Series 6: Section 3- Provides Customers With Information About Investments, Makes Suitable Recommendations, Transfers Assets and Maintains Appropriate Records
For a mutual fund to issue shares publicly, what is the minimum net worth requirement
$100,000
The _______ fee is assessed against the funds assets to pay for marketing and distribution costs
12b-1 fee
What is the maturity range of a t-note
2 to 10 years
The maximum maturity of commercial paper is ____ days
270
A sale for a loss would trigger the wash sale rule if the same security is repurchased within _______
30 days of the sale
What is a suitable asset mix for a 65 year old retiree
85% fixed income and 15% equity
What is the dollar price of a T-bond with a bid of 98-24 and a par value of $100
98 and 24/32. Convert fraction into a decimal 24/32= .75. Now multiply $100 by 98.75%= 98.75$
At annuitization (payout), what will determine the annuitants payment
A fixed number of annuity units with a fluctuating value per unit
Prior to selling a variable annuity, hat legal document must a firm obtain
A signed selling agreement from the contracts underwriter
What is a partial account transfer
A situation in which a specifically identified asset is transferred to another BD
What is the appropriate investment for a doctor who is undecided about his long term asset allocation
A tax free money market fund
A funds management fee is typivally calculated based on a percentage of ______
AUM
List some expense items for which soft dollars may not be used
Accounting, travel, entertainment, legal, marketing, rent, or telephone line expenses
For what type of investor is a small-cap mutual fund most suitable
Aggressive investors, since the portfolio consists of small companies that are often volatile
What system is used for issuance of treasury securities
An auction
What is the tax implication of the death benefit of a variable annuity
Any amount above the contracts basis is taxable to the beneficiary
Define Current Assets
Assets that may be converted into cash in a short time (less than a year)
How is basis determined for the recipient of gifted securities
Basis ill be the donors cost or market value whichever is lower
Name 2 issues on which common stockholders may vote
Board of directors elections and stock splits
List some examples of non-systematic risk
Business, regulatory, legislative, political, liquidity, opportunity, and reinvestment risk are non-systematic risks
The principal value of TIPS may be adjusted based on changes to the _______
CPI
Which share class typically has the lowest expense ratio
Class A
What are 2 synonymous terms for a bonds interest rate
Coupon rate and nominal yield
If performance in a given period is greater than the AIR, the next payment will ___________.
Decrease
High-yield bonds have a greater degree of _________ risk
Default
What does yield-to-maturity (YTM) take into account that current yield does not
Discount/premium made or lost at maturity, reinvestment of interest at YTM, and time value of money
What is a fund's net investment income?
Dividends + interest - expenses
What is the formula for determining the number of shares able to be purchased when reaching a breakpoint
Dollars invested newly calculated offering price (based on the reduced sales charge)
In a non-qualified annuity, how is a single distribution taxed
Earnings First (LIFO)
True or False: If a mutual fund investor chooses to reinvest dividends, taxes ill be deferred
False
True or False: When interest rates go up, bond prices go up, and when interest rates go down, bond prices go down
False, there is an inverse relationship between interest rates and prices
True or False: Performance must be negative for a variable annuitys payment to fall
False. Performance below the AIR will cause the payment to fall, even if the investment result was positive
True or False: A value investor buys stocks With high P/E ratios
False. Value Investors buy stocks with lo P/E ratios, lo price-to-book ratios, and high dividend yields
Municipal bond interest is exempt from _______ tax
Federal
How is interest on municipal bonds treated for tax purposes
Federally tax-exempt, but may be subject to state and local tax
What annuity does not protect an investor against inflation?
Fixed (guaranteed) contracts are not a good hedge against inflation
What is a suitable investment in a college fund for a 3-yr old
Growth funds, since the child has a long term horizon
What is a suitable investment in a college fund for a 17-year old
High grade bond funds, since the individual has a short time horizon
What is the risk of taking a loan against a variable life policy
If the market declines, the cash value may be sufficient to pay the premium
To What risks would be treasury bond funds be subject
Interest rate, purchasing power, and market risk
What condition must exist for a municipal bonds interest to be exempt at the state and local level
Investors must buy the bond from the state in which they reside
What does the following quote indicate about the fund? Nav: $9.20 POP: $9.20
Its a no-load fund
What is the risk that changes in the tax could impact securities prices
Legislative risk
What is a common time frame for calculating the cash surrender value on a variable life insurance policy
Many companies calculate the cash surrender value monthly
What is a common time frame for calculating the cash value on a variable life insurance policy
Many companies calculate the cash value daily
If a client eliminates unsystematic or diversifiable risk in his portfolio, he is willing to accept______ risk
Market Risk
How may a mutual fund be capitalized
Mutual (open-end) funds may only issue common stock to raise capital
May an RR create her own breakpoint schedule
No RRs must follow the schedule found in the funds prospectus
Are variable life policies subject to IRS early withdrawal penalties
No but variable annuities would be subject to the penalty
Does the US government guarantee US government bond funds
No the government only guarantees the underlying bonds
Is a letter of intent binding on the investor?
No. However, the letter is binding on the investment company.
May an RR summarize a prospectus
No. any prospectus summary must be produced by the funds sponsor
If a client wants to transfer an account containing a non-transferable asset, hat is the carrying firms obligation
Notify the client and give her the option to maintain the asset in an account or dispose of the asset
In a non-qualified annuity, how is the payout taxed
Only the earnings portion is subject to tax as ordinary income
What is include in the cost basis of a mutual fund client
Original Investment + Reinvested dividends and capital gains
As a client ages, what happens to her premium payments in a variable life policy
Payments in a variable life policy remain fixed (level)
A measurement of frequency of trading in a mutual fund is called _________
Portfolio turnover
Each payment from GNMA will represent both ____________ and ____________.
Principal, Interest
A bond funds NAV has risen from $7.87 to $8.88. What has probably happened to interest rates
Rates have probably fallen
What ETF closely tracks the price performance of the S&P 500
SPDRs
For what type of investor is a micro-cap mutual funds most suitable
Speculative investors, since the portfolio consists of stocks of very small companies that are typically quite volatile
What is another name for non-diversifiable risk
Systematic Risk
Beta measures an investments ______ risk and alpha measures an investments _______ risk
Systematic, non-systematic
The following would be a quote for what security? Bid 4.26 Asked 4.22
T-bill
The formula for taxable equivalent yield is: ________/ (_______-_________)
Tax-Free yield/ (100%-Tax bracket %)
If non-transferable assets are being sold at the time of surrender, who discloses any surrender charges to the client
The carrying (former) BD
What happens to the CDSC holding period when a client switches to a new fund family
The clock is reset to day one whenever the client switches to a new fund family
Where is the best place to find information regarding share classes
The comparison table found in the funds prospectus
If the Green Fund has a NAV of $12.70 and a sales charge of 5.5%, what is the POP?
The formula is NAV/ (100% - Sales Charge%). $12.70/ 94.5%= 13.44
What is the net yield for and investor in the 28% tax bracket who owns an 8.5% corporate bond
The formula is: Taxable yield x (100% -Tax Bracket %). 8.5 x 72%= 6.12%
Mack, in the 35% tax bracket, is earning 5.4% on a tax-free municipal bond. What is his taxable equivalent yield?
The formula is: tax free yield/ (100% - Tax Bracket %). 5.4% 65%= 8.3%
A fund can be purchased below its NAV. what type of fund is it
The fund must be a closed end fund that is trading at a discount
A fund can be purchased below its NAV. what type of fund is it
The fund must be a closed-end fund that is trading at a discount
What are the requirements for being considered a regulated investment company
The fund must be a domestic company that distributes at least 90% of its net income
What does it mean to say an issuer is heavily leveraged
The issuer has more debt than outstanding equity
What is the tax implication of a policy loan on a life insurance policy
The loan is not taxed, but interest is charged on the outstanding balance
What is not included in a mutual funds expense ratio
The sales charge, since only fees are included
With what should a client be concerned if an RR recommends changing fund families
The specific motivation. For example, the RR may be involved in churning
What is the dollar limit that may be contributed annually to a non-qualified annuity
There is no contribution limit
Describe the tax treatment of contributions made to a 529 Plan.
They are after-tax contributions that may possibly grow tax free
What is the formula for determining the average cost per share
Total dollars invested/ total shares purchased
True or False: ETFS are marginable and may be sold short
True
true or False: Zero coupon bonds would a suitable recommendation for college funding
True, especially since clients may want to avoid stock market risk
True or False: Regulated investment companies (under subchapter M) may relieve their burden of paying tax on income
True. Regulated investment companies will only be taxed on the income retained
True or False: Interest paid on GNMA, FNMA, ETC, bonds are fully taxable to investors
True. the interest is taxed at the federal, state, and local level
Mutual fund investors have an ______ interest in the securities in the portfolio
Undivided
May a person contribute to her own 529 plan
Yes
May close-end funds issue more than one type of security
Yes closed-end funds may issue common stock, preferred stock, or bonds
May annuities be purchased inside of IRAs
Yes, but this practice is typically not recommended by FINRA
May clients invest in an out-of-state 529 plan
Yes. Clients may choose to invest either in state or out of state
What amount of an investment company's Board of Directors must be independent/unaffiliated?
a majority
When discussing a bond, the YTM may also be referred to as _____
basis
How may close end fund be capitalized
close-end funds may issue bonds, common stock, or preferred stock to raise capital
Issuers of bonds may be referred to as ______
debtors
If performance in a given period is below the AIR, the next payment will _______
decrease
The __________ the duration, the greater the bonds volatility sensitivity
longer/greater
Does a funds yield include capital gains
no, Capital gains are part of a funds total return
What action would be taken by a mutual fund manager who is bearish on the market
raise cash levels in the fund
An annuity that offers a partial guaranteed payment and a partial variable payment is known as a _____ contract
split
If a member firm places a hold on the disbursement of client funds or securities, when must it provide notification
within 2 business days