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Series 6. Ch 4 And 5 > Ch 4&5 > Flashcards

Ch 4&5 Flashcards

1
Q

According to industry rules what percent is the maximum sales charge a mutual funds

A

8.5

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2
Q

What Price is paid for mutual fund shares

A

Public offering price

POP=NAV+sales charge (if applicable)

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3
Q

What does the following quote indicate about the fund

NAV: $9.20. POP: $9.20

A

It’s a no load fund

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4
Q

Sales charge is always expressed as a percentage of the——/

A

Pop

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5
Q

To calculate the sales charge percentage for a mutual fund the formula is

A

(Pop-NAV)/pop

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6
Q

To calculate the PO P for a mutual fund the formula is

A

NAV/(100%-sales charge%)

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7
Q

Define breakpoint

A

Dollar levels of investment purchases that qualify for a reduced sales charge

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8
Q

What is the formula for determining the number of shares able to be purchased when reaching a breakpoint

A

Dollars invested divided by newly calculated offering price (based on the reduced sales charge)

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9
Q

Letters of intent are valid for blank months

A

13

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10
Q

Letters of intent may be backdated for blank days

A

90

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11
Q

Is a letter of intent binding on the investor

A

No. However the letter is binding on the investment company

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12
Q

True or false if a mutual fund investor chooses to reinvest dividends taxes will be deferred

A

False

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13
Q

Funds offer _________\to allow buyers to add all purchases made from a fund family to reduce sales charge

A

Rights of accumulation

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14
Q

True or false to lower sales charges investors add mutual fund purchases in all accounts using rights of accumulation

A

True however the purchases must all be from the same fund family

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15
Q

A _________fund is one that invest in a specific industry or geographic region

A

Sector of specialized

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16
Q

Into what does a growth fund invest

A

Common stock

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17
Q

If a client goal is preservation of the principal what fund would be most appropriate

A

Money market fund

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18
Q

A fund who’s portfolio is created to mirror the composition of a particular index is referred to as an _______fund

A

Index

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19
Q

Describe a typical Index funds expenses and management style

A

The expenses are generally low and it is passively managed

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20
Q

_______ is the balancing of investment classes according to an investors investment objectives

A

Asset allocation

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21
Q

What is a funds net investment income

A

Dividends + interest -expenses

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22
Q

True or false regulated investment companies (under subchapter M ) may relieve their burden of paying tax on income

A

True regulated investment companies will only be taxed on the income retained

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23
Q

What are the requirements for being considered a regulated investment company

A

The fund must be a domestic company that distributes at least 90% of its net investment income

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24
Q

A regulated investment companies net investment income will ultimately be taxed to the__________

A

Shareholders

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25
Q

When a fund distributes a capital gain, is it the funds or shareholders holding periodThat is considered

A

The funds holding period is used to determine whether long-term or short term

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26
Q

Is a mutual funds redemption fee considered a sales charge

A

No since it does not go to selling broker’s but rather stays within the fund

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27
Q

What restrictions exist in describing a fund as no load

A

It may have no front end or D furred sales charge and a 12 B – 1 fee cannot exceed .25%

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28
Q

What do the differences in mutual fund share classes represent

A

The different methods by which the sales charges collected

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29
Q

If the high-tech fund has a NAV of $4.25 and a PO P $4.50 what is its sales charge percentage

A

The formula is (PO P - NAV)/pop

$4.50 -$4.25 = $.25 /$4.50 = 5.5%

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30
Q

If the green son has a NAV of $12.70 and a sales charge a 5.5% what is the PO P

A

The formula is NAV/(100% -sales charge percent)

$12.70 /94.5% = $13.44

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31
Q

True or false a breakpoint sale is a prohibited action of selling shares at just under where breakpoints are available

A

True

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32
Q

The NAV of a mutual fund is like the ________price of a stock

A

Bid

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33
Q

The PO P of a mutual fund is like the _______price of a stock

A

Ask

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34
Q

The _________is synonymous with the bedframe mutual fund

A

Net asset value NAV

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35
Q

The _________is synonymous with the ask for a mutual fund

A

Public offering price PO P

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36
Q

On Monday at 11 AM because my place is a call to sell (redeem)her mutual fund shares. what price will she receive?

A

Monday’s NAV since she placed the order before 4 PM

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37
Q

On Monday at 5 PM a customer places a call to sell (redeem) her mutual fund shares what price will she receive

A

Tuesday’s NAV since the client missed the 4:00 PM close she will receive the next calculated NAV

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38
Q

On Monday at 2 PM a customer places a call to sell her closed end fund shares. what price will she receive?

A

The current bid price. Closed end funds are traded throughout the day

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39
Q

On Monday at 10 AM a customer places I called to buy an ETF.what price will she pay?

A

The current ask (offer). ETFs are treated throughout the day

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40
Q

What to share class carries a front end load

A

Class A

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41
Q

What to share class carries a level load

A

Class C

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42
Q

What share class carries a back and load

A

Class B

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43
Q

May a class B share be referred to as a “no load” share?

A

No this is a violation of FINRA rules

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44
Q

True or false class B shares are eligible for breakpoints

A

False only class a shares are eligible for breakpoints

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45
Q

Breakpoints are calculated based on all purchases made within a single_________

A

Fund family

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46
Q

May an RR create her own breakpoint schedule

A

No RR must follow the schedule found in the funds prospectus

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47
Q

Is a hedge fund investment considered liquid

A

No

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48
Q

May hedge fund sell stocks it short and use margin

A

Yes

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49
Q

What is a fund of funds

A

A mutual fund that invests in other mutual funds

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50
Q

What is a regulated investment company

A

One that distributes at least 90% of its net investment income

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51
Q

What types of stocks are held in a global fund

A

Stocks of both US and foreign issuers

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52
Q

What types of stocks are held in an equity income fund

A

Often stocks of public utilities and preferred shares

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53
Q

Why is an index fund considered tax efficient

A

Due to the low portfolio turnover that creates fewer taxable events

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54
Q

What is a good way to obtain broad market exposure at a low cost

A

Buy an index fund

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55
Q

Does the US government guarantee US government bond funds

A

No the government only guarantees the underlying bonds

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56
Q

May a money market fund charge a 12 B – 1 fee

A

Yes up to .25% (25 basis points)

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57
Q

May a loss be experienced by a client who invests in a US government bond fund

A

Yes due to interest rate risk

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58
Q

What is a mutual fund switch

A

The redemption of one fund and the purchase of another. It may be within the same or different fund families

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59
Q

Is a mutual fund switch a taxable event

A

Yes

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60
Q

What sales charge is assumed when computing mutual fund performance

A

The standard sales charge with no breakpoints

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61
Q

Do all money market funds maintain a stable NAV of $1.00

A

No this stability is a goal but it is not guaranteed

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62
Q

What type of mutual fund is often used as a safe harbor

A

Money market funds

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63
Q

To what risks would treasury bond funds be subject?

A

Interest rate, purchasing power, and market risk

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64
Q

What action would be taken by a mutual fund manager who is Bearish on the market

A

Raise cash levels in the fund

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65
Q

Which share class typically has the lowest expense ratio

A

Class a

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66
Q

Which share class is typically appropriate for an investor with an uncertain time horizon

A

Class C

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67
Q

What happens to class B shares after a prescribed period

A

The shares will automatically convert to class A shares

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68
Q

A measurement of frequency of trading in a mutual fund is called_________

A

Portfolio turnover

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69
Q

What is not included in a mutual fund expense ratio

A

The sales charge since only fees are included

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70
Q

What is the maximum sales charge that may be levied on a contractual plan over the life of the plan

A

9%

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71
Q

If an investor wants exposure to a particular industry, a _____fund is the best type of investment

A

Sector

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72
Q

What is the name of the fee paid to the funds investment advisor

A

Management fee

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73
Q

The _______fee is assessed against the funds assets to pay for marketing and distribution costs

A

12 B – 1

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74
Q

What happens to the CDSC holding period When a client switches within a fund family

A

The prior period Counts, provided the new B share investment is in the same family

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75
Q

What happens to the CDSC holding period when a client switches to a new fund family

A

The clock is reset to day one whenever the client switches to a new fund family

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76
Q

True or false a client who believes that rates will rise will buy a short-term bond fund

A

True rising rates hurt bond prices , however short maturities will fall the least

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77
Q

True or false a client who believes rates will fall will buy a long term Bond fund

A

True falling rates help bond prices and long-term bonds will rise the most

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78
Q

High-yield bond funds have a greater degree of _______ risk

A

Default

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79
Q

Will redemptions affect a funds NAV

A

No the assets and number of shares are decreased proportionally

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80
Q

Will new purchases affect a funds NAV

A

No the assets a number of shares increase proportionally

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81
Q

Will liquidating a fund position at a loss affect a funds NAV

A

No the position has already been marked to market

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82
Q

What is subchapter M

A

A section of the IRS code that defines a regulated investment companies (conduit/ Pipeline theory)

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83
Q

In what types of stocks when a value fund manager invest

A

Typically stocks of out of favor issues

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84
Q

May in RR state that an investor will never lose money in a principal protected fund

A

No clients liquidating these funds early are exposed to principal loss

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85
Q

Do some mutual funds issue fractional shares

A

Yes this is common practice

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86
Q

Is a redemption fee the same as a CDSC

A

No the CDSC is a sales charge not a fee

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87
Q

A client invested $21,000 which has grown to $25,000 on what amount is his break point based

A

$21,000 breakpoint are based on the amount contributed

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88
Q

Where is the best place to find information regarding share classes

A

The comparison table found in the funds prospectus

89
Q

Does a funds yield include capital gains

A

No capital gains are part of the funds total return

90
Q

Is a funds total return calculated on a pretax or post tax basis

A

Total return is calculated on a pretax basis

91
Q

When does a mutual fund begin to trade ex-dividend

A

On the funds record date

92
Q

Identify the acronym NAV

A

Net asset value

93
Q

Identify the acronym LOI

A

Letter of intent

94
Q

Identify the acronym SAI

A

Statement of additional information

95
Q

Identify the acronym C DSC

A

Contingent deferred sales charge

96
Q

Identify the acronym BA

A

Bankers acceptance

97
Q

Identify the acronym PO P

A

Public offering price

98
Q

Identify the acronym V UL

A

Variable universal life

99
Q

With what should a client be concerned if an RR recommends a class B shares switch between fund families

A

The holding period will be reset to zero in the new fun family and/or a CDSC may apply on the redemption

100
Q

What is a suitable investment for a conservative client seeking monthly income

A

A GNMA fund since income is typically paid monthly

101
Q

What happens to class B shares after a prescribed number of years

A

They convert to class A shares

102
Q

What is the maximum permissible 12 B – 1 fee

A

.75% ( 75 basis points) however for no load funds the maximum 12B – 1 fee is capped at .25%

103
Q

What may an RR recommend to a non-accredited investor wishing to participate in hedge fund investing

A

A fund of hedge funds. However these funds do not offer daily redemption rights

104
Q

To which clients is an RR required to disclose breakpoints

A

All clients regardless of the size of the proposed investment

105
Q

What would cause a bond funds assets to rise

A

Either new purchasers bringing in funds or a decrease in rates causing an increase in the portfolios value

106
Q

What would cause a bond funds assets to fall

A

Either redemptions causing the loss of funds or an increase in rates causing a decrease to the portfolios value

107
Q

What must be included in a mutual fund confirmation

A

Potential redemption fees or CDSCs that may apply

108
Q

What is the formula for determining a mutual fund net assets

A

Total assets(eg, stocks, bonds, and cash)-total liabilities(eg, expenses)

109
Q

What is the formula for computing a mutual funds net asset value

A

Net assets divided by total shares outstanding

110
Q

True or false rights of accumulation benefits may be combined with a letter of intent benefits

A

False

111
Q

List some of the investors eligible for sales charge a reduction in a mutual fund

A

In individual and the members of her immediate family (spouses/dependent children), trustees and pension plans

112
Q

How often does a GNMA mutual fund make income distributions

A

Monthly

113
Q

What is the formula for determining the average cost per share

A

Total dollars invested divided by total shares purchased

114
Q

What is the formula for determining the average price per share

A

Total of the prices paid divided by total number of purchases

115
Q

For what type of investor is a large cap mutual fund most suitable

A

Conservative equity investors since the portfolio consists of stocks of large, established companies

116
Q

For what type of investor is a small cap mutual fund most suitable

A

Aggressive investors since the portfolio consists of stocks of small companies that are often volatile

117
Q

For what type of investor is a micro cap Mutual funds most suitable

A

Speculative investors since the portfolio consists of stocks a very small companies that are typically quite volatile

118
Q

Who typically buys hedge funds

A

Accredited (sophisticated) investors through Reg D offerings

119
Q

What is the annual fee levied against a funds assets and used to pay expenses of commissions and retail communications

A

12 B – 1 fee

120
Q

What periods must be covered in retail communication regarding mutual fund performance

A

1, 5 and 10 years

121
Q

What is some of the important information to obtain when opening a new clients account

A

Name, address, Age, occupation, SSN, citizenship, income, net worth, objectives, risk tolerance, investment experience

122
Q

What is not pertinent when opening an account a clients educational or financial background

A

Educational background

123
Q

If a client refuses to provide certain information may the account still be opened

A

Yes although name and address are required

124
Q

True or false clients need not sign the account form for a cash account

A

True but signature would be required for an option or a margin account

125
Q

If a client wins $1 million what should a RR do

A

Update the account form

126
Q

True or false only one person must provide information to open a joint account

A

False each owner must provide information to open a joint account

127
Q

Who may enter orders in a joint account

A

Any owner named on the account

128
Q

For a joint account how many account numbers and SSNs are used for tax reporting

A

One

129
Q

What is a TOD account

A

An account in one persons name that allows a beneficiary to gain control upon the account holder’s death

130
Q

True or false money may be withdrawn from a joint account and one owners name

A

False any checks should be in both parties names

131
Q

What happens to the deceased’s portion in a joint account with tenants in common

A

The deceased’s portion goes to his estate for tax purposes

132
Q

What happens to the deceased sports and in a joint account with right of survivorship

A

Her portion passes to the survivor

133
Q

Only ________ custodian is allowed per miners account

A

One

134
Q

True or false custodial accounts are solely carried in the name of the minor

A

False the account is in the custodians name for the benefit of the minor

135
Q

The ______is responsible for taxes on income in a custodial account

A

Minor

136
Q

When do gifts become the property of the minor in a custodial account

A

When gifted

137
Q

True or false gifts made to minors are irrevocable

A

True

138
Q

Is margin permitted in a miners account

A

No securities must be fully paid

139
Q

Custodians have a _______\duty to do what is best for the minor

A

Fiduciary

140
Q

Me a custodian make speculative investments in a minors account

A

Yes provided they are suitable based on the objectives

141
Q

What age must be attained for the minor to gain control over his account

A

Age of majority

142
Q

RRs must examine what document to open any corporate account

A

Corporation resolution

143
Q

True or false all corporate officers may effect transactions for the corporation

A

False only those named in the corporate resolution

144
Q

Both the _______and the _______are required for a corporation to open an option or margin account

A

Corporate resolution and corporate chapter

145
Q

What is needed to exercise discretion over a clients account

A

Written power of attorney

146
Q

Is discretionary authorization required to enter a not held order

A

No since discretion is limited to time and price on not held orders

147
Q

What three items must be specified on a not held order

A

Action (Buy/sell), amount(quantity), and asset(security)

148
Q

For how long may not held order be maintained

A

A not held order will be considered a day order

149
Q

Chew or false principles must approve discretionary orders prior to entry

A

False the orders must be approved promptly afterwords

150
Q

What may an RR do with full discretion but not with limited discretion

A

Withdraw money from the account

151
Q

A ________ is required to open an account for partnership

A

Partnership agreement

152
Q

May a wife and her trades in a husbands account

A

Yes with written third party authorization

153
Q

Describe a wrap account

A

An account that charges the client a single fee that covers transactions and management

154
Q

True or false using a PO Box as an address is not acceptable to open an account

A

True an actual address is required however mail may be sent to a PO Box

155
Q

________protects customers from BD bankruptcy

A

Securities investor protection Corporation (SIPC)

156
Q

Does SIPC protect separate customers or separate accounts

A

Separate customers. A customer with both a cash and margin account with a BD would be covered once

157
Q

True or false gems joint account with his wife is considered a separate customer by SIPC

A

True. EXample, jim’s cash and margin account our combined for coverage but Jim’s joint account with his spouse is separate

158
Q

Customers become _______if their cash or securities positions exceed SIPC coverage

A

General creditors

159
Q

If a BD goes bankrupt what happens to securities registered in the customers name

A

They are returned to the customer without regard to SIPC limitations

160
Q

What steps are taken if a customer dies

A

Market the account deceased, cancel open orders and await instructions

161
Q

Account statements must be sent to customers at least________

A

Quarterly

162
Q

For active accounts account statements must be sent

A

Monthly

163
Q

What triggers a BDs filing of a currency transaction report (CTR)

A

Any cash transaction executed by a customer during one day that exceeds $10,000

164
Q

What triggers a BD’s filing of a suspicious activity report

A

Any suspicious transactions of $5000 or more

165
Q

What triggers a BD’s filing of a Currency and monetary instrument report (CMIR)

A

When anyone physically transports or receives cash (or equivalents ) exceeding $10,000 into, or out of, the US

166
Q

What items are acceptable as proof of identity under the customer identification program (CIP)

A

Passport or drivers license both have a picture

167
Q

What steps should be taken when an RR executes a trade but uses the wrong account number

A

Do we cancel and re-bill. Transfer the trade to the correct account number with permission of a supervising principal

168
Q

Custodial accounts were opened under who’s Social Security number

A

The minors

169
Q

What type of order gives discretion as to price and time of execution

A

Not held

170
Q

When must customer confirmations be sent

A

By the completion of the transaction (usually the settlement date)

171
Q

In the process of opening an account for an employee or another firm what must be done by the carrying firm

A

Provide written notification to the employer

172
Q

For accounts opened for employees of another firm what is provided to the individuals employer upon request

A

Duplicate confirmations and statements

173
Q

True or false F I NRA regulates accounts of member firm employees opened at another firm

A

True the rule also covers accounts for the employees spouse or dependent children

174
Q

What program must be established by BD’s to verify the identity of each customer opening an account

A

Customer identification program or CIP

175
Q

What list must be checked to identify suspected terrorist in criminals

A

0FAC List. ( treasury department’s office of foreign assets control)

176
Q

True or false names appearing on the OFA C list are customers who had a previous business relationship with the firm

A

False the list that shows the names of suspected terrorist and criminals

177
Q

What’s regulation protects the nonpublic personal information of customers

A

Regulation S – P

178
Q

Regulation S – P requires clients be provided with a ___________\detailing how BDs handle personal client information

A

Privacy notice

179
Q

What is the appropriate investment for a Doctor Who is undecided about his long-term asset allocation

A

A tax-free money market fund

180
Q

When a client dies, instructions will be provided by the________

A

Executor/administrator

181
Q

True or false clients concerned about inflation should purchase a precious metals fund

A

True a precious metals fund is a good head against inflation

182
Q

If a client is unsure about a specific investment strategy his funds should be parked in a _______
fund

A

Money market

183
Q

May an R R have an outside brokerage account

A

Yes but the caring firm must notify the RRs employer

184
Q

Must the custodian in an UGMA account be a parent

A

No any adult may be custodian

185
Q

Who’s Social Security number is listed on a custodial account

A

The minors

186
Q

May a custodian remove funds from a custodial account

A

Yes but only for the benefit of the minor

187
Q

Is an UGMA account considered a joint account

A

No the assets are the property of the child

188
Q

What protects a brokerage client from theft or embezzlement

A

The posting of a fidelity bond by the BD

189
Q

What is in RRs concern if her client moved to a new state

A

Ensuring that the RR is properly registered in the new state (uniform securities act)

190
Q

What advice should be given to a newly married couple that wishes to begin investing

A

Put aside cash reserves before buying long-term investments

191
Q

What advice should be given to a prospective client who wishes to begin saving for retirement

A

Take advantage of any employer-sponsored retirement plan

192
Q

What is the best investment for a part-time teacher who is undecided about a long-term allocation

A

A taxable money market fund since the teacher may be in a lower tax bracket

193
Q

What is a suitable investment in a college fund for a three-year-old

A

Growth funds since the child has a long time horizon

194
Q

What is a suitable investment in a college fund for a 17-year-old

A

Hi grade bond funds since individual has a short time horizon

195
Q

What must be done if a client is too ill to manage his own affairs

A

I obtain a court appointed naming someone to manage the account

196
Q

What is a suitable asset mix for a 65-year-old retiree

A

85% fixed income and 15% equity

197
Q

What is a suitable investment for a client whose goal is capital preservation

A

T-bills or a US government money market fund

198
Q

May client information be given to a third-party

A

Only if the third-party has legal authority (eg, IRS) or the client provides written consent

199
Q

True or false SIPC provides coverage for market losses

A

False SIPC protects against BD bankruptcy

200
Q

What are the permissible hours of operation for a customer helpline

A

24 hours a day seven days a week. Client call in lines are not bound by the telephone consumer protection act

201
Q

When must the Reg S – P privacy notice be provided to a customer

A

At the time of the account opening and annually thereafter

202
Q

A bond funds NAV has fallen from $9.87 to $8.11 what has probably happened to interest rates

A

Rates have probably risen which has caused the funds price decline

203
Q

A bond funds NAV has risen from $7.87 to a dollar $8.88 what is probably happened to interest rates

A

Rates have probably fallen which has caused the funds price increase

204
Q

Is SIPC part of the US government

A

No it is a nonprofit entity funded by assessments on BD members

205
Q

Made a client to use a numbered account instead of her name

A

Yes provided the clients identity is known to the firm

206
Q

What violation may have occurred if in RR informs the client of a trade after the execution of the trade

A

Unauthorized trading

207
Q

If a young couple is seeking to find their infants education what needs should an RR address first

A

The RR should be assured that the couple has adequate insurance coverage

208
Q

Identify the acronym CTR

A

Currency transaction report

209
Q

Identify the acronym SAR

A

Suspicious activity report

210
Q

Identify the acronym SIPC

A

Securities investor protection Corporation

211
Q

Does SIPC insure client assets

A

No SIPC protects against firm bankruptcy

212
Q

Make clients in TIC accounts have unequal interests

A

Yes also TIC accounts may have more than two account holders

213
Q

What you should an RR recommend to a client who is looking for an exciting investment

A

Nothing since exciting is not a valid objective

214
Q

Is market timing a suitable recommendation for mutual fund investors

A

No since market time is a short-term trading strategy

215
Q

SIPC provides coverage of $________ of which no more than $__________ can be cash

A

$500,000

$250,000

216
Q

The ________must sign the account form

A

Supervising principal…. Clients are not required to sign

217
Q

Where me a firm display it’s SIPC membership

A

On letterhead, business cards, websites, in retail communication, and on signs displayed in its offices

218
Q

Investment companies must send financial statements to customers every ——months

A

Six

Series 6. Ch 4 And 5 (1 decks)

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