Series 6 Midterm

Which of the following statements concerning par value for common stock is correct?

It is the value placed on the stock when the State of incorporation authorizes the issue

When a mutual fund shareholder elects automatic reinvestment of capital gains:

The capital gains tax is owed for the year of the distribution. Most funds require the shareholder to reinvest dividends as well.

A customer buys shares of ACME Growth and Income fund just prior to its ex-date. Which of the following statements are true?

The customer receives the fund dividend The customer must report income from the fund

An American international company, which is short the Japanese yen, is at risk that which of the following will occur?

The dollar will fall against the Japanese yen

Which of the following statements about hedge funds is NOT true?

Hedge funds are a highly liquid investment

A mutual fund's expense ratio has been increasing over the last 4 years. Which of the following may have caused the increase?

Higher management fees Higher redemptions

All of the following statements about "forward pricing" are true EXCEPT:

"Forward pricing" means reduced sales charges because the current asset value of shares held by the investor is added to the cost of new purchases

The exchange-traded funds based on indexes by industry sector or country are unknown as:

"I-Shares"

A customer has decided to use the $40,000 accumulated in a mutual fund to start a 6% annual withdrawal program. What will the customer receive for a monthly payment?

.06 x $40,000 x 1/12 = $200.

At the time a mutual fund takes a position in an issuer's stock, what is the maximum interest that an associated person of a mutual fund can own in that issuing company?

0.5% of the issuer's stock

An advertising fee that a mutual fund can charge against fund total net assets is known as a:

12b - 1 fee

Under the Investment Company Act of 1940, an investment adviser's contract is initially set for:

2 years; and is subject to renewal every year thereafter

Which of the following statements concerning T-bills are correct?

6-month T-bills can be issued by the Treasury They are issued at a discount

The maximum sales load allowed under FINRA rules on mutual fund shares is:

8.50% of the Public Offering Price

To avoid a penalty excise tax on its capital gains, a mutual fund must distribute to shareholders what percentage of its annual net capital gain ?

98%

Which statements are true regarding the taxation of capital gains?

A capital gain is long-term if a position is liquidated at the profit after being held for over 1 year For investors in the maximum tax bracket, any long-term capital gains will be taxed at a lower rate than that bracket

Which of the following statements concerning the tax treatment of mutual fund distributions are correct?

A distribution that is a "return of capital" is not taxable to the shareholder

Which statements are true about the composition of the boards of mutual funds?

A load fund's board of directors must be composed of at least 40% non-interested persons A no-load fund board of directors have at least 1 non-interested person

The Investment Company Act of 1940 defines which of the following as "interested persons?"

A person holding 10% of the voting securities of the fund Corporation which is 10% owned by the fund Secretary of the fund Investment adviser to the fund

Which of the following statements concerning the identified shares method for determining on an investors cost basis are correct?

A shareholder must have kept confirmation notices, or the IRS will assume the investor sold shares held longest.

All of the following statements concerning ADRs are correct EXCEPT:

ADR holders vote for Broad of Directors

Which of the following statements can a registered representative make when discussing a withdrawal plan with a customer?

At the start of a withdrawal plan, an accumulation program should be discontinued

A year ago, Kevin bought at par the 6% preferred stock of the Vick's Vise Company. When he needed cash to buy a new car, he considered selling his shares. Upon contacting his broker, Kevin learned that the shares were now selling for $90. What is a likely cause for this change in price?

Interest rate have risen

Which of the following securities issued by a corporation is a debt security?

Bond

All of the following statements are true regarding collateralized mortgage obligations EXCEPT:

CMOs are issued by local government agencies

When a corporation issues new shares of stock, which of the following changes occur on the corporation's balance sheet?

Cash and Net Worth increases

A mutual fund that has a portfolio comprised mainly of large-capitalization stocks of blue chip companies is most likely what kind of fund?

Conservative growth fund

Which of the following reasons make companies likely to issue convertible preferred stock?

Convertibility means preferred stockholders will accept a lower stated dividend

Which of the following statements concerning a mutual fund investor's use of dollar cost averaging (DCA) are correct?

DCA will assure the investor that in a fluctuating market, average cost per share will be below the average price per share for the same period DCA requires regular investments of the same amount even when the market is dropping

Which of the following groups of items are ways shareholders can profit from mutual funds?

Dividends, Capital gains, share apperication

Which of the following statements concerning inflation and deflation is correct?

During inflationary periods, bond prices tend to fall, and during deflationary periods, bond prices tend to rise

Changes in the economic cycle of the United States are measured by changes in the:

GDP

A mutual fund can distribute which of the following to shareholders?

Gains on appreciated securities that have been sold by the fund

If the mutual fund issued a share certificate to the customer, which of the following must accompany the customer's written request for redemption?

Endorsement Signature guarentee

For an investor who want to invest in a stock mutual fund, which of the following funds will offer the greatest safety of principal, and current income?

Equity Income Fund

SPDR ("Spiders"), QQQ ("Qubes") and DIA ("DIAmonds") are acronyms for:

Exchange Trade Funds

Stand-by under writings are :

Firm Commitment underwritings Used for add-on offerings

The setting of government spending amounts at levels needed to foster economic growth, meet social and national needs, and limit price inflation, is known as:

Fiscal Policy

When a dollar weakens against foreign currencies, which statement is TRUE?

Foreign currencies buy more U.S. dollars

Which of the following sources can be used to make payments to a customer under a withdrawal plan establised at a mutual fund?

Fund distributions of dividends, capital gains, interest A customer's invested principal

During a bear market, which of the following mutual funds will be likely to experience the greatest decline in share value?

Growth fund

What statement is TRUE regarding dollar-cost averaging?

If market prices fluctuate, the plan will reduce the average per share cost

Which of the following statement about mutual fund expenses are true?

If the expenses increase and the market prices of the securities in the investment portfolio are unchanged, total fund net assets will decrease.

Which of the following investment objectives is an equity income fund most likely to have?

Income with presentation of capital

Which of the following actions would the Fed take to keep inflation from rising?

Increase reserve requirements Increase discount rate

Which of the following statements concerning mutual funds is TRUE?

Mutual funds provide diversification for investors who have only a small amount of money to invest

The MINIMUM price at which an open-end fund share can be purchased is:

NAV

Which of the following is NOT TRUE regarding' Net Investment Income?

Net investment income includes capital gains

Which of the following is NOT TRUE about capital gains reporting for tax purposes?

Net short-term gains offset net long-term gains

Which security is MOST affected by interest rate risk?

Preferred Stock

Which of the following do corporations include in capitalization?

Preferred and common stock Corporate debt Retained earnings

When the U.S. dollar is "expensive" against foreign currencies, which statement is CORRECT?

Prices for foreign goods have decreased in terms of U.S. dollars

Aggregation under a Letter of Intent would apply to which of the following mutual fund purchases?

Purchases of funds in the same fund family bought through the same brokerage firm. Purchases of funds in the same family brought through a different brokerage firm.

Which of the following security positions is bullish?

Put writer

If the 20 day cooling off period is completed without comment from the SEC, then:

Registration is effective The issue can now be sold

Which of the following statements is a registered representative prohibited from making to a customer in a discussion of a withdrawal plan?

Returns and payments under the withdrawal plan are guaranteed

Total Return takes into account all of the following EXCEPT:

Sales Charge

When a customer requests redemption of open-end investment company shares, the Investment Company Act of 1940 requires the company to make payment within what time period?

Seven calendar days

Which of the following investments will have the highest liquidity risk?

Small Cap Value Fund

Which of the following mutual funds is a blend fund?

Small cap index fund

Which of the following securities have an expiration date?

Stock right (60-90 days) Warrants (5 years)

A passively managed portfolio would most likely invest in:

Stocks in the S & P 500 index.

Which of the following statements best describes the concept of diversfication?

Superior performance of some assets. Poor performance of other assets

The custodian bank usually performs all of the following functions for a mutual fund EXCEPT:

Supervising the investment adviser

ABC, Inc. has completed its IPO. Joann, a purchaser of the newly issued ABC shares decides to dispose of her ABC shares immediately. Which statements are true?

The IPO of ABC shares occurred in the primary market Joann's sale of ABC shares will occur in the secondary market

What is the consequence for a mutual fund that fails to meet the "75-5-10" rule required for a diversified investment company?

The fund cannot advertise itself as a diversified funds

When the Fed engages in reverse repos, what is the effect on money supply and interest rates?

The money supply contracts and interest rates tend to rise

All of the following statements concerning unrealized appreciation and depreciation of fund investments are correct EXCEPT:

The price of fund shares does not reflect unrealized depreciation of portfolio securities until the investor sells them.

Which of the following statements concerning the prices at which specialists (DMMs) buy and sell securities is correct?

The spread is smaller for more frequently traded stocks

Which of the following statements best describes the special tax treatment for qualified dividends?

These dividends are taxed at the rate for long-term capital gains

What are reasons investors buy put options?

To profit from a decline in the market price To leverage a small investment into a large gain

All of the following require the use of a prospectus EXCEPT:

Trade of a close end country fund

An investment company must send all of the following financial reports to shareholders EXCEPT:

Transaction in securities positions held by the fund.

Which of the following statements concerning fixed income mutual funds are correct?

U.S. Government funds are appropriate for investors who seek preservation of capital and current income Corporate bond funds are appropriate for investors who will take greater risk to achieve higher income

To adopt a 12b-1 plan, what approvals must a mutual fund obtain?

a majority vote of shareholders, directors, and disinterested directors

Which of the following statements concerning the combination privilege offered by a mutual fund is correct?

allows investments to different funds within a family or funds to qualify for reduced sales charge

The Net Asset Value used as the basis for pricing a mutual fund purchase is computed:

at the next stock market close after the order is received

In order to form a corporation as a legal operating entity, a(n):

corporate charter must be issued by the State

All of the following statements are correct concerning diversification of a mutual fund's investment portfolio EXCEPT:

diversification requires that the fund be fully invested in securities and not place money in cash equivalents or holding cash

All of the following are aggressive investment strategies EXCEPT:

diversifying a portfolio among different assets classes

To find the current yield on a common stock, one must:

divide the annual dividend by the current market price

In a firm commitment underwriting, the manager will form a syndicate for all of the following reasons EXCEPT to:

increase the manager's potential profit from the sale of the issue

A corporate funded debt:

is long term

A customer owns shares of ACE Mutual Fund. He wishes to use its "repurchase feature" when redeeming fund shares. This means that the customer:

makes a request for redemption, which the fund underwriter completes by making a wire transfer within 1 business day

Under the Investment Company Act of 1940, open-end management companies must meet all of the following requirements EXCEPT they:

must have at least 75% of assets invested in securities or cash equivalent

All of the following are typical characteristics of money-market funds EXCEPT they:

offer breakpoints

All of the following statements concerning the level of debt permitted for open-end and closed-end companies are correct EXCEPT:

open-end and closed-end companies are not permitted to pledge portfolio investments as collateral for bank loans

The sales charges and redemption fees for shares of a mutual fund must be disclosed in the fund's:

red herring or Prospectus

All of the following are functions of the investment banker EXCEPT:

registering the how issue of securities with the SEC

If a fund offers a reinstatement privilege, all of the following statements are true EXCEPT:

shareholders may exercise the privilege once every two years

All of the following investments are typically found in an equity income fund EXCEPT:

small cap growth stocks

The compensation that the underwriter earns when a new issue of securities is sold to the public is called the:

spread