Unit 2 Series 6

A mutual fund has $3million in assets. What is the maximum amount of debt that can be carried?

A. $1 million Investment Company Act of 1940 mandates that a mutual fund must have 3:1 Asset to debt it barrows

ABC is diversified open-end investment company with net asset of $20 million, of which $5 million is invested in real estate that wishes to retain. The rest is invested in securities. ABC wishes to invest in Kramer Manufacturers Inc., a company whose outstanding stock is valued at $4 million. If ABC wishes to retain its diversified status, what is the most it may invest in Kramer? (2 million, 1 million, 750,000, 400,000)

A. $400,000 ABC must comply with the 75-5-10 rule. It wishes to retain real estate investments, which comprises of 25% of its portfolio, or $5 million. Of the remaining $15 million Kramer may not compromise more than 5% of ABC's assets, and ABC may not own more than 10% of Kramer. The latter figure 400,000 is the smaller figure so that ABC must limit its investment to.

How do close-end investment companies differ from open-end investment companies?

A. - Close-end company shares are sold with prospectus only in IPO; open-end shares solicitations must always be accompanied by a prospectus -Close-end companies issue a fixed number of shares; there is no limit on the number of shares issued by an open-end company Both types of companies register issues with the SEC and any investor may invest in either type of company

A unit investment trust can best be described as

A. -A non managed investment company -A company that issues redeemable securities. There is no active investment manager, which means that once the securities for the trust have been selected they are held. UIT units do not trade in the secondary marketplace

Board of directors of an open-end investment company may vote to determine a change in all of the EXCEPT

A. -Securities in the mutual fund portfolio -Investment objective Changes in the mutual fund portfolio are determind by the investmetn adviser. A change in the investmetn objective must be approved by majority of outstanding shares. The boiard of directors may change the sponser underwriter and custodian

Assuming that expense rations for the funds listed identical, rank the funds below in order from lowest-highest expected income yield (Municipal bond fund, government bond fund, corporate bond fund, growth stock fund)

A. 1-growth stock fund 2-municipal bond fund 3-government bond fund 4-corporate bond fund Corporate bonds have the greatest amount of credit risk therefore the highest yield. Government bond funds yield more than municipal because interest gets paid on government bond funds is federally taxable. Growth stock funds are not designed to provide income at all

A 60-year-old male customer interested in investing. What is least important

A. Costumers sex

Your customer feels she is overburden with taxes and would like relief. you discuss MNO municipal bond fund with her. What would be correct advice?

A. Dividends are federally tax exempt and capital gains are subject to taxation Dividends are tax exempt because they represent the tax-exempt interest paid on the portfolio. Capital gains are taxable

The AIR (Assumed Interest Rate) for your customers variable annuity contract is 5%. In February the separate account earned 7%. In March, the separate account earns 5%. The April annuity payment will be?

A. Equal to March payment When the separate account return is equal to the AIR, the monthly payment amount does not change. The April payment will be equal to the March payment. The payment increases in separate account is grater than the AIR and decreases if the separate account performance is less than AIR.

A registered Representative presenting a variable life insurance policy proposal to a prospect must disclose which of the following about the insured rights of exchange of the VLI policy?

A. Federal law requires the insurance company to allow the insured to exchange VLI policy from traditional whole life policy issued by the same company for 2 years with no additional evidence or insurability. Federal government requires that issuers of variable life insurance policies allow exchange of these policies for traditional whole life policies issued by the same company for a period of no lees than 2 years. The exchange must be made without additional evidence of insurability

A customer is considering the purchase of either a variable annuity or variable life insurance. In discussing the merits of the respective contracts, a registered representative may state that all of the following characteristics are common to both EXCEPT?

A. Fixed contributions are required The AIR affects the death benefit in the variable life insurance and the payout in the variable annuity. All gains are differed until withdrawn. Only variable life requires a fixed contribution (scheduled premiums). Both contracts have voting privileges.

Your customer invests $200 monthly in a mutual fund. His daughter plans to enter college soon, and he would like to send her $100 monthly. Which is right for him?

A. Invest $100 monthly into mutual fund and send his daughter $100 monthly There is some cost investing money and immediately withdrawing it. Any time that funds are deposited into a mutual fund, a sales charge of some sort would apply (unless it is a money market fund). For this reason, your customer should reduce his investment in the mutual fund and send extra money to his daughter.

Which of the following is typically the largest single expense of a mutual fund

A. Investment adviser's fee The investment adviser is paid as a fraction of assets under management and is typically the largest single fee among mutual fund expenses. The underwriter id compensated from sales charge and may not be an expense to the fund.

Mutual fund redemption fees are?

A. Levied when the shares are sold back to the fund Redemption fees are charged by some mutual funds when investors sell back shares of the fund. They are usually 1% or less of the redemption value of the redeemed fund shares. 12b-1 fees are a separate charge against the net asset value for fund distribution costs.

The ABC Biotechnology Fund is subject to rule 34b-1 of the Investment Company Act of 1940 also know as the?

A. Name Rule The Name Rule requires that any investment company whose name implies a certain type of portfolio composition (i.e biotechnology) must have at least 80% of the assets invested as implied.

Which of the following types of annuity contracts would your customer NOT be able to purchase

A. Periodic Payment immediate life annuity Periodic payment annuities may only be purchased on a differed basis. Annuitization and regular payments into an annuity may not occur simultaneously

Client invested in XYZ Bond mutual fund 5 years ago. The client took dividend distributions in cash and reinvested capital gains distributions into more shares. Interest rates have declined over the past 5 years. Which statements are true?

A. The NAV per share of the XYZ Bond fund has increased When interest rates decline, bond prices increase. The increased value of the bonds portfolio causes an increase in the NAV. The clients ownership interest in the funds decreased as dividend distributions were received as cash. The dividend distributions were taxable each year as ordinary income. Reinvested capital gains or dividends are currently taxable. Earnings in mutual fund portfolios do not accumulate tax deferred.

Which of the following statements about mutual funds is not true?

A. The POP of a mutual fund is the net asset value minus any sales charge. -POP = NAV + Sales charges -Each shares public offering price (POP) is based on the net asset value of the shares plus the charges

Who sets a mutual fund's ex-dividend date?

A. The fund's board of directors SRO rule governs the ex-dividednd date for a stock and certine close-end funds. mutual funds do not trade on exchanges

A customer owns a universal variable life insurance policy and has become notified by the insurance company that any cash value in excess of premiums paid removed from the policy are subject to 10% penalty (if done prior to the insured reaching 59 1/2) which best describes his policy?

A. The policy is modified endowment contract The policy has been over funded and the notice describes a modified endowment contract or MEC.

The total return of a mutual fund equals to?

A. The return attained by reinvestment of all dividend and capital gains distributions The total return assumes reinvestment of all dividend distributions and capital gains distributions

All of the fallowing charges are included in the computation of a mutual funds expense ration except?

A. The sales load paid to underwriters The expense ratio of a mutual fund is calculated by dividing the expenses of the fund by the funds average net assets. Fund expenses include the fee paid to board members, the investment adviser fee, the custodian fee, the transfer agent fee, and the related expenses. The sales load paid to the underwriters is not an expense of the fund

Which of the fallowing is NOT a management company? (mutual fund,open-end company, unit investment trust, close end company)

A. Unit investment trust The portfolio of a unit trust is not activily traded hence, it is not considered a managment company

An annuitant revived payments until his death from a non qualified variable annuity. After his death his wife received a lump sum payment from the annuity. This example illustrates which type of annuity?

A. Unit refund option When the unit refund option is chosen, the insurer pays annuitant a minimum number of payments, and at death, the survivor receives the balance of the account in the lump sum payment. In a joint account and last survivor annuity, payments continue as long as either spouse is alive. A straight life annuity pays only the annuitant; at death, the account balance reverts to the insurer. There is no such thing as a cash balance annuity.

Which of the fallowing statements regarding dollar cos averaging is true?

A. When the market fluctuates, it will result in a lower average cost per share Dollar cost averaging is effective when the market price securities is fluctuating and investors continue to invest a fixed amount of money every period. Under these circumstances the average cost price that would have been paid for shares over the same period. Dollar cost averaging offers no advantage in a consent market and does not protect investors from loss in falling market

Guaranteed cash value is a standard feature found in which of the policies listed below.

A. Whole life Traditional whole life policies offer guaranteed cash values and death benefits. The insurer assumes the investment risk by promising a fixed rate of policy return, regardless of the investment performance. Term insurance is pure insurance protection and builds no cash value. Variable life cash value is not guaranteed; cash value may be available depending on the performance of investment in separate account.

Which of the following products need not register with SEC?

A. Whole life Insurance It is not a security

According to the Investment Company Act of 1940 which of the following are required to start an open-end investment company?

A.-At least $100,000 of net assets -A clearly stated investmetn objective

Which of the following would cause an increase in NAV (net asset value)

A.-Investment income is recived by fund - the securities in the portfolio appreciate Dividends and intrest recived by the fund and appreciation of the portfolio cause an increase in NAV. The purchase of securities with cash results in no change of NAV because the outlay of cash is offset by the increased value of the portfolio. Any dividends or gains distributed by the fund would cause a decrease in NAV

Which of the following annuities includes augmentation of the premium payments by insurance companies?

A.Bonus annuity With a bonus annuity the insurance company may contribute3-5% to the premium payments, and may permit withdrawls of premiums or earnings with no penalty imposed by the company. such annuities also have longer surrender periods.