Series 7 Unit #3 Review

अब Quizwiz के साथ अपने होमवर्क और परीक्षाओं को एस करें!

Which of the following statements describing Section 529 plans is TRUE? A) The fees associated with them are generally the same from state to state. B) They can only be opened for children under the age of 18. C) The maximum annual contribution varies from state to state. D) Most state college savings plans require either the owner or the beneficiary of the plan to be a state resident.

C The features of Section 529 plans, including their contribution limits and fees, vary widely from state to state. Section 529 plans have no age limits as to participation; they are open to both children and adults who plan to attend college or graduate school. For college savings plans, there is no state residency requirement for either owners or beneficiaries of Section 529 plans. Reference: 3.14.2 in the License Exam Manual

If your customer invests in a variable annuity and chooses to annuitize at age 65, which of the following statements are TRUE? I. She will receive the annuity's entire value in a lump-sum payment. II. She may choose to receive monthly payments for the rest of her life. III. The accumulation unit's value is used to calculate the total value of the account. IV. The annuity unit's value represents a guaranteed return. A) II and IV B) I and III C) I and IV D) II and III

D When a variable contract is annuitized (distributed in regular payments, not as a lump sum), the number of accumulation units is multiplied by the unit value to arrive at the account's current value. An annuity factor is taken from the annuity table, which considers, for example, the investor's sex and age. This factor is used to establish the dollar amount of the first annuity payment. Future annuity payments will vary according to the separate account's performance. Reference: 3.18.5 in the License Exam Manual

In July, a customer invested $10,000 in the ABC Mutual Fund. In December of the same year, ABC announced a long-term capital gains distribution. In May of the next year, the customer decided to redeem his shares for a capital gain. How are both of the capital gains treated for tax purposes?I. The capital gain distribution is treated as long term. II. The capital gain from redemption is treated as long term. III.The capital gain from redemption is treated as short term. IV. The capital gain distribution is treated as short term. A) II and IV B) I and III C) III and IV D) I and II

B When long-term capital gains are distributed, the length of time an investor has owned the fund is not relevant; it's still a long-term distribution. However, redemption of shares follows the normal holding period rules. Therefore, when this customer sold shares 10 months (July to May) after the purchase, the gain, like any other gain from a holding period that does not exceed 12 months, is short term. Reference: 3.14.4 in the License Exam Manual

Each of the following is a characteristic of money market funds EXCEPT A) portfolio of short-term debt instruments B) a NAV of $1.00 per share C) a beta of 1.00 D) offered without a sales load

C A beta of 1.00 means that a security (or portfolio) has the same price volatility as the overall market. That is certainly not the case with money market fund shares. Money market mutual funds invest in a portfolio of short-term debt instruments such as T-bills, commercial paper, and bankers acceptances. They are offered without a sales load or charge. The principal objective of the fund is to maintain a stable NAV ($1 per share). Reference: 3.4.2 in the License Exam Manual

An individual is deciding between a flexible premium variable life contract and a scheduled premium variable life contract. If she is concerned about maintaining a minimum death benefit for estate liquidity needs, she should choose A) the flexible premium policy because earnings of the contract directly affect the face value of the policy and earnings can never be negative B) the flexible premium policy because the contract's face amount cannot be less than a predetermined percentage of cash value C) the scheduled premium policy because earnings do not affect the contract's face amount D) the scheduled premium policy because the contract is issued with a minimum guaranteed face amount

D A scheduled premium variable life contract is issued with a guaranteed minimum death benefit. If the individual is concerned about having the minimum guarantee, you should recommend the scheduled contract. Reference: 3.20.1 in the License Exam Manual

Which of the following statements regarding ADRs is NOT TRUE? A) ADRs make it easy to own a foreign security. B) Holders generally have voting rights. C) Dividends are received in U.S. dollars. D) Key risks to identify include currency and political risks.

B American depositary receipts, (ADRs) are designed to facilitate the trading of foreign securities for U.S based investors. ADRs with few exceptions, do not have voting rights, The holder of an ADR does not hold the shares of the underlying foreign security but instead holds a receipt for those shares. ADRs are U.S. securities traded in U.S. markets in U.S. dollars, with dividends received in U.S. dollars as well. There is both currency and political risk associated with ADRs. Reference: 3.9.3 in the License Exam Manual

An investor has unexpectedly received $30,000 from an old debt he had written off. This money will come in handy for a business venture planned for 3 years from now. Meanwhile, he would like to generate some income on the money with as little risk and as little expense as possible. Which of the following recommendations is likely to be the most suitable for this customer? A) Class B shares of the ABC Investment-Grade Bond Fund B) Class B shares of the XYZ Growth Fund C) Class A shares of the MNO High-Yield Bond Fund D) Class C shares of the ABC Investment-Grade Bond Fund

D The customer wants income with as little risk as possible, so our answer must be one of the choices that offer an investment-grade bond fund. Of those offered, Class C shares would be best, because the customer would pay no front-end sales charge and no CDSC after a short time, probably one year. He will pay somewhat higher 12b-1 fees than with Class A shares, but this will amount to only a fraction of 1% per year, and only for the 3 years of his investment. Reference: 3.15.3 in the License Exam Manual

SEC regulations for securities issued by investment companies prohibit which of the following? I. Closed-end funds from issuing preferred stock. II. Open-end funds from issuing preferred stock. III. Closed-end funds from issuing bonds. IV. Open-end funds from issuing bonds. A) II and IV B) I and III C) I and IV D) II and III

A Closed-end funds may issue more than one class of security, including debt issues and preferred stock. Open-end funds may issue only one class of security: redeemable, voting common stock; they may not issue senior securities. Reference: 3.12.3 in the License Exam Manual

Which of the following is the form of portfolio management that rotates between sectors based on changes to the business cycle? A) Cyclical rotation B) Segment rotation C) Strategic portfolio management D) Tactical portfolio management

B Segment rotation, more commonly known as sector rotation, involves altering portfolio composition based on which sectors are poised to outperform as the business cycle is changing phases. Reference: 3.5.1 in the License Exam Manual

All of the following statements about variable annuities are true EXCEPT A) the number of annuity units becomes fixed when the contract is annuitized B) such an annuity is designed to combat inflation risk C) a minimum rate of return is guaranteed D) the rate of return is determined by the underlying portfolio's value

C The return on a variable annuity is not guaranteed; it is determined by the underlying portfolio's value. Variable annuities are designed to combat inflation risk. The number of annuity units becomes fixed when the contract is annuitized; it is the value of each unit that fluctuates. Reference: 3.18 in the License Exam Manual

ABC Company has issued $20,000,000 of convertible bonds with a coupon of 5% and a current market value of 120. The conversion price is $40. If all the bonds are converted, how many additional shares of common stock will ABC have outstanding? A) 400,000 B) 600,000 C) 1,000,000 D) 500,000

D Each bond will convert to 25 shares of common stock ($1,000/$40). 20,000 bonds were issued ($20,000,000/$1,000). Therefore, 500,000 additional shares (20,000 x 25) will be outstanding if all the bonds are converted. Reference: 3.10.2 in the License Exam Manual


संबंधित स्टडी सेट्स

Renewable Energy Systems Midterm 1

View Set

Chapter 4 - Explain the accrual basis of accounting and the reasons for adjusting entries.

View Set

EAQ Fluid and Electrolytes - Concept

View Set

AP Euro History Unit 1 Progress Check: MCQ

View Set

Rock the SAT - "Amazing" Vocabulary

View Set

AP US History Chapter 17: Manifest Destiny

View Set

Chapter 4: Social Responsibility and Ethics in Marketing

View Set