Questions I Got Wrong

An investment company would compute its expense ratio by dividing the

annual operating expenses by the average net assets

Closed-end companies

priced by supply & demand

federal funds rate

rate that member banks charge each other for overnight loans

discount rate

source for loans to member banks from NY Federal Reserve Bank

A 65-year-old woman makes a contribution of $13,000 to a nonqualified tax-deferred annuity. The current value of her account is now $23,000. What is her cost basis for tax purposes?

$13,000

A 7% bond is quoted with a yield-to-maturity of 4.5%. The next time interest is paid, an investor who owns $1,000 face amount of the bonds will receive

$35 The total amount paid each year on 1 bond is $70. The amount of semi-annual interest is $35.

Which of the following are characteristics of exchange-traded funds (ETFs)?

- They are priced by supply and demand. - They are designed to track an index.

Warrants

- Warrants may be attached to another of the issuer's securities. - Traded in the secondary market - Warrants have an exercise price above the current market price of the common stock when issued.

An investor has purchased an index annuity with a participation rate of 80% and a minimum guaranteed return of 3%. At the end of the annuity period, the index has shown 9% annual growth. What will be the annuitant's annual return?

7.2% The annuitant will be credited with the participation rate multiplied by the index's return-that is, 80% × 9%, which is 7.2%.

Security industry rules permit the purchase on margin of shares for which of the following securities?

Closed-end investment company traded on the NYSE ABCD Corporation common stock, a Nasdaq Global Select security

Variable life insurance

Death benefit: calculated annually Cash value: calculated monthly -> in separate account Unit values: calculated daily

Which of the following organizations controls the lending of money for securities transactions by broker/dealers and banks?

Federal Reserve Board (FRB) created by Congress to oversee the banking industry, maintain and influence the money supply, and direct the extension of credit in the securities industry.

T-bill

Issued at a discount Pay all interest on maturity

Mutual funds must do all of the following EXCEPT

Maintain fully diversified portfolios They must: issue shares with voting privileges redeem their shares on request publish their management fees

When you inherit a mutual fund upon the death of the owner, what is your cost basis in the shares?

Net asset value (NAV) of the shares upon the decedent's death

Which of the following characteristics describe the net asset value per share?

Net asset value (NAV) per share increases or decreases when assets in the portfolio increase or decrease in value. NAV decreases when the fund distributes a dividend. Redeeming or purchasing shares and reinvesting dividends or capital gains have no effect on NAV.

Which of the following is the usual source of a mutual fund's capital gains distribution?

Net long-term gains resulting from the sale of securities in the fund's investment portfolio

Under rising stock market conditions, which of the following funds would most likely experience the greatest amount of appreciation?

Of the choices given, a common stock fund appreciates the most when the stock market is rising. Funds that invest in bonds, like income and balanced funds, appreciate more when interest rates fall.

Which of the following is NOT a basic responsibility of an investment banker?

Providing a secondary market for securities that have been issued

All of the following would be found in an investment company's semiannual report to shareholders EXCEPT a

Proxy Would be found: - list & value of securities owned - balance sheet - statement of income

The NAV of which of the following mutual funds is likely to have the highest volatility?

Specialized

An investor in the 28% income tax bracket is considering purchasing either a 4% municipal bond or a 5% corporate bond. Which of the following statements regarding the two bonds' after-tax yields is TRUE?

The municipal bond's yield is higher than the corporate bond's yield. To compare the two bonds, use the tax-free equivalent yield formula: (taxable yield) × (100% − tax bracket) = (tax-free equivalent yield). In this case, 5% × (100% − 28%) = 5% × .72 = 3.6%. Because the municipal bond yields 4% tax free, the investor should buy it; after taxes have been paid, the corporate bond yields only 3.6%.

Prime rate

The prime rate is the rate commercial banks use to determine the interest to be charged to their most creditworthy commercial customers.

Which of the following statements is TRUE concerning variable life separate account valuation?

Unit values are computed daily and cash values are computed monthly.

The basic characteristic of common stocks that makes them a suitable form of investment for variable annuities is

their total return tends to be greater than increases of the standard of living over time (fight inflation)

All the following statements regarding the exchange of a cash value life insurance policy for an annuity under Internal Revenue Code Section 1035 are true EXCEPT

under Section 1035, a tax-free exchange may occur only if the original contract is exchanged for a contract issued by the same insurance company **Both contracts do NOT need to be issued by the same company