Series6

Your client is interested in purchasing the Class A shares of the BACH Investment Company, whose maximum sales charge is 5%. Which of the following choices best describes the sales load she would probably be charged on her purchase of the BACH?

5% on each purchase; 0% deferred sales load. Class A shares charge a front-end sales charge, also called a front-end load, and no deferred sales charge.

Which of the following factors is least important in rating a bond?

A bond's coupon rate tends to be dictated by market factors and is not a factor in rating the bond.

Which of the following is among the rights and privileges a mutual fund sponsor must offer in order to charge the maximum sales charge of 8.5%?

A mutual fund must offer rights of accumulation and breakpoints to charge the maximum 8.5% sales load

Which of the following is accurate with regard to using a summary prospectus for the sale of a mutual fund?

A statutory prospectus may be delivered after the summary prospectus. The statutory or full prospectus must be available online.

Selling which of the following is NOT a violation of the Conduct Rules

AAA bonds to a client who has income as an objective.

An investor will pay a sales charge in all of the following marketing methods EXCEPT:

An investor will pay a sales charge in all of the following marketing methods EXCEPT:

The ABC fund offers breakpoints and letters of intent, and one of your customers would like to add some of his past investments in that fund to his current investments to reach a breakpoint. If the date is June 1, which of his past investments may be included?

April 10 of this year. A letter of intent may be backdated by 90 calendar days.

When comparing bonus or enhancement annuities to other annuities, which of the following statements are TRUE?

Bonus variable annuities tend to have higher annual fees. & Bonus variable annuities generally have longer surrender charge periods.

An investor with a long time horizon and $100,000 to invest would most likely be interested in:

Class A shares.

Which of the following share classes have a back-end load?

Class B shares have a contingent deferred sales charge, or back-end load, that declines over five to seven years and then expires. Class C shares have a back-end load that typically expires after one year.

Investors with a short time horizon most likely will invest in which class of mutual fund shares?

Class C shares may be less expensive than Class A or B shares for investors with a short time horizon. The front-end load on Class A shares and the back-end load on Class B shares makes them unattractive for short-term investors. A shares do not convert to B shares.

Some open-end investment companies offer their investors combination privileges which permit an investor to:

Combination privileges allow mutual fund shareholders to combine separate investments in two or more funds with the same family to reach a breakpoint.

To charge an 8.5% sales load, a mutual fund must offer all of the following rights and privileges EXCEPT

Did you miss the word EXCEPT? Offering conversion privileges is not a must in order to charge 8.5%. Redemption checks must be sent within 7 days of request no matter what the sales charge is. In order to charge 8.5%, the mutual fund must offer breakpoints and rights of accumulation.

Which of the following actions comes under the guidelines concerning communication with the public

Distributing a letter to all clients regarding a new mutual fund family & Distributing copies of a magazine article about investment opportunities to existing customers only

One of your clients wishes to invest in a fund of hedge funds. You could tell him which of the following?

Expenses for these funds tend to be higher than those for other funds.

To qualify for the quantity discount, which of the following could NOT be defined as a person

Father and his 35-year-old son investing in separate accounts.

An investor will pay a sales charge in all of the following marketing methods EXCEPT:

Fund to investor.

Which of the following statements regarding investment companies are TRUE?

Investment companies may offer breakpoints provided they are offered uniformly. & The Securities Act of 1933 requires that a prospectus be provided in conjunction with the solicitation of orders for mutual fund shares.

Which of the following statements regarding the Securities Exchange Act of 1934 is NOT true?

It requires registration of securities.

According to the Conduct Rules, a FINRA member firm may give certain selling concessions to which of the following?

Other member firms. Members may give other members selling concessions, but sales to the public and to nonmember firms must be made at the public offering price.

Which of the following concerning Section 529 plans are TRUE?

Qualified withdrawals are exempt from federal income tax. & Some states will tax the withdrawals as income.

Conduit Theory

Refers to favorable tax treatment available to investment companies

Margin

Refers to the minimum amount of cash or other margin able securities a customer must deposit to buy securities

Regulation U

Regulates the extension of credit to credit of customers for the purpose of purchasing securities by banks and other lenders

Regulation T

Regulates the extension of credit to customers by broker-dealers

Your customer is 61 years old. He would like to take a lump-sum distribution from his SIMPLE plan. What is the tax treatment of this distribution?

Taxed as ordinary income

You are preparing a sales presentation for a customer whose portfolio you think would best be served by variable life insurance. You are considering several statements you might wish to make. Which of the following would be permitted?

The minimum death benefit is guaranteed. While variable life insurance presentations are required to include a 0% rate of return as one of the models in any hypothetical projection, that inclusion is not to be taken as a minimum guarantee. Separate account cash values are not guaranteed.

A policy loan provision must be offered by the insurer after three years, allowing the variable life policy contract holder to borrow at least what percentage of cash value?

The minimum that must be available in a VL contract after three years is 75% of cash value.

When the annual report of a mutual fund is used as sales literature, which of the following statements are TRUE?

The principal of the firm must approve its use for that purpose & the figures contained in the report must be as of a specific date.

A customer wishes to redeem 1,000 shares of a mutual fund. The NAV and POP are $10, and a redemption fee of 0.5% will be charged. How much will the customer pay in redemption fees?

The question did not ask how much he would receive upon redemption, but how much he would pay in redemption fees. Mutual fund shares are redeemed at the NAV (bid): 1,000 shares × $10 each = $10,000. $10,000 × .005 (.5% redemption fee) = $50.

If a registered representative wishes to distribute a copy of a national magazine article...?

This material meets the definition of an independently prepared reprint. & The article may not be sent without prior or concurrent delivery of the Fund prospectus

Wash Sale Rule

Total days of effect is 61

TIPS

Treasury Inflation Protection Securities

If your client signs a letter of intent for $100,000 and makes an initial deposit of $25,000, the amount of sales charge on that purchase would be: $100,000 - $249,999 1.5%

When one signs a letter of intent, the sales charge is applicable to the dollar amount designated in the letter. In this case, the amount of $100,000 has a 1.5% sales load; 1.5% × $25,000 invested equals a $375 sales charge on the initial purchase.

Your customer has contributed $1,000 annually into her Roth IRA for seven years. Which of the following statements concerning her Roth IRA distributions is TRUE?

Your customer will not be taxed on the distributions if she is over the age of 59½ and the money has been held in the account for five years beginning with the first tax year for which a contribution was made to any Roth IRA established for the individual.

A contingent deferred sales charge is best described as:

a back-end sales charge that decreases the longer the investor holds the shares.

Mutual fund Class B shares assess

a deferred sales load

A balanced fund invests:

a portion of its portfolio in both debt and equity instruments.

registered representative wishes to place an advertisement in a local newspaper offering her services as a mutual fund representative for XYZ Funds, the advertisement must be approved by:

a registered principal.

Qualified Plans

allow pretax contributions to be made; plan approved by the IRS; plan may not discriminate; generally all withdrawals tax; plan is a trust

A national financial magazine advertisement for ABC mutual funds is permitted to include all of the following EXCEPT:

an application to invest.

All of the following may receive breakpoint discounts EXCEPT:

an investment club.

An investor interested in purchasing the stock of an electronics manufacturer based in Japan might prefer buying the American Depositary Receipt (ADR) to the actual stock because

any dividends are received in U.S. dollars rather than yen. & payment for the purchase is made in U.S. dollars rather than yen.

The conversion and exchange privilege offered by many mutual fund families permits the exchange of shares in one fund family for:

shares of another in that family at net asset value.

Money market

short term financing that offer liquidity and safety

Preferred Stock

stock with a fixed rate of return with no maturity date (offers income and safety) fixed percentage of par or a fixed dollar amount

All of the following statements relating to a deferred compensation plan are correct EXCEPT:

the covered employee must receive reports on the status of the plan no less frequently than annually.

A generic ad for an investment company placed by a broker-dealer would contain?

the name of the broker-dealer placing the ad, but not the name of the investment company

ADR = American depositary Receipts

trading of foreign stock in US markets

The 1035 provision may be used to transfer funds from one policy to another in each of the following instances EXCEPT:

variable annuity to life insurance policy

STRIPS

0 coupon -Separate trading of registered interest and Principal Securities ( banks gvnmt B/d) ( CPI adjust)- interest taxes capital gains ( backed by treasury

With regard to social media used for communication, all of the following would result in regulatory sanctions, EXCEPT:

A RR uses outside electronic addresses and Twitter among other sources to communicate with clients and provides copies to the firm.

Which of the following must be reviewed and approved by a principal before it may be sent out?

A communication sent to 36 prospective customers this week, recommending a new mutual fund & A communication sent to 36 of the firm's existing customers this week, introducing a new service offered by the firm

Which of the following constitute a public appearance?

A public appearance, which is considered a form of communication with the public, involves the personal presence of, or the possibility of interacting electronically with, an officer or other spokesperson of a firm.

All of the following would be subject to the Conduct Rules regarding public appearances EXCEPT:

A radio ad is not a public appearance, because it is not interactive. The other choices fit into the definition of public appearance and are required to meet the standards for public communications.

The Conduct Rules require that client suitability is paramount.

AAA rated bonds are suitable for an income oriented client. Government bonds will not provide high returns; they are designed for moderate income with safety of principal. Options are not suitable for a growth client

Realized Gains

Actual Profit Made

The KLP Fund is a blue-chip growth mutual fund that concentrates on the stock of manufacturing companies that have total capitalization of at least $7.5 billion. Bid prices on KLP shares have shown mild to moderate growth in recent years. In addressing a client for whom the fund appears to be a suitable investment, which of the following statements would NOT be permissible?

Actually predicting future performance for a nonexempt security is not permissible. Opinions may be offered, provided they are identified as opinions, not facts.

Their oldest child will enter college in four years, and the customers are very cautious investors. If they need a safe investment that provides regular income to help them meet tuition payments, which of the following mutual funds is the most suitable for these customers?

An investment-grade bond fund will provide the income and safety required for accumulating additional funds for college expenses.

A registered representative at your firm made a public appearance that was not subject to the rules of conduct regarding public appearances. Which of the following might it have been?

Announcement on television that your firm's offices have moved. The television appearance did not involve mention of securities. The others all fit into the definition of public appearance and are required to meet the same standards as other communications with the public.

A corporation needs shareholder approval for which of the following?

Four-for-one split. Shareholders have a right to vote on such items as mergers, reorganizations, re-capitalizations, and stock splits. Shareholders never vote on payment or size of dividends. Repurchase of shares for the treasury is a decision for the board of directors.

Investment representative hosts an investment seminar and intends to discuss general investment concepts and a specific mutual fund for which he has performance charts, which of the following are TRUE?

He may discuss the investment returns of the mutual fund as long as he uses a specific time frame. When discussing an investment, he must disclose all material facts pertaining to the investment, both negative and positive.

The prospectus for a fund states that the minimum initial investment is $500,000. This is most likely what type of fund?

Hedge. Hedge funds, due to their much higher risk, usually limit their investors to those who can afford to take that higher risk by having very high minimums.

Which of the following are TRUE about testimonials used in a public communication?

If the person giving the testimonial received compensation in excess of $100, this must be indicated & It must be clearly stated that the listener's experience may be different from that described in the testimonial.

Net Investment Income (NII)

Income gross investment Income-dividend & interest income from securities held in the portfolio- minus operating expenses (advertising & sales expense are not include)

Filing at least 10 business days before first use is required for which of the following?

Mutual fund advertisements placed by a broker-dealer that became a member of FINRA 7 months ago

There are a number of risks inherent in investing in equity securities. Which of the following stocks would be most affected by changes in interest rates?

Noncumulative preferred stock.

Which of the following services must a mutual-fund sponsor offer to be permitted to charge the maximum allowable sales charge for the fund shares?

Rights of accumulation. & Price breakpoints offering reduced sales charges for larger purchases.

If the current POP is $12.50 and the NAV is $11.80, the investor receives:

Shares are redeemed at NAV. If the investor redeems 300 shares at an NAV of $11.80, he receives $3,540 (300 × $11.80).

An investor owns $10,000 of shares in ABC bond fund. Due to a change in his financial situation, he wishes to exchange the bond fund shares for shares in ABC's aggressive growth fund. Which of the statements below correctly describes the tax consequences of this action?

The exchange is considered a taxable event that must be recognized in the current year.

Which of the following share classes typically have a higher expense ratio than Class A shares?

The expense ratio of no-load shares is comparable to that of Class A shares-that is, very low. Front-end load shares are Class A shares under a different name. Class B shares and Class C shares have the highest expense ratios. Class B shares do convert to Class A shares after the CDSC expires.

Under which of the following conditions is this solicitation EXEMPT from the Telephone Consumer Protection Act of 1991

The individual, who is not a customer, asked the representative to call him. & The individual is an active trader with an account

A mutual fund has a net asset value (NAV) of $7.80 per share, and the fund pays its underwriter a concession of $0.12 per share. If the fund has a sales load of $0.50 per share and an administrative fee of $0.15 per share, how much does the investor pay per share to purchase a Class A share of this fund?

The investor pays the public offering price (POP) when purchasing mutual fund shares. For a Class A share upon purchase, the POP is the NAV plus the sales charge.

An investor purchased 200 shares of ACE Fund when the POP was $11.60 and the NAV was $10.60. ACE Fund's current POP is $12.50, and current NAV is $11.50. If the investor liquidates his 200 shares now, he will have a:

The investor's cost basis in the shares is $11.60. If he liquidates, he will receive the net asset value of $11.50, resulting in a loss of $.10 per share. Liquidating 200 shares results in a total loss of $20 (200 × $.10).

Which of the following statements regarding letters of intent used in connection with mutual fund purchases are TRUE?

The letter may be backdated 90 days & Some shares purchased are held in escrow until the letter is completed.

Non-qualified Plans

are funded with after-tax money; plan does not need IRS approval; plan may discriminate; excess over cost base taxed; plan is not a trust; two types of plans: deferred compensation and payroll deduction programs

If your customer wants a source of retirement income that is both stable and will offer some protection against purchasing-power risk in times of inflation, you should recommend a:

combination annuity. Because the investor wants the advantages provided by both a fixed and variable annuity, a combination annuity would be suitable.

deferred compensation plan

contractual agreement between the company and employee in which the employee agrees to defer receipt of current income favor of payout at retirement; contributions have not been taxed and all distributions will be taxed ordinary income

Ginnie Mae (GNMA)

federal owned corporation that buys FHA and VA mortgages to create pass through certificates for investor sale (GNMA)

Performance charts of a particular mutual fund must be based on an assumption that the investor paid:

he highest sales charge.

Stock values-current market price (CMV) / book value

hypothetical liquidation value

Unhappy with their performance, he wishes to liquidate the entire account and move the money to shares of the XYZ Growth Fund and the XYZ International fund. In doing this, the client would:

incur a taxable event. & incur the full sales charge appropriate to the purchase of the XYZ shares.

T-Bonds

interest every 6 months greater than 10 yrs , callable - paid biannually

T-Bills

issued at auction for lower amount to receive face (par) amount (4, 13, 26, 52 wks) ( debt ) annualized discount yield basis.

In past years, XYZ Securities has focused primarily on high-net-worth individuals acquired through word of mouth and has never advertised. Their target market has expanded, and they have decided to begin advertising to the public. Under the rules on communications with the public, filing of advertisements

may be done within 10 business days after first use

A FINRA member firm must maintain the public offering price in all the following instances EXCEPT:

member-to-member.

Negotiable CD

minimum $ 100, 000 (banks) 365 days ( guaranteed and can be sold 2nd market) fully insured in any denomination by FDIC

Recommendations to a customer

must reflect the facts disclosed by the customer regarding other holdings and financial situations

Section 457 plans

non-qualified retirement plans set up by state and local government and tax-exempt employers for their employers for their employees and independent contractor that work for those entities

Section 457 Plans

non-qualified; setup by state and local government; tax exempt employers for their employees and IC. They function as deferred compensation plans in which earnings grow tax deferred and all withdraws are taxed at all time of distributions

Class B shares

often convert to Class A shares after the contingent deferred sales charge has expired.

T-Notes

pays interest every 6 months (intermediate 2-10 yrs)

Common stock

primary means of raising capital= equity - most junior a) Authorized - initial offered stock b) Issued - can be distributes to investors c) Treasury - stock repurchased by the company back from investors d) outstanding - investor owned stock

b. Commercial paper

promissory notes from a corporation - less than 270 days - exempt form registration

All of the following are considered public communications EXCEPT:

prospectuses.

Individual Retirement Accounts (IRA)

referred to as a traditional IRA. Anyone earned income and id under age 70 1/2 allowed ,able to make income

- Collateralized Mortgage Obligations (CMO)

securities created from pools of mortgages (local , state, fed tax) tranche- separates portions of cash flow