chapter 2 & 3 quizzes

all of the following require a representative to hold an appropriate securities license EXCEPT a-equity index annuity b-variable life insurance policy c-variable annuity d-treasury bond fund

a-equity index annuity an equity index annuity is considered a fixed annuity. only an insurance license is required

a unit investment trust has 90% of its portfolio invested in high grade bonds with an average maturity of almost 25 years. if the industry consensus was that long term interest rates were about to increase sharply, which of the following actions would most likely be taken a-nothing b-liquidate and being to move into cash or cash equivalents c-shorten the average duration d-ladder the maturities

a-nothing the portfolio of a unit investment trust is fixed once it has been constructed. therefore, it does not change in reaction to market conditions LO 2a

which of the following types of investment company securities is the MOST likely to have an NAV that is 90% of its offer price? a-open end company share b-closed end company share c-unit investment trust unit d-face amount certificate

b-closed end company share the market determines the offer price of closed end company shares; the offer price may be more or less than the NAV. because the NAV in this situation is 90% of the offer price, it must be a closed end share. an open end shares NAV must be at least 91.5% of its offered price because the maximum sales charge on open end shares is 8.5% of the POP LO 2a

one characteristic of a closed end fund that differs from an open end fund is that with closed end funds, the number of shares outstanding a-is directly tied to the value of the securities in the portfolio b-generally remains constant c-increases as purchasers buy shares d-decreases as shareholders redeem shares

b-generally remains constant it is important to remember that closed end companies do not continuously issue more shares (like open end companies do), so the number of outstanding shares tend to stay the same LO 2a

your client is interested in an investment program that is sensitive and responsive to anticipated market moves. you might recommend a-a growth fund b-a value fund c-an asset allocation fund d-dollar cost averaging

c-an asset allocation fund a money management strategy that switches among asset classes in response to anticipated market moves is asset allocation LO 2a

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 contracts EXCEPT a-all gains are tax deferred b-the AIR is a factor in determining certain values c-death benefits are received income tax free d-the representative must have a securities license and an insurance license

c-death benefits are received income tax free ONLY with life insurance- death benefits in a life insurance policy are free of income tax, any gains received from an annuity are subject to taxes

all of the following are defined as types of investment companies under the investment company act EXCEPT a-closed end management companies b-mutual funds c-hedge funds d-exchange traded funds

c-hedge funds a hedge fund is not defined as an investment company under the ICA of 1940. mutual funds, ETFs and closed end funds are all types of management companies

a fund seeks to achieve maximum growth, with little or no pursuit of current income. the fund invests in stocks of small and medium sizes companies that demonstrate significant long term growth potential. the funds management believes that despite year to year fluctuations, the strategy of investing in companies that show strong earnings growth can result in superior investment returns. this information describes which of the following mutual funds

d-ATF capital appreciation fund capital appreciation funds seek growth, not current income LO 2a

under the investment company act of 1940, which of the following describes an investment company a-a company that offers investment advice to new companies b-a company formed to underwrite the issuance of new securities c-a group of individuals formed for mutual interest and benefits d-a company whose primary business is investing its owners money in securities issued by other companies

d-a company whose primary business is investing its owners money in securities issued by other companies an investment company is a corporation or trust whose only business is investing its owners money in the securities of other companies instead of manufacturing goods or providing services. the company must have a clearly defined investment objective LO 2a

individuals licensed as series 6 representatives a-deal in closed end funds in the secondary market only b-may not deal in closed end funds c-deal in closed end funds without restrictions d-deal in closed end funds in the primary market only

d-deal in closed end funds in the primary market only as with open end funds, the primary market for closed end funds involves the initial offering of investment company shares sold with a prospectus. once the offering is closed to new buyers and the shares trade in the secondary market, limited securities representatives may no longer deal in them LO 2a

which of the types of mutual funds would be most likely to have capital appreciation as its stated objective a-balanced b-income c-municipal bond d-specialized

d-specialized a specialized fund invests at least 25% of its assets in one particular industry or region. generally, its main objective is capital or price appreciation. income fund are looking for income, municipal bond funds for tax free income, and balanced funds for capital preservation LO 2a

when comparing mutual funds and ETFs, the disadvantages of investing in ETFs include which of the following? a-commissions both when purchasing and liquidating shares ii-price not set by supply and demand iii-the ability to avoid tax consequences iv-the spread between the NAV and POP can be greater than 8.5%

i- commissions both when purchasing and liquidating shares iv-the spread between the NAV and the POP can be greater than 8.5% because the shares of ETFs are traded like any other stock, commissions are paid to both buy and sell, and the price is determined by supply and demand, not NAV LO 2a

asset based distribution fees, also known as 12b-1 fees i-are based on the funds annual average daily net assets ii-are based on the funds annual sales of shares iii-must be reviewed at least quarterly by the funds board of directors iv-must be reveiwed at least annually by the funds board of directors

i-are based on the funds annual average daily net assets iii-must be reviewed at least quarterly by the funds board of directors fees charged under section 12b-1 are assessed against the funds annual average daily net assets and must be reviewed at least quarterly by the investment company's board of directors LO 2c

if an investor wants to buy 1000 worth of class b shares in an open end investment company, she may buy shares through i-the sponsor of the fund ii-a brokerage firm iii-the custodian of the fund iv-a bank acting as dealer

i-the sponsor of the fund ii-a brokerage firm the custodian does not sell the shares but provides safekeeping for fund assets. a bank may not be a member of finra and therefore may not act as a dealer (although subsidiaries independent of the bank may be set up as broker dealers) LO 2b

which of the following statements correctly describe similarities between exchange traded funds and closed end investment companies i-they may not be sold short ii-they are traded on registered stock exchanges iii-they are redeemable securities iv-investors pay commissions to purchase and liquidate their positions

ii-they are traded on registered stock exchanges iv-investors pay commissions to purchase and liquidate their portfolios both exchange traded funds and closed end investment companies are traded on exchanges; therefore, investors pay a commission when purchasing and liquidating shares. both may be sold short (and purchased on margin). neither is redeemable with the issuer because they are traded in the secondary market LO 2a