Unit 10 Quiz

Your customer redeemed 200 of her 500 Kapco common shares without designating which shares were redeemed. Which of the following methods does the IRS use to determine which shares she redeemed? A) FIFO. B) Wash sale rules. C) LIFO. D) Identified shares.

A) FIFO

A customer has been following several investment company quotes in the newspaper. She notices that the GEM Fund has an NAV of $12 and a POP of $12.50, and that the ABC Fund has an NAV of $11.50 and a POP of $10.98. The customer should conclude that: A) GEM may be an open- or closed-end fund and ABC is a closed-end fund. B) ABC and GEM are both unit investment trusts. C) ABC is an open-end fund and GEM is a closed-end fund. D) both are open-end funds.

A) GEM may be an open- or closed-end fund and ABC is a closed-end fund. The price for open-end funds is determined by adding the sales charge to the NAV. An open-end fund can never have a POP less than its NAV, therefore ABC cannot be an open-end fund.

According to investment company rules, open-end investment companies may NOT distribute long-term capital gains to their shareholders more frequently than: A) annually. B) monthly. C) quarterly. D) semiannually.

A) annually.

A FINRA member broker/dealer trading in shares of an open-end investment company may NOT buy shares of the fund: A) for the purpose of resale at a later date. B) at a discount from the public offering price. C) to cover existing orders. D) for the firm's own investment purposes.

A) for the purpose of resale at a later date.

An investor redeems 300 shares in ACE Fund. When the investor bought the shares at $12, the NAV was $11.08. If the current POP is $12.50 and the NAV is $11.80, the investor receives: A) 3750. B) 3600. C) 3540. D) 3324.

C) 3540 Shares are redeemed at NAV. If the investor redeems 300 shares at an NAV of $11.80, he receives $3,540 (300 × $11.80).

A stock mutual fund wishes to advertise itself as diversified. To be able to do so, the fund must invest: A) so that it holds no more than 10% of the voting stock of any one company. B) at least 75% of its assets in securities other than its own. C) All of these. D) no more than 5% of its assets in any one target company.

C) All of these.

A registered representative (RR) has just explained to a customer that to purchase a particular security the customer would pay the asking price plus a commission, not a sales charge. Which of the following is the RR is speaking of? A) Mutual funds B) All management company offerings C) Any closed-end fund D) All open-end funds

C) Any closed-end fund

If a registered representative is comparing two mutual funds for a customer, which of the following comparisons would NOT be permissible? A) Comparing a long-term bond fund to a shorter-term bond fund to demonstrate the trade-offs that exist between risk and return. B) Comparing diversified growth funds from two different fund families. C) Comparing an equity growth fund to a money market fund with the intention of convincing an investor to purchase the growth fund. D) Comparing two equity funds with slightly different investment objectives, even if the differences and their consequences are carefully explained.

C) Comparing an equity growth fund to a money market fund with the intention of convincing an investor to purchase the growth fund.

Which of the following mutual funds should an investment adviser representative recommend to a corporate client whose objective is current income with moderate risk? A) Money market fund. B) High-yield bond fund. C) Preferred stock fund. D) Aggressive growth fund.

C) Preferred stock fund.

A front-end sales load is defined as the: A) fee paid to the investment adviser. B) concessions allowed on the purchase or sale of securities. C) difference between the public offering price and the net asset value of a mutual fund share. D) commissions paid on the purchase or sale of securities.

C) difference between the public offering price and the net asset value of a mutual fund share.

Closed-end investment company shares can be purchased and sold: A) from the closed-end company. B) from the sponsor. C) only over the counter. D) in the secondary market.

D) in the secondary market.

A mutual fund must, at a minimum, provide which of the following periodic reports to shareholders? I. Audited annual reports. II. Unaudited annual reports. III. Audited semiannual reports. IV. Unaudited semiannual reports.

I and IV

The transfer agent of a mutual fund: I. redeems shares. II. sells shares. III. holds custody of fund securities. IV. handles name changes of mutual fund ownership.

I and IV

An investment company that holds which of the following does NOT meet the definition of a diversified investment company under the 1940 Investment Company Act? A) 33% of its assets in securities issued by a small-cap new issue. B) 80% of its assets in securities of 50 health care companies. C) 4% of its assets invested in stock of a major publicly held corporation. D) 8% of a given corporation's voting stock in its portfolio.

A) 33% of its assets in securities issued by a small-cap new issue

Your married customers, ages 48 and 50, have a combined annual income of more than $200,000. They are concerned about the effects of rising inflation, and since they are heavily invested in bonds, they seek to invest a portion of their portfolio in a fund that will provide additional diversification. Which of the following mutual funds is the most suitable for these customers? A) ATF Overseas Opportunities Fund. B) NavCo Tax-Free Municipal Bond Fund. C) XYZ Government Income Fund. D) ABC Investment-Grade Bond Fund.

A) ATF Overseas Opportunities Fund.

A tax-exempt bond fund may invest in: A) municipal bonds. B) common stock. C) short-term money market instruments. D) corporate bonds.

A) municipal bonds.

A customer with no other mutual fund investments wishes to invest $47,000 in the XYZ Technology Fund. If the Class A shares are eligible for a breakpoint sales charge discount at the $50,000 investment level, the action least appropriate for an agent is to: A) place the order as instructed. B) inform the customer that he can reduce his sales charge by investing an additional $3,000. C) inform the customer that he can reduce his sales charge by combining purchases in other funds offered by XYZ group. D) inform the customer that he can reduce his sales charge through a letter of intent.

A) place the order as instructed.

Which of the following is the least suitable mutual fund transaction? A) Encouraging an investor in his early 30s to invest in an emerging markets mutual fund. B) Encouraging a mutual fund shareholder to switch from one fund family to another while a deferred load is in existence. C) Encouraging an investor in a high-tax bracket with an income objective to invest in a municipal bond fund. D) Encouraging a retired 65-year-old investor to invest a small percentage of his savings in a large-cap growth fund.

B) Encouraging a mutual fund shareholder to switch from one fund family to another while a deferred load is in existence.

An investor who makes transactions once a month using dollar cost averaging would: A) put equal amounts of money in a bond and stock mutual fund. B) buy the same dollar amount of stock. C) allocate assets equally among cash, stocks, and bonds. D) buy the same number of shares of a stock.

B) buy the same dollar amount of stock.

All of the following are redeemable securities EXCEPT: A) variable annuities. B) mutual funds. C) REITs. D) unit investment trusts

C) REITs.

A letter of intent for a mutual fund does NOT contain which of the following provisions? A) The fund will keep some of the initially issued shares in an escrow account to ensure payment of the full sales load. B) The letter can be backdated 90 days to include a previous deposit. C) The fund can halt redemption during the period of time the letter of intent is in effect. D) The time limit is 13 months.

C) The fund can halt redemption during the period of time the letter of intent is in effect.

The primary objective of a particular mutual fund is the payment of dividends, regardless of the market's current state. Capital growth is a secondary objective. Which of the following industry groups would be appropriate for the fund's portfolio? A) Computer technology. B) Aerospace. C) Consumer appliances. D) Public utilities.

D) Public utilities. Utilities are defensive industries; they tend to pay dividends consistently.

A mutual fund's expense ratio is found by dividing its expenses by its: A) income. B) public offering price. C) dividends. D) average annual net assets.

D) average annual net assets.

If an investment company invests in a fixed portfolio of municipal or corporate bonds, it is classified as a: A) growth fund. B) utilities fund. C) closed-end company. D) unit investment trust.

D) unit investment trust.

A mutual fund's unrealized loss last month results in which of the following? I. Lower NAV per share. II. Lower dividend payments to shareholders. III. Reduction in the proceeds payable to shareholders who liquidate their shares. IV. Higher tax liability to shareholders.

I and III

An investment company share purchased at its NAV that can always be redeemed later at its then-current NAV is a: A) Class C share. B) Class D share. C) Class B share. D) Class A share.

A) Class C share. Class A shares are purchased at NAV plus sales charge. Class B shares pay the sales charge upon redemption. Class D shares have a level load plus a redemption fee. Class C shares have only a level load (a 12b-1 fee) which is taken from net assets during the year.

A retired customer was unhappy with the low yields paid by her CDs. In their first meeting, her registered representative recommended Class B shares of a long-term government bond fund, emphasized the safety of government bonds, and provided her with a prospectus. After signing a statement saying she had read and understood the prospectus, the customer invested all of her money in the fund. A year later, interest rates rose and the value of the fund declined. Having assumed the fund was government guaranteed, she was upset and became increasingly so when she learned that the deferred sales charge could cause her to lose additional money if she were to redeem her shares. Which of the following statements is TRUE? A) Because the fund invests in government bonds, it is government guaranteed and is therefore just as safe as a CD. B) The representative should have fully explained the features, charges, price fluctuations, and other characteristics of a bond fund before having the customer make such a substantial investment commitment. C) Since no one can predict interest rate moves, and the customer had read the prospectus, the bond fund was an appropriate investment. D) Because her money was originally in a single investment, it was suitable to move her funds into another single investment.

B) The representative should have fully explained the features, charges, price fluctuations, and other characteristics of a bond fund before having the customer make such a substantial investment commitment.

After a mutual fund's tenth year, performance statistics must show results for each of the following periods EXCEPT: A) 5 years. B) 10 years. C) 1 year. D) 3 years.

D) 3 years.

A customer is considering an investment in a hedge fund noting he has heard much about their high yield potential from a business acquaintance. In a discussion with him about these types of funds which of the following statements is TRUE? A) Mutual funds pool investors' money and manage the entire portfolio with a single objective, whereas hedge funds manage each investor's assets separately to meet their individual investment objectives. B) Hedge funds often use higher degrees of leverage and more sophisticated investment strategies than mutual funds. C) Hedge funds tend to be more suitable for many different customer profiles while mutual funds are generally more suitable for high net worth sophisticated investors only. D) Mutual funds are subject to less regulatory oversight than hedge funds.

B) Hedge funds often use higher degrees of leverage and more sophisticated investment strategies than mutual funds.

Last year, ABC Mutual Fund paid dividends of $1.50 per share and distributed $.80 per share in capital gains. The fund has a bid price of $13.50 and an ask price of $14.20. What is the fund's current yield? A) 0.1. B) 0.162. C) 0.0492. D) 0.1056.

D) 0.1056. Find the current yield of mutual fund shares by dividing the annual dividend by the POP (ask price). $1.50 ÷ $14.20 = 10.56%.

A shareholder invested in a mutual fund and has signed a letter of intent to invest $25,000. Her original investment was $13,000, and her current account value is $17,000. For her to complete the letter, she must deposit: A) 8000. B) 27000. C) 13000. D) 12000.

D) 12000.

A customer with an aggressive growth investment objective and short-term (6- to 12-month) time horizon wants to invest $50,000 in a mutual fund. He has a substantial net worth, but none of it is invested in mutual funds. You inform him that mutual fund investments are intended to be long-term investments, but he expresses his intention to make the short-term investment anyway. If the XYZ fund family (one you have dealt with in the past) offers an aggressive growth fund that has a respectable track record, your recommendation should be to: A) buy the XYZ Aggressive Growth Class A shares with a 4% load and .25% 12b-1 fee. B) decline the transaction because short-term trading of funds is not allowed. C) buy the XYZ Aggressive Growth Class B shares with a declining CDSC and .75% 12b-1 fee. D) buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in 1 year and .75% 12b-1 fee.

D) buy the XYZ Aggressive Growth Class C shares with a 1% CDSC expiring in 1 year and .75% 12b-1 fee.

If two customers wish to combine their purchases of a mutual fund to take advantage of the fund's breakpoints, you should advise them that they may: A) not do so, because they both have accounts with the same broker/dealer. B) do so, provided that they indicate the proportion that goes into each separate account. C) do so, provided that they have no business connection with the fund sponsor. D) not do so, because two unrelated buyers may not receive a breakpoint.

D) not do so, because two unrelated buyers may not receive a breakpoint.

All of the following could be a redeemable security under the Investment Company Act of 1940 EXCEPT a(n): A) investment company security sold as a continuous initial public offering. B) security issued by an open-end investment company. C) security that pays out each investor's proportionate share of the company's assets. D) security sold on an exchange at the market price buyers and sellers have established.

D) security sold on an exchange at the market price buyers and sellers have established.

Mutual fund shareholders are NOT taxed on: A) interest distributions. B) reinvested dividends. C) capital gains distributions. D) unrealized capital gains.

D) unrealized capital gains.

If you invest in a front-end load mutual fund and choose automatic reinvestment, you should expect that: I. dividend distributions will be reinvested at net asset value. II. dividend distributions will be reinvested at the public offering price. III. capital gains distributions will be reinvested at net asset value. IV. capital gains distributions will be reinvested at the public offering price.

I and III

The net asset value of an international bond fund can be expected to increase if: I. interest rates rise abroad. II. interest rates fall abroad. III. the U.S. dollar strengthens. IV. the U.S. dollar weakens.

II and IV

Which of the following statements regarding fixed municipal unit trusts are TRUE? I. The trust is managed. II. The trust is not managed. III. The portfolio can be traded. IV. The portfolio can not be traded.

II and IV