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Series 7 > Investment Company Products > Flashcards

Investment Company Products Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Letters of intent may be backdated up to how many days?

A

90

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2
Q

All of the following describe the price of a no-load mutual fund EXCEPT:

A

POP.

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3
Q

Under the Investment Company Act of 1940, mutual funds must send financial statements to shareholders at least:

A

semiannually.

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4
Q

All of the following statements concerning investment companies are true EXCEPT:

A

to be considered a diversified investment company, the company must invest in both equity and debt instruments.

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5
Q

All of the following are redeemable securities EXCEPT:

A

REITs

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6
Q

An investment company that holds which of the following does NOT meet the definition of a diversified investment company under the 1940 Investment Company Act?

A

33% of its assets in securities issued by a small-cap new issue.

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7
Q

When comparing exchange-traded funds (ETFs) to mutual funds, some features available in ETFs that are NOT found in the mutual funds would include the ability to:

A

II. sell short.

III. be bought and sold on margin.

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8
Q

A mutual fund’s expense ratio is found by dividing its expenses by its:

A

average annual net assets.

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9
Q

Which of the following statements describe characteristics of open-end investment companies?

A

I. Shares are redeemable at net asset value.

II. Shares are always sold by prospectus.

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10
Q

Last year, the bond market was profitable and ABC Fund had 70% of its assets in bonds. Next year, the fund’s managers expect the stock market to do well, and will adjust the fund’s portfolio so 60% of its assets will be invested in stock. ABC is probably what type of fund?

A

Balanced

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11
Q

For a mutual fund that collects a 12b-1 fees, which of the following statements are TRUE?

A

I. The fund may use the money to pay for mailing sales literature.
II. The fund’s prospectus must disclose the fee.

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12
Q

A customer wishes to invest $800,000 in the Ajax Fund, an open-end company with a long-term growth objective. In order to take advantage of breakpoints, you recommend that the customer purchase:

A

Class A shares

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13
Q

A stock mutual fund wishes to advertise itself as diversified. To be able to do so, the fund must invest:

A

at least 75% of its assets in securities other than its own.

so that it holds no more than 10% of the voting stock of any one company.

no more than 5% of its assets in any one target company.

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14
Q

Which of the following constitutes selling dividends?

A

Enticing customers to buy mutual fund shares just before the ex-dividend date.

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15
Q

If an investor wants to invest in the electronics industry but does not want to limit his investments to only one or two companies, which type of fund would be most suitable?

A

Specialized

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16
Q

Which of the following statements regarding fixed municipal unit trusts are TRUE?

A

I. The trust is not managed.

II. The portfolio can not be traded.

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17
Q

Mutual fund Class B shares assess:

A

a deferred sales load

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18
Q

A mutual fund invested in bonds with medium-length maturities. As the bonds matured, the fund reinvested the proceeds and purchased long-term bonds with maturities of up to 20 years. What might have happened to the fund if the reinvestment had occurred during a period when interest rates were rising?

A

III. Increase in yield.

IV. Increase in income.

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19
Q

A mutual fund has a net asset value (NAV) of $7.80 per share, and the fund pays its underwriter a concession of $0.12 per share. If the fund has a sales load of $0.50 per share and an administrative fee of $0.15 per share, how much does the investor pay per share to purchase a Class A share of this fund?

A

8.3.

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20
Q

An investment company share purchased at its NAV that can always be redeemed later at its then-current NAV is a:

A

Class C share.

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21
Q

Closed-end investment company shares can be purchased and sold:

A

in the secondary market.

22
Q

Which of the following two are TRUE of a leveraged exchange traded fund (ETF)?

A

I. The leveraged ETF may be purchased on margin.

II. Securities within the leveraged fund portfolio may be purchased on margin.

23
Q

Customer A and Customer B each have an open account in a mutual fund that charges a front-end load. Customer A has decided to receive all distributions in cash, while Customer B automatically reinvests all distributions. How do their decisions affect their investments?

A

I. Customer B’s reinvestments purchase additional shares at NAV rather than at the offering price.
II. Receiving cash distributions may reduce Customer A’s proportional interest in the fund.

24
Q

Financial information CANNOT be used in a mutual fund prospectus if the information is older than:

A

16 months.

25
Q

In which of the following markets would an investor expect to find closed-end investment company shares traded?

A

I. The over-the-counter market.

II. The exchanges.

26
Q

Which of the following are functions of an investment company’s custodian bank?

A

I. Safekeeping of portfolio securities and cash.

II. Maintaining asset records for the fund.

27
Q

When discussing mutual funds with a customer, each of the following statements are prohibited EXCEPT:

A

Buy shares of different funds in the same fund family and you may qualify for a breakpoint on the total purchase.

28
Q

An investor redeems 200 shares of ABC Fund, which has no redemption fee. If the quote is $12.05 bid $13.01 asked, what amount will the investor receive?

A

2410

29
Q

The POP for a mutual fund as quoted in the financial press reflects:

A

the maximum sales charge the fund distributor collects.

30
Q

Closed-end investment companies:

A

II. generally make a one-time public offering of shares.

III. may issue debt securities.

31
Q

Which of the following is true regarding a “summary section” and a “statement of additional information” for management investment companies?

A

A statement of additional information (SAI) need not be included in the prospectus of a management company.

32
Q

Each of the following is a characteristic of money market funds EXCEPT:

A

High beta

33
Q

A front-end sales load is defined as the:

A

difference between the public offering price and the net asset value of a mutual fund share.

34
Q

A father opens 4 custodial accounts for each of his children with the same mutual fund company. He invests $15,000 in each account. The fund company has breakpoints at $50,000, $100,000, and $200,000. The sales charge is:

A

based on the total $60,000 investment and qualifies for the $50,000 breakpoint

35
Q

A customer seeks a significant long-term investment in the Ajax fund, a growth-oriented mutual fund. To take advantage of breakpoints applicable to large investments, the customer should purchase:

A

Class A shares

36
Q

According to the Investment Company Act of 1940, a diversified mutual fund may hold, at most, what percentage of a corporation’s voting securities?

A

10%.

37
Q

Your customer is asking if either exchange-traded funds (ETFs) or exchange-traded notes (ETNs) might be suitable investments for his portfolio. The customer makes several statements regarding his understanding of the products but only one of them is accurate. Which is it?

A

Exchange-traded notes (ETNs) are issued by financial institutions and therefore I should be concerned about the credit worthiness of the issuer.

38
Q

If a customer purchases shares in a municipal bond fund, which of the following statements are TRUE?

A

II. Dividends are not taxable.

III. Capital gains distributions are taxable.

39
Q

Five years ago, the ABCD mutual fund bought 200,000 shares of Comet Industries at an average price of $42.25. After a series of accounting scandals, the shares are now trading at $6. If the fund decides to sell its shares, what will be the impact of the sale of Comet shares on the NAV of the ABCD fund?

A

The NAV will not change.

40
Q

SEC rules require that open-end management companies distribute dividends to their investors from the firm’s:

A

net investment income.

41
Q

If a registered representative is seeking to sell shares of an investment company to a client, which of the following statements would be accurate and permissible regarding her recommendation?

A

I. When the client redeems his shares, he will not immediately know their dollar value.
II. If the client purchases the shares of 2 or more funds in the same family of funds, he may be entitled to a reduced sales charge.

42
Q

To qualify for the quantity discount, which of the following may NOT be joined together under the definition of “any person” ?

A

Father and his 35-year-old son investing in separate accounts.

43
Q

Which of the following types of mutual funds has capital appreciation as its investment objective?

A

Specialized.

44
Q

If an investor is in a low tax bracket and wishes to invest a moderate sum to gain some protection from inflation, which of the following would you recommend?

A

Growth mutual fund.

45
Q

The practice of dollar cost averaging requires the investor to:

A

buy a security in a falling market and buy it in a rising market.

46
Q

All of the following events will affect the NAV per share of a mutual fund EXCEPT:

A

Wholesale redemption of fund shares

47
Q

An investor redeems 300 shares in ACE Fund. When the investor bought the shares at $12, the NAV was $11.08. If the current POP is $12.50 and the NAV is $11.80, the investor receives:

A

3540

48
Q

Which of the following statements regarding 12b-1 fees is TRUE?

A

These fees are charged against the assets of the fund to defray distribution expenses.

49
Q

Which of the following mutual funds should an investment adviser representative recommend to a corporate client whose objective is current income with moderate risk?

A

Preferred stock fund.

50
Q

If a registered representative is comparing two mutual funds for a customer, which of the following comparisons would NOT be permissible?

A

Comparing an equity growth fund to a money market fund with the intention of convincing an investor to purchase the growth fund.

51
Q

A letter of intent for a mutual fund does NOT contain which of the following provisions?

A

The fund can halt redemption during the period of time the letter of intent is in effect.

52
Q

An open-end investment company may do all of the following EXCEPT:

A

issue bonds.

Series 7 (15 decks)

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