of intent, by reaching a breakpoint, or through the rights of accumulation that a fund offers. A fund is not permitted to encourage investors to borrow money in order to make purchases that are large enough to receive reduced sales charges

An investor who is studying various funds' holdings is interested in an equity income fund. The investor would most likely choose a fund holding securities of a. companies that consistently earn above-average income b. companies with liberal payout ratios c. growth companies d. companies whose bonds are rated investment grade

b. An investor primarily interested in income from equities would most likely choose a fund holding securities of companies with liberal payout ratios. Companies that earn above-average income may not necessarily pay the income out as dividends. This is typical of a growth company, whose earnings are growing at a rapid rate but retains the earnings in the company to finance future growth

An investor buys 200 shares of TDX at $20 per share. TDX declares a 10% stock dividend. The investor's cost basis per share for tax purposes would be a. 18.00 b. 18.18 c. 22.00 d. 40.00

b. An investor's cost basis must be adjusted downward upon receiving additional shares when a stock dividend is paid. In this example, the investor receives 20 additional shares. The investor's new cost basis per share would be found by dividing the initial cost of 4000 by the total number of shares now owned. This equals a cost basis per share of 18.18

Joean Emerall is an RR with Greenstone Investments. The firm only engages in the sale of mutual funds and a few variable insurance offerings. Her husband Brent is looking to open a single account at a full service firm. Which of the following statements concerning this situation is correct? A. the account may be opened without restriction since it is not in Joan's name b. Joan must make sure the firm opening the account is aware of her status as a registered representative c. Joan needs her firm's written permission prior to her husband opening the account d. this action is prohibited since RRs and immediate family members are barred from having external accounts

b. Any RR looking to open an external account must inform the firm where the account is th ebe opened of her status as an employee of a member firm. The opening firm then notifies the RRs employing firm to see if the account opening is even permissible or if the RR is bound by any special restrictions dictated by the employer's firm rules. Many firms will ask for duplicate records regarding outside accounts held by their employees

If a bond fund referred to its holdings as moderately speculative and low-grade, the fund would not be suitable for I. those investors seeking income with limited credit risks II. investors wanting to park their funds prior to making a more permanent investment III. an aggressive fixed-income investor with a high risk profile IV. someone willing to ride out changes in interest rates who understandings the volatility inherent in high yielding securities a. III only b. I and II c. I and IIII d. III and IV

b. Bond funds with moderately speculative and low-grade holdings carry significant credit risk i.e the risk of default. The return on those funds should be higher than the return on high-quality corporate bond funds or government bond funds to compensate for such risk, but these funds are extremely volatile. Speculative funds are not suitable for investors seeking to park their funds in a safe place because of the risk that the investment will have lost value when they need to sell it

Nell Garlan has a boutique down the street from your branch. She does a cash business and periodically deposits less than 5 figure dollar amounts at your branch. You would be suspicious of her behavior if she I. begins day trading II. starts to deposit much larger sums IIII. wires funds to a foreign bank IV. opens a joint account with her brother a. I and II b. II and III c. I, II and IV d. I, II, III and IV

b. Both a sudden increase in cash deposits and funds wired to a foreign bank are red flags that should be investigated. A suspicious activity report may need to be filed if the amounts involved exceed 5000. A currency transaction report needs to be filed if the amounts exceed 10,000 on any given day. Records must be kept of all wire transfers of 3000 or more

A mortgage-backed security that is available in several tranches each with different cash flow characteristics is a a. government national mortgage association pass-through certificate b. collateralized mortgage obligation c. public housing authority bond d. real estate investment trust

b. Collateralized mortgage obligations, or CMOs, are securities backed by pools of mortgages or pools of mortgage-backed securities such as GNMA pass-throughs. However, unlike GNMA pass-throughs, a single issue of CMOs is divided into several classes, or tranches. When principal repayments are received by the CMO company or trust, the principal is paid to the various tranches according to a predetermined sequence of priority. Some tranches receive principal repayments immediately; others will not receive principal repayments for several years

Randy is retiring and has just received a lump-sum retirement payout of 300,000. He plans to roll this money over into an IRA. Randy's main objective for his portfolio is to generate additional income to supplement his social security check. Which of the following sets of mutual funds would be least appropriate to include in his IRA account? a. blue-chip stock fund, foreign bond fund b. micro-cap growth fund, municipal securities money-market fund c. convertible bond fund, ginnie mae fund d. intermediate-term bond index fund, growth and income fund

b. Micro-cap stocks, also called penny stocks, are not only extremely volatile and risky, but are highly unlikely to pay a dividend. Municipal securities or municipal securities funds are not suitable in an IRA account, since this turns tax-exempt income into taxable income. All IRA withdrawals that are not attributatible to nondeductible contributions are taxed as ordinary income (even municipal interest)

Ms. Green made the following purchases in ABC fund. What is her average cost per share? 1000 for $20 per share, 50 shares; 1000 for $40 per share, 25 shares; 1000 for 25 per share, 40 shares; 1000 for 20 per share, 50 shares. a. 20 b. 24.25 c. 26.25 d. 30

b. Mss. Green invested a total of 4,000 and purchased 165 shares. This results in an average cost of approximately 24.25 per share

Which of the following statements is true when comparing rights and warrants for XYZ corporation common stock? a. if they were issued at about the same time, the warrants will expire before the rights b. XYZ issued the rights to enable stockholders to maintain their proportionate interest in the company, while the warrants were probably issued with another security to make that security more attractive to investors c. when they were issued, the exercise price on both the rights and warrants was probably above the market value of XYZ stock d. warrants may be traded in the secondary market while rights are nonnegotiable

b. Only choice b is true. Choice a is false because rights are short-term while warrants often last several years before expiring. Choice c is false because the exercise price on rights is usually less than the current market value of the stock at the time the rights are issued. Choice d is false because both rights and warrants can be traded in the secondary market

Lunar Properties Inc. announced that is issuing securities next month, and that the purpose of the distribution is refunding. This means that Lunar Properties will be a. replacing equity securities with debt securities b. replacing debt securities with other debt securities c. replacing common stock with preferred stock d. returning money previously paid by customers

b. Refunding is replacing debt securities with other debt securities. In a municipal bond refunding, the issuer will normally call in higher-coupon bonds and issue lower-coupon bonds instead

Whose social security number should appear on an account opened under the uniform gifts to minors act? a. only the custodian's b. only the minor's c. both the custodian's and the minor's d. the parent's or legal guardian's

b. Since the minor pays all taxes in an account formed under the uniform gifts to minors act, the minor's social security number should appear on the account

A company declares a dividend, payable on June 5 to stockholders of record on May 20. An investor who buys the stock in a regular-way transaction on Tuesday May 19 a. is entitled to the dividend b. is not entitled to the dividend because the stock is already selling ex-dividend c. is entitled to a due bill d. cannot settle the trade until June 5

b. Stocks trade ex-dividend two business days prior to the record date. The investor who bought the stock is not entitled to the dividend because the stock has already gone ex-dividend 2 business days before the record date of may 20. The investor did not buy the stock until May 19, which would be after the ex-dividend date May 18.

Which of the following statements is correct for a bond trading at par? a. the bond will trade at a yield basis equal to the prevailing prime funds rate b. due to the effect of compounding, the bond will trade at a basis above its coupon rate c. due to the time value effect of discounting, the bond will trade at a basis less than its coupon rate d. the basis and coupon will be identical

d. Basis is a different method of saying yield to maturity. In the case of a bond trading at par, all three yields will be equal to the coupon rate

Which two of the following statements are correct concerning the death benefit on a variable annuity? I. the benefit skips the probate process II. the benefit must go through probate prior to distribution III. the beneficiary receives the proceeds tax-free IV. the beneficiary may have a tax liability when receiving the proceeds a. I and III b. I and IV c. II and III d. II and IV

b. The death benefit on a variable annuity skips the probate process. Probate is a lengthy legal process in which the deceased's bills are paid and remaining assets distributed based on instructions generally left in a will. The recipient of a death benefit from a variable annuity may have to pay taxes on any amount above the contract's cost basis. For example if a client invested 100,000 and died when the contract was worth 150,000, a nonspouse beneficiary may be required to pay taxes on the 50,000 above the deceased's contributions

According to the Uniform Gifts to Minors Act, an individual may I. give an unlimited amount of cash II. give securities III. only give up to 14,000 in cash IV. revoke only cash gifts a. I b. I and II c. II and III d. I, II and IV

b. There is no limitation on the amount of a gift that may be given to a minor. A gift can be made in cash and securities and any gift made to a minor under UGMA is irrevocable

A customer who is going on vacation calls his RR and give her verbal authority to initiate transactions in her account while she is gone. Without the customer authorization, the RR may determine I. which securities to buy or sell II. the amount of money to invest III. the best time to buy a security IV. the price at which to execute an order a. II b. III and IV c. I, II and III d. none of the above

b. Upon receiving verbal authorization from a customer, an RR may select the price or time of execution if the customer has specified whether to buy or sell, the specific security and the amount the be bought or sold. Written discretionary authority would be required otherwise

A person who is an Investment Company products/variable contracts representative may accept orders for all of the following except a a. closed-end bond fund in the primary market b. closed-end bond fund in the secondary market c. mutual fund that invests in foreign securities d. no-load mutual fund

b. investment company products/ variable contracts representatives may accept orders for transactions min variable contracts and redeemable shares of investment companies. They may also accept orders for the purchase of closed-end management companies in the primary market, but may not participate in secondary market transactions

Which two of the following statements are correct? I. US exporters prefer a strong dollar II. US exporters prefer a weak dollar III. US importers prefer a strong dollar IV. US importers prefer a weak dollar a. I and III b. I and IV c. II and III d. II and IV

c. A weak or strong dollar refers to the US's currency being more or less valuable in relative terms to another currency. A US exporter who is trying to sell goods to foreign clients prefers a weak dollar since it makes his goods effectively cheaper. A US importer is buying foreign goods. If the dollar is stronger, you can buy more of those foreign goods, therefore he prefers a strong dollar

All transactions by a registered representative for the account of a customer must be a. contingent upon approval of FINRA b. based upon a written order of a customer c. reviewed and endorsed by a principal d. subject to cancellation by either party until delivery

c. All transactions by a registered representative for the account of a customer must be reviewed and endorsed by a principal. This is usually done at the end of the trading day when the partner or manager reviews all the trades for the day and initials the "blotter" which is the name given to the sheet that lists all the transactions for that day. Orders may be taken verbally from customers and do not need to be in writing and orders are not contingent upon approval of FINRA

An insurance company may override a variable life policyholder's right to I. vote to change the investment policies of the separate account II. receive a proxy if available III. reject the selection of an investment adviser to the separate account a. I b. II and III c. I, II and III d. none of the above

c. Although variable life insurance policyholders have the right to vote on certain matters concerning the separate account, those votes can be ignored or overridden by the insurance company if the conflict with state insurance laws

Which of the following individuals is required to register as an investment adviser? a. a broker giving investment advice to a client as part of her regular duties b. a broker publishing a market letter c. a broker acting as a financial planner for her clients and charging a fee for this service d. a bank trust officer

c. Brokers are required to register as investment advisers if they charge a separate fee for providing financial planning or advisory services to clients

Which of the following mutual fund charges seems unusually large? a. a front-end contractual plan with an initial sales charge of 50% b. a front-end load sales charge of 5.75% c. a 12b-1 charge of 3% d. a redemption charge of 0.75%

c. Conduct rules effectively prohibit members from selling mutual fund shares with 12b-1 fees exceeding 1%. The other charges are within normal ranges

Ms P is 75 years old. She works full time as a librarian earning 35,000 per year. She would like to invest in the Spartan fund, but wants to treat it as an IRA contribution. Which of the following statements is correct? a. Ms P may contribute up to 6500 pretax income in a traditional IRA b. Ms P may contribute up to 6500 after-tax income in a traditional IRA c. Ms P may contribute up to 6500 after-tax income in a roth IRA d. Ms P may not contribute to an IRA

c. Contributions to a Roth IRA do not have an age restriction. Ms P's maximum contribution is 5500 per year. Catch-up provisions allow for an extra 1000 contribution to IRAs for individuals 50 years or older. Only after-tax contributions may be made to a Roth IRA

Which of the following statements concerning email sent by a registered representative to a client is most accurate? a. email must be reviewed by a principal prior to being sent b. email must be reviewed by a principal prior to the end of the day c. email communication may be subject to a random sampling or spot-checks d. email must use working that has been preapproved by the firm's chief compliance officer and sent to FINRA's electronic communications committee for review

c. FINRA categorizes communications as either correspondence, retail communication or institutional communication. Correspondence is defined as written or electronic messages sent by a member firm to 25 or fewer retail investors within any 30 calendar day period. The 25 or fewer investors may be nay type of client- existing or prospective. Communications sent to more than 25 retail investors is considered retail communication. Correspondence and institutional communications must be supervised and monitored by the member firm, but are not required to be approved by a principal prior to use. FINRA permits firms to develop their own compliance procedures regarding correspondence that may include a random sampling or spot checks. FECC is fictitious

Which of the following statements are true concerning variable life separate accounts? I. a favorable performance increases the death benefit II. investments may include common stock, money-market instruments and bonds III. changes in the investment policy can be made at the discretion of the investment managers IV. account assets are technically owned by the insurance company and are carried on the insurance company's financial statements a. I and II b. II and III c. I, II and IV d. I, II, III and IV

c. If investment returns exceed the assumed interest rate, the death benefit increases above the minimum benefit. Separate account investments can include common stock, money-market instruments, and bonds. Although policyholders can vote on changes in the investment policy, the insurance company technically owns the assets of the separate account

The separate account of Tom Jones' variable life policy is performing poorly. Does this have any effect on his death benefit? a. no, the death benefit is fixed over the life of the contract b. yes, but it could never drop below the highest death benefit attained during the life of the contract c. yes, but it could never drop below the fixed minimum d. no, the cash value can only increase over the life of the contract

c. If the performance of the separate account of a variable life insurance policy is less than the assumed interest rate, the death benefit will decline. However, the death benefit can never drop below the face value of the policy

An investor wishes to establish a tax loss but still wants to own the same security. The customer sells the security at a loss and repurchases it two weeks later. The tax loss is a. established b. recognized c. disallowed d. amortized

c. In this question, since the security was reaquired within 30 days, the tax loss is currently disallowed. This is known as a wash sale. This means that the loss cannot be used in the current year's tax calculation. To avoid this result, an investor who has sold securities at a loss must wait more than 30 days before repurchasing the same security or any security deemed to be substantially identical (a right, option, warrant, or convertible bond)

Death benefits in a variable life insurance policy are prone to fluctuation for all of the following reasons except a. outstanding loans reduce the death benefit b. overdue premiums decrease the death benefit c. management, administrative and mortality costs reduce the death benefit d. investment returns may be in excess of the assumed interest rate

c. Management, administrative and mortality costs reduce the cash value but not the death benefit

Alice is in the process of opening a mutual fund account with the Titanic Equity Income Fund. On the application, Alice is asked whether she would like to receive dividends and/or capital gains distributions in cash or reinvest them in the fund. Which of the following is an advantage of reinvesting the dividends and distributions rather than taking them in cash? a. 12b-1 fees are not assessed on reinvested dividends/distributions b. taxes on the reinvested amounts are deferred until they are withdrawn c. reinvestment will have a compounding effect d. reinvested dividends will be taxed as capital gains rather than ordinary income

c. Mutual fund dividends and distributions that are reinvested are taxed as if they were received in cash. However, reinvesting the dividend/distribution puts money back to work in the fund. Earnings on earnings compound the investor's return

The prospectus for the Acme Growth Fund states that not more than 5% of the fund's portfolio may consists of restricted securities. Which of the following is the probable reason for this constraint? a. restricted securities usually do not pay dividends b. restricted securities carry no voting rights c. restricted securities are very illiquid d. SEC regulations limit the amount of restricted stock in mutual fund portfolios to 5% or less

c. Restricted securities are issued through private placements and are not registered with the SEC. Since they are not registered, it is difficult to resell them. If a mutual fund portfolio contained a high percentage of restricted securities, the manager would not be able to liquidate them quickly.

An investor initially purchased 100 shares of PDQ balanced fund for 3000. She received 200 in dividends and 350 in capital gains distributions, which were reinvested in 25 additional shares. The customer eventually redeemed all the shares in the account for 4000. The redemption resulted in a a. 1000 gain b. 650 gain c. 450 gain d. no gain or loss if the funds were reinvested within 60 days

c. The 200 of reinvested dividends and 350 in reinvested capital gains distributions would constitute the cost basis of the 25 additional shares. The cost basis of the original shares was the purchase price of 3000. The total basis of 3550 subtracted from the sales proceeds of 4000 would result in a gain of 450. Some investors neglect to include the amounts of reinvested as part of the basis of shares that are redeemed. These amounts are important to include since the dividend and capital gains distributions were already taxed in the year they were reinvested

The SEC was created under which of the following acts? a. the market safety act of 1929 b. the securities act of 1933 c. the securities exchange act of 1934 d. the Maloney act

c. The SEC was created under the securities exchange act of 1934. Congress passed the securities act of 1933 late that year and realizing the need for federal oversight, they created the SEC early the following year. The NASD was created by the Maloney act, an amendment to the securities exchange act of 1934

An investor is seeking a high current return with low default risk on the underlying securities. The most appropriate investment would be a a. money-market fund b. high-yield corporate bond fund c. US government bond fund d. zero coupon treasury bond

c. The bonds in a US government bond fund would have no default risk in that it is highly unlikely that the US government would default on its obligations. The corporate bond fund would offer a higher yield but the individual fund holdings would carry a relatively high default risk. The zero coupon Treasury would not provide current income

The prospectus for the outlandish fund states that redemption requests must be received by a dealer for the fund no later than 4 pm. Eastern time in order to receive the NAV calculated that day. The fund calculates its NAV once each business day as of that deadline. An RR for one of the fund's dealers receives a phone call at 4:15 pm eastern time from a customer with an order to redeem the client's entire outlandish fund account that day. Which of the following statements is true regarding the redemption request? a. the RR may treat the request as received prior to 4 pm since it was received within 30 minutes of the deadline b. the customer's request is considered cancelled and must be resubmitted the following business day c. the customer's redemption request will be based on the next NAV calculated d. the fund may process the request based on the current day's NAV as log as the pricing information has not yet been released to the public

c. The customer would receive the next NAV calculated after a valid redemption request has been submitted. Since the request as received after the current day's deadline, the client will receive the next NAV calculated, which for this fund is at the end of the next business day

Ralph Generous has a cost basis of 15 per share in the Spartan growth fund, which has a current NAV of 27. Mr generouse gives his fund holdings to his daughter and she sells the fund at 32. The gain upon the sale is a. 5 b. 15 c. 17 d. avoided, because gifts are tax-free

c. The daughter has a gain of 17 upon the sale of the Spartan growth fund because she assumed her father's basis of 15 when the gift was given

Which of the following statements are correct about a Roth IRA? I. the maximum contribution is 5500 per year II. an individual may withdraw up to 10,000 for the first-time purchase of a home III. withdrawals prior to age 59 1/2 are subject to a penalty IV. withdrawals prior to retirement are not permitted a. I and III b. I and IV c. I, II and III d. I, II, III and IV

c. The maximum annual contribution to a Roth IRA is 5500. A 5-year qualification period applies in order for growth to be tax-free. Once this period is satisfied, there are exclusions from the 10% early withdrawals penalty. The first-time purchase of a home is one of these exclusions. Choice d which includes IV is inaccurate. An individual may withdraw funds from her Roth IRA anytime, whether she is retired or not. Whether the withdrawal is taxable is based on the qualification period of 5 years, while the 59 1/2 age limitation applies to the 10% early withdrawal penalty

A registered representative is taking over the business of another RR who is leaving the firm. Upon examining the accounts, the RR notices that many of the clients who own variable annuities have high expenses, mediocre performance and few investment options. The RR decides that her first action will be to recommend that these customers redeem the old annuities and invest in the new Platinum one variable annuity that has substantially lower expenses, higher long-term performance and many more subaccounts with varying investment strategies. This activity is a. known as churning and is strictly prohibited b. called switching and is permitted only in those accounts that will not incur a deferred sales charge c. potentially acceptable if the benefits of the new annuity outweigh the possible taxes and additional sales charges the client might incur d. only permitted if the customer signs a switch waiver form

c. The practice of recommending that a client redeem one annuity or mutual fund and invest the proceeds in another annuity or fund is called switching. When redeeming the first annuity, the investor might incur a deferred sales charge and tax liability. Reinvestment in another annuity might also involve sales charges or might subject the investor to an additional period when surrender charges could be imposed on redemptions. These disadvantages mean that switching is frowned on y regulators, who suspect the RR involved is often motivated by the prospect of additional commissions rather than the client's best interests. However, when the new annuity is clearly superior to the old product, the additional benefits might outweigh the disadvantage

Which of the following statements concerning a regulated investment company is correct? a. the company must invest at least 75% of its assets in a diversified fashion b. the company must retain at least 10% of its net investment income c. the company must distribute at least 90% of its net investment income d. all of the above

c. The term regulated investment company is an IRS term. Under the conduit theory of taxation, an investment company that distributes at least 90% of its net investment income will not need to pay taxes on the distributed funds. There is no requirement to maintain a minimum percentage of net investment income. Many funds distribute essentially the entire amount

Jonah has recently retired at age 65. He is receiving a large lump-sum retirement payout from his former employer. Although he has only a very small investment portfolio, he has accumulated savings that would cover six months of expenses. Which of the following would be an appropriate allocation of Jonah's lump sum in an investment portfolio if his primary interest is income and his secondary interest is growth for inflation protection? a. 100% cash b. 50% cash, 45% bonds, 5% equities c. 85% bonds, 15% equities d. 25% cash, 75% equities

c. While a portfolio that consist of 75% equities might be too volatile for a 65 year old retiree, increased life expectancies have made some exposure to equities justifiable for such investors. Since equities provide much more inflation protection than bonds or cash, a small portion of stocks would generally be suitable. Since this investor already has a six month liquidity cushion in the form of savings, a large additional allocation to cash might not provide enough income of inflation protection in the long run

Which of the following is an expense or charge not normally associated with a variable annuity? a. investment management fees b. expense charges c. redemption fees d. administrative expenses

c. investment management fees, expense risk charges, and administrative expenses are all charges associate with variable annuities. A redemption fee is assessed upon redemption of a mutual fund

According to regulation D of the securities act of 1933, accredited investors include I. lawyers, accountants and engineers II. senior executives of the issuer III. institutional investors IV. individuals with a net worth of at least $1 million a. III b. I and II c. II, III and IV d. I, II, III and IV

c. no professional group is automatically defined as an accredited investor. Senior executives of the issuer are considered accredited investors as are most institutional investors, such as banks. A person with an annual income of 200,000 or a net worth of $1 million is also considered accredited

A registered rep works for a brokerage firm that is a dealer for the TransGalaxy mutual fund complex. The rep has prepared a script and a slide presentation for a seminar on TransGalaxy funds. She will also hand out a brochure created by her firm and a prospectus for the funds. in this situation, all of the following should be filed with FINRA except a. the script b. the slide presentation c. the prospectus d. the brochure

c. retail communication is defined as any written or electronic communication that is distributed or made available to more than 25 retail investors within a 30 calendar day period. A retail investor is considered any person who does not meet the definition of an institutional investor. The script, slide presentation and brochure are all defined as retail communication and would be required to be filed with FINRA or another SRO within 10 business days of first use. Tombstone ads, prospectuses which have been filed with the SEC, and mutual fund profiles are exempt from the filing requirement

All of the following statements are true of the 529 plan except a. withdrawals used for educational purposes are not subject to federal taxation b. there are no income limits places on contributions c. contributions are unlimited d. a married couple may give a lump sum of 140,000 without incurring federal gift taxes

c. the contribution limits for a 529 plan are quite high (they are much higher than those for a Coverdell education savings plan, which is capped at 2000 a year) but they are not open-ended. Each state establishes the maximum amount that may be contributed to all 529 plans maintained for one beneficiary (usually 200,000 to 300,000). All the other statements are correct. Note however, an investor who contributes the maximum amount allowable to a 529 plan may incur federal gift taxes A single investor may contribute up to 14,000 per year (28,0000 for a couple) for each beneficiary without incurring gift taxes. An investor may also aggregate 5 years of annual contributions and give a lump sum of 70,000 (140,000 for a marries couple) without incurring federal gift taxes

Which of the following statements is true regarding a Coverdell savings account? a. the max contribution is limited to 5500 b. if not used for educational expenses, the account may be used for tax-deferred retirement savings c. contributions must be invested conservatively d. grandparents may make contributions for children until they reach the age of 18

d. A parent, grandparents or any other person whose adjusted gross income is within certain limits may contribute a max of 2000 per year to an account established for the benefit of a child under the age of 18. If the withdrawals are not used to pay for the child's education expenses, then the earnings portion of the withdrawal is subject to taxation as ordinary income plus 10% tax penalty

The most appropriate buyer for a variable life insurance policy is/are a. a person who requires the discipline of forced savings b. parents with a modest income who have young children c. a person who wants the assurance of a guaranteed cash value d. a person with an understanding of investments who can tolerate risk

d. A person who is knowledgeable about investments is a candidate for variable life insurance because stocks and bonds are the foundation of the policy. As the market values of the securities fluctuate, cash value and death benefits change. Therefore, the insured must be able to tolerate risk.

Diversification within a portfolio can be obtained by investing in I. companies in different industries II. companies in complementary industries III. different geographic areas IV. various types of investment instruments a. I and II b. I and III c. II and IV d. I, II, III and IV

d. All of the choices listed are examples of diversification within a fund. For example, a fund that is essentially a stock fund might invest in the airline, banking, chemical, auto or machine tool industries. Complementary investment positions could be made in hotel and lodging (complementing airlines) and steel and tires (complementing auto manufacturers) Another form of diversification that is popular today is geographic diversification, investing on a global basis. Some funds concentrate on specific geographic areas

Newmont securities handles numerous large transactions for the spitfire group a family of funds that specializes in growth issues. Newmont derives substantial commissions for executing transactions on behalf of spitfire. May Newmont provide special compensation to its registered personnel as an incentive to sell shares of spitfire? a. yes because spitfire deserves this treatment for the commissions generated b. yes, as long as Newmont RRs do not sell dividends c. no unless spitfire is charging a 12b-1 fee d. no since FINRA prohibits members from paying incentive compensation based on brokerage commissions received

d. FINRA members may not favor or disfavor the sale of shares of any particular investment company on the basis of brokerage commissions received or expected by such members from any source, including that investment company

Which of the following definition best describes the practice of ghosting? a. spreading malicious rumors about a competitor to frighten a prospect into investing with you instead b. publishing fictitious performance figures for a mutual fund or variable annuity subaccount to encourage a reluctant client to purchase c. erasing or deleting a troublesome section of a prospectus prior to distribution to a client d. creating the appearance of active trading

d. Ghosting is the practice of trying to artificially create the appearance of an active trading market by either trading between various accounts owned by a single person or using prearranged trades between several persons. Sometimes these activities may be referred to as wash sales or matched orders on the series 6

A client's 58-year-old mother passed away after having named him the beneficiary on her IRA. She had not taken any distributions out of the IRA. He may receive the proceeds of the account: a. After five years b. After the beneficiary reaches 70 1/2 c. Over the life expectancy of the original owner d. Over the life expectancy of the beneficiary

d. If you inherit a traditional IRA or any other tax-deferred retirement plan, a 401(k) or 403(b), from anyone other than your deceased spouse, you may NOT treat the inherited IRA as your own. But, as with the original owner, you will not owe tax on the assets in the IRA until you receive distributions. If the previous IRA owner dies before distributions have begun, the entire IRA must be distributed under one of the following two rules. Rule 1. By December 31 of the fifth year following the year of the owner's death Rule 2. Over the life of the designated beneficiary or over a period not extending beyond the life expectancy of the beneficiary

In order to be characterized as a diversified company, an investment company must a. have at least 75% of its assets invested in a prescribed way b. not hold securities of any one issuer in an amount greater than 5% of its total assets c. not hold more than 10% of the outstanding voting securities of an issuer d. comply with all of the above

d. In order to qualify as a diversified company, an investment company must comply with all the conditions mentioned

The Wintherop group, a FINRA member, receives an order from a customer to buy 200 shares of baxter growth fund, an open-end investment company. Wintherop currently holds 500 shares of baxter in its investment account. A direct sale of these shares to the customer out of its inventory would be allowed a. If the order was unsolicited b. if wintherop is not a dealer for the fund c. as long as wintherop does not assess a sales charge for the transaction d. under no circumstances

d. Industry rules state that no member firm may purchase from an underwriter the securities of any open-end investment company except for the purpose of covering purchase orders previously received or for its own investment. Selling mutual fund shares to customers from inventory is prohibited

The advantages of owning mutual fund shares do not include a. professional supervision of the fund portfolio b. wide diversification of investments c. regular systematic investment of small dollar amounts d. control over the investment portfolio

d. Investment companies offer the advantage of professional supervision of the fund portfolio. The shareholder does not exercise control over the investment portfolio. This is left to full-time professionals, the fund managers. Investment companies seek to obtain appropriate diversification of securities in the fund portfolio while, at all times, attempting to meet the fund's objectives. A major purpose of buying investment company shares is to make systematic investments, often small amounts

Which of the following statements concerning mutual funds is correct? a. portfolio investments are generally static b. pricing of the fund's shares may fluctuate throughout the day c. investments grow tax-deferred as long as 90% of net investment income is distributed to shareholders d. all client purchases are executed in the primary market

d. Mutual funds often change their portfolio holdings. Static means investments stay the same. mutual funds are priced only once per day, so there is no fluctuation in pricing throughout the day. Mutual funds do no grow tax-deferred unless places in a tax-advantaged account. The only correct choice of the four is d. Mutual funds are always purchased as new issues. This primary market status is the reason a client receives a prospectus even when buying shares in a fund that has been around for many years

"Selling dividends" is prohibited because a. if an offer under these conditions is made to one investor, it must be published in leading newspapers so that everyone has an opportunity to buy the shares b. it violates the SEC statement of policy that prohibits representing a fixed or any rate of return c. it offers an investor an unfair profit advantage d. the amount of such a distribution is included in the price paid for the shares

d. There is no advantage to buying mutual fund shares just before a dividend or capital gain distribution because the value of the shares drops by the amount of the distribution. Since the amount of the distribution is included in the price paid for the shares, the investor is not achieving any monetary benefit in buying the shares before the dividend is paid. In effect, the investor is receiving her own money back as a taxable distribution

You are interviewing prospective clients, Jack and Jill. They tell you they have approximately 10,000 to invest and they would like to earn the type of returns that equity investments exhibit over the long term. However, they do not want their portfolio to be as volatile as the stock market. What would you tell them? a. they should purchase a long-term US treasury mutual fund instead of a stock fund b. your firm is a member of SIPC, which will insure their account c. they should invest in a variable annuity, since it is issued by an insurance company d. they cannot expect to earn the type of returns that equities produce over the long-term without assuming a corresponding amount of risk

d. One of the basic principals of investing is that risk and return are closely related. Historically, equities such as common stock have shown long-term returns of approximately 10% per year. However, the year-to-year variation in stock performance can be significant.. Investments that are less volatile than stocks cannot be expected to produce the same returns over the long haul

One prime objective of the Investment Company Act of 1940 is to a. insure that practices on stock exchanges are similar throughout the country b. control the OTC market and prevent another market crash c. insure that individual investors are provided with full and fair disclosure regarding securities d. insure that individuals investing in investment company shares are fully informed and fairly treated

d. One of the prime objectives of the Investment Company Act of 1940 is to ensure that individuals wishing the invest in investment company shares are fully informed as to the risks associated with these securities. Investors must also be informed of their rights as shareholders and the powers of the board of directors. All of this information must be contained in the prospectus for the fund.

The SEC under the Securities act of 1933 does all of the following except a. review prospectuses b. regulate the issuance of new securities c. regulate securities offerings d. approve or disapprove new issues

d. The SEC does all of the items mentioned in the question except approve or disapprove new issues or pass on the investment merits of new issues. The SEC reviews the information contained in the prospectus to see that it is adequate but it does not say that it is true. In addition, only the investor can judge whether a new issue has investment merit for that individual

A person subject to disqualification from FINRA if such person I. has been suspended or expelled from membership in a SRO II. is subject to an order of the SEC or other regulatory agency denying, suspending or revoking registration III. has made a false or misleading statement in an application IV. has been convicted within the last ten years of any felony a. I and II b. I and III c. III and IV d. I, II, III and IV

d. The by-laws of FINRA specify those persons who are not eligible for membership or association as a registered person. Reasons for ineligibility include suspension or expulsion from an SRO, and SEC order denying or suspending registration, false statements made in an application, or any conviction within the last ten years of a felony

The only form of price manipulation permitted by the SEC would be a. creating the appearance of active trading in stock b. effecting transactions for the purpose of raising or depressing the price of a security to induce a purchase or sale c. making statements in order to raise or depress the price of a security when the statements are knowingly false or misleading in regard to material fact d. stabilizing new issues at or below the public offering price by the managing underwriter

d. The managing underwriter of a new issue may effect stabilizing transactions to prevent or retard a price decline in a public offering of stock. Stabilization is a permitted form of manipulation and transactions must be effected at or below the POP

The net investment income from an open-end investment company consists of a. all profits from the investment company's operations b. dividends, interest and net capital gains on sales of portfolio securities c. only net capital gains on sales of portfolio securities d. only net income from dividends and interest paid on securities in the fund's portfolio

d. The term investment income is defined as the amount of money received by the investment company from dividends and interest paid on securities in the fund's portfolio after expenses are deducted. Capital gains are not included in this definition

A customer of your firm has received a copy of the Grabbit and Runne aggressive growth fund. He is trying to ascertain what the turnover ratio of the fund represents. Which of the following statements is most accurate? a. the turnover ratio gives an indication of the portfolio manager's tenure with the fund for the life of the fund b. the turnover ratio represents the number of clients that have bought and subsequently sold out of the fund over the past 3, 5 and 10 years c. the turnover ratio states the frequency of capital gains distributions d. the turnover ratio expresses the percentage of a fund's assets that have changed over the course of a given time period

d. The turnover ratio expresses the percentage of a fund's assets that have been liquidated and replaced of the course of a given period, typically a year. The turnover ratio of a mutual fund gives an indication as to the level of trading activity the fund manager employs to achieve the fund's goals. A low ratio would mean the manager is employing a buy and hold strategy i.e very little trading. Conversely, a high ratio would imply that the manager holds the stocks in the portfolio for a very short time before he sells them. A fund with a high ratio tends to have large distributions of capital gains each year. Funds with low turnover ratios are sometimes referred to as tax-efficient since the low ratio means little in the way of capital gains distributions to the investor

Fred Hunger set up a periodic liquidation plan for the 88,020 he has invested in the silver nest egg and golden spoon family of funds. He would like to draw down the money over the next 5 years. What is the amount of Fred's first monthly payment? a. 1/5 of the account balance b. 1/12 of the account balance c. 17,604 d. 1,467

d. There are 60 months of payments to be made over the next 5 years. The first payment will be 1/60 of the principal or 1467. The dollar amount of each subsequent payment may rise or fall passed on market conditions

The net asset value per share of an open-end investment company is $22.20. The sales charge is 8%. What would be the asked price? a. 20.42 b. 22.20 c. 23.98 d. 24.13

d. To find the asked price, divide the net asset value by the complement of the sales charge

Bert is the custodian for a uniform transfers to minors act account for his niece Betty. Betty has just reached the age of majority as defined by her state of residence. Which of the following statements is true under UTMA? a. Bert may continue to manage the account as custodian if he believes Betty is not capable of doing so b. Bert may continue to manage the account as custodian if Betty requests that he do so c. Bert must sell the securities in the account and turn the proceeds over the Betty d. Bert should arrange to have the securities transferred into Betty's name

d. Under UTMA, when the minor reaches the age of majority the custodian must transfer the account to the owner's individual name. if the owner wishes the former custodian to continue to manage the account, third-party trading authorization could be granted. However, UTMA does not provide for the continuation of the account as a custodial account

Mr. Jackon deposits 5000 into the ABC fund. He also signs a letter of intent for 25,000. Which of the following statements is/are true? I. ABC fund will probably hold some shares in escrow II. if Mr. Jackson does not deposit the additional shares, he will be required to send a check for the difference in the loads III. if Mr. Jackson does not deposit that additional funds, he will not be required to send a check for the difference in the loads a. I only b. III only c. I and II d. I and III

d. When a customer signs a letter of intent, the fund will put some of thee shares contracted for into an escrow account. If the customer fails to fulfill the letter of intent, the customer will not receive the reduced sales charge. Normally, the fund will not ask the client to send a check for the difference in the load. Instead, it will liquidate enough shares in the escrow account to raise the required money

An investor has been investing $100 a month in a contractual plan that has a 50% sales charge in the first year and a 4% sales charge per year after the first year. What is the total amount of sales charge paid during the first 17 months? a. 93 b. 450 c. 600 d. 620

d. the sales charge in the first year would be 50% of each 1-- monthly payment of 600. The sales charge for the 5 additional months is 4% of 500 or 20.