SIE STC Ch. 7
The fund that would probably have the least price volatility is a(n): AInternational equity fund BGrowth fund CLong-term municipal bond fund DShort-term corporate bond fund
In general, bond funds are less volatile than equity funds. Within the bond category, the NAVs of short-term bond funds are considerably less volatile than long-term bond funds whether corporate or municipal.
The fund that would probably have the most price volatility is a(n): AInternational equity fund BGrowth fund CIncome fund DMunicipal bond fund
In general, bond funds are less volatile than equity funds. Within the equity category, the NAVs of growth and income bond funds are considerably less volatile than international equity funds whether corporate or municipal. International equity funds are not only vulnerable to market risk, but exchange and political risk as well.
A breakpoint sale is BEST defined as: AA payment of compensation to a registered representative who has ceased to be employed by a member firm BThe sale of investment company shares in anticipation of a distribution soon to be paid CThe sale of investment company shares in dollar amounts just above the point at which the sales charge is reduced on quantity transactions DThe sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions
A breakpoint sale is the sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity purchases. This practice is done to assess higher sales charges on transactions and is a violation of the Conduct Rules.
Jamie has inherited 500 shares of an investment company. She calls her broker to redeem the shares and is informed that the kind of investment company she owns makes no provision for future purchases or redemptions. What kind of investment company does she own? AAn open-end fund BA closed-end fund CA unit investment trust DA face-amount certificate company
A closed-end fund makes no provision for future purchases or redemptions from the issuing fund. Shares are bought and sold in the open market in the same manner as the common stock of corporations. All of the other types of funds listed do provide for future purchases to and redemptions from the fund. -Typically conduct a one-time issuance of common shares to the public
A contingent deferred sales charge (CDSC) is associated with which share class? AA no load BClass A shares CClass B shares DClass C shares
A contingent deferred sales charge is a declining sales charge and is associated with Class B shares. Many annuity contracts also have contingent deferred sales charges. CDSCs must be considered when a registered person recommends for a client to move assets from one fund/contract to another.
Which of the following stipulations is NOT included in a letter of intent? AThe maximum time limit for the letter of intent is 13 months. BThe letter of intent may be backdated for up to 90 days. CThe fund may stop redemptions during the duration of the letter of intent. DThe fund may place some of the initially purchased shares in an escrow account to protect against the failure to fulfill the letter of intent.
A letter of intent (LOI) has a maximum duration of 13 months and may be backdated for up to 90 days to include previous purchases. Also, to protect against the client's failure to fulfill the letter of intent, a certain amount of the initially purchased shares may be placed in an escrow account by the customer's broker-dealer. If the terms of the letter are not met, the shares in the escrow account will be liquidated and used to cover any additional sales charges that are due. The letter of intent will not contain a clause which stipulates that redemptions are prohibited during the 13-month period.
Which of the following is BEST defined as a provision which provides a sales charge discount (breakpoint) for making mutual fund share purchases without initially depositing the entire amount required? ADividend reinvestment BA letter of intent CDollar cost averaging DRights of accumulation
A letter of intent qualifies an investor for a sales charge discount (breakpoint) for making mutual fund shares purchases despite the fact that the required amount has yet to be deposited. The rights of accumulation provision gives investors the ability to receive cumulative quantity discounts when purchasing 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.
Which of the following investments can be purchased on margin? AOTC equities BClosed-end fund shares COpen-end fund shares DVariable annuity units
According to the FRB, shares that are listed on a national exchange (e.g., NYSE or Nasdaq) are marginable. Closed-end fund shares are listed on an exchange, traded in the secondary market, and are marginable. Remember, OTC equities are not listed on an exchange; instead, they trade through the OTCBB and OTC Pink Marketplace.
An investor in a mutual fund: AOwns the actual securities in the portfolio BOwns shares which represent an interest in the portfolio CIs considered a creditor of the portfolio DIs considered a limited partner in the fund
An investor in a mutual fund owns shares which represent an interest in the portfolio, but does not actually own the assets or shares that are held in the mutual fund's portfolio.
An investment company that is purchased in installments and that matures at a fixed-dollar amount is called a: AFace-amount certificate company BUnit investment trust CVariable annuity contract DManagement company
Face-amount certificate companies issue certificates of the installment type. The investor makes periodic payments and receives a fixed sum at the end of the period. Lump-sum payment certificates are also available.
According to current regulations, if a client redeems his mutual fund shares, the fund company must send the payment within: A3 days B5 days C10 days D7 days
Federal regulations require that funds send payment for the redemption of mutual fund shares within seven days.
All of the following are likely to be found in the portfolio of a money-market fund, EXCEPT: ABank certificates of deposit BTreasury bills CTreasury bonds that have a short time to maturity DCommon stock
For a money-market fund, the underlying securities are short-term debt securities. Therefore, common and preferred stock are not found in a money-market fund's portfolio
Which one the following statements concerning money-market funds is TRUE? AThese funds will maintain a stable NAV of one dollar. BThese funds are typically invested in Treasury bonds. CThese funds are FDIC insured. DThese investments are liquid.
Money-market funds are investments in which investors park cash holdings to wait out dips in the market or to maintain a source of liquid funds. These mutual funds are not FDIC insured, and will not necessarily maintain a stable NAV. Money-market funds would typically hold short-term investments such as T-bills, not T-bonds.
Emma Thornton, a new customer, is interested in purchasing shares of the Topcat Diversified Equity Fund. The NAV of this fund is $19.03. The maximum sales charge is 8 1/2%, with 1 1/2% paid out to the sponsor. The fund offers breakpoints as follows: Amount Purchased Sales Charge as a Percentage of the Offering Price $1,000 - $25,000 8 1/2% $25,000 - $50,000 7 1/2% $50,000 - $100,000 6 1/4% $100,000 + 5% Ms. Thornton indicates that she has $72,000 to invest. How many shares will she purchase for her $72,000?
Ms. Thornton is purchasing at the 6 1/4% breakpoint level. By dividing the NAV of $19.03 by the complement of the sales charge of .9375 (100% - 6 1/4%), her purchase price is $20.30. Dividing the $72,000 investment by the $20.30 price per share equals 3,546.798 shares, which is, rounded to the next whole share, 3,547.
In what way are mutual funds and REITs similar? ATheir securities are traded on an exchange. BThey are actively managed. CTheir securities are redeemable by the issuer. DThey offer flow through of losses.
Mutual funds and REITs both have portfolios that are managed, with investments that are purchased and sold on a regular basis. REIT securities trade on exchanges, but mutual fund shares do not. Instead, mutual fund shares are redeemable by the issuer. Neither mutual funds nor REITs offer flow through of losses.
The ability to reduce sales charges on mutual fund shares that are purchased through a front-end load is available to: ASpouses who maintain separate accounts and who purchase shares in different fund families BAn individual who signs a letter of intent CImmediate family members who live apart and independently purchase shares in the same fund family DA trustee purchasing shares from the same fund family for different trust accounts.
Reduced sales charges, also referred to as breakpoints, are only available on fund shares that are purchased with front-end loads. The reduction can be achieved by signing a letter of intent or through rights of accumulation. However, they are only available when shares are purchased from the same fund family. In order for the reduction to apply to other family members, they must be immediate family members and dependent children. A trust can qualify for breakpoints, but not by consolidating the assets of multiple trusts
Which of the following is an advantage of a unit investment trust as compared to a managed mutual fund? AIt usually has lower operating costs. BIts securities are redeemable. CThe manager can adjust the portfolio when market conditions change. DIt is not registered with the SEC.
Since unit investment trusts (UITs) have fixed portfolios with no manager, they have no management fee. Therefore, UITs have lower operating costs than most mutual funds. Both UITs and mutual funds issue redeemable securities and are registered with the SEC under the Securities Act of 1933 and the Investment Company Act of 1940.
Which of the following entities is responsible for the safeguarding of the securities that are owned by a mutual fund? AThe registrar BThe custodian bank CThe sponsor DThe transfer agent
The custodian bank is responsible for the safekeeping or safeguarding of the securities that are owned by a mutual fund. The custodian bank has no responsibility relating to the management of the fund's portfolio.
An increase in which of the following choices will cause an increase in the expense ratio for an investment company? ARedemptions BManagement fees CNet asset value DShareholders
The expense ratio depends on the fees that are charged against the net assets of the fund. The only fee listed in this question is the management fee.
Which of the following is TRUE if a mutual fund investor chooses to implement a systematic withdrawal plan from the fund? AThe dividends and capital gains that are generated from the fund will be sufficient to make the payments. BAll payments will end on a specific date. CThe amount of each payment will remain the same. DThe withdrawals result in a reduction of capital.
The only true statement is that the plan results in the reduction of capital, since shares will need to eventually be redeemed to make payments. Systematic withdrawal plans provide an investor with regular payments. These payments can be structured as fixed-dollar, fixed-percentage, or fixed-time. The option chosen determines whether the payments will remain the same or whether they will cease on a specific date. Payments will first come from dividends and capital gains that are generated from the fund, but after those funds are no longer sufficient, shares will be redeemed to provide the payments.
