Series 52

Which of the following terms is NOT associated with a variable annuity? A. Surrender charge B. Death benefit C. Commission D. Sales charge

C. Commission The term commission is associated with buying and selling individual securities, not annuities. On the other hand, the term sales charge or load is associated with buying or redeeming units of a variable annuity or shares of a mutual fund

The market price of ABC Corporation common stock is $56 and its quarterly dividend is $0.75. What is the stock's current yield? A. 0.0536 B. 0.0134 C. 0.026 D. 0.068

A. 0.0536 A stock's current yield is found by dividing the annual dividend by the current market price of the stock. In this example, the stock's annual dividend is found by multiplying the $0.75 quarterly dividend by 4, which is $3.00. Therefore, the current yield is 5.3% ($3.00 ÷ $56).

The member of a limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management is the: A. General partner B. Senior limited partner C. Management committee which is chosen by the limited partners D. Syndicator

A. General partner The general partner is the member of the limited partnership who assumes liability for the debts of the entity and is usually concerned with its overall management.

A hedge fund is: A. A mutual fund designed for accredited investors A. private investment fund designed for wealthy, sophisticated investors C. A type of private placement variable life insurance D. Another name for a balanced fund

A. private investment fund designed for wealthy, sophisticated investors Hedge funds are private investment pools designed for wealthy, sophisticated investors. Accredited investors include wealthy, sophisticated individuals but hedge funds are not mutual funds.

The Bond Buyer Index is based on which of the following securities? A. Treasury bonds B. Municipal bonds C. Corporate bonds D. Mortgage bonds

B. Municipal bonds Municipal bond indices are created by The Bond Buyer. The Bond Buyer is a financial publication that specializes in the municipal market.

What is the breakeven point for the buyer of a call option? A.The strike price minus the premium B. The strike price plus the premium C. The strike price D. The market price plus the premium

B. The strike price plus the premium The holder (purchaser) of a call expects the market price of the underlying security to rise and therefore will profit from a rise in the security. The breakeven point for the buyer of a call option is the strike (exercise) price plus the premium. For example, a customer who purchases an XAM June 40 call at 3 would break even if XAM was trading at $43. The breakeven point for the buyer of a put option is the strike price minus the premium.

The shares of a closed-end fund that trades on the NYSE has a current price of $21.70. A customer who purchases the shares will pay: A. $21.50 plus a commission B. $21.50 plus a sales charge C. $21.70 plus a commission D. $21.70 plus a sales charg

C. $21.70 plus a commission The purchasing customer will pay $21.70 plus a commission. Shares of a closed-end fund are purchased and sold like any other stock that trades on the NYSE. The customer will pay the offer price plus a commission on purchases or receive the bid price less a commission on sales. The term sales charge refers to the built-in compensation that's assessed by open-end (mutual fund) companies when a customer buys the fund's shares

If a bond has a basis of 4.35 and a coupon rate of 4.95%, the bond is selling at: A. A discount B. Par value C. A premium D. A price that cannot be determined from the information given

C. A premium Bonds may be quoted based on their yield-to-maturity, which in this example is 4.35 (basis and YTM are synonymous). Since the bond has a yield-to-maturity (basis) of 4.35%, which is lower than the 4.95% nominal yield (coupon rate), the bond is selling at a price that is above the par value of $1,000 (i.e., a premium). On the other hand, if the yield-to-maturity was higher than the nominal yield, the bond would be selling at a discount.

All of the following statements are TRUE of 529 plans, EXCEPT: A. Withdrawals that are used for educational purposes are not subject to federal taxation. B. There are no income limits placed on contributors. C. Contributions are unlimited. D. A married couple may make a lump-sum contribution of $150,000 without incurring federal gift taxes.

C. Contributions are unlimited. Although the contribution limits for a 529 plan are quite high, they are not unlimited. Each state establishes the maximum amount that may be contributed to all 529 plans maintained for one beneficiary. All of the other statements are correct. However, it's important to note that an investor who contributes the maximum amount allowable to a 529 plan may incur federal gift taxes. A single investor may contribute up to $15,000 per year ($30,000 for a couple) for each beneficiary without incurring gift taxes. An investor may also aggregate five years' worth of annual contributions and give a lump sum of $75,000 ($150,000 for a married couple) without incurring federal gift taxe

Which of the following objectives is the least suitable reason for investing in a mutual fund? A. Diversification B. Professional management C. Short-term trading D. Liquidity

C. Short-term trading Investors in mutual funds usually seek all of the objectives listed except short-term trading.

Which of the following choices best describes the price that a mutual fund investor receives when she redeems her shares? A. The bid price of the previous day's close B. The current offering price C. The next computed bid price on the day that the shares are redeemed D. The next computed asked price on the day that the shares are redeemed

C. The next computed bid price on the day that the shares are redeemed A mutual fund investor who redeems her fund shares will receive the next computed bid price on the day that the shares are redeemed.

Which of the following is defined as an investment company? A. Hedge fund B. Private equity fund C. Unit investment trust (UIT) D. Real estate investment trust (REIT

C. Unit investment trust (UIT) Unit investment trusts, face amount certificates, and management companies (open-end and closed-end) are defined as investment companies. Although hedge funds, private equity funds, and REITs have characteristics that are similar to investment companies, they are not investment companies. (17531)

A bond with a 4% coupon is priced at a 3.20 basis. If the bond's yield-to-maturity decreased by 10 basis points, the yield would be: A. 3.90% B. 3.30% C. 4.10% D. 3.10%

D. 3.10% If a bond is priced at a 3.20 basis, this means that it is priced to yield 3.20 or has a YTM of 3.20%. If the bond's basis decreased by 10 basis points, the new yield-to-maturity is 3.10%. The fact that the bond has a 4% coupon rate is relevant for determining whether the bond is trading at a premium or discount to par value. Since the bond's YTM is less than 4%, the bond is trading at a premium.

Two years ago, an investor bought mutual fund shares. Today, if the investor intends to purchase additional shares, she can obtain a reduced sales charge by using: A. A letter of intent B. Dividend reinvestment C. Dollar cost averaging D. Rights of accumulation

D. Rights of accumulation The rights of accumulation provision gives investors the ability to receive cumulative quantity discounts when purchasing additional mutual fund shares. Under the rights of accumulation provision, rather than using the original purchase price, the current market value of the investment plus any additional investments is used to determine the applicable sales charge. Once a breakpoint is reached, all future purchases qualify for the reduced sales charge. On the other hand, a letter of intent qualifies an investor for a discount that's made available through breakpoints without initially depositing the entire amount required.

If an investor expects a sharp increase in a stock's price, which of the following will be the most profitable? A. Sell puts B. Buy puts C. Sell calls D. Exercise rights

Exercising preemptive rights, similar to exercising long call options, will provide investors with an unlimited potential gain if the price of the underlying stock rises. If investors expect a stock's price to rise, selling puts will provide a profit, but maximum profit is limited to the premium received on the sale of the puts. Buying puts and selling calls are both bearish positions and are only profitable if the underlying stock's price falls.