UNIT 02.01-001 Flashcards
A couple wishes to start a withdrawal plan from a mutual fund they have owned for 12 years. As a registered representative, you must never use ______ or ______ unless the SEC specifically clears their use.
never use CHARTS or TABLES unless the SEC specifically clears their use.
Required disclosures include only using charts or tables the SEC specifically clears, NEVER promising a guaranteed minimum rate of return, and stressing to the investor that it is POSSIBLE to exhaust the account earlier than expected.
A FIXED-DOLLAR PLAN will provide the MOST CONSISTENT CHECK.
A shareholder has $800 to invest in the ABC Technology Fund. If the shares are currently priced at $21.15 each, he can purchase how many shares?
37.825 shares
The shareholder can purchase 37.825 shares. Mutual fund shares may be sold in full or fractional amounts.
[Amount to spend] / [share price] = Total shares purchased
A fund seeks to preserve capital, generate current income, and provide long-term growth. Its current strategy is to invest 60% of its portfolio in common stocks and 40% in bonds and fixed-income securities. Through diversification, the fund intends to provide protection against downturns in the market. This information best describes which of the following mutual funds?
ABC Balanced Fund
Balanced funds invest in both common stocks and bonds to preserve capital, generate current income, and provide long-term growth.
12b-1 fees may be used to pay all of the following except
A) advertising costs.
B) commissions on portfolio securities transactions.
C) mailing expenses.
D) prospectus printing costs.
commissions on portfolio securities transactions.
12b-1 fees cover advertising costs, mailing expenses, and prospectus printing costs. Portfolio transactions are defrayed from the management fee.
Your customer has invested in a mutual fund with a 12b-1 fee. You explain to her that a charge will be deducted from his account
quarterly.
12b-1 fees are deducted from fund assets every quarter.
For individual investors, which of the following is an advantage of investing in mutual funds rather than individual securities?
Professional investment management
The investment adviser for a mutual fund provides professional management with both experience and expertise in investing that surpass those of the typical individual investor.
A financial reporter notices that the OFFERING PRICE of one investment company’s share is at a 22% DISCOUNT FROM THE NAV.
From this information, he can conclude that the company must be a ____-end investment company.
a closed-end investment company.
If the ASK PRICE of a fund is LESS than the NAV, the fund must be a closed-end investment company.
A formula timing plan that consists of periodic purchases of a fixed dollar amount of stock regardless of price is known as
dollar cost averaging.
There is no such thing as share averaging. Constant dollar and constant ratio plans do not involve periodic purchase of securities. They involve buying and selling equity and debt securities to keep either a constant dollar or constant ratio between the two. Dollar cost averaging calls for the investor to make regular purchases over a long period.
The exchange privilege offered by open-end investment companies allows investors to exchange shares of one open-end fund for another in the _____ fund family at a ____ asset value basis.
exchange shares of one open-end fund for another in the same fund family at a net asset value basis.
Exchange privileges allow an investor to convert the value of shares held in one fund for those of an equal value in the same family. Remember that conversion is a taxable event; if the shares converted have increased in value, capital gains taxes will be due.
When comparing a mutual fund with a growth objective to one that calls itself a value fund, you would explain to your clients that the value fund could be reasonably expected to
have higher dividend yields.
Value funds focus on companies whose stocks are currently undervalued (earnings potential is not reflected in the stock price). As a result, the dividend yields tend to be higher than growth funds. If one is looking for capital gains, it is more likely that the growth fund will provide them. The management style has no impact on share classes and no mutual funds ever sell at a discount to the NAV—that is only true of closed-end funds.
