chapter 4 sie investment companies
Under a Letter of Intent agreement to invest a total of $25,000, an investor invested $13,000. Later, the value of the shares appreciated to $17,000. To complete the L.O.I. agreement, the investor would be required to invest
$12,000. Under a Letter of Intent, you always work from the original amount invested, NOT the current value therefore the investor would be required to invest another $12,000.
Which of the following would be correct statements by a registered representative to a customer when recommending the purchase of a mutual fund? 1. Making purchases of funds under the same management may result in a lower overall sales load. 2. Capital gains distributions should be viewed as income yield on the fund shares. 3. Upon redemption of mutual funds shares, investors do not know the exact redemption. 4. Purchasing shares just prior to the ex-dividend date is advantageous to the purchaser of the shares.
1&3 When investors own a mutual fund and want to sell it, they will redeem it back to the fund during the day. Then at the close of the day, all buy and sell orders are executed. When investors place the order to sell or redeem, they do not know the price because it will be calculated at the close of trading the day the order was entered.Answer I is also correct, as making purchases of mutual funds under the same management may result in a lower overall sales load. II is incorrect because Capital Gains are not income. They result from capital gains on the portfolio not dividends or interest. Answer IV is called "Selling Dividends" and it is a prohibited action. When a dividend gets paid out, the market price will drop, so the RR cannot recommend buying right before a dividend.
Sales charges may be reduced or eliminated when purchasing investment company shares under which of the following circumstances? 1. An investor purchases a large dollar amount of investment company shares 2. An investor chooses to reinvest income dividends 3. Shares are purchased under right of accumulation
1,2,3 All choices represent situations where an investor could qualify for a reduction in or the elimination of sales charges.
A mutual fund's portfolio could include which of the following securities? 1. Warrants on common stock 2. Revenue bonds issued by a municipality 3. Treasury bills of the U.S. Government 4. Equity securities such as the common stock of a corporation
1,2,3,4
A Hedge Fund investment would be best suited for which of the following types of investors 1.Senior Investors 2.Accredited Investors 3.Aggressive Investors 4. Qualified Investors
2 & 4
An RR, when making a recommendation for the purchase of investment company shares, could state or imply which of the following? 1. Capital gains distribution should be treated as part of the income yield of the investment. 2. The purchase of shares of two or more funds under the same management may entitle the investor to a reduced sales charge. 3. Purchasing fund shares in advance of a dividend distribution would be advantageous since the investor would immediately realize an investment return. 4. Upon redemption, the investor would not immediately know the total dollar value of the redemption.
2 & 4 I is incorrect because capital gains are not included as part of the yield. II is true. III is Selling dividends which is not in the investor's best interest. The investor would benefit by buying after the ex date, when the price of the shares is reduced. IV is true because the investor would receive the next calculated redemption price after the order is entered.
An investor who tenders shares to an open-end investment company must receive a cash payment in no more than:
7 days.
Which of the following is the BEST description of the prospectus of a mutual fund? [A]It is the best location to find current market prices for the fund and a listing of all securities contained within the fund. [B]A document that includes details about the fund including investment objective, performance, sales load structure, fee structure, level of risk, as well as who will manage the fund and how it will be managed. [C]A document containing all relevant accounting information for the fund up to the end of the most recent trading day. [D]It is the best location to find a listing of all current investors who own shares of the mutual fund and the volume of shares held for each investor.
A document that includes details about the fund including investment objective, performance, sales load structure, fee structure, level of risk, as well as who will manage the fund and how it will be managed.
Which of the following investment companies typically will not charge a management fee?
A unit investment trust.
When comparing a Mutual Fund to an Exchange Traded Fund which of the following is true? [A]Both are subject to market risk [B]Both are traded during the trading day [C]Both can be bought on Margin [D]Both have actively traded portfolios
Both are subject to market risk
An investment company that provides debt capital to small and mid-sized companies that generally cannot easily raise capital is best described as a:
Business Development Company
All of the following could be found in a money market fund's portfolio EXCEPT [A]bank certificates of deposit.[B]Treasury bills.[C]Treasury bonds having a short time to maturity.[D]common stock.
Common Stock Since common stock does not have a maturity of 12 month or less it would not be found in money market funds.
ETNs - Exchange Traded Notes represent which of the following?
Debt of the bank which issued the ETN
With the facts listed below, choose the open-end funds: Fund A has an ask price of $10.00 and the NAV per share is $9.50. Fund B has an ask price of $8.50 and the NAV per share is $7.75. Fund C has an ask price of $7.00 and the NAV per share is $7.50. Fund D has an ask price of $9.00 and the NAV per share is $9.25.
Fund a and Fund b If Net Asset Value (NAV) is greater than the Ask, the fund has to be Closed-End. Here, Fund C and D have a NAV higher than the Ask, thus they would be Closed-End. This leaves the only options as I and II for the Open-End Funds.
Using the following chart, which of the funds listed would be closed-end funds? Fund net asset value: a. $19.75 b. $22.25 c. $27.50 d. $24.25 Asked Price a. $19.25 b. $23.12 c. $26.75 d. $25.00
Funds a &c Whenever the net asset value per share of a fund is greater than the asked or offering price, it has to be closed-end since that situation could not occur on an open-end fund.
A mutual fund was originally established several years ago as a growth fund. The board of directors now wishes to change the investment objective of the fund. They'd like to move from growth to income. Which of the following statements is ACCURATE of this scenario?
In order to change the mutual fund's objectives, approval of a majority of fund shareholders is required.
retail investors
Individual investors who buy and sell securities for their own personal accounts, and not for another company or organization.
Which of the following investments would be the most appropriate for an investor in a low tax bracket who indicates that protection from inflation is their primary investment objective? A]GNMA's [B]Tax-exempt unit trusts [C]Money market funds [D]Treasury bonds
Money market funds
Mr. Dratley wants to invest $75,000 in four different growth funds. Each of these funds has its portfolio managed by a different investment management firm. Which is most important for him to thoroughly understand?
Sales charge breakpoints
All of the following could be applied to fixed UITs EXCEPT: [A]The term "diversified"[B]The fact that they are registered [C]The fact that they are managed [D]The fact that they are regulated
The fact that they are managed
Changes to the investment objectives of a mutual fund must be approved by the
The fund's shareholders
All of the following are TRUE of mutual fund "breakpoints" EXCEPT:
The sales practice of "breakpoint selling" is legal and is to be encouraged
When disclosing information to a client with regard to Class B shares, which of the following is true?
There is the potential of a deferred sales charge.
A client is currently looking for growth, but intends to move investments into income in the next few years. The agent for this client recommends that the client choose a mutual fund company which offers a "fund family" or "family of funds" with a few different offerings for both growth and income. What is the primary reason that the client should choose a fund family that offers the objectives that they desire, versus two different mutual fund companies?
Within the same family of funds, the client will not be subject to additional sales charges associated with the switch of objective from growth to income. Within the same family of funds, an investor is not normally charged a sales load if the investor switches from one fund to another with a different objective. Tax consequences would apply to the switch. A client will not always see more diversification within the same family of funds and the client is not always better off sticking with only one company offering mutual funds. The main reason is the lack of sales load when switching from one objective to another.
All of the following fall under the definition of a registered investment company EXCEPT
a separately managed account A growth fund and an income fund are both mutual funds and therefore are investment companies. The sub-account of a variable annuity must register under the Investment Company Act of 1940 and is considered to be an investment company registered under the Act. A separately managed account is a professionally managed portfolio of securities but the securities are directly owned by the account owner (the customer) therefore they are NOT classified as investment companies.
accredited investor
a term that applies to investors who have earned an income that exceeds $200000 with a spouse each of the prior two years and expect to continue. or have a ney worth of $1 million or over with spouse.
When the prospectus of a mutual fund requires investments in a diversified portfolio of bonds, preferred stocks, and common stocks, it would be a/an:
balanced fund
The net asset value of a mutual fund must be calculated at LEAST
daily.
An investor is reviewing their portfolio and calls in to discuss their investments. The customer holds equal amounts of three separate investment companies from the same family of funds in their portfolio, all of which have the same overall investment objective and all of which invest in similar corporate securities. The customer wants to know why the sales loads and fees charged by the three funds vary so widely despite all three having so many similarities in terms of objective, portfolio, and performance. Which of the following is the MOST probable reason for the differences? The customer:
has purchased three different classes of mutual fund shares.
Which of the following investments would provide an investor with the most liquidity?
money market funds Money market funds allow investors to deposit and withdraw money without penalty and would provide the investor with the most liquidity when compared to the other choices offered.
A mutual fund investor is seeking aggressive growth. Which of the following funds would be most appropriate for the customer to invest in? [A]Balanced Fund. [B]Hedge Fund. [C]Money Market Fund.[D]Sector Fund.
sector fund
Investments made in investment companies are generally done for which of the following?
short term trading opportunities Investors investing in investment companies own a small portion of the many different companies in the fund's portfolio, thus giving them diversification and professional management by the fund's investment manager.
