Practice Test 7

Question 1

During accumulation, the value of the accumulation unit can fluctuate.

T or F?

Answer 1

True

Question 2

During the accumulation period, if the S.A. has a positive rate the value of the accumulation unit will….

go up
go down
stay the same
or exceed the value of the annuity units

Answer 2

go up.

During the accumulation phase, the value of an accumulation unit changes as the current market value of the securities in the portfolio of the separate account changes. When the separate account becomes worth more, the value of the accumulation unit is worth more.

Question 3

Up to when are you allowed to contribute to your IRA?

Answer 3

You may contribute to an IRA only until the first tax filing deadline (April 15) even if you filed an extension.

Question 4

Your new client is interested in purchasing corporate bonds. When speaking about the different risks associated with this investment, you explain that reinvestment risk is the risk that, between now and when the bond matures or is called, interest rates will:

Answer 4

Fall.

If interest rates decline, it becomes difficult for bond investors to invest the proceeds from the bond and maintain the same level of income and the same general risk level.

Question 5

Which of the following types of annuity contracts could your customer NOT purchase?
A)
Periodic payment deferred annuity.
B)
Single payment deferred annuity.
C)
Periodic payment immediate life annuity.
D)
Single payment immediate life annuity.

Answer 5

there is no such thing as a….

Periodic payment immediate life annuity.

Question 6

Which of the following investment company portfolios is supervised rather than managed?
A)
Unit investment trust.
B)
Regulated open-end fund.
C)
Real estate investment trust (REIT).
D)
Closed-end bond fund.

Answer 6

UIT.

A unit investment trust buys securities and holds them until redemption or until a specified future date. The securities in the portfolio are not traded, so no manager is needed. A REIT is not considered to be an investment company

Question 7

A generic advertisement…

Must include the name of the Broker Dealer.

True or False?

Answer 7

True.

The name of the firm placing the ad must be disclosed. A generic (no-name) ad can never mention the name of the specific security being advertised. That is why it is called a generic ad. Since a specific security is not listed, performance of the security is not listed either. Generic advertisements for investment company securities are not filed with FINRA.

Question 8

Does a generic ad have to be filed with FINRA?

Answer 8

No. it doesn’t. It’s Generic.

Question 9

Can you have both an Traditional and a Roth IRA?

Answer 9

Yes, as long as you dont go over the max allowed limit.

Question 10

Can you have a 401K plan, sponsored by your employer, and a Roth/Traditional IRA?

Answer 10

Yes. Take free money if offered from your employor into the 401K plan. You may also have your own IRA account(s). Be mindful to designate limited $ to them.

Question 11

What’s the difference between Traditional and an IRA?

Answer 11

Traditional gives you current tax year tax deduction. If you think you’re going to need to reduce the amount of income to be taxed, this is a smart move. But if not, then Roth IRA is better.

Money going into a Roth has already been taxed. So when you’re ready to retire, you don’t have to pay taxes on that ever. Also the growth not taxed as long as you hold it for more than 5 yrs. Whoohoo!

Traditional is a qualified plan.
Roth is a non-qualified plan.

Question 12

Your customer has contributed $1,000 annually into her Roth IRA for seven years. Which of the following statements concerning her Roth IRA distributions is TRUE?

Answer 12

Your customer will not be taxed on the distributions if she is over the age of 59½ and the money has been held in the account for five years beginning with the first tax year for which a contribution was made to any Roth IRA established for the individual.

Question 13

The Presto Capital Appreciation Fund annual report indicates that the NAV of the fund has increased from $15.65 to $17.03, and its asking price as of the date of the report has actually declined. Presto must be a(n):
A)
open-end fund.
B)
balanced fund.
C)
dual purpose fund.
D)
closed-end fund.

Answer 13

Closed-END. Look at the “ask”— meaning Supply and demand.

The asking price of a closed-end fund is not determined by its NAV because the fund trades based on supply and demand. An open-end company’s NAV cannot go up while its asking price goes down.

Question 14

One of the most important functions of a banker’s acceptance is its use as a means of:

Answer 14

facilitating trades in foreign goods.

Question 15

New issues—

what are some examples?

Answer 15

The primary market is for new issues. Corporate initial public offerings and municipal bonds sold through a syndicate are examples of new issues.

Question 16

Moody’s bond ratings are based primarily on an issuer’s:

Answer 16

financial Strength.

Bond ratings are credit ratings for an issuer and measure the issuer’s ability to repay principal and interest and, thus, its financial strength.

Question 17

The XYZ mutual fund company is introducing a new fund with an investment objective of appreciation in share price by means of capital gains. The portfolio will consist of a mix of both value stocks and growth stocks. This is most likely a:

Answer 17

blend/core fund.

Question 18

Which of these is TRUE regarding a life settlement contract?

Contract owner pays the premium.

Insured pays the premium.

Proceeds are paid upon death of the contract owner.

Proceeds are paid upon death of the insured.

Answer 18

Contract owner pays the premium.

Proceeds are paid upon death of the insured.

A life settlement is the secondary sale of a life insurance policy. The buyer (the new owner) is responsible for paying the premiums and, upon the death of the insured, will receive the death benefit.

Question 19

Each of the following is considered an investment company EXCEPT:
A)
face-amount certificate company.
B)
open-end management company.
C)
unit investment trust.
D)
bank investment advisory account.

Answer 19

D)
bank investment advisory account.

It doesn’t meet the definition of a Inv Company.

NOPE!

Question 20

Which of the following statements is CORRECT with regard to an index annuity?
A)
They trade on secondary markets.
B)
They are priced like a closed-end fund.
C)
Withdrawals are capital gains.
D)
There is a minimum guaranteed rate of return.

Answer 20

D)
There is a minimum guaranteed rate of return.

Index annuities are basically fixed annuities and they carry a minimum guaranteed return. Any withdrawals in excess of the cost basis are treated as ordinary income.

Question 21

Mutual fund promotional material may predict a rise in share prices

Answer 21

NEVER>

Question 22

What is the latest date that an IRA participant may make an IRA deposit for the current year?

Answer 22

April 15 of the following year.

Question 23

Which of the following is NOT an advantage of mutual fund investment?
A)
The ability to invest almost any amount at any time.
B)
The investor retains personal control of investments in the fund’s portfolio.
C)
The ability to qualify for reduced sales loads based on accumulation of investment within the fund.
D)
Exchange privileges within a family of funds managed by the same management company.

Answer 23

Not a good advantage:
The investor retains personal control of investments in the fund’s portfolio.

Control over the investments in the fund’s portfolio is given to the investment manager. Exchange privileges, the ability to invest any amount at any time, and reduced sales loads are all considered advantages.

Question 24

A fund seeks maximum capital appreciation through investment in stocks of companies providing innovative products in the medical sector, including pharmaceutical developers and medical equipment suppliers. This information describes which of the following mutual funds?
A)
ABC Biotechnology Fund.
B)
LMN Growth & Income Fund.
C)
ABC Overseas Opportunities Fund.
D)
ABC Capital Appreciation Fund.

Answer 24

A)
ABC Biotechnology Fund.

Sector funds invest in stocks of companies operating in specific industries or specific geographic sectors; a biotechnology fund is one example of sector funds.

Question 25

Where can open-end investment company shares be purchased and sold?

Answer 25

Primary Market

and from the open-end company.

Question 26

The management fees paid by an investment company are part of:

Answer 26

The operating expense of the fund.

The management fees paid by an investment company are part of the operating expenses of the fund. Custodial fees are also part of the operating expenses.

Question 27

Where does the sales load get paid from?

Answer 27

A sales load is a selling cost contained within the underwriting agreement.

Question 28

If your firm is in the process of underwriting a new issue, sales literature, including a record of past performance, may be included in a mailing of the:

Answer 28

FINAL PROSPECTUS.

No literature may accompany a preliminary prospectus or red herring. All such information may only be used with a final or statutory prospectus.

Question 29

Withdrawals from a 401(k) plan without penalty are permitted for which of the following?
To purchase a business.
Disability.
To purchase a second dwelling.
Attainment of age 59½.

Answer 29

Disability

Attainment of age 59 1/2.

Question 30

do you need a prospectus with a closed-end fund?

Answer 30

No, you don’t.

Securities sold in the secondary market do not have a prospectus delivery requirement.

Question 31

Under SEC Rule 498, a summary prospectus may be used in a mutual fund sales presentation resulting in a sale

Answer 31

As long as the investor can access it online– download it.

SEC Rule 498 permits sales to be made using a summary form of the prospectus. An investor who purchases fund shares on the basis of the summary prospectus must be able to access a statutory prospectus online.

Question 32

Is a retail communication an internal memo?

Answer 32

No.

they are not a type of public communication.

Question 33

What type of communications are considered retail?

Answer 33

Retail communication is defined as “any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period.”

Research reports
Billboards
Form letter distributed to 10 prospects per week…

Question 34

what are examples of retail communications?

Answer 34

B)
research reports
C)
billboards
D)
Form letter distributed to 10 prospects per week

Question 35

Less than 25 communications is considered a…

Answer 35

Correspondance.

Less….Res

Question 36

More than 25 communications is constidered

Answer 36

Retail Communication…

Question 37

If a member firm has a dispute with one of its registered representatives,

Answer 37

Then it goes to arbitration–
because…

The representative signed a pre-dispute arbitration agreement upon completion of the U-4.

yes, you signed it.

Member firms shall provide, and have an associated person sign an acknowledgment that any monetary disputes involving the associated person, firm, a customer, or any other person that is required to be arbitrated under the rules will be settled by arbitration. This acknowledgment shall occur whenever a U-4 is completed or amended.

Question 38

Can a broker dealer place a paid advertisement in a local newspaper publicizing the range of investment banking services the firm has provided for locally based corporations.

Answer 38

yes, it is allowed.

You can never doe these things…

bribe,
rebate,
say about future proceeds…

A)
when a broker-dealer offers sales incentives in the form of higher commissions to agents, but only on buy orders for a select list of equity securities in which the firm makes markets.
B)
when a broker-dealer agrees to fund a major portion of the circulation expenses incurred by the publisher of a monthly investment newsletter in exchange for priority placements of news items and research opinions at the direction of the broker-dealer.
C)
when a featured columnist for a nationally distributed financial newspaper writes a favorable report on a certain company and is invited on an all-expenses-paid vacation sponsored by a market maker in that company’s securities.

Question 39

Which of the following are features of Class C mutual fund shares?
I. Typically charge no front-end load.
II Typically charge a front-end load.
III Typically impose lower CDSCs than Class B shares for a shorter period.
IV Typically convert to Class A shares after they are held for a defined period of time.

Answer 39

B)
I and III.

Class C shares generally have the following features: no front-end sales charge, lower CDSCs than Class B shares for a shorter period of time, and no conversion to Class A shares regardless of how long they are held. Because of these features, Class C shares may be less expensive for investors with shorter investment horizons. They may be more expensive for investors who plan to hold their shares for a long time, since the level load never discontinues.