Passing this Exam
Jeremy has been investing in a variable annuity for the past six months and has paid $800 in sales charges. If he owns 1,000 accumulation units valued at $5 each, the value of his interest in the separate account is:
$5,000.00
How long is the free-look period for a variable life insurance policy?
10 days after delivery. 45 days after application.
During the accumulation period of a variable annuity contract, an investor will receive which of the following?
A deferral of tax liability on investment income and capital gains earned in the separate account.
SEC regulations for securities issued by investment companies prohibit which of the following?
Open-end funds from issuing preferred stock. Open-end funds from issuing bonds.
Which of the following funds would you expect to have only debt instruments in their portfolios?
The Excelsior High-Yield Fund. The KPL Money Market Fund.
A customer has a variable life policy and has made 2 annual premium payments. From the 1st year's premium, $600 was deducted in sales charges. From the 2nd year's premium, $400 was deducted. If the customer terminates the policy after 2 years, which of the following statements are TRUE?
The customer receives the policy cash value only.
A 28 year old investor wishes to start saving for his daughter's college education. Which of the following would be the least appropriate investment vehicle for this plan?
Variable annuity
A registered representative with a Series 6 registration can sell which of the following:
a mutual fund that redeems its own shares.
A no-load fund sells its shares to the public:
by a direct sale from the fund to the investor.
A variable annuity contract guarantees:
fixed mortality expense. capped administrative expense.
Variable annuity payout options may include:
life only. joint life with last survivor.
Separate accounts are similar to mutual funds in that both:
may have diversified portfolios of common stock. give investors voting rights.
All of the following are exempt securities EXCEPT:
municipal bond funds.
The result of dollar cost averaging is to:
obtain a lower average cost per share than average price per share.
If a member firm is notified by FINRA that it must begin tape-recording the phone calls of its assistant representatives and registered representatives to existing and potential customers, it must do so within how many days of notification?
60
As written in the Investment Company Act of 1940, all of the following statements are true EXCEPT
A company must have commitments for at least $100,000 in net assets, not $1 million.
Assuming that expense ratios for the funds listed are identical, rank the funds below in order, from lowest to highest expected income yield.
Growth Stock Fund Municipal Bond Fund Government Bond Fund Corporate Bond Fund
According to the Conduct Rules, a FINRA member must do which of the following?
Authorize a registered representative to share in a client's profits or losses only in writing.
If still employed beyond age 70½ , which of the following is TRUE?
Contributions to the company 401(k) are permitted, and the required beginning date for distributions from the 401(k) is delayed.
Under the conduit theory of taxation, which of the following statements are TRUE?
Investors are taxed on earnings they receive in cash. A fund is not taxed on earnings it distributes if it distributes at least 90% of its net investment income.
Arbitration and mediation are two services provided by FINRA to settle disputes between members. Regarding these services, which of the following statements are NOT true?
Mediation is mandatory; arbitration is not. If arbitration is unsuccessful, the dispute moves on to mediation.
Which of the following is guaranteed by a variable life policy?
Minimum death benefit.
Which of the following is a key advantage of purchasing a variable annuity?
Tax deferral.
If an elderly widower wants his investments to provide high current income, the representative should recommend:
a mutual fund that matches the investor's stated objective.
At age 65, your customer purchased an immediate variable annuity contract. He made a lump-sum $100,000 initial payment and selected a life income with ten-year period certain payment option. The customer lived until age 88. The insurance company made payments to him: 3.10.7
for 23 years.
Included in the operating expenses of an investment company would be all of the following EXCEPT
redemption fees.
FINRA Rule 2210 treats interactive electronic forum posts, such as social media status updates, as
retail communications
Disputes between FINRA members regarding such issues as delivery and payment for securities transactions are settled through:
the Code of Arbitration Procedure.
A customer requests information on a variable life insurance policy and asks her registered representative to circle the important information in the prospectus and information he thinks will be of special interest to her. This is permitted:
under no circumstances.
A FINRA member quotes 32.25 - 32.50 on an over-the-counter stock. A customer who wishes to sell at that price informs the broker-dealer of this, and the trade is completed. The customer delivers the stock the next day, but now the price is 28.75. According to the rules, the trade will be:
completed at 32.25.
A holder of mutual fund shares:
has the right to vote for a vacancy on the board of directors. receives regular reports on the fund's expenses no less frequently than semi-annually.
An investor purchased a variable annuity some years ago and has been making regular payments into it. He has encountered financial difficulties and asks his registered representative if he can arrange to delay his next few payments. The registered representative explains that:
the customer may pay in as much or as little, as frequently or as infrequently, as he pleases, with no penalty.
All of the following statements regarding contract exchanges under Internal Revenue Code Section 1035 are true EXCEPT:
under Section 1035, an exchange can occur tax free only if it is made between policies of the same company.
Regulation D mandates all of the following EXCEPT
under no circumstances can more than 20 nonaccredited investors participate in the purchase of shares
A customer purchased a variable annuity from an agent five years ago with an initial investment of $200,000. The annuity's surrender fee will expire in year seven, which coincides with the customer's anticipated need for the funds. In the fifth year of the contract, the value of the annuity increased from $300,000 to $375,000. The agent notices that the general market is on the decline and recommends she enter a 1035 exchange of the variable contract for another, thus increasing her death benefit and locking it in at a higher minimum. This recommendation is:
unsuitable because of surrender fees.
A 78-year-old retiree had a $100,000 CD maturing and was dissatisfied with current yields on new CDs. Aside from Social Security and a small monthly pension, the $100,000 is his total potential source of income. The registered representative recommended investing the funds in a single premium immediate variable annuity, allocating funds to the separate account as follows: $10,000 Medical Technology, $40,000 High-Yield Corporate Bond, and $50,000 Growth & Income. The registered representative's recommendation is:
unsuitable because of the aggressive nature of the portfolio choices.
A busy customer has just opened a new account at your firm. She has given her lawyer limited power of attorney over the account to pursue a trading strategy for her while she makes an extended business trip. Which of the following statements regarding this customer's communications are TRUE?
Confirmations of trades may be sent to the lawyer with power of attorney over the account only if the customer requests it in writing and if duplicates are also sent to the customer. The firm may hold mail for the customer while she is traveling, but only for specific periods of time.
If a customer does not pay for a trade regular way, how much additional time does Regulation T give the broker-dealer to deal with the problem?
Two business days
For an insurance company, mortality risk turns out unfavorably if:
an annuitant lives longer than expected. a life insurance holder dies sooner than expected.
The New York Stock Exchange is characterized as a(n):
auction market where the highest bid and lowest ask prices prevail.
When a customer receives payment during the annuity period of a variable annuity, which of the following is TRUE?
Only the amount that represents investment income is subject to tax.
Which of the following statements regarding traditional IRAs and Roth IRAs is TRUE?
Earnings on investments are not taxed immediately.
ACE Fund's offering price is $9.00, and its net asset value is $9.40. GEM Fund's offering price is $24.00, and its net asset value is $20.00. From these quotes you know that:
ACE is a closed-end fund. GEM is a closed-end fund.
A fund seeks maximum capital appreciation by investing in common stocks of companies located outside the United States. The management selects well-established companies that are listed on their national stock exchanges and that have demonstrated high earnings potential. This information describes which of the following mutual funds?
ATF Overseas Opportunities Fund.
When an investor begins to receive the payout on a variable annuity, which of the following statements is TRUE?
Accumulation units are converted to annuity units.
The ABC Corporation would like to raise capital via a Regulation D private placement. In order to qualify for an exemption from registering with the SEC under Rule 506, which of the following is true?
Advertising is allowed if only accredited investors may purchase the securities. If selling to nonaccredited investors, general solicitation is not allowed.
Which of the following statements is CORRECT with regard to an index annuity?
There is a minimum guaranteed rate of return.
Which of the following statements correctly describe similarities between exchange-traded funds and closed-end investment companies?
They are traded on registered stock exchanges. Investors pay commissions to purchase and liquidate their positions.
Your 45-year-old client is interested in obtaining the highest current income possible from his investment. If he is willing to accept fluctuations in investment principal, which of the following would best suit this client's investment objective?
High-yield bond fund.
A variable annuity has an AIR of 4%. In January, the separate account earned 9%; in February it earned 6% and in March it earned 5%. Based on this information, how will the April payment compare to the March payment?
Higher.
Which of the following are advantages of a periodic payment deferred annuity over a lump-sum deferred annuity?
Smaller individual payments spread out over time are easier to meet than a single large payment. With periodic payments, the investor's commitment is spread out over years and is easier to reverse if necessary than is payment of a lump sum.
Upon annuitization of variable annuities, holders receive the largest monthly payments under which of the following payout options? 3.10.12
Straight LIFE
Which of the following are differences between the Code of Procedure and the Code of Arbitration Procedure?
The Code of Procedure deals with violations of the Conduct Rules, whereas arbitration is used to settle disputes. Code of Procedure decisions may be appealed, whereas decisions reached under Arbitration may not.
In connection with an investigation of a customer complaint, the association may require an associated person to agree to all the following EXCEPT:
Be represented by council
Which of the following statements regarding variable annuities and index annuities are NOT true?
Both index and variable annuities are securities products. Variable annuities typically have longer surrender periods than index annuities do.