Unit 4 Quiz Deck Flashcards
Which of the following investment companies has an actively managed portfolio?
A) Equity fixed unit investment trust (UIT)
B) Debt fixed unit investment trust (UIT)
C) Closed-end company
D) Face-amount certificate company
C) Closed-end company
The portfolios of both face-amount certificate companies and UITs are nonmanaged. The closest they come to management is when the securities to make up the portfolio are selected. After that, the portfolio does not change. Closed-end companies have an investment adviser who actively manages the portfolio, buying and selling securities
Which of the following prospectus must be provided no later than confirmation of the sale?
A) Statement of additional information
B) Rule 498 prospectus
C) Summary prospectus
D) Statutory prospectus
D) Statutory prospectus
The summary prospectus and the rule 498 prospectus are the same thing. They can be used to discuss key information, but the statutory prospectus is still required at or prior to confirmation. The statement of additional information is only provided if requested by the customer.
A diversified growth fund charging 0.4% of net assets per year as a 12b-1 fee may not make which of the following statements?
A) The fund will have a calculated fully disclosed expense ratio.
B) The fund is a no-load fund.
C) The fund will have a diversified portfolio with a stated investment objective.
D) The fund will pay its investment adviser a specified percentage of funds under management.
B) The fund is a no-load fund.
The fund would be expected and required to make statements regarding its diversification status, its expense ratio, and the rate at which it pays its adviser. It definitely may not, however, claim to be a no-load fund if it charges a 12b-1 fee, fees charged to market the fund’s shares, of more than 0.25% of net assets.
A mutual fund can offer all of the following to investors except
A) acting as custodian for retirement accounts.
B) the ability to do transfers by telephone or online.
C) physical custody of the fund’s portfolio cash and securities.
D) check-writing privileges for redemptions.
C) physical custody of the fund’s portfolio cash and securities.
The services mutual funds offer may include retirement account custodianship, investment plans, check-writing privileges, transfers by telephone or online, withdrawal plans, and a number of other services and privileges. However the Act of 1940 requires that each investment company place portfolio cash and securities with a custodian for safekeeping.
Which of these investment companies trade in the secondary market?
A) Face amount certificates
B) Open end funds
C) Closed end funds
D) Unit investment trusts
C) Closed end funds
Another name for closed end funds is publicly traded funds because they trade in the market like stock of other companies. The other three investment companies listed here are purchased and redeemed through the issuer (a primary market transaction).
Your client has $50,000 to invest. His objective is a lifetime monthly income that he can receive after he retires. Part of his customer profile stresses that he has had uncomfortable experiences in the past with the stock market and is not inclined to invest in anything that is subject to market fluctuations, opting for principal protection instead. Based on the client’s profile, which of the following would be the best recommendation?
A) Fixed annuity
B) Treasury bond fund
C) Variable annuity
D)Mutual fund portfolio consisting of blue-chip stocks
A) Fixed annuity
Though its stated return might not be as high as the other choices’ potential returns, only a fixed annuity fits the objective and risk-averse traits of this client. VAs and blue-chip mutual fund portfolios are tied to stock market performance in some way and have risk characteristics that would not align regarding suitability for this client. A Treasury bond fund’s value will fluctuate inversely to interest rates.
Mutual fund shares are required to be priced at least
A) hourly.
B) each day at the opening of the market.
C) continuously throughout the day.
D) once per business day
D) once per business day.
Most funds are priced (calculate a new net asset value) at the close of the day, but the rule just requires that they be priced at least once per business day. They may perform this calculation more than once a day, but that is rare.
The violation of selling mutual fund shares just below the point where the customer would qualify for lower sales charges and not informing the customer that they may qualify for lower sales charges is
A) capping.
B) pegging.
C) a breakpoint sale.
D) supporting.
C) a breakpoint sale.
The is the definition of break point sale, and it is a violation of sales practices. The others are forms of market manipulation.
Which of the following investment companies terminates business on a predetermined date?
A) Hedge fund
B) Fixed unit investment trust (UIT)
C) Mutual fund
D) Nonfixed unit investment trust (UIT)
B) Fixed unit investment trust (UIT)
A fixed UIT typically has bonds in its portfolio that mature on a specific date. Before that date, the trust buys and redeems units of beneficial ownership in the portfolio. When the bonds mature and pay off, the trust distributes the remaining interest and principal to the current unit holders and dissolves.
Which of the following would cause a mutual fund’s net asset value (NAV) per share to fall?
I. The fund purchases securities for the portfolio.
II. The fund pays a dividend to shareholders.
III. The market value of the portfolio declines.
IV. A large number of shares are redeemed
A) I and III
B) II and IV
C) I and IV
D) II and III
D) II and III
Paying a dividend and suffering market decline both reduce the net assets of the fund without reducing the number of shares; hence, the NAV declines. Purchasing portfolio securities simply replaces portfolio cash with an equivalent value of securities; hence the NAV remains unchanged. Redemption of shares reduces the fund’s net assets, but the number of shares declines by an equivalent proportion; hence, the NAV remains unchanged.
