SERIES 6
Which of the following statements regarding a corporate bond quoted as QRS Zr 20 is TRUE?
The bond pays no interest until maturity.
John owns a nonqualified, tax-deferred annuity. When he retires, what will be the tax consequences of his annuity payments?
His annuity payments are partly taxable and partly tax-free return of capital.
For how long after the effective date is a security's registration valid?
One Year
Parity Price of Common Stock Formula
Percentage of Par Price of bond x Conversion Price
At the end of a calendar year, an investor has $20,000 in capital gains and $35,000 in capital loss. How much in capital losses can be carried forward into the next year?
$12,000 $35,000 capital loss - $20,000 capital gains - $3,000 max IRS capital loss deduction = $12,000
A client owns 100 shares of the RMBN fund. The fund is no-load and its next calculated POP turns out to be $10 per share. If the fund has a 0.5% redemption charge and the client liquidated the entire account, proceeds would be:
$995 100 shares x $10 per share = $1000; $1000 x 0.5% redemption charge = $995
An investors owns 1,000 shares of HIJ at $60. If HIJ declares a 50% stock divided, what is the investor's position on the ex-dividend date?
1,500 shares of HIJ at $40 1,000 x 50% = 1500 shares; 1,000 x $60/ 1500 = $40 cost basis
A mutual fund has been seeking to attract new customers to invest in its growth fund. They have been running an advertising campaign where they have been marketing themselves as a diversified mutual fund. How much of any one company may they own?
10%
How much taxes of the dividends received from investing in another corporation's stock would a corporation have to pay?
30%
A mutual fund has a bid of $11 and an ask of $11.40. The mutual fund has sent out a dividend distribution of 75 cents and a capital gain distribution of 90 cents over the last 12 months. What is the mutual fund's current yield?
6.57% .75/11.40 = 6.57%
A mutual fund investor has 500 shares of XYZ growth fund which has a NAV of 22.30 and a POP 23.05. The investor wants to invest the money in the biotech fund offered by XYZ, which has a NAV of 17.10 and a POP of 18. XYZ offers conversion privileges how many shares will the investor be able to purchase of the biotech fund?
652 500 shares x $22.30 NAV = 11,150 11,150 / $17.20 NAV = 652
Redemption of a mutual fund must be completed in
7 Calendar Days
The prospectus of the ABC Fund contains the phrase "will have at least one-quarter of common stock investments in the field of business machines." The ABC Fund is:
A specialized fund
All of the following items require review by a principal of the member firm EXCEPT
A training presentation that is marked for internal use only
Credit ratings in order from safest to riskiest
AA2, AA3, A1, BBB1
Mr. and Mrs. Smith, both nearing retirement, want to maximize their income. They want to reallocate $100,000 of their $400,000 portfolio of securities for this purpose. Of the possible investment choices below, which would be the LEAST suitable recommendation given their investment objective?
AAA convertible corporate bonds
ACE, an open-end investment company, operates under the conduit, or pipeline, tax theory. Last year, it distributed 91% of all net investment income as a dividend to shareholders. Therefore, which of the following statements is TRUE?
ACE paid taxes on 9% of its net investment income last year.
Your customer, age 45, is single and in search of maximum capital appreciation. She inherited a substantial amount of money a few years ago and has taken an active interest in managing her investments. Currently, her portfolio is diversified among common stocks, tax-exempt bonds, international investments, and limited partnerships. She has a long-term time frame and is not risk-averse. Which of the following mutual funds is the most suitable for this customer?
ATF Biotechnology Fund.
Your married customers, ages 48 and 50, have a combined annual income of more than $200,000. They are concerned about the effects of rising inflation, and since they are heavily invested in bonds, they seek to invest a portion of their portfolio in a fund that will provide additional diversification. Which of the following mutual funds is the most suitable for these customers?
ATF Overseas Opportunities Fund.
A regulated investment company:
Acts as a conduit for dividend distributions.
After opening an account with a mutual fund, in which of the following minimum amounts may an investor generally make additional periodic investments
An amount that varies from fund to fund.
Your customer has heard about precious metals funds. He asks about the types and amounts of various precious metals these funds might own. You tell him he has mistaken the focus of these funds. A gold fund, for example, might own
Barrack Gold Corporation common stock
Which of the following describes findings under the Code of Arbitration?
Binding on all parties involved in a dispute.
Your customer, who has concentrated on growth in his investments for many years, has decided he would like to add the characteristics of value investing to his program. He would also like to restrict the number of new investments as much as possible. Which of the following fund types might you recommend as having the "characteristics of both growth and value investing?"
Blend/Core
If the RST Corporation has issued several different debt securities, an investor would expect the lowest income stream from RST's:
Convertible Debentures
During a recession, payments from a variable annuity will most likely:
Decrease
The Conduit Theory relating to Investment Companies reflect
Distributions
If a corporation begins a nonqualified retirement plan, which of the following statements is TRUE?
Employee contributions grow tax deferred if they are invested in an annuity.
Mutual fund 12b-1 fees are deducted from the:
Fund's assets.
If the value of securities held in a fund's portfolio increases, and the amount of liabilities stays the same, the fund's net assets:
Increase
Your customer seeks capital growth but is concerned about execution costs. Which of the following funds would be most suitable for him?
Index Fund
Your customer wishes to increase and diversify his equity holdings as simply as possible. He is not risk averse, and he would like to gain some returns from growth, but he does not want to engage in a large number of transactions. You might suggest that he:
Invest in a blend/core fund.
Your customer is a retired widower, age 72, seeking a moderate level of current income to supplement his Social Security benefits and his company pension plan. He has a very conservative attitude toward investments. An equally important investment goal for him is capital preservation. Which of the following mutual funds is the most suitable for this customer?
LMN Government Income Fund
An investor purchases $10,000 of the Class B shares of the KAPCO Growth Fund. Two years later, the client redeems the shares. The redemption charge is a percent of the:
Lesser of the NAV or purchase price.
An investor purchased 200 shares of ACE Fund when the POP was $11.60 and the NAV was $10.60. ACE Fund's current POP is $12.50, and current NAV is $11.50. If the investor liquidates his 200 shares now, he will have a:
Loss of $20
Redemption price of an Open-End Fund
NAV - Net Asset Value
A fund seeks maximum current income, safety of principal, and capital growth. The fund's portfolio is invested in common stocks, preferred stocks, convertible securities, and high-yielding bonds. This information describes which of the following mutual funds?
NavCo Growth & Income Fund.
Which of the following is NOT a money market instrument?
Newly issued Treasury notes issued to meet a specific government-funding requirement.
What is the greatest risk to an investor in an asset allocation portfolio?
Poor portfolio management.
A broker dealer that is a selling group member for a mutual fund may do all of the following EXCEPT to:
Purchase shares of the mutual fund from the sponsor in anticipation of a large order from an institutional client
Board of Directors of a mutual fund review the use of 12b-1 fees
Quarterly
Your customer has invested in a mutual fund with a 12b-1 fee. You explain to him that a charge will be deducted from his account:
Quarterly
Included in the operating expenses of an investment company would be all of the following EXCEPT
Redemption Fees
Which of the following bond is a non-negotiable security
Series EE Bond
Which of the following statements regarding money market mutual funds is TRUE?
Shares are purchased at net asset value.
Your customer is a retired widower aged 71. He is seeking a mutual fund to provide a moderate level of income in addition to his Social Security and pension. He is extremely conservative when investing and wishes to preserve capital. Which of the following funds is most suitable?
Short-term U.S. government bond fund.
A customer would like to know which of the following mutual funds has the highest potential for capital growth. Which would you choose?
Small-cap technology stock fund.
Which of the following does NOT issue commercial paper?
Sole Proprietorship
Which of the following mutual funds is likely to carry the greatest credit risk in its portfolio?
The Keppel High-Yield Bond fund
A mutual fund shareholder purchases no-load shares at the beginning of an investment period and, at the end of the investment period, sells the shares for a gain. Which of the following statements is TRUE?
The NAV per share was lower at the beginning.
A customer of yours owns a corporate bond fund with a long duration. Mortgage rates are going up. What impact will this have on the investment?
The current yield will increase since the price of the shares can be expected to fall.
An investor owns $10,000 of shares in ABC bond fund. Due to a change in his financial situation, he wishes to exchange the bond fund shares for shares in ABC's aggressive growth fund. Which of the statements below correctly describes the tax consequences of this action?
The exchange is considered a taxable event that must be recognized in the current year.
If an associated person files a complaint against a FINRA member, which of the following is true of the arbritration panel?
The majority of the panel includes PUBLIC persons
Which of the following would be found in a mutual fund prospectus?
The method of computation of the offering price.
John is the annuitant in a variable plan, and Sue is the beneficiary. Upon John's death during the accumulation period, Sue takes a lump-sum payment. What is her total tax liability?
The proceeds minus John's cost basis taxed as ordinary income at Sue's tax rate.
An investor sells EGH common stock that she has owned for six months at a loss of $2,500 on February 16. Two weeks later, she purchases preemptive rights to EGH common stock at a price of $1.50, exercisable at a price of $35. Which of the following best describes the tax treatment of this transaction?
The purchase of the rights, according to IRS rules, represents the reestablishment of the investor's position in substantially identical securities, and any potential losses will be disallowed under wash sale rules.
Which of the following statements regarding a closed-end investment company is TRUE?
The shares are sold at a current market price.
When evaluating the purchase of an immediate variable annuity for a retiree, the most important factor in determining suitability is:
The uncertainty of the amount of the monthly check.
All of the following are true of negotiable, jumbo certificates of deposit EXCEPT:
They are fully insured in any denomination by the FDIC.
If your firm is underwriting a new mutual fund organized under a 12b-1 plan, which of the following statements is permissible in mailings or phone calls to your clients?
This fund has a 12b-1 sales charge structure-explained in the prospectus-and should be fully understood before investing.
A customer has $24,000 invested in a growth fund offered by ABX, a large fund family. The investor would like to move the money into a balanced portfolio. Her representative immediately recommends a balanced fund offered by the HMV fund family. Which of the following is true:
This is an example of switching funds and is a violation
An income-seeking investor is concerned with the possibility of rising interest rates over the next few years. Of the choices listed, his best investment selection would be:
Treasury Bills
Investors should consider all of the following when investing in a mutual fund EXCEPT the:
Underwriter
Investment companies that have no management fee, have a relatively low percentage sales charge, and invest in a fixed portfolio of debt or equity securities are defined in the Investment Company Act of 1940 as:
Unit Investment Trusts
A client wishing to invest $10,000 in a tax-exempt unit investment trust would be acquiring:
Units
All of the following items require review by a principal of the member firm EXCEPT
a training presentation that is marked for internal use only
The regular way ex-dividend date for cash dividends paid by a corporation is the
first business day preceding the record date
Which of the following plans allow tax free withdrawals for private secondary education?
• 529 • Coverdell ESAs
Which of the following would be considered money market instruments?
• A Treasury bond with 11 months to maturity. • A $200,000 negotiable certificate of deposit.
What are the consequences of Grandpa giving $50,000 of stock to his granddaughter?
• Grandpa is responsible for any gift tax due. • The granddaughter's cost basis in the stock remains the same as grandpa's cost basis.
An investor has decided to pursue a speculative investment program. Which of the following securities most closely reflect this investment objective?
• Growth stocks. • High-yield corporate bonds.
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.
The Investment Company Act of 1940 requires that a mutual fund do which of the following?
• Have $100,000 minimum capitalization. • Provide semiannual reports to shareholders.
Which of the following would cause an increase in NAV?
• Investment income is received by the fund. •The securities in the portfolio appreciate.
Which of the following statements regarding unrealized gain in a mutual fund portfolio are TRUE?
• It affects the mutual fund's shares' value. • It is realized by shareholders when they redeem their shares.
Which of the following statements regarding interest rates and price fluctuations of debt securities are TRUE?
• Long-term prices fluctuate more than short-term prices. • Short-term interest rates fluctuate more than long-term rates.
Separate accounts are similar to mutual funds in that both:
• May have diversified portfolios of common stock. • Give investors voting rights.
Which Investment Company distributions are included when TOTAL OF RETURN of a fund is determined?
• Net Income • Capital Gains
Which of these is TRUE regarding a life settlement contract?
• Premiums will be paid by the contract owner. • Proceeds will be paid upon the death of the insured.
ACE Fund experienced an unrealized loss last month. This will:
• Result in a lower NAV per share. • Reduce the proceeds payable to shareholders who liquidate their shares.
TIPS offer which of the following benefits to an investor?
• Semiannual adjustments to principal based on the CPI. • The interest payments will keep pace with inflation.
Which of the following statements regarding an open-end investment company that operates pursuant to a 12b-1 plan are TRUE?
• Shareholders are charged for sales expenses involved in the distribution of new fund share • Fees are deducted quarterly from a mutual fund's assets.
Which of the following statements regarding sales charges on variable contracts of insurance companies are TRUE?
• The Conduct Rules do not impose a specific maximum on sales charges for variable annuities. • Variable life insurance contracts are limited to a maximum sales charge of 9% over the life of the contract, but not to exceed 20 years.
Mutual funds are like other types of corporations in which of the following ways?
• The board of directors makes policy decisions. • Shareholders have ownership rights.
Which of the following statements describe an open-end investment company?
• The company may sell new shares in any quantity at any time. • The company must redeem shares in any quantity at any time except that it may suspend the redemption of shares with SEC approval.
A client is in the annuitization stage of a variable annuity. If the separate account earned 8% during the current month, which of the following statements is correct?
• The next check will increase if the AIR is 5% • The number of annuity units owned will remain the same
The payout of an annuitized variable annuity account changes from month to month in a manner determined by which of the following.
• The separate account performance compared to an assumed interest rate. • This month's payout compared to last month's payout
Regarding money in a 401(k) plan:
• There is no vesting period for the employee's contributions. • There may be a vesting period for the employer's contributions.
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.
Which of the following statements about corporate bonds are TRUE?
• They generally involve less investment risk than common stock. • They are long-term instruments.
