Series 6 Practice Exam 7

While examining a research report, you read that ABC Corporation's capitalization is highly leveraged. This means ABC ahs raised most of its capital by a. incurring debt in the form of long-term bank loans and long-term bonds b. issuing equity securities in the form of common stock c. issuing convertible preferred stock d. all of the above

a. Corporations with highly leveraged capitalizations have raised most of their money by incurring debt in the form of long-term bank loans and long-term bonds

Over a ten-year period, Dan Daniels contributed 20,000 to his Roth IRA. Dan is 62 and ready to retire. The IRA is valued at 30,000. If he withdraws the entire amount, which of the following statements is correct? a. the entire 30,000 is tax-free b. the entire 30,000 is taxable c. the 20,000 contribution is taxable, but the 10,000 of growth is tax-free d. the 10,000 of growth is taxable, but the 20,000 contribution is tax-free

a. Qualified distributions from a Roth IRA are tax-free, therefore the entire 30,000 can be withdrawn without any tax liability. Qualified distributions are those made at least five years after the Roth IRA was established and in one of the following circumstances - after age 59 1/2 - in relation to the account owner's death or disability - for first-time homebuyers, subject to a 10,000 lifetime limit

A suspicious activity report should be filed a. only in the event that the firm has actual knowledge that the client is laundering money b. for most types of suspicious activity depending on the facts and circumstances c. only for transactions for more than 10,000 d. only for transactions for parties on the OFAC list

b. A suspicious activity report should be filed for most suspicious transactions depending on the facts and circumstances surrounding the transaction

The assets in a Section 529 College Savings plan may be transferred to another beneficiary without a tax penalty a. provided the second beneficiary is already in college b. provided the second beneficiary is a member of the fist beneficiary's family c. as long as the first beneficiary agrees d. once every 12 months

b. The assets in a 529 plan may be transferred to another beneficiary as long as the second beneficiary is a member of the first beneficiary's family. Family includes spouses, children, grandchildren, siblings, nieces and nephews and first cousins

A registered representative recommends a low-priced speculative stock to a client and tells him it will triple in three months. He may do this only if a. he has fully investigated the company and is sure it will happen b. he has the consent of the firm's research analyst c. the customer buys speculative stocks d. none of the above

d. A registered representative may never predict what a stock will do in the future, and certainly a statement that it will triple in price in three months is prohibited. None of the choices given would allow the registered representative to make the statement

Upon the death of the insured, the proceeds of a variable life policy a. are taxable as ordinary income b. are taxable as long-term gains c. are taxed as ordinary income to the extend of the premiums paid d. pass to the beneficiary free from federal income tax

d. Policy proceeds pass to the beneficiary free from federal income tax upon death of the insured. However. proceeds are included in the policy owner's estate for estate tax purposes

When selecting a settlement option on a variable annuity, the life expectancy table is used to calculate the a. number of accumulation units b. cost basis of the annuity c. total rate of return on the investment d. amount of the first monthly payment

d. When a variable annuity is annuitized, the first payment is calculated as if the contract was a fixed annuity with the AIR as the interest rate. The calculation also factors in the annuitant's life expectancy as determined by the standard life expectancy table, and the type of payout option selected. Subsequent payments will then depend on the performance of the separate account compared the AIR

All of the following are defined as types of investment companies except a. variable annuities b. unit investment trusts c. management companies d. face-amount certificate companies

a. There are three types of investment companies; face-amount certificate companies, unit investment trusts and management companies. While variable annuity separate accounts are not defined as investment companies, they are normally structured as management companies

A bonus annuity would be an appropriate investment for a. Anna, a thirty one year old woman seeking an investment for her IRA b. Bree, a woman in her forties saving for her retirement c. Charley, a recently retired 65 year old investor thinking of exchanging his existing annuity d. Daniel, an 85 year old man in bad health

b. As with all variable annuities, bonus annuities are most suitable for long-term investors. Presumably, Bree is not going to retire for 20 years, so she has the time to wait out the surrender period as well as market downturns. Generally, variable annuities are not a good choice for an IRA. The client is already receiving tax-deferred growth, which is one of the major benefits of a variable annuity. Charley is recently retired and may need access to his funds for living expenses. If he exchanges his existing annuity, he will restart the surrender period. Locking up money in this fashion is probably also not a good idea for Daniel

The most significant factor affecting the net asset value of a mutual fund on a day-to-day basis is a. the number of shares outstanding b. the market value of the portfolio c. the demand for the fund's shares d. the ratio of cash to the market value of the portfolio

b. The formula for the net asset value = (market value of portfolio + cash - liabilities) / shares outstanding Changes in market value of the securities held by the fund are responsible for most of the change in the fund's net asset value. All funds hold cash to some degree, but it does not really affect the NAV calculation. Remember, if invested, the cash figure would be part of the market value of the portfolio

Which of the following is a municipal bond, backed by the full faith and credit of the issuer? a. a debenture b. a revenue bond c. a G.O. bond d. an income bond

c. A municipal bond backed by the fill faith and credit of a state or city is called a general obligation bond

A registered representative suggesting a client redeem shares in one mutual fund and reinvest in another to take advantage of higher returns is engaging in a. swap b. rollover c. switch d. transfer

c. The practice of moving form one fund to another within a short period of time is referred to as a switch. There should be an investment advantage to the investor to justify the switch. If a representative benefits more than the customer does, FINRAA may view this as unsuitable

Which of the following is responsible for approving a fiscal policy? a. the federal reserve board b. the securities and exchange commission c. the office of management and budget d. congress

d. Congress and the president approves fiscal policy. Fiscal policy is the use of the government's power to tax and spend. Control of the economy by changing levels of government spending and taxation can either put money into the economy or take money out of the economy. Monetary policy is carried out by the federal reserve board by either increasing or decreasing the supply of money and credit in the economy

Natalie Nononsense is tired of investment firms calling her around the clock. She has asked her latest caller from Bucketshop Brokers to place her name on the firm's do not call list. How long does the firm have to honor Natalie's request? a. until the end of the business day b. until the end of the week in which the request was made c. up to 10 business days d. up to 30 business days

d. If a client requests not to receive calls from a firm, the BD must note the request and put the person's name and telephone number on the firm's do not call list. Under FINRA rules, BDs must honor a person's do not call request within a reasonable time period. This person may not exceed thirty days from the date the request was made

A client fails to pay for stock purchased in the period permitted by Regulation T. The client's account will be frozen for a. 3 days b. 5 days c. 30 days d. 90 days

d. When a customer fails to pay for a security within the time permitted by Regulation T, the account is frozen for a period of 90 days

In an account opened under the uniform gifts/ transfers to minors act, the primary social security number is the a. custodian's b. parent's c. minor's d. RR's

c. Since the minor is considered the legal owner of the account and is responsible for taxes on income from the account, the minor's social security number is primary

All of the following securities could be found in the portfolio of a money-market fund except a. ADRs b. BAs c. T-bills d. commercial paper

a. ADRs are a convenient method of investing in the common stock of foreign companies. As an equity instrument, it would not be held in the portfolio of a money-market fund

Which of the following are true of both variable life insurance and variable annuities? I. the investment risk is borne by the contract owner II. the product must be sold with a prospectus III. partial surrenders are first treated as tax-free return of principal IV. if the contract owner dies, the beneficiary receives any proceeds tax-free a. I and II b. III and IV c. I, III and IV d. I, II, III and IV

a. Although partial surrenders of variable life insurance policies are first treated as return of principal up to the amount of basis, variable annuities are subject to interest first taxation. Only life insurance proceeds pass to beneficiaries tax-free. Beneficiaries of variable annuity contracts are taxed on the proceeds in the same manner as the annuitant

All of the following are true regarding mutual fund systematic withdrawal plans except that investors a. continue to receive payments for as long as they live b. must have a minimum value in their account before withdrawals may begin c. may choose one of several withdrawal methods d. can often have withdrawals deposited directly in a bank account

a. Systematic withdrawal plans are offered by many mutual funds as a convenience to their shareholders. This allows investors to receive regular, periodic payments from their accounts. However, investors should be warned that systematic withdrawal plans from mutual funds do not work like annuities. A systematic withdrawal plan could eventually result in the exhaustion of the account, whereas a life annuity payout will continue as long as the annuitant lives

Which of the following statements is true regarding the disclosure of a back-end sales charge to customers? a. a statement in the prospectus is sufficient b. as long as the back-end charges are clearly disclosed, the fund may be represented as 'no load' c. a confirmation should be sent disclosing that a sales charge may have to be paid upon redemption d. disclosure is required in addition to that in the prospectus only if the broker-dealer and mutual fund are affiliated through common ownership

c. in addition to the disclosure in the prospectus, a confirmation sent by a member firm selling a fund with a back-end load must include a statement that a sales charge may be assessed upon redemption

In reviewing and analyzing a customer's financial status, which of the following are important considerations? I. discretionary income available for investment II. insurance needs or policies in place III. participation in retirement plans IV. anticipated expenditures a. I b. II and III c. II, III and IV d. I, II, III and IV

d. All of the information presented should be considered before suggesting or implementing an investment plan for a customer

Which of the following statements concerning duration is correct? a. a well-diversified index stock fund will have duration of approximately 1.0 b. due to their extended holding period, long-duration funds are right only for young investors with a suitable time horizon c. duration is the measurement of the period in which the CDSC will be assessed on a class B share d. duration is a measurement of a given bond's sensitivity to interest-rate swings

d. Duration is a measurement of a given bond's sensitivity to interest rate swings. Factors affecting a given bond's duration include maturity and coupon. For the Series 6 exam, remember that a long-duration bond portfolio is much more price sensitive to interest-rate swings

The life insurance policy that allows for the greatest flexibility regarding the payment of premiums is a. decreasing term b. universal c. variable d. split dollar

d. Universal life allows the policyholder to vary the premium payments. The holder can elect to pay for the entire policy in one payment, allowing the insurance company to withdraw premium payments as required. Premium payments can also be made in specified intervals. However, payments that are too low may cause the policy to lapse if they do not cover the cost of insurance and other policy expenses

Which of the following statements regarding money-market mutual funds is correct? a. these funds are often used by investors as a safe haven during bear markets b. no prospectus is required when soliciting the sale of these funds c. these funds are FDIC insured as long as the client has a balance not above 100,000 d. these funds are typically sold with a nominal sales charge not to exceed 25 basis points

a. Money-market mutual funds hold short-term liquid securities such as CDs, bankers' acceptances, commercial paper, and treasury bills. These funds are normally sold as no loads. RRs are required to deliver a prospectus when selling these products. Money-market funds are often used by investors as a safe haven from the fluctuation inherent in stock and bond markets. The 25 basis point limitation is a FINRA rule regarding no loads and 12b-1 fees. The figure 25 basis points (0.25%) is the maximum 12b-11 fee that may be assessed by a no-load fund

Sylvestor Investor is a conservative investor with a long-term time horizon. He wants an investment which will provide him with long-term capital appreciation, but will not be too volatile. Which of the following funds would be the most suitable for him? a. a value fund b. a growth fund c. a fund of funds d. an emerging markets fund

a. Of the choices given, a value fund would be the best option for Sylvester. As with a growth fund, the main objective of a value fund is long-term capital appreciation. Value funds are usually considered less volatile than growth funds, since they invest in companies that are priced low in relation to their earnings. They also tend to invest in more mature companies that are more likely to pay regular dividends than pure growth funds. Both a fund of funds and an emerging markets fund would be too risky for Sylvestor

Under INFRA's rules regarding communications with the public, which of the following choices is an acceptable product description? a. Flexo Life, a variable life insurance policy b. the stock market annuity c. the farmer's growth policy d. the sure thing safe harbor annuity

a. Since product names can be misleading, SRO rules require an investment to be clearly described as either a variable life insurance policy or a variable annuity. Firms may use proprietary names, but all policy descriptions are required to clearly designate the type of investment being offered

A corporation that has filed for bankruptcy is to be liquidated. Which of the following securities issued by that corporation has seniority in the liquidation process? a. mortgage bonds b. debenture bonds c. common stock d. participating preferred stock

a. When a corporation is liquidated, its assets are sold and the proceeds are distributed. Secured creditors are paid first, then unsecured creditors, then preferred stockholders and last the common stockholders. This would make mortgage bonds the senior security of those listed

In order to establish a mutual fund open account, investors must I. meet the fund's minimum investment requirement II. sign a margin agreement III. decide whether to receive capital gains distributions sand income distributions in cash or reinvest in additional shares IV. indicate their anticipated date of redemptions a. I and II b. I and III c. II and III d. I, II, III and IV

b. A fund prospectus describes the procedures used to purchase shares of an open-end fund. Such procedures would include meeting the minimum investment requirement and noting on the application whether distributions will be reinvested or received in cash. Open-end shares may not generally be purchased on margin. Investors are not asked about anticipated holding periods

Under the "conduit" theory, taxes payable on dividends and interest distributed by a regulated investment company are paid a. by the investment company only b. by the shareholders only c. by both the investment company and the shareholders d. only if distributions are made in cash

b. According to the conduit or pipeline theory of taxation, dividends and interest distributed by a regulated investment company flow though the fund and taxes on these distributions are paid only by the shareholders

According too SEC guidelines, which of the following could cause investment company advertising to be misleading? I. failure to state a fact mentioned in the prospectus II. representing that past performance is a good predictor of future performance III. stating the goals of the investment company without indicating that those goals might not be achieved IV. making statements about benefits immediately followed by statements about the corresponding risks a. I and IV b. II and III c. I, II and IV d. I, II, III and IV

b. Failure to state a fact mentioned in the prospectus would be misleading only if the fact was necessary to make the advertising not misleading. Statements about benefits must be balanced by statements about corresponding risks

If the federal reserve board decides to tighten the money supply, the mutual fund that would be most affected is a. money-market fund b. long-term corporate bond fund c. short-term US treasury fund d. equity income fund

b. If the fed tightens the money supply, interest rates will rise. A rise in interest rates will cause the prices of existing bonds to fall. The portfolios of choices a, b and c each contain fixed-income securities, but long-term bond prices will be affected more than the price of shorter-term bonds. Therefore, the prices of bonds in the portfolio of the long-term corporate bond fund would be most affected by the Fed's action

Patty is a registered representative with ABC brokerage. Patty and her mother, Donna, have set up a joint account. Donna has contributed most of the money in the account, but Patty will manage the account and the two will split the profits on a 50-50 basis. Which of the following statements is true? a. this arrangement is acceptable only if ABC brokerage is registered as an investment adviser b. this arrangement is acceptable as long as ABC approves of it in writing c. the arrangement is acceptable as long as Donna agrees to be responsible for taxes on the profits generated d. this is not acceptable under any circumstances

b. Industry rules prohibit RRs from sharing in the profits or losses in customer accounts unless the customer and the RR have a joint account, the account was approved in writing by the RR's broker-dealer and the RR shares in profits and losses in proportion to the equity contributions to the account. However, the requirement for proportionate sharing is waived if the account is being shared with a family member

The term investment supervisory services refers to which of the following? a. a branch manager of a broker-dealer monitoring the sales efforts of the representatives in the branch office b. an investment adviser giving continuous investment advice to a client based on the individual needs of the client c. the compliance manager of a broker-dealer monitoring the trades of employees and clients for possible insider trading violations d. a broker having discretion over a client's account

b. Investment supervisory services means providing advice on a continuous basis to clients based on their needs, current asset holdings, and investment objectives. An adviser must disclose in its SEC application the percentage of total advisory billings derived from investment supervisory services

Homer Depot, a registered representative with BigBoxBroker Investments, is considering sending a prospect, Dr. Lowes, a summary prospectus on a new nanotechnology fund. Assuming the document is received by the physician, which of the following statements is correct? a. under UPC guidelines, the client must receive a complete prospectus in either a paper based or electronic format within 24 hours b. the client may purchase the fund shares solely based on the contents of this mini prospectus c. the client may purchase fund shares based solely on the contents of this mini prospectus, assuming he has signed a waiver with BBB's compliance area attesting to the fact that he is accredited d. the summary prospectus may be used as a standalone document provided the potential buyer has sufficient investment acumen to make an informed decision in the absence of complete information and has previously signed the predispute waiver clause of his client agreement

b. Many mutual funds are employing shorter summary versions of the prospectus called a profile or short prospectus. These reader friendly documents highlight the most relevant information found in the complete prospectus and are designed to encourage potential investors, who may be intimidated by the complete prospectus, to do their due diligence prior to investing. An investor may buy shares based solely on the contents of this document but must be made aware she is entitled to a complete prospectus prior to making a purchase. A complete copy of the prospectus will be sent with the client's confirmation of purchase. The predispute clause of a client agreement deals with arbitration

A client in the 28% tax bracket wishes to buy a corporate bond yielding 7%. What must a municipal bond yield to be equivalent to the corporate bond on an after tax basis? a. 1,96% b. 5,04% c. 7,00% d. 72,00%

b. Municipal bonds pay interest that is exempt from federal income taxes. Interest on corporate bonds is subject to all taxes. The investor in this question would have to pay a 28% tax on the 7% yield received on the bond. This would reduce the yield by 1.96% making the after-tax yield 5.04%. If the investor bought a municipal bond yielding 5.04% tax-free, this would be the same as buying a 7% fully taxable corporate bond

Which types of periodic reports does a variable life policyholder receive? I. an annual prospectus II. a semiannual report of the securities held in the separate account III. an annual report informing the insured of the amount of the death benefit and cash surrender value IV. a semiannual report of the securities held in the general account a. I and II b. II and IV c. II and IV d. I, II, III and IV

b. Policyholders receive a financial statement listing the securities held by the separate account semiannually. Policyholders are also apprised of the death benefit and cash surrender value annually.

A principal-protected fund would be most suitable for a. Mr. and Mrs. Newlywed who are planning to purchase a house in 3 years b. Mr. and Mrs. Parents who are saving for their son's college education in 10 years c. Mr. and Mrs. Retiree who need current income to supplement their social security d. Mr. and Mrs. Perpetua, a couple in their mid-eighties residing in an assisted living facility

b. Principal-protected funds are most suitable for investors who need a lump sum at some point in the future for a specific purpose such as a college education. The holding period for most principal-protected funds 5 to 10 years which would not be appropriate for Mr. and Mrs. Newlywed who are planning to buy a house in 3 years. A principal-protected fund is also not appropriate for investors in search of current income or for elderly investors who may need access to their money

The Federal Reserve is trying to talk down rates. This practice is referred to as a. federal persuasion b. moral suasion c. verbal pump priming d. expectations conditioning

b. Talking rates up and talking rates down are methods by which the Federal Reserve tries to influence the market through what it says in public. For example, if the Fed chairman believes markets are too hot and uses the term irrational exuberance, the market, hopefully, will understand that the Federal Reserve may adopt a more restrictive policy. This practice is often referred to as moral suasion or jawboning

If the NAC of an equity fund dropped while the general level of stock prices was rising, one might conclude that I. the portfolio was not participating in the overall market rally II. the fund value was being diluted through greater share issuance III. the fund had just paid a large dividend or capital gains distribution IV. fund expenses were falling a. I and II b. I and III c. II, III and IV d. I, II, III and IV

b. The NAV of a fund falls if the underlying securities depreciate or the fund makes a distribution of dividends or capital gains. The NAV does not drop when new shares are issued because cash, an asset, is received. Falling fund expenses could increase the NAV not reduce it

Morgan invests 4000 in a mutual fund and signs a letter of intent for 10,000. If his original investment grows to 7,000, what additional amount must Morgan deposit in order to satisfy the letter of intent? a. 3,000 b. 6,000 c. 10,000 d. he has already satisfied the letter of intent

b. The amount needed to satisfy a letter of intent is based on the amount invested. Appreciation in the account does not count toward the LOI

The expense ratio of The Same Fund is declining. Which of the following factors may cause this? I. assets under management are rising faster than the rate of overall expenses II. the fund switched from diversified to nondiversified III. the investment advisory fee is lower IV. sales charges are falling because investors are taking advantage of breakpoints a. I and II b. I and III c. III and IV d. I, II, III and IV

b. The expense ratio tends to fall when assets rise because fund expenses can be spread over a larger asset base. The expense ratio would fall if the investment advisory fee declined. The investment advisory fee is usually the larges expense of the fund. There is no correlation between expenses and whether a fund is diversified or nondiversified. Fund sales charges also have no effect on the expense ratio

Which two of the following statements are true concerning the objectives of mutual funds? I. objectives of a mutual fund are stated in the prospectus but there is no assurance they will be attained II. objectives may be changed by the fund's investment adviser III. by reviewing the objectives, a potential investor can also determine the types of securities the fund will purchase IV. funds may not simultaneously have multiple objectives a. I and II b. I and III c. II and III d. III and IV

b. The fundamental objectives of a mutual fund may only be changed by a vote of majority of the outstanding shares. The fund's objectives are stated in the prospectus and can be determined by reviewing that document. Since specific objectives are usually met by employing standard investment policies, the fund's objectives determine which strategies it will use. For example, one equity income fund that has the dual objectives of growth and income states in its prospectus that it will "normally invest 80% of its assets in income-producing common or preferred stocks. The remaining assets will be invested in debt obligations, most of which are expected to be convertible into common stock"

An investor would like more information on a fund regarding the computation of net asset value, including such items as accounting for expense accruals, the valuation of positions traded over the counter, and the impact of option positions on the financial statement. This information can be found in the a. fund prospectus b. statement of additional information c. monthly account statement d. investment advisory agreement

b. The prospectus is a concise statement of information about a fund, but more detailed information is provided in the statement of additional information. An investor may obtain a copy, without charge, by calling or writing the fund

Which of the following is an acceptable practice by a registered representative, according to FINRA's conduct rules? a. sending a form letter to potential customers stating FINRA's approval of the RR's actions b. sending a cover letter with a business card enclosed to potential customers c. sending a form letter to potential customers recommending four mutual funds for purchase d. none of the above

b. There is no rule against sending a business card to potential customers if the business card does not mislead or confuse the relationship between the representative and FINRA. FINRA does not approve an individual's actions. Recommendations are not permitted without knowing the financial needs and objectives of the party to whom the recommendation is being directed

Over the past 3 years, the level of interest rates in the US had been rising steadily. Which of the following events had probably occurred during this period? a. the dollar weakened b. the dollar strengthened c. US exporters sold more goods d. the federal reserve had pursued an accommodative monetary policy

b. This is a difficult question. One reason foreign investors buy dollars is to purchase treasuries. As interest rates go higher and higher, more and more foreign investors may be enticed to purchase treasuries. In order to purchase the government bonds, they need to buy dollars. This hunger for dollars drives up the value of US currency in relative terms. The bottom line is the value of the dollar typically moves in the same direction as interest rates. When rates go up, the dollar goes up. When rates go down, the dollar falls. A strong dollar would hurt US exporters since their products would be viewed as more expensive from a foreigner's perspective

Trent Tucker, age 49, is cost conscious and looking to invest 725,000 in the Growco Fund family. The fund complex has several investment choices offering investors Class A, B and C shares for each of its individual funds. Trent plans on investing his money for the next several years eventually engaging in a periodic liquidation program to help supplement his retirement needs. Which of the following investments would be your best recommendation for this investor? a. Class B shares, since Trent will not need to pay a CDSC based on his projected long-term investment horizon b. Class A shares c. Class C shares since they have the lowest annual operating expense d. Advise against the individual funds and recommend buying a Growco annuity instead since this product would generally have significantly lower annual operating costs when compared to the individual funds

b. Trent is a long-term investor who is also cost conscious. Surprisingly, it would be in Trent's best interest if you were to recommend that he purchase Class A shares. Although a Class A share has a front-end load, in all likelihood Trent's initial purchase would qualify for a reduced sales charge. On an ongoing basis, Class A shares have lower expense ratios than either Class B or C shares so, for a long-term investor such as Trent, they may be the best choice. Due to some of their ancillary features, such as death benefits, annuities typically have higher annual costs than mutual fund shares. For this reason, the annual cost of an annuity tend to be higher than that of a straight mutual fund investment. The tradeoff for the client is that annuities grow tax-deferred. Mutual funds do not

A registered representative may not invest in a joint account with a customer a. unless the customer is a relative b. unless the RR's employers approves in writing c. unless the customer signs a waiver of liability d. under any circumstances

b. Under FINRA rule, RRs may participate in joint accounts with customers if they obtain written permission from their employer and they share gains and losses only in proportion to their equity contribution to the account. These restrictions do not apply to accounts with immediate family members

Under the Investment Company Act of 1940, a plan holder who starts a periodic payment plan has the right of withdrawal from the plan and a full refund of all sales charges by withdrawing within a. seven days of signing the contract b. 45 days after the custodian bank mails the plan holder a notice of that right c. 18 months after signing the contract d. none of the above, since a minimum of 15% of the amount paid to the fund will be deducted for sales charges

b. Under the Investment Company Act, a plan holder who starts a periodic payment plan (50% front-end load or 20% spread load) has the right of withdrawal from the plan and a full refund of all sales charges by notifying the plan within 45 days after the custodian bank mails the plan holder a notice of that right

An investor holds a debenture issued by XYZ corporation, which is in the process of being liquidated. The investor's claim to payments would be a. before secured bondholders, preferred stockholders, and common stockholders b. before preferred and common stockholders, but after secured bondholders c. before common stockholders, but after secured bondholders and preferred stockholders d. after secured bondholders, preferred stockholders and common stockholders

b. When a corporation is liquidated, investors are generally paid from the proceeds in the following order 1. secured bondholders 2. unsecured bondholders/ debentures/ general creditors 3. preferred stockholders 4. common stockholders

The US dollar has weakened compared to the British pound. How will this affect US imports from Great Britain? a. imports should increase b. imports should decrease c. imports will be less expensive d. a weakening US dollar has no impact on import/export activity

b. When the US dollar weakens against the British pound, it is also said that the British pound has strengthened against the US dollar. As a result, British goods become more expensive to US citizens and imports should decrease

Level premium payments are characteristic of which of the following? I. whole life insurance II. universal life insurance III. variable life insurance IV. variable universal life insurance a. I and II b. I and III c. III and IV d. I, II and IV

b. Whole life and variable life require the payment of premiums in equal installments. The option to vary the amount of the premium is characteristic of universal life insurance, including universal variable life

All of the following statements are true regarding a private placement variable life insurance policy except a. there is a limit to the number of nonaccredited investors that may purchase these policies b. these products are exempt from registration c. public solicitation of investors is permitted d. these policies are usually designed for wealthy individuals

c. A small number of variable life insurance policies are issued as private placements. These policies are generally designed for wealthy individuals. Private placements are exempt from registration requirements under the Securities Act of 1933. Generally, the number of nonaccredited investors permitted to purchase these products is limited to 35. General solicitation of investors is normally not allowed

An individual transferring an IRA from one trustee to another a. must be at least 59 1/2 to avoid any penalties b. will receive a check that must be rolled over within 60 days of receipt to avoid taxes c. is not subject to any taxes or penalties d. may only do so once each year

c. A transfer of funds from one trustee to another is not considered to be a distribution or a rollover. There is neither a limit to the number of transfers that an individual may make, nor are there any taxes or penalties. This differs from receiving a distribution from a retirement plan. The distribution must be rolled over into another qualified plan within 60 days of receiving the money, in order to avoid taxes and penalties. Rollovers may only be done once each year.

John Chamberson has been informed that the new company for whom he will be working has a simplified employee pension plan (SEP). All of the following statements are true regarding the SEP plan except a. an employer makes contributions to an employee's IRA b. John is not required to make annual contributions c. John is permitted to make contributions to the account d. employees are immediately vested for any contribution made to the account

c. All contributions to a simplified employee pension plan are employer contributions. Employees are not permitted to contribute to or have any portion of their salary deferred to a SEP. The employee is immediately vested for all contributions to the account. The employer is not required to make a contribution each year

A retired teacher had participated in a tax-sheltered annuity. Contributions made on her behalf into the plan totaled 10,000. This year she received a lump-sum payment from the annuity of 16,000. How is the distribution taxed and what is her cost basis? a. 6,000 is taxed as ordinary income and 10,000 is returned to her tax-free b. 6,000 is taxed as long-term capital gain and 10,000 is returned to her tax-free c. 16,000 is taxed as ordinary income d. 16,000 is taxed as long-term capital gain

c. Contributions made into a tax-sheltered annuity on an individual's behalf are made in pretax dollars. Investment income and capital gains accumulate tax-free during the life of the annuity. All payments received during retirement are taxed as ordinary income. in this question, the retired teacher has no cost basis, as all contributions made into the plan were in pretax dollars. Therefore, the 16,000 lump-sum payment she received is treated as ordinary income

A minimum investment or account size is usually required to I. make an initial investment in an open-end investment company II. implement a systematic withdrawal plan from an open-end investment company III. participate in a contractual fund plan IV. withdraw from a Roth IRA a. I and II b. II and III c. I, II and III d. I, II, III and IV

c. Each open-end investment company determines its minimum initial investment. The typical range is between 500 and 2000. Funds offering a systematic withdrawal plan usually require a minimum account size for participation. The investment company act of 1940 requires that the minimum investment under a contractual plan be 20 and any subsequent payments be at least 10. In a Roth IRA, there is a minimum holding period to withdraw tax-free, not a minimum investment amount

A father is acting as a custodian for his son under the Uniform Gifts to Minors Act. Which of the following statements is true? a. the father has title to any stocks in the trust b. any income tax on the dividends will be deferred until the child reaches majority c. any tax income earned in the account is taxable to the child d. the father is permitted to use the stocks as collateral when taking a loan for himself

c. Gifts of cash or securities may be made to minors under the uniform gifts to minors act. Since minors do not have a contractual capacity under common law, and adult must be names as the custodian for the minor. While the securities will be registered in care of the custodian for the minor, the minor is considered the owner of the securities and is responsible for any taxes due

A variable annuity has an AIR of 4%. This past year, the separate account grew at a rate of 12%. The appreciation in the separate account a. will be taxed to the investor during the accumulation period as ordinary income b. is taxable only to the separate account c. will increase an annuitant's monthly payment from the annuity d. will have no effect on the investor because the investor is guarantees only a 4% payment increase during the year

c. If the separate account of a variable annuity grows at a greater rate than the AIR, monthly payments from the annuity will increase

A client's 60 year old spouse passed away having named him the beneficiary of her IRA. He may receive the proceeds of the account I. as if the proceeds were from the beneficiary's own account II. after the original owner would have reached 70 1/2 III. over the life expectancy of the original owner IV. over the life expectancy of the beneficiary a. I only b. III only c. I and IV only d. II and III only

c. If you inherited the IRA from your decreased spouse, you may choose either the special spousal option, which allows a spouse to treat the IRA as your own or, alternatively, follow the rules that are required for a person who inherits an IRA from someone other than his spouse. If you elect to be treated as the owner of the IRA account, all the normal rules apply to the IRA just as they would to an account you set up for yourself. This means distributions are subject to the required minimum distribution as well as the ten percent penalty for early withdrawals-- notwithstanding the normal exclusions for qualified medical and educational expenses and first-time home purchase up to 10,000

While opening an account for a new customer, you as for the customer's occupation. The client declines to provide this information. What course of action should you take? a. report the customer to FINRAA b. tell the client you cannot accept her business c. document the client's refusal on the account form d. leave the space on the form blank and proceed with opening the account

c. Industry rules require that certain items of information, such as name, residence and whether the customer is of legal age, must be obtained prior to opening a new account. The RR must make a reasonable attempt to obtain certain other information such as social security number and the client's occupation. If the client refuses to supply this second group of information, the broker-dealer may still open the account. However, RRs should document the fact that they have indeed made the effort to obtain the data, such as by writing "refused" in the appropriate space. Simply leaving the related space on the account form blank is not recommended

A broker-dealer has filed for bankruptcy. One customer's account at the firm contains securities value at 650,000 as of the date of the bankruptcy filing. Which of the following statements is true regarding the coverage of this account by SIPC? a. the account is covered in full as long as thee customer is not a partner of the broker-dealer b. SIPC will cover 500,000 of the account's value; the customer has no legal recourse on the remaining value of the account c. SIPC will cover 500,000 of the account's value; the customer has a claim for the rest as a general creditor of the firm d. SIPC will cover 500,000 of the account value; FDIC will cover the rest of the claim

c. Maximum SIPC coverage is 500,000 per account, including a maximum of 250,000 for cash in the account. If a customer's account exceeds these limits and the broker-dealer files for bankruptcy, the customer is treated as a general creditor for the excess amount

Which of the following statements is correct regarding the treatment of realized capital gains in a mutual fund portfolio? a. all capital events are tax-free as long as the mutual fund distributes at least 90% of its net investment income b. all capital events are deferred as long as the mutual fund distributes at least 90% of its net investment income c. the short or long-term status of gains is based on the length of time the fund held the liquidated position d. the short or long-term status of the gains is based on each individual investor's holding period

c. Mutual funds do not grow tax-free or tax-deferred unless places in a retirement or other tax-advantaged account. The calculation for whether a capital even is long or short term is based on how long the fund held the individual security position that was liquidated. It is possible for a client to buy a fund in December and be hit by a large long-term capital gains liability in the same tax year based on the fund selling a position it held for several years

Nolan Ark, an RR with HiWater Investment, has just read a great article on using variable annuities as part of the estate planning process. He would like to photocopy this article and send it to his extensive client base. Which of the following statements concerning this activity is correct? a. under FINRA and SEC rules, it is prohibited for Nolan to send any written material produced by a third party b. the photocopies would be considered correspondence and subject to approval by Glenn's branch manager c. the photocopies would be considered an independently prepared reprint and subject to approval by a principal d. the photocopies are considered advertising and must be filed with FINRA

c. Once reproduced, articles are considered to be independently prepared reprints. These reprints were not written as sales tools, but if used as such, must be approved by a principal prior to use

Which of the following statements concerning the review and retention rules for mutual fund retail communications is true? a. the communication must be kept on file for at least one year b. the communication must be kept on file for at least two years c. the communication and a copy of the approval must be kept on file for at least three years d. thee communication and a copy of the approval must be kept on file for at least six years

c. Some examples of retail communication include advertisements, sales literature, web sites, independently prepared reprints, as well as sales and telemarketing scripts. Retail communications related to mutual funds or variable products must be approved by a principal prior to use and filed with FINRA within 10 business days of first use. A copy of the signed or initiated approval document must be kept on file for a minimum of 3 years from the date of last use

Which of the following statements concerning a TSA is correct? a. it grows tax-free b. it is not subject to contribution limits c. it has zero cost basis d. it may be subject to tax-free distributions if qualified

c. TSA is an examination abbreviation for tax-sheltered annuity. These annuities are employer sponsored plans that are available to certain nonprofit workers. These TSAs grow tax-deferred and are subject to the same contribution limits as 401k plans. Since they are funded on a pretax basis with contributions coming directly out of the worker's paycheck on a pretax basis, RSAs have zero cost basis. Upon distribution, every dollar removed from the TSA is taxable as ordinary income

The prospectus for the Abominable Bond Fund states that its custodian bank is Strongbox Trust Company. From this you can assume that Strongbox Trust Company a. manages the fund b. acts as the distributor of the fund c. holds the fund's cash and securities and performs essential clerical functions d. guarantees investors against any loss that may be incurred if the fund should decline in value

c. The custodian bank of a mutual fund only holds the fund's cash and securities and performs essential clerical functions. It does not manage the fund, distribute the fund, or guarantee investors against any loss that may be incurred if the fund should decline in value.

The SIPC logo may be placed on all of the following items except a. business cards b. letterhead c. a whole life policy d. a telephone book ad

c. The fact that a firm is a SIPC or FINRA member may be placed on business cards, letterhead, or in advertisements as long as the notation is not prominent. In this questions, a whole life policy would not be covered under SIPC since this nonprofit entity only covers the value of securities in the event of firm bankruptcy. Inasmuch as a whole life policy is not considered a security, no mention of SIPC would be made in connection with this general account product

An investment company you are analyzing had a net asset value of 16.00 on January 1 of last year. On January 1 of this year, its NAV was 17.50. During this period, you notice that the asked price declined by more than 2 per share. This investment company must be a. open-end investment company b. specialized fund c. closed-end investment company d. dual-purpose mutual fund

c. The market price of a closed-end fund may be at a premium or discount to the net asset value of the shares. For open-end investment companies, the fund cannot sell at a discount to its net asset value. If the net asset value increased by 1.50 and the asked price decline by more than 2.00 the question must be referring to a closed-end investment company

The level of interest rates in the US has been falling steadily over the past 3 years. Which of the following events had probably occurred during this period? a. the dollar strengthened b. US importers had a better business environment c. US exporters sold more goods d. the federal reserve had pursued a restrictive monetary policy

c. This is a difficult question. One reason people buy dollars is to purchase treasuries. As interest rates go higher and higher, more and more foreign investors may be enticed to purchase treasuries. In order to purchase the government bonds, they need to buy dollars. This hunger for dollars drives up the value of US currency in relative terms. The bottom line is the value of the dollar typically moves in the same direction as interest rates. When rates go up, the dollar goes up. When interest rates go down, the dollar falls. A weak dollar would help US exporters since their products would be viewed as less costly from a foreigner's perspective . The US importers would be hurt since foreign goods would be more expensive

Under what circumstance may a mutual fund borrow funds? a. never, since it is prohibited under SEC rules b. only at year end to meet redemptions triggered by tax loss sales c. throughout the year to meet client redemptions d. only to buy treasury securities or other principal guaranteed investments

c. This is a tough question. The answer revolves around the interpretation of the work borrowing. While mutual funds are typically from trading on margin, they are allowed to borrow funds temporarily to meet an unexpectedly large number of client redemptions. These redemptions may occur at any point during the year. Generally, when borrowing these funds, the fund must have assets securing the loan equal to 300% of the borrowed amount

A doctor receives an inheritance of 250,000. She is concerned how this may affect her tax situation. The doctor inquires about where she should park the money while she obtains professional tax advice. Which of the following recommendations is most appropriate? a. a short-term municipal bond fund b. a money-market fund c. a municipal money-market fund d. a US government inflation-protected bond fund

c. Whenever a person is looking to park her cash, the most viable option is some form of money-market account. Parking implies a very short-term time horizon so a and d are poor choices. In both cases, those choices involve a fund that purchases bonds and therefore, is subject to principal fluctuation. This would not suit her needs. However, this question also has an extra dimension to it. The person in this question is a doctor, which implies a high income level. Furthermore, she is inheriting a large sum of money and expressly states she is worried about taxes. These are trigger phrases, which means you should be looking for something that provides some tax relief. In this case, the municipal money-market fund is the best answer. The tax relief comes from the short-term municipal securities in the account. Choice b, the regular money-market, only offers principal safety

All of the following items are sources of mutual fund performance statistics except a. the fund prospectus b. lipper analytical services c. shareholder reports d. AM best

d. AM best does not provide mutual fund performance statistics. It rates insurance companies on their ability to meet obligations to policyholders. The fund prospectus provides performance date for the past 10 year period. It also provide average annual total returns for the past one, five and ten year periods. Some items shown in the prospectus include net investment income and dividends paid, distribution or capital gains, changes in net asset value on a year to year basis and the expense ratio Performance information in shareholder reports includes income and expense information for the period covered by the report. Lipper analytical services provides information on specific purposes. Each day, the wall street journal publishes a lipper table showing the best and worst performers in a specific fund category

An investor currently owns a corporate bond fund within the Plato family of funds. The investor's registered representative suggests that the client take a more aggressive stance and invest in one of the Plato growth funds or one of the funds newly offered by the Millennium group. Which of the following should be evaluated in making this switch? I. the tax consequences of the switch II. transaction costs associated with executing the switch III. whether the client can assume the risks associated with a growth fund IV. a higher expense ratio associated with the new fund a. I and II b. II and III c. I, III and IV d. I, II, III and Iv

d. All of these factors should be considered when contemplating the switch. The representative should review the Plato family of funds to determine if there is a suitable fund within that group. this action could reduce the transaction costs associated with the switch, as most switches are executed at the NAV when the investor stays within a fund group

Alexi Worthington has set up a period liquidation plan for the 11,400 shares she owns in the Pinnacle-Nadir Ultra Aggressive Growth fund. The fund is currently trading at a NAV of 21.34 per share and a POP of 22.03. Alexi is looking to sell approximately 100 shares per month to supplement her social security benefits. Which of the following statements is the most accurate? a. the client will receive at least 2134 per month b. the client will receive at lest 2203 per month c. the client will get back at least the current value of his account d. the client will have funds available for approximately the next 9 years

d. All we know is that the client is looking to sell 100 shares per month. The dollar amount of each payment is not guaranteed and each subsequent payment may rise or fall based on market conditions. If the client sells 100 shares per month the funds will last for 1114 months, equal to 9 1/2 years.

Two years ago John McBaine purchased 500,000 of high quality corporate bonds. Soon after the purchase the Federal Reserve adopted an easy money policy and cut the discount rate by 2 1/2%. What effect would this action have on Mr. McBaine's bond position? a. the price would fall and income would fall b. the price would fall and income would remain stable c. the price would rise and income would rise d. the price would rise and income would remain stable

d. An easy monetary stance means interest rates are falling. When rates fall, the price of bonds rises. This will have no effect on the client's income since the amount of interest paid is based on the face value of the bonds, not their market price.

Mr. Jones earns 48,000 per year and has contributed to his individual retirement account for each of the past two years. If he is not covered by a corporate pension plan, which of the following statements is true regarding his IRA? a. he must liquidate the IRA by taking a lump-sum distribution b. he may keep the IRA but additional contributions are prohibited c. he may keep the IRA and may make an after-tax contribution of up to 5500 each year d. he may keep the IRA and may make a pretax contribution of up to 5500 each year

d. An individual who is not covered by a corporate pension plan may continue to make an annual pretax contribution of up to 5500 to an IRA regardless of the individual's income

Which of the following statements is correct concerning the use of bond volatility ratings when marketing a mutual fund? a. this practice is inherently deceptive and expressly prohibited under SEC regulations b. these ratings must comply with the uniform standard set by standard & poor's and moody's rating agencies c. these ratings are often called risk ratings and are used for high yield funds exclusively d. theses ratings may account for NAV changes due to currency fluctuations

d. Bond volatility ratings are independently produced ratings that attempt to quantify how sensitive a given bond fund's NAV is to changes in the economy such as interest rate and/or currency fluctuations. There is no standardized scale for this measurement and these ratings may never be referred to as risk ratings

In mutual fund sales literature, the term 'dollar cost averaging' may not be used without stating a. that the customer must have the funds to continue the plan through periods of declining stock price b. that the customer can incur a loss if the plan is discontinued c. that the customer is investing in a portfolio of securities that are subject tot price fluctuations d. all of the above

d. Dollar cost averaging is investing a specific sum in the same security or group of securities at regular intervals over an extended period of time. When the securities are at a lower price, the fixed investment will buy more shares than when the price is higher. Customers considering this method of investment must be warned of several things; that they must be consistent in their investments by continuing to invest the same amount of money even in periods of declining stock prices, that the customer can easily incur a loss if the plan is discontinued and that the securities involved are subject to price fluctuations

Liz and Eddie are a young couple who would like to start investing. Their main objective is long-term growth. Of the following, the most appropriate mutual fund for them would be one with a portfolio containing a. 10% stocks and 90% bonds b. 20% domestic stocks and 80% foreign stocks c. 100% money-market investments d. 40% large-cap stocks, 20% mid-cap stocks, 20% small-cap stocks, 20% bonds

d. Equities are usually the most appropriate investment for those with an objective of long-term growth. Choice a is too heavily weighed in bonds and conservative money-market investments in choice c are unlikely to produce acceptable long-term growth. While choices b and d favor equities, a high concentration in foreign investments increases risk substantially.

The Laggard Equity fund invests in the stocks of companies whose earnings are projected to increase greatly over the next 10 years. This is an example of a a. fund of funds b. value funds c. balanced fund d. growth fund

d. Growth funds invest in the shares of companies whose earnings are projected to grow more rapidly than those of other companies

Tom, Dick and Harry have a tenancy-in-common account worth 600,000. The account holds several mutual fund and individual stock positions. Which of the following statements is most accurate? a. each party owns an equal portion of the assets and receives a Form 1099 for his portion of the taxes due b. Each party owns an equal portion of the assets but only one of the three receives a Form 1099 c. Since each party may own differing percentages of the account assets, each receives a Form 1099 for his portion of the taxes due d. Each party may own equal or differing percentages of the account assets, but only one of the three receives Form 1099

d. In a TIC account, holders may have equal or unequal interests. In out example, each may own 1/3 of the account or Tom could potentially own 80% with Dick and Harry each owning 10%. Under IRS rules, each account is given a primary tax identification number associated with one of the individual owners. Only one Form 1099 is sent out. It is up to the account holders to divide their respective tax responsibility

An individual who sells securities for a loss would be prohibited from claiming the loss if the individual a. repurchased the same securities within 30 days after the sale b. purchased an option to buy the securities within 30 days before the sale c. purchased an option to buy the securities within 30 days after the sale d. all of the above

d. Individuals who realize a loss on the sale of securities may not claim the loss on their federal tax return if they repurchase the security, or something substantially the same as the security such as a call option, within 30 days of the sale. This is called the wash sale rule

Which of the following strategies will protect an investor from market risk? a. buying an S&P 500 fund b. buying a sector fund c. limiting investments to micro cap OTC stocks d. raising cash levels

d. Market risk is the possibility that the value of an investment will fall due to a decline in the market as a whole. This risk cannot be mitigated through diversification. The S&P fund, by definition, attempts to replicate the performance of the market, so diversification does not help. Selecting stocks from a single sector of the economy will not protect an investor because there is no guarantee that stocks in a given sector will not decline alone with the general market. The best choice is to get out of the market- raise cash

A corporation may choose to pay its shareholders with cash dividends, stock dividends or stock splits. Which of the following statements concerning the tax status of these events is the most accurate? a. only the cash dividends are taxable, and the stock split and stock dividends are irrelevant from a tax standpoint b. only the cash dividends and stock dividends are taxable c. all three are taxable d. while only the cash dividend is taxable, stock splits and stock dividends cause the client to make an adjustment in her cost basis

d. Only cash dividends are taxable at the time of distribution. The payment of a stock dividend or a stock split simply increases the number of shares held by each shareholder. Since the stock's price will fall in the market, the IRS foes not consider any taxes to be due. Shareholders must, however, adjust their cost basis. For example, if a client owned 100 shares that she bought at 80 and the stock splits 2-for-1 she now owns 200 shares with a cost basis of 40 per share. Her 8000 investment has now been spread over her 200 shares

Pat White is a registered representative working in the investment banking department of a large broker-dealer. While assisting in the preparation of the registration statement for a new bond issue, Pat leans of some negative information about the company. Prior to the release of the information to the public, Pat tells a customer about this problem. The customer immediately sells some of the company's stock, thereby avoiding a sizeable loss. Which of the following statements is true of this situation with regard to insider trading rules? a. since no profit was earned in the transaction, neither the tipper nor the tippee has violated any rules b. the tippee has violated insider trading rules by using inside information; the tupper did not personally benefit and is therefore not in violation c. the tupper obtained the confidential information and is in violation; the tippee did not actively seek the information and is not in violation d. both the tipper and the tippee are in violation of insider trading rules

d. Persons who pass on confidential information to others are called tippers. If the information passed on by a tipper is used by the recipient, both parties have violated insider trading rules

Which of the following statements if least likely to appear in a mutual fund's prospectus? a. the fund's annual total return over the last ten years was 8.75% b. there is no guarantee that the fund will attain its objectives c. under unusual circumstances, the fund ahs the right to fill redemption requests with securities rather than cash (redemptions in-kind) d. the fund's portfolio consists of common stocks, which are expected to outperform inflation over the next ten years

d. Statements that can be interpreted as predictions are not allowed in prospectuses, advertising, or sales literature. A variation on this theme is that mutual funds cannot state or imply that past performance predicts future performance. While common stock returns have outpaced inflation in the past, there is no guarantee that this will continue in the future. Many mutual funds reserve the right to make redemptions in-kind, as described in choice c, for large redemption requests, rather than funding the redemption in cash. This is usually imposed only on redemption requests exceeding 250,000 within a 90-day period

A prospect is looking for an investment that would offer exposure to the breadth of the market. Which of the following choices would be most likely to meet her goals? a. a UIT based on the Dow Jones Industrial average b. and ETF that tracks the S&P 500 c. an index fund that mimics the Russell 2000 index d. an index fund that mirrors the Wilshire 5000 index

d. The broadest measure of the market is the Wilshire 5000 index, which actually includes about 6500 companies. The securities that comprise this index include everything in the Dow Jones Industrial average, the S&P 500 and the Russell 2000

A custodian account generates 10,000 of interest income through investments in corporate bonds. The minor is under fourteen years of age. How is the unearned income taxed? a. 10,000 taxed at the minor's rate b. 10,000 is taxed at the parent's rate c. 10,000 is taxed at the custodian's rate d. a portion is taxed at the minor's rate and a portion at the parent's rate

d. The tax liability depends on the minor's age and the amount of income earned. When the minor is under 19 years, an mount equal to the IRS ceiling is taxed at the minor's rate. The amount in excess of the ceiling is taxed at the parent's rate. For example, if the ceiling is 1300, anything above that amount is taxed at the parent's rate. When the minor is 19 or older, all unearned income is taxed at the minor's rate

Under the securities exchange act of 1934, the maximum civil penalty for insider trading violations is a. 5,000,000 and/or 20 in prison b. 25,000,000 c. 10,000 and/or 5 years in prison d. three time the amount gained or loss avoided

d. Thee maximum civil penalty for insider trading violations is three times the amount gained or loss avoided. The maximum criminal penalties per violation for individuals are a fine of 5,000,000, 20 years in prison, or both. Corporations are subject to a criminal penalty of 25,000,000 per violation

A customer has funded his Roth IRA with 200,000. The account has growth to 470,000. At age 70 1/2, the customer is considering taking his first distribution. His distribution this year is based upon a 27.4 period of time. If he fails to take his distribution, what is his penalty? a. 8576 (50% of the required distribution amount) b. 17153 (the account balance divided by 27.4) c. 10% of the required distribution d. 0

d. This question contains information that is not essential to answering the question and is used as a distracter. There is no required minimum distribution requirement for a Roth IRA. If the question focused on a traditional IRA, then penalty would be 50% of the RMD amount

The Maximum Fund Group charges 8.5% as a front-end sales charge on their family of funds. FINRA rules require that a breakpoint be available a. to all first-time investors b. to fiduciary accounts only c. for each additional 5,000 purchase over the next 13 months d. at 10,000 or 15,000

d. Under FINRA rules, a member firm may not sell shares of a mutual fund that assess a maximum sales charge of 8,5% unless the fund offers breakpoints that meet one of two alternative standards. The first standard limits sales charges on purchases of 10,000 to 7,75% with another breakpoint at 25,000 which lowers the sales charge to 6,25%. The alternative standard is a maximum sales charge of 7,5% on purchases of 15,000 or more and a maximum aggregate sales charge of 6,25% on purchases of 25,000 or more

Valencia Brokerage, a Los Angeles California based broker-dealer with branch offices in Chicago and NY is planning on holding its annual compliance meeting as required by FINRA rules. All of the firm's RR work on straight salary plus an annual bonus. Which of the following statements concerning this event is correct? a. the meeting must be a one-on-one event attended by each RR and her branch manager at the firm's home office b. the meeting is required only for firms selling loaded products through commissioned employees since few sales infractions occur within a no-load, straight salary environment, so Valencia may forgo the meeting c. the meeting must be held on the firm's premises in each of the 3 cities in which it maintains offices d. the meeting may be conducted over the firm's intranet to save on travel expenses

d. Under FINRA rules, all firms are required to hold an annual compliance meeting. There is no exemption for firms that only sell no-load products or employ only straight salary employees. This compliance meeting may be conducted in a physical setting such as the firm's offices, a rented auditorium or through an electronic medium such as a video conference or webcast. Firms that conduct a compliance conference through an electronic format must create safeguard that ensure that the attendees understand the contend of the meeting. While a meeting may be prerecorded, participants must have the opportunity to ask questions and obtain answers in a timely fashion

Claus owns a balanced fund in the Voyager Group and is considering a new fund purchase in the Quantum Family. If her were to participate in a systematic withdrawal program in the Voyager Family to purchase a Quantum fund, he would have to consider I. tax ramifications II. sales charges on the new purchase III. availability of shares a. I and II b. I and III c. II and III d. I, II and III

a. Any switch in a taxable account is a taxable event. The quantum funds could have higher sales charges than the Voyager Group; therefore, any sales charge should be reviewed. In an open-end fund, availability of shares is not a factor as there is a continuous offering

Which of the following statements is true concerning periodic payment variable annuities? a. the number of a client's annuity units never changes b. the number of a client's accumulation units never changes c. they never have a beneficiary d. the monthly payout is fixed by the inflation index

a. During the pay-in period of a variable annuity, the client is continually purchasing accumulation units. These accumulation units are then exchanged for a fixed number of annuity units when the payout period begins. The first monthly payout is determined actuarially and thereafter is based on the performance of the separate account

Under what conditions can mutual fund shares be used as collateral in a margin account? I if the shares have been paid for in full for at least 30 days II. if the shares were purchased through a dividend reinvestment plan III. if the securities in the mutual fund's portfolio are considered marginable by the federal reserve board a. I or II b. I or III c. II or III d. I, II or III

a. Newly issued securities are usually not permitted as collateral in margin accounts. Since mutual fund shares are always considered new shares when purchased, this rule applies to them. However, the SEC will permit newly issued shares to be transferred to a margin account after they have been owned for 30 days. In addition, shares that have been purchased as part of a plan for the automatic reinvestment of dividends may be used as margin collateral immediately

The type of mutual fund that receives premiums as compensation for incurring the obligation to sell stock at a specific price is called a. convertible fund b. option income fund c. insurance income fund d. hedge fund

b. An option income fund engages in a strategy known as covered call writing. This involves buying common stock and selling option contracts against the share. The sale of the option contracts provides additional income to the fund

The last sale of a US government bond was 98.4. The dollar value of the bond is a. 98.40 b. 981.00 c. 981.25 d. 984.00

c. US government bonds are quoted in full points and 32nds of a point. A quote of 98.4 would be 98 and 4/32nds which when converted into a decimal would be 98.125. This would have a dollar value of 981.25

Under Regulation T, if a client fails to pay for a security in the prescribed time period a. the client forfeits the right to profits b. the client is prohibited from trading for a one year period c. trades must be paid for in full at the time the order is placed indefinitely d. the client's account is frozen for 90 days

d. According to Regulation T, if a client fails to pay for securities in the prescribed period, the client's account is frozen for 90 days, not for all future trades. During this period, the broker-dealers must receive 100% of the purchase price before an order may be accepted

Which of the following terms is/are synonymous with a sponsor? a. underwriter b. wholesaler c. distributor d. all of the above

d. The terms wholesaler, distributor, underwriter and sponsor are interchangeable. They act as middlemen between the fund and broker-dealers and/or clients. Duties of the sponsor include preparation of sales literature and filing of many of the legal documents associated with the fund. The distributor earns part of the sales charge and 12b-1 fee as compensation for its efforts