Series 6: Section 3- Provides Customers With Information About Investments, Makes Suitable Recommendations, Transfers Assets and Maintains Appropriate Records

For a mutual fund to issue shares publicly, what is the minimum net worth requirement

$100,000

The _______ fee is assessed against the funds assets to pay for marketing and distribution costs

12b-1 fee

What is the maturity range of a t-note

2 to 10 years

The maximum maturity of commercial paper is ____ days

270

A sale for a loss would trigger the wash sale rule if the same security is repurchased within _______

30 days of the sale

What is a suitable asset mix for a 65 year old retiree

85% fixed income and 15% equity

What is the dollar price of a T-bond with a bid of 98-24 and a par value of $100

98 and 24/32. Convert fraction into a decimal 24/32= .75. Now multiply $100 by 98.75%= 98.75$

At annuitization (payout), what will determine the annuitants payment

A fixed number of annuity units with a fluctuating value per unit

Prior to selling a variable annuity, hat legal document must a firm obtain

A signed selling agreement from the contracts underwriter

What is a partial account transfer

A situation in which a specifically identified asset is transferred to another BD

What is the appropriate investment for a doctor who is undecided about his long term asset allocation

A tax free money market fund

A funds management fee is typivally calculated based on a percentage of ______

AUM

List some expense items for which soft dollars may not be used

Accounting, travel, entertainment, legal, marketing, rent, or telephone line expenses

For what type of investor is a small-cap mutual fund most suitable

Aggressive investors, since the portfolio consists of small companies that are often volatile

What system is used for issuance of treasury securities

An auction

What is the tax implication of the death benefit of a variable annuity

Any amount above the contracts basis is taxable to the beneficiary

Define Current Assets

Assets that may be converted into cash in a short time (less than a year)

How is basis determined for the recipient of gifted securities

Basis ill be the donors cost or market value whichever is lower

Name 2 issues on which common stockholders may vote

Board of directors elections and stock splits

List some examples of non-systematic risk

Business, regulatory, legislative, political, liquidity, opportunity, and reinvestment risk are non-systematic risks

The principal value of TIPS may be adjusted based on changes to the _______

CPI

Which share class typically has the lowest expense ratio

Class A

What are 2 synonymous terms for a bonds interest rate

Coupon rate and nominal yield

If performance in a given period is greater than the AIR, the next payment will ___________.

Decrease

High-yield bonds have a greater degree of _________ risk

Default

What does yield-to-maturity (YTM) take into account that current yield does not

Discount/premium made or lost at maturity, reinvestment of interest at YTM, and time value of money

What is a fund's net investment income?

Dividends + interest - expenses

What is the formula for determining the number of shares able to be purchased when reaching a breakpoint

Dollars invested newly calculated offering price (based on the reduced sales charge)

In a non-qualified annuity, how is a single distribution taxed

Earnings First (LIFO)

True or False: If a mutual fund investor chooses to reinvest dividends, taxes ill be deferred

False

True or False: When interest rates go up, bond prices go up, and when interest rates go down, bond prices go down

False, there is an inverse relationship between interest rates and prices

True or False: Performance must be negative for a variable annuitys payment to fall

False. Performance below the AIR will cause the payment to fall, even if the investment result was positive

True or False: A value investor buys stocks With high P/E ratios

False. Value Investors buy stocks with lo P/E ratios, lo price-to-book ratios, and high dividend yields

Municipal bond interest is exempt from _______ tax

Federal

How is interest on municipal bonds treated for tax purposes

Federally tax-exempt, but may be subject to state and local tax

What annuity does not protect an investor against inflation?

Fixed (guaranteed) contracts are not a good hedge against inflation

What is a suitable investment in a college fund for a 3-yr old

Growth funds, since the child has a long term horizon

What is a suitable investment in a college fund for a 17-year old

High grade bond funds, since the individual has a short time horizon

What is the risk of taking a loan against a variable life policy

If the market declines, the cash value may be sufficient to pay the premium

To What risks would be treasury bond funds be subject

Interest rate, purchasing power, and market risk

What condition must exist for a municipal bonds interest to be exempt at the state and local level

Investors must buy the bond from the state in which they reside

What does the following quote indicate about the fund? Nav: $9.20 POP: $9.20

Its a no-load fund

What is the risk that changes in the tax could impact securities prices

Legislative risk

What is a common time frame for calculating the cash surrender value on a variable life insurance policy

Many companies calculate the cash surrender value monthly

What is a common time frame for calculating the cash value on a variable life insurance policy

Many companies calculate the cash value daily

If a client eliminates unsystematic or diversifiable risk in his portfolio, he is willing to accept______ risk

Market Risk

How may a mutual fund be capitalized

Mutual (open-end) funds may only issue common stock to raise capital

May an RR create her own breakpoint schedule

No RRs must follow the schedule found in the funds prospectus

Are variable life policies subject to IRS early withdrawal penalties

No but variable annuities would be subject to the penalty

Does the US government guarantee US government bond funds

No the government only guarantees the underlying bonds

Is a letter of intent binding on the investor?

No. However, the letter is binding on the investment company.

May an RR summarize a prospectus

No. any prospectus summary must be produced by the funds sponsor

If a client wants to transfer an account containing a non-transferable asset, hat is the carrying firms obligation

Notify the client and give her the option to maintain the asset in an account or dispose of the asset

In a non-qualified annuity, how is the payout taxed

Only the earnings portion is subject to tax as ordinary income

What is include in the cost basis of a mutual fund client

Original Investment + Reinvested dividends and capital gains

As a client ages, what happens to her premium payments in a variable life policy

Payments in a variable life policy remain fixed (level)

A measurement of frequency of trading in a mutual fund is called _________

Portfolio turnover

Each payment from GNMA will represent both ____________ and ____________.

Principal, Interest

A bond funds NAV has risen from $7.87 to $8.88. What has probably happened to interest rates

Rates have probably fallen

What ETF closely tracks the price performance of the S&P 500

SPDRs

For what type of investor is a micro-cap mutual funds most suitable

Speculative investors, since the portfolio consists of stocks of very small companies that are typically quite volatile

What is another name for non-diversifiable risk

Systematic Risk

Beta measures an investments ______ risk and alpha measures an investments _______ risk

Systematic, non-systematic

The following would be a quote for what security? Bid 4.26 Asked 4.22

T-bill

The formula for taxable equivalent yield is: ________/ (_______-_________)

Tax-Free yield/ (100%-Tax bracket %)

If non-transferable assets are being sold at the time of surrender, who discloses any surrender charges to the client

The carrying (former) BD

What happens to the CDSC holding period when a client switches to a new fund family

The clock is reset to day one whenever the client switches to a new fund family

Where is the best place to find information regarding share classes

The comparison table found in the funds prospectus

If the Green Fund has a NAV of $12.70 and a sales charge of 5.5%, what is the POP?

The formula is NAV/ (100% - Sales Charge%). $12.70/ 94.5%= 13.44

What is the net yield for and investor in the 28% tax bracket who owns an 8.5% corporate bond

The formula is: Taxable yield x (100% -Tax Bracket %). 8.5 x 72%= 6.12%

Mack, in the 35% tax bracket, is earning 5.4% on a tax-free municipal bond. What is his taxable equivalent yield?

The formula is: tax free yield/ (100% - Tax Bracket %). 5.4% 65%= 8.3%

A fund can be purchased below its NAV. what type of fund is it

The fund must be a closed end fund that is trading at a discount

A fund can be purchased below its NAV. what type of fund is it

The fund must be a closed-end fund that is trading at a discount

What are the requirements for being considered a regulated investment company

The fund must be a domestic company that distributes at least 90% of its net income

What does it mean to say an issuer is heavily leveraged

The issuer has more debt than outstanding equity

What is the tax implication of a policy loan on a life insurance policy

The loan is not taxed, but interest is charged on the outstanding balance

What is not included in a mutual funds expense ratio

The sales charge, since only fees are included

With what should a client be concerned if an RR recommends changing fund families

The specific motivation. For example, the RR may be involved in churning

What is the dollar limit that may be contributed annually to a non-qualified annuity

There is no contribution limit

Describe the tax treatment of contributions made to a 529 Plan.

They are after-tax contributions that may possibly grow tax free

What is the formula for determining the average cost per share

Total dollars invested/ total shares purchased

True or False: ETFS are marginable and may be sold short

True

true or False: Zero coupon bonds would a suitable recommendation for college funding

True, especially since clients may want to avoid stock market risk

True or False: Regulated investment companies (under subchapter M) may relieve their burden of paying tax on income

True. Regulated investment companies will only be taxed on the income retained

True or False: Interest paid on GNMA, FNMA, ETC, bonds are fully taxable to investors

True. the interest is taxed at the federal, state, and local level

Mutual fund investors have an ______ interest in the securities in the portfolio

Undivided

May a person contribute to her own 529 plan

Yes

May close-end funds issue more than one type of security

Yes closed-end funds may issue common stock, preferred stock, or bonds

May annuities be purchased inside of IRAs

Yes, but this practice is typically not recommended by FINRA

May clients invest in an out-of-state 529 plan

Yes. Clients may choose to invest either in state or out of state

What amount of an investment company's Board of Directors must be independent/unaffiliated?

a majority

When discussing a bond, the YTM may also be referred to as _____

basis

How may close end fund be capitalized

close-end funds may issue bonds, common stock, or preferred stock to raise capital

Issuers of bonds may be referred to as ______

debtors

If performance in a given period is below the AIR, the next payment will _______

decrease

The __________ the duration, the greater the bonds volatility sensitivity

longer/greater

Does a funds yield include capital gains

no, Capital gains are part of a funds total return

What action would be taken by a mutual fund manager who is bearish on the market

raise cash levels in the fund

An annuity that offers a partial guaranteed payment and a partial variable payment is known as a _____ contract

split

If a member firm places a hold on the disbursement of client funds or securities, when must it provide notification

within 2 business days