Investment Company Products

To make a public offering, a registered investment company must have a minimum net worth of:

$100,000

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? A) 7.8. B) 8.57. C) 8.42. D) 8.3.

$8.30 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.

What type of sales load do Class C shares carry?

12b-1 fees

After a mutual fund's tenth year, performance statistics must show results for each of the following periods EXCEPT: A) 1 year. B) 10 years. C) 5 years. D) 3 years.

3 years Mutual fund performance statistics must show results for 1, 5, and 10 years, or the life of the fund, whichever is shorter.

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? A) 9500. B) 50. C) 500. D) 9950.

50 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.

Any concession earned by the member selling the shares must be returned to the principal underwriter of the fund if the shares are redeemed within ___ business days of purchase.

7 days

All of the following terms apply to municipal unit investment trusts EXCEPT: A) managed. B) registered. C) regulated. D) redeemable.

A) managed. Municipal UITs buy bonds and hold them until redemption or call. The bonds are not actively traded so the portfolio is not managed but is overseen by a trustee.

A registered representative (RR) has just explained to a customer that to purchase a particular security the customer would pay the asking price plus a commission, not a sales charge. Which of the following is the RR is speaking of? A) Mutual funds B) All management company offerings C) All open-end funds D) Any closed-end fund

Any close-end fund

If a customer submits a redemption order to her broker/dealer after the close of the New York Stock Exchange, she will receive a price based on the net asset value computed: A) the same day regardless of when the order is received. B) the next time the fund computes it. C) the previous business day. D) within the next 2 business days.

B) the next time the fund computes it. Orders to redeem shares are executed at the next computed price.

A tax-exempt bond fund may invest in: A) short-term money market instruments. B) common stock. C) corporate bonds. D) municipal bonds.

D) municipal bonds.

What type of sales load do Class B shares carry?

Deferred, or back-end, load

Capital gains distributed by a mutual fund to shareholders are reported and taxable for the year: A) the shareholder chooses but not later than 2 years after all shares are redeemed. B) paid by the fund. C) the shares are redeemed by the fund. D) earned (accrued).

Earned (accrued)

What type of sales load do Class A share carry?

Front-end load

If a client prefers mutual fund investments in companies that primarily generate capital appreciation to companies that pay a steady dividend, what type of mutual fund and associated investment objective would you recommend?

Growth fund

12b-1 fees can only cover what? (two items)

Promotional and other distribution expenses

Which of the following types of mutual funds has capital appreciation as its investment objective? A) Balanced. B) Municipal bond. C) Specialized. D) Income.

Specialized A specialized fund is one that invests in stocks of one particular industry or region, and its main objective is capital or price appreciation.

If an investment company invests in a fixed portfolio of municipal or corporate bonds, it is classified as a:

Unit investment trust

A transfer agent is responsible for all of the following EXCEPT: A) issuing new shares. B) distributing dividends and capital gains. C) safeguarding the physical assets of the investment company. D) canceling shares.

safeguarding the physical assets of the investment company. The custodian, not the transfer agent, is responsible for safeguarding the physical assets of the investment company.

If the ABCD mutual fund has a $25,000 breakpoint on its Class-A shares where the sales charge decreases from 5% to 4%, which of the following purchases would likely represent a breakpoint sale? A) 32000. B) 18000. C) 24000. D) 26000.

24,000 A breakpoint sale occurs just below a breakpoint where the customer could realize a reduced sales charge. Selling mutual fund shares to a customer just below a breakpoint (to share in the higher sales charges applicable to those sales) is a rules violation.

Encouraging a customer to purchase mutual fund shares in an amount just under the next dollar volume bracket (which entitles the customer to a reduction in sales charges) or remaining silent on the matter is called: A) interpositioning. B) a breakpoint sale. C) selling away. D) front running.

A breakpoint sale

If a mutual fund's objective is income, it would NOT hold which of the following securities in its portfolio? A) Preferred stock. B) Income bonds. C) Corporate bonds. D) U.S. T-notes.

B) Income bonds.

An investment company share purchased at its NAV that can always be redeemed later at its then-current NAV is a: A) Class A share. B) Class D share. C) Class B share. D) Class C share.

Class C share Class C shares have only a level load (a 12b-1 fee) which is taken from net assets (DOESN'T affect NAV)

One of your clients purchased shares of the Ajax Mutual Fund several months ago. At that time, the NAV of the fund was $17.20. Today, the NAV is $17.56 and your client wants to know what accounts for the difference. You should advise him that the difference likely represents: A) unrealized appreciation. B) realized appreciation. C) capital losses. D) capital gains.

A) unrealized appreciation. The NAV of mutual funds is marked to the market daily; the increase reflects higher market prices for the securities in the fund's portfolio.

Each of the following is a characteristic of money market funds EXCEPT: A) Stable NAV. B) High beta . C) Portfolio of short-term debt instruments . D) Offered without a sales load .

B) High beta Beta is a measure of volatility; money market funds have low betas

All of the following events will affect the NAV per share of a mutual fund EXCEPT: A) Changes in the market value of the fund's portfolio of securities . B) Wholesale redemption of fund shares . C) The fund pays dividends to its shareholders. D) The fund receives cash dividends on the securities in its portfolio .

B) Wholesale redemption of fund shares

If a married couple with a long-term growth objective is considering a mutual fund and they are concerned about the fund's annual expenses, they should select a: A) preferred stock fund. B) common stock fund with a low portfolio turnover. C) common stock fund with a high portfolio turnover. D) long-term corporate bond fund.

B) common stock fund with a low portfolio turnover. The bonds won't provide the necessary long-term growth that the stock could provide

Mutual fund shares represent an undivided interest in the fund, which means that: A) investors can only purchase full shares. B) each investor owns a proportional part of every security in the portfolio. C) the fund can only hold securities of certain companies . D) the number of shares outstanding is limited to a predetermined maximum.

B) each investor owns a proportional part of every security in the portfolio.

The capital structure of an open-end investment company can include: A) only debt issues with no bank borrowing allowed. B) one issue of common stock and limited bank borrowing. C) preferred and common stock with no bank borrowing allowed. D) preferred stock, common stock, and bonds.

B) one issue of common stock and limited bank borrowing.

For a customer interested in buying an inverse exchange traded fund (ETF) tracking the performance of the Standard & Poor's 500 index, which of the following market views would make that purchase most inappropriate? A) Bearish B) Bullish C) Neutral D) Both bullish or bearish

Bullish If the index rises with the anticipated bullish market, the fund that delivers returns that are the opposite of the index would fall in value.

Which of the following are functions of an investment company's custodian bank?I. Safekeeping of portfolio securities and cash. II. Providing portfolio advice regarding transactions. III. Maintaining asset records for the fund. IV. Safekeeping of customer securities. A) II and IV. B) II and III. C) I and III. D) I and IV.

C) I and III.

A customer begins to explain what he understands about open-end investment companies registered as mutual funds. He makes several statements, all of which are correct EXCEPT A) if I want to sell my shares, the fund must redeem them no matter how many I want to sell within 7 days of my order B) if I invest in fund shares, it gives me mutual ownership of all of the assets in the fund portfolio C) I can purchase or sell these shares during normal trading hours at the current market value at the time my order is entered D) the fund can sell new shares in any amount at any time it wants to

C) I can purchase or sell these shares during normal trading hours at the current market value at the time my order is entered

A customer invests $18,000 in a mutual fund and signs a letter of intent for $25,000 in order to qualify for a breakpoint. One year later, the shares are valued at $25,100 even though he has made no new investments. Which of the following statements regarding the above situation is TRUE? A) The investment no longer qualifies for a breakpoint. B) Shares held in escrow will be liquidated at the appreciated value. C) The representative should remind the customer that he signed a letter of intent 12 months ago. D) The letter of intent is considered to be fulfilled.

C) The representative should remind the customer that he signed a letter of intent 12 months ago. The representative should remind the customer of his intention to qualify for the reduced sales charge.

The maximum sales load may be charged on the purchase of shares from an open-end investment company that offers all of the following EXCEPT: A) quantity discounts. B) dividend reinvestment at NAV. C) exchange privileges. D) rights of accumulation.

C) exchange privileges.

A FINRA member broker/dealer trading in shares of an open-end investment company may NOT buy shares of the fund: A) for the firm's own investment purposes. B) to cover existing orders. C) for the purpose of resale at a later date. D) at a discount from the public offering price.

C) for the purpose of resale at a later date.

The result of dollar cost averaging is to: A) obtain a lower average price per share than average cost per share. B) take advantage of a non-fluctuating market. C) obtain a lower average cost per share than average price per share. D) take advantage of a bullish market by buying more shares in a rising market.

C) obtain a lower average cost per share than average price per share.

Investment company shareholders must receive financial reports at least semiannually. All of the following are true regarding these reports EXCEPT A) a valuation of all securities in the IC portfolio as of the date of the balance sheet provided in the report must be included B) one of the semiannual reports must be audited C) the report is regulated under FINRA's rules regarding communications with the public D) a statement of all compensation paid to the board of directors (BOD) must be included

C) the report is regulated under FINRA's rules regarding communications with the public

Which of the following trade actively in the secondary market? I.Open-end funds. II.Closed-end funds. III.Unit investment trusts. IV.REITs. A) I and II. B) III and IV. C) I and III. D) II and IV.

D) II and IV.

When calculating net investment income, an investment company includes: A) only interest. B) just dividends plus interest. C) only dividends. D) dividends plus interest, minus operating expenses.

D) dividends plus interest, minus operating expenses.

Certain events will affect the net asset value (NAV) per share of a mutual fund. Which of the following events will NOT affect NAV? A) The fund receiving cash dividends on the securities in its portfolio B) The fund paying dividends to its shareholders C) Fund shares being redeemed by the fund upon the request of shareholders D) The value of the fund portfolio's securities fluctuating

Fund shares being redeemed by the fund upon the request of shareholders Although share redemption will reduce total net asset value, the number of shares outstanding decreases in proportion, so the NAV per share stays the same.

SEC rules require that open-end management companies distribute dividends to their investors from the firm's: A) capital gains. B) portfolio earnings. C) gross revenue. D) net investment income.

Net investment income