Series 6 Investment Company Act of 1940 Rules
A mutual fund has a net asset value per share of $12.00. The maximum offering price per share is:
$13.11
A customer redeems 1,000 shares of XYZ Fund. The computed Net Asset Value per share is $14.75 and the Public Offering Price is $16.03. The fund has a 1/4% redemption fee. The customer will receive:
$14,713 Redemption always takes place at Net Asset Value. NAV is $14.75 x 1,000 shares = $14,750 Gross Amount. However, the fund charges a redemption fee of 1/4%, so the investor gets 99.75% of $14,750 = $14,713.
Grass Bond Fund is quoted at an Ask price of $23.50 per share. The maximum sales charge on this fund is 6%. What is the Bid price for the fund?
$22.09 Since the sales charge is stated as a percentage of POP, this means that 6% of the POP goes to sales charge; the balance left over is the NAV per share. .06 x $23.50 POP = $1.41 Sales Charge. $23.50 POP- $1.41 Sales Charge = $22.09 NAV.
An investor purchases 1,000 mutual fund shares with a Net Asset Value of $10 each, where the fund imposes a 5% contingent deferred sales charge if the shares are redeemed within the first year. The sales charge decreases by 1% for each year the investor remains invested in the fund. If the investor were to redeem his shares during the fifth year of holding the fund, based upon the NAV of $10, he or she will receive:
$9,900 Deferred sales charges are imposed only if a customer redeems, with the amount of the sales charge typically being reduced the longer the investor remains in the fund. This investor is redeeming his $10,000 investment during the 5th year of holding the fund. This means the Contingent Deferred Sales Charge is 1% (it is 5% if redeemed in year 1; 4% in year 2; 3% in year 3; 2% in year 4; 1% in year 5; 0 thereafter). If the investor redeems during year 5, he or she must pay the 1% deferred sales charge, and he will receive $10,000 x .99 = $9,900 upon redemption.
A mutual fund may not invest in a security if an associated person owns more than what percentage of that company's stock?
1/2%
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 a fund's payment of operating expenses is correct?
A fund's return to investors is reduced by the amount of operating expenses that it pays
Which of the following statements concerning redemption of mutual fund shares is correct?
A signature guarantee is required for the redemption of physical shares held by the customer or a custodian
Which of the following mutual fund investments will be most appropriate for a retired person who pays living expenses from Social Security, a small pension, and investment income?
An equity income fund
Which of the following statements concerning the functions of the underwriter for mutual fund shares is(are) correct? I The underwriter prepares sales literature for the offering of shares II The underwriter usually has the exclusive right to buy shares from a mutual fund III The underwriter may also perform the investment advisory function A. I only B. I & II only C. II & III only D. I, II, & III
B. I & II only
An investment advisory contract can: I only be in writing II either be verbal or in writing III allow adviser compensation based on a percentage of fund capital gains IV allow adviser compensation based on a percentage of fund net assets A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
What mutual fund would be most appropriate for an investor who wants to have one common stock fund that combines the investing styles of both value stocks and growth stocks?
Blend fund
All of the following sources provide performance data on a mutual fund EXCEPT: A. the fund's prospectus B. the fund's annual report C. FINRA performance reviews D. Lipper Analytical Services
C. FINRA performance reviews
All of the following statements concerning reinvestment of dividends and capital gains from mutual funds are correct EXCEPT investors: A. must report reinvested capital gains and dividends for income tax purposes B. can reinvest capital gains and dividends without payment of sales charges C. must either reinvest dividends or capital gains, but cannot reinvest both D. may take capital gains and dividend distributions in cash instead of choosing to reinvest
C. must either reinvest dividends or capital gains, but cannot reinvest both
James Cameron decides to dispose of 55 of the 355.625 shares he owns in Snow White Mutual Fund. Which statement concerning this transaction is correct?
Cameron's proportionate ownership interest in the fund will decrease
James Ball bought 15,625 shares of Daisy Mae Mutual Fund. Which of the following statements concerning this investment are correct? I Each share has the right to receive a dividend II Mr. Ball owns a proportional interest in all of the securities in the investment portfolio of Daisy Mae Fund III Mr. Ball owns an undivided interest in the fund's investment portfolio IV Each share has the right to vote
D. I, II, III, IV
On June 1, Alex Keaton signed a Letter of Intent (LOI) with the Snow White Mutual fund. Which of the following statements concerning this transaction are correct? I Keaton has 13 months to complete the LOI II If Keaton does not complete the LOI, there is no penalty, but he will lose the quantity discounts III If Keaton purchased shares on April 15th of the same year, these shares can be counted toward completion of the LOI by backdating the LOI IV Some of the fund shares purchased by Keaton may be held in escrow by the underwriter to cover sales charges A. I and II only B. II and IV only C. III and IV only D. I, II, III, and IV
D. I, II, III, and IV
In a recession, an investor should expect which of the following scenarios to occur? I Growth funds will outperform balanced funds II Balanced funds will outperform growth funds III Growth funds will outperform money market funds IV Money market funds will outperform growth funds A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
Which of the following are true regarding the mutual fund letter of intent? I The letter of intent can be backdated for a maximum of 30 days II The letter of intent can be backdated for a maximum of 90 days III The letter of intent must be completed within 12 months in order to obtain the breakpoint IV The letter of intent must be completed within 13 months in order to obtain the breakpoint A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
Which of the following terms describe a Unit Investment Trust? I Negotiable II Actively managed III Undivided interest IV Redeemable
D. III and IV only
All of the following terms can apply to management companies EXCEPT: A. Open-end B. Closed-end C. Diversified D. Non-managed
D. Non-managed
All of the following statements concerning the advantages of a diversified mutual fund investment are correct EXCEPT the investment manager: A. has greater skill and experience in investing a portfolio than most investors B. has greater resources for conducting research than most investors C. makes a full time commitment which most investors cannot make D. can invest a larger percentage of the portfolio in special investment opportunities than can investors
D. can invest a larger percentage of the portfolio in special investment opportunities than can investors
All of the following statements are correct concerning diversification of a mutual fund's investment portfolio EXCEPT: A. diversification can spread losses and reduce the probability that a loss will occur in the overall portfolio B. the fund may achieve diversification by investing in many companies C. the fund may achieve diversification by investing in different kinds of investment instruments, such as stock, bonds, etc. D. diversification requires that the fund be fully invested in securities and not place money in cash equivalents or holding cash
D. diversification requires that the fund be fully invested in securities and not place money in cash equivalents or holding cash
Which of the following statements describes a difference between Exchange Traded Funds (ETFs) and mutual funds?
ETFs trade throughout the day using continual pricing; mutual funds do not trade and are priced based on the next calculated NAV
An investor wishes to learn about the withdrawal plans offered by Atlantis Global fund. What is the best place to find this information?
Fund prospectus
Which of the following mutual funds is most likely invested in a significant amount in junk bonds?
High yield 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 statements concerning a dual purpose fund is correct?
It allows new customers to select shares with either an income objective or growth objective
Interest income earned in a money market mutual fund is exempt from federal income tax when the fund invests in:
Municipal securities
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
Which of the following statements concerning borrowing by open-end and closed-end companies is TRUE?
Open-end companies can borrow using portfolio securities as collateral but closed-end companies cannot
Which of the following statements about open-end and closed-end management companies is correct?
Open-end companies can issue only common stock; closed-end companies can issue common stock, preferred stock, and bonds
An investor is making monthly purchases of mutual fund shares over the course of 1 year at a lower sales charge under a Letter of Intent provision. Which statement is true regarding the deduction of sales charges?
Sales charges are deducted from each monthly payment based on the lower rate
Which of the following statements describes the advantage to a customer of a mutual fund family exchange privilege?
The customer can switch funds with differing investment objectives without incurring a sales charge
A fund has a net asset value of $8.62 and an ask price of $9.21. Which statement must be true?
The fund charges a sales load that is less than the maximum permitted under FINRA Rules
Which statement is TRUE about a "no-load" fund?
The fund may not charge a front-end sales charge, and may not charge a 12b-1 fee that is more than ¼ of 1% of net assets.
A management company started the year with a NAV per share of $15.64 and a POP of $17.00 per share. At the end of that year, the fund has a NAV of $14.08 per share and a POP of $15.30 per share. During the year, the fund declared and paid a dividend of $1 per share. Which of the following statements are true?
This fund is open-end The fund has experienced asset deppreciation
A customer, age 40, has just left his job at ACME Company, where he has a defined contribution plan that has an account balance of $150,000. The customer has taken a job at ACCO Company and does not intend to retire for at least another 25 years. The customer wishes to take the ACME Company plan account balance and roll it over into an IRA. The representative has recommended that the customer invest in EquityReturnPlus shares - a growth mutual fund with a sales load that offers Class A, B and C shares. The representative sells the customer Class B shares. Which statement is true?
This is an inappropriate recommendation and the customer should have been recommended the Class A shares
If a mutual fund that has adopted a 12b-1 plan wishes to materially increase its distribution expenses:
a majority of the outstanding shareholders (shares) must approve the increase
If an investor is seeking portfolio diversification among equity and debt securities, the appropriate recommendation is a:
balanced fund
All of the following are typical characteristics of money funds EXCEPT: A. no-load B. breakpoints C. 12b-1 fees D. daily compounding of interest
breakpoints
Active asset managers:
have the leeway to select the specific investments to be made based on the fund's investment objective
"DIAmonds" are an American Stock Exchange traded index fund based on all stocks:
in the Dow Jones Industrial Average
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
Participating UITs invest in:
mutual fund shares
The expense ratio of a mutual fund is a measure of:
operating efficiency
A "reinstatement privilege" allows a mutual fund customer to:
redeposit money withdrawn for emergency use without incurring sales charges
A customer has been routinely contributing $500 a month to a mutual fund as an investment for his eventual retirement. The customer's child has changed schools, and the customer needs $250 a month to pay for the child's extra school expenses. The customer should:
reduce the investment in the fund to $250 per month and use the other $250 per month to pay for school expenses
Mutual fund shareholders must be sent the financial reports of the fund:
semi-annually
The compensation received by the underwriter for distributing mutual fund shares is called the:
underwriter's concession
