STC CHs 6-10

B Decreasing

If interest rates are increasing, the prices of existing bonds will generally be:

QID:6207453

Mark For Review

A Increasing

B Decreasing

C Staying the same

D Fluctuating

C $25.55

• = 400 shares x $25= $10,000

• total investment= $10,000 + $220= $10,220

• = $10,220/400 shares= $25.55

A client buys 400 shares of ABC stock at $25 per share and pays a commission of $220. What's the investor's adjusted cost basis per share?

QID:6207449

Mark For Review

A $24.45

 B $25.00

C $25.55

D $27.20

B The Dow Jones Industrial Average

The index that's based on 30 blue-chip companies is the:

QID:6207455

Mark For Review

A The Dow Jones Composite Average

B The Dow Jones Industrial Average

C The Dow Jones Transportation Average

D The Dow Jones Utility Average

A The current yield is lower than its yield-to-maturity.

Which of the following statements is TRUE if a bond is trading at $950?

QID:6207466

Mark For Review

A The current yield is lower than its yield-to-maturity.

B The current yield is higher than its yield-to-maturity.

C The current yield is equal to its yield-to-maturity.

D The current yield, yield-to-maturity, and nominal yield are the same.

B $34 per share

• If a person inherits securities, the person's (beneficiary's) cost basis is the market value as of the date of the original owner's death. In this case, the beneficiary's cost basis is $34 per share

If an individual inherits securities from her deceased father. The father had purchased the shares at $22 per share, but were valued at $34 per share at the time of the father's death. What's the individual's cost basis?

QID:6207456

Mark For Review

A $22 per share

B $34 per share

C The per share average of $22 and $34

D The individual will have no cost basis.

D 7.14%

• CY= annual int./current market value

• = (35×2) / 980= 7.14%

A bond pays semiannual interest of $35, was issued at $1,040, and is now trading at $980. What's the bond's current yield?

QID:6207467

Mark For Review

A 3.5%

B 6.73%

C 7%

D 7.14%

B Nominal, current yield, yield-to-maturity, yield-to-call

From lowest to highest, what's the order of yields for a callable bond that's trading at a discount?

QID:6207464

Mark For Review

A Nominal, yield-to-maturity, current yield, yield-to-call

B Nominal, current yield, yield-to-maturity, yield-to-call

C Current yield, nominal yield, yield-to-maturity, yield-to-call

D Yield-to-call, yield-to-maturity, current yield, nominal

B 4%

• 6-2= 4

A corporate bond has a nominal yield of 6%. If the current rate of inflation is 2%, what's the bond's real interest rate?

QID:6207458

Mark For Review

A 2%

B 4%

C 6%

D 8%

B $40

• 4%xpar (1,000)= $40

A bond with a 4% coupon was originally issued at $1,010, but is currently trading at a price of $975. If the bond is callable in three years at $1,025, how much interest will a bondholder receive each year?

QID:6207454

Mark For Review

A $39

B $40

C $40.40

D $41

B .30%

If interest rates have increased by 30 basis points, what does this increase represent?

QID:6207452

Mark For Review

A .03%

B .30%

C 3%

D 30%

B 22% gain

• total return= (end value-beg. value) + investment income / beg. value

• = (18-15) + .30 / 15= 22% gain

An investor purchases 1,000 shares of stock at $15 per share. The stock paid a $.30 annual dividend. After one year, the stock's price has increased to $18 per share. What's the investor's total return?

QID:6207451

Mark For Review

A 18% gain

B 22% gain

C 18% loss

D 22% loss

B The yield-to-maturity is lower than its yield-to-call.

• if a bond is purchased at par value and callable at a premium, the bond's yield-to-maturity will be lower than its yield-to-call. Put another way, the bond's yield-to-call will be higher than its yield-to-maturity.

Which of the following statements is TRUE if a bond is purchased at par value and callable at a premium?

QID:6207459

Mark For Review

A The yield-to-maturity is greater than its yield-to-call.

B The yield-to-maturity is lower than its yield-to-call.

C The yield-to-maturity is equal to its yield-to-call.

D The yield-to-maturity is greater than its nominal yield.

C The short-term gain will be taxed at his ordinary income rate, while the long-term gain will be taxed at a 20% rate

After netting capital gains and capital losses, an investor is left with a $5,000 short-term capital gain and a $7,000 long-term capital gain. How will the investor be taxed on these gains?

QID:6207465

Mark For Review

A Both gains will be taxed at his ordinary income rate.

B Both gains will be taxed at a 20% rate.

C The short-term gain will be taxed at his ordinary income rate, while the long-term gain will be taxed at a 20% rate.

D The short-term gain will be taxed at a 20% rate, while the long-term gain will be taxed at his ordinary income rate.

B The current yield is higher than its yield-to-maturity.

Which of the following statements is TRUE if a bond is trading at $1,250?

QID:6207462

Mark For Review

A The current yield is lower than its yield-to-maturity.

B The current yield is higher than its yield-to-maturity.

C The current yield is equal to its yield-to-maturity.

D The current yield, yield-to-maturity, and nominal yield are the same.

B $3,000 of the losses can be used to offset ordinary income and the balance will be carried forward.

After netting capital gains and capital losses, an investor is left with $8,000 of short-term and long-term capital losses. How will this impact the individual's tax situation?

QID:6207460

Mark For Review

A All of the losses will be carried forward to offset capital gains in the future.

B $3,000 of the losses can be used to offset ordinary income and the balance will be carried forward.

C All of the losses can be used to offset ordinary income.

D The losses cannot be used to offset current or future income.

D The current yield, yield-to-maturity, and nominal yield are the same.

Which of the following statements is TRUE if a bond is trading at $1,000?

QID:6207463

Mark For Review

A The current yield is lower than its yield-to-maturity.

B The current yield is higher than its yield-to-maturity.

C The current yield is higher than its nominal yield.

D The current yield, yield-to-maturity, and nominal yield are the same.

D 65 stocks

The Dow Jones Composite Average consists of:

QID:6207457

Mark For Review

A 15 stocks

B 20 stocks

C 30 stocks

D 65 stocks

C 4.1%

• A stock's current yield is found by dividing the annual dividend by the current market price. In this example, the annual dividend is $3.80. This must be divided by the current market price. The question states that the stock's price decreased by 7% from $100, thereby making the current market price $93. As a result, the stock's current yield is 4.1% ($3.80 divided by $93).

An equity security was trading at $100 per share and subsequently fell by 7%. The annual dividend, which was formerly $4 per share, has decreased to $3.80. The yield on the stock is approximately:

QID:6207450

Mark For Review

A 3.8%

B 3.9%

C 4.1%

D 7%

A Before the ex-dividend date, but delivery is made after the record date

• A due bill is evidence that a dividend is due to a buyer of stock, but will instead be paid to the seller. An individual who buys stock prior to the ex-dividend date is entitled to the dividend. For the buyer to receive the dividend, the transaction must settle either on or before the record date; therefore, the transfer agent will recognize that there's a new owner of record. However, if the seller fails to deliver the stock by the record date, the transfer agent will not be aware of the identity of the new buyer and will still have the original owner listed as the holder of record. In this case, the dividend will be delivered to the seller. When the seller delivers the stock, he will attach a due bill as evidence that the dividend will be turned over to the buyer when it's paid.

A due bill is used if a trade occurs:

QID:6207468

Mark For Review

A Before the ex-dividend date, but delivery is made after the record date

B After the ex-dividend date

C After the record date

D Before the ex-dividend date, with delivery made before the record date

C An index that tracks the performance of approximately 500 of the largest publicly traded companies in the United States.

The S&P 500 Index can best be described as:

QID:6207461

Mark For Review

A An index that tracks 30 of the largest U.S. companies.

B A list of 500 small-cap companies in the United States.

C An index that tracks the performance of approximately 500 of the largest publicly traded companies in the United States.

D An actively managed mutual fund that consists of stocks and bonds.

A The Wilshire 5000 Index

Which of the following is the largest of the indexes or averages?

QID:6207479

Mark For Review

A The Wilshire 5000 Index

B The Standard & Poor's 500 Index

C The NYSE Composite Index

D The Russell Index

C Cash

• If cash settlement is used, the trade settles on the same day as the trade. By using a cash settlement, the investor could purchase the stock on the record date, be recognized as the owner as of that date, and be entitled to the cash dividend

An investor notices that a company is paying a cash dividend to its stockholders and that today is the record date on which an investor must own the stock to be entitled to the distribution. What means of settlement could the investor use to receive the dividend?

QID:6207474

Mark For Review

A Regular-way

B Buyer's option

C Cash

D When issued

B The business day before the ex-date

In order to be entitled to a dividend that's being paid on a common stock, the latest an investor can purchase the stock in a regular way transaction is on the:

QID:6207469

Mark For Review

A Declaration date

B The business day before the ex-date

C The ex-date

D The record date

D The investor will have a $22 return of capital and an $8 long-term capital gain

• The cost basis of $22 is considered a return of capital and will not be taxed. However, since the shares were held for more than one year prior to the sale, the $8 gain is a long-term capital gain that's taxed at a maximum rate of 20%

An investor sells securities that she had purchased five years ago. The original cost per share was $22, but she sold them at $30 per share. Which of the following statements is TRUE of this transaction?

QID:6207478

Mark For Review

A The investor will have a $30 long-term capital gain.

B The investor will have a $30 short-term capital gain.

C The investor will have a $22 return of capital and an $8 short-term capital gain.

D The investor will have a $22 return of capital and an $8 long-term capital gain.

A T-bills

Which of the following is generally used to represent the risk-free rate of return?

QID:6207471

Mark For Review

A T-bills

B Commercial paper

C T-bonds

D AAA-rated municipals

D The custodian bank

Which of the following entities is responsible for the safekeeping of mutual fund assets?

QID:6207499

Mark For Review

A The investment adviser

B The board of directors

C The transfer agent

D The custodian bank

A Unit investment trust

A trustee manages the day-to-day business activities of a(n):

QID:6207485

Mark For Review

A Unit investment trust

B Open-end fund

C Closed-end fund

D Custodian

D Fees and Expenses

• This section must include certain standard items, including shareholder fees (e.g., sales loads), annual fund operating expenses (including 12b-1 fees), and a table that shows the total cost of owning the fund over one-, three-, five-, and 10-year periods (based on a 5% return assumption). Since the information will be presented in a standard format, investors can easily compare this information between funds. (14158)

If investors want to compare how efficiently a fund is operated, which of the following sections of the prospectus should be consulted?

QID:6207495

Mark For Review

A Investor Services

B How to Buy Shares

C Fund Management

D Fees and Expenses

D Asset allocation fund

• invests its portfolio among a variety of investment classes, such as equities, bonds, and cash (money-market investments). The fund manager may change the allocation based on computer modeling techniques and forecasts of economic changes.

An investment company that diversifies its portfolio among different investment classes based on computer modeling techniques and forecasts of changes in the economy is referred to as a(n):

QID:6207492

Mark For Review

A Speculative fund

B Aggressive growth fund

C Value funds

D Asset allocation fund

D Seven calendar days

A client is considering purchasing shares of a mutual fund, but has expressed concern over the liquidity of the investment. The client's registered representative explains that when she chooses to redeem her shares, payment must be made within:

QID:6207491

Mark For Review

A One business day

B Two business days

C Five business days

D Seven calendar days

B It continually offers new shares.

Which of the following is NOT a characteristic of a closed-end fund?

QID:6207500

Mark For Review

A Its shares trade on an exchange.

B It continually offers new shares.

C Investors buy and sell the shares in the open market.

D Only full shares may be purchased or sold.

C Hold securities portfolios which are not actively managed, but remain fixed for the life of the trust

UITs are typically designed to:

QID:6207482

Mark For Review

A Allow specific investors to be involved in the investment decision-making process

B Sell rights to individuals for ventures that involve membership

C Hold securities portfolios which are not actively managed, but remain fixed for the life of the trust

D Give tax-advantaged protection to speculators

A Expense ratio

• expense ratio measures the amount of expense that a mutual fund charges its shareholders each year for operating the fund. The expense is expressed as a percentage of a fund's assets and is considered the best indication as to how a fund manages its expenses.

To determine the amount that a fund charges its shareholders each year for operating the fund, a person should examine the:

QID:6207493

Mark For Review

A Expense ratio

B Sales load

C Service fees

D Distribution fees

C The IA is paid based on the assets under management

• Mutual fund investment advisers are compensated based on a percentage of the assets under management (AUM). This compensation may be referred to as the management or investment advisory fee

Which of the following statements is TRUE regarding how the investment adviser (IA) to a mutual fund is compensated?

QID:6207490

Mark For Review

A The IA earns a portion of the profits that are generated by the portfolio.

B The IA earns a portion of the 12b-1 fee.

C The IA is paid based on the assets under management.

D The IA is paid a percentage of the sales charges which cannot exceed 25 basis points.

B $17.58 plus a commission

The shares of a closed-end fund are trading on the NYSE at a current price of $17.58 per share. A customer who purchases the shares will pay:

QID:6207489

Mark For Review

A $17.58

B $17.58 plus a commission

C $17.58 plus a sales charge

D $17.58 subject to a contingent deferred sales charge

B Owns shares which represent an interest in the portfolio

An investor in a mutual fund:

QID:6207483

Mark For Review

A Owns the actual securities in the portfolio

B Owns shares which represent an interest in the portfolio

C Is considered a creditor of the portfolio

D Is considered a limited partner in the fund

A Letter of intent

Which of the following provisions allows investors to purchase Class A mutual fund shares and qualifies them to obtain a sales charge reduction without initially depositing the amount required?

QID:6207488

Mark For Review

A Letter of intent

B Dollar cost averaging

C Rights of accumulation

D Exchange privilege

A Have at least 75% of its assets invested in a prescribed way

In order to be characterized as a diversified company, an investment company must:

QID:6207484

Mark For Review

A Have at least 75% of its assets invested in a prescribed way

B Not hold securities of any one issuer in an amount greater than 10% of its total assets

C Not hold more than 5% of the outstanding voting securities of an issuer

D Have 100% of all money invested at all times

A Dollar cost averaging

During a period of fluctuating prices, an individual Investing the same amount per month in a mutual fund is engaged in:

QID:6207486

Mark For Review

A Dollar cost averaging

B Dollar averaging

C Averaging the dollar

D Averaging the fund

C Management fees

• Section 12b-1 fees are used to pay the costs of distributing and marketing mutual fund shares to the public. This includes printing, radio ads, and trailing commissions. Management fees are collected to pay the adviser of the fund for making the investment decisions in the portfolio

Which of the following is not a legitimate 12b-1 expense?

QID:6207496

Mark For Review

A Printing expenses

B Trailing commissions

C Management fees

D Radio ad costs

A Rights of accumulation

The right to add up the total of all past and present purchases when determining sales charges is referred to as:

QID:6207487

Mark For Review

A Rights of accumulation

B Letter of intent

C Contingent deferred purchases

D Right to switch from one fund to another without incurring additional sales charges

D12b-1 fees

• Mutual funds use 12b-1 fees to cover basic promotion charges and distribution expenses. A no-load fund cannot assess either a front-end or deferred sales charge, but can assess a 12b-1 fee as long as it doesn't exceed .25% of the fund's average annual net assets.

A no-load fund may cover expenses related to fund promotion and distribution by using:

QID:6207481

Mark For Review

A A portion of the earnings on the investments

B A portion of the back-end load

C A portion of the management fees

D12b-1 fees

C Must be sent by the fund to any interested party who requests it

• However, the SAI information is more technical and not considered as important as that which is found in the fund's prospectus. The SAI provides some of the following information:

  • Additional disclosure on securities, risks, and policies

  • The fund's audited financial statements

  • The fund's portfolio of securities as of the date of the SAI

  • Information regarding any person that owns 5% or more of the fund's shares

  The SAI is filed with the SEC as part of the fund's registration statement. Thereafter, a mutual fund is only required to send an SAI to any person who requests one; it's not specifically required to freely distribute it.

A mutual fund's statement of additional information:

QID:6207498

Mark For Review

A Contains only information that's not considered material to investors

B Is sent to investors after their initial purchase of fund shares

C Must be sent by the fund to any interested party who requests it

D Is filed with the SEC as part of the fund's registration statement, but it's not available to the general public

C At or prior to the solicitation to sell the mutual fund shares

If a salesperson intends to solicit mutual fund investments, when must a prospectus be delivered to investors?

QID:6207494

Mark For Review

A Within seven days of the settlement date for the first purchase

B On the settlement date of the first purchase

C At or prior to the solicitation to sell the mutual fund shares

D On the trade date of the first purchase

D Decision-making authority over what's included in the fund's investment portfolio

The advantages of owning mutual fund shares DO NOT include:

QID:6207497

Mark For Review

A Professional supervision of the fund portfolio

B Wide diversification of investments

C Easy redemption of fund shares

D Decision-making authority over what's included in the fund's investment portfolio

B $9,600

• =4% x 10,000= 400

• = 10,000-400= 9,600

A client invests $10,000 in a mutual fund that assesses a 4% front-end sales charge. In dollar terms, what amount is actually invested in mutual fund shares?

QID:6207506

Mark For Review

A $9,400

B $9,600

C $10,000

D $10,400

A 4%

• =POP-NAV/POP

  • = (13.75-13.20)/13.75

A mutual fund's shares have an NAV of $13.20 and a POP of $13.75. What's the sales charge?

QID:6207516

Mark For Review

A 4%

B 4.16%

C 4.72%

D 8.5%

D Low portfolio turnover and relatively few taxable events

• Index funds mimic the index they're tracking and tend to make very few changes in the portfolio. As a result of this low turnover, there are few taxable events associated with an index fund

An index fund is BEST characterized by which of the following?

QID:6207504

Mark For Review

A High portfolio turnover and relatively numerous taxable events

B Low portfolio turnover and relatively numerous taxable events

C High portfolio turnover and relatively few taxable events

D Low portfolio turnover and relatively few taxable events

A Investors continue to receive payments as long as they live.

Which of the following is NOT TRUE of a mutual fund systematic withdrawal plan?

QID:6207505

Mark For Review

A Investors continue to receive payments as long as they live.

B Investors must have a minimum value in their account before withdrawals may begin.

C Investors may choose one of several withdrawal methods.

D Investors can often have withdrawals deposited directly in a bank account.

B Redemption fee

• mutual fund shares are redeemed, some funds deduct a small redemption fee from the amount that’s paid to the investor. This fee is returned to the fund’s portfolio and is not considered compensation to a salesperson. The purpose of the fee is to discourage investors from redeeming their shares too quickly

The fee that may be charged at the time of redemption of mutual fund shares which reduces the amount that's paid to the investor and returned to the fund's portfolio is referred to as a:

QID:6207501

Mark For Review

A 12b-1 fee

B Redemption fee

C Contingent deferred sales charge

D Back-end load

B An RR recommends for a client to diversify between different fund families.

• A breakpoint sale occurs when mutual fund shares are sold at a level just below the level at which an investor would receive reduced sales charges, thereby increasing the commissions an agent would receive. By investing in funds that are offered by different companies, the investor loses the ability to reach breakpoints. If an RR recommends funds from different complexes or families, the investor may pay higher overall sales charges. A breakpoint sale is considered a violation of FINRA rules

Which of the following will raise the concern that a breakpoint sale has occurred?

QID:6207503

Mark For Review

A An RR recommends for a client to diversify between different funds within the same family.

B An RR recommends for a client to diversify between different fund families.

C An RR recommends for a client to not invest all of her money into a fund immediately and, instead, to use dollar cost averaging over the next 12 months.

D An RR recommends the same fund in both a client's IRA and individual account.

A The first shares redeemed are those which are not subject to the CDSC, followed by those held longest by the investor

When an investor redeems a portion of the shares in an account that's subject to a contingent deferred sales charge (CDSC), how is the sales charge determined?

QID:6207509

Mark For Review

A The first shares redeemed are those which are not subject to the CDSC, followed by those held longest by the investor

B The first shares redeemed are those purchased most recently by the investor

C The shares redeemed are considered to be those with the lowest cost basis

D The shares redeemed are considered to be those with the highest cost basis

D Investing another $15,000 in the ABC fund family within 13 months

• A purchase that occurs 16 months later is too late since all purchases under an LOI must occur within 13 months; however, the LOI can be backdated 90 days to include previous purchases. To satisfy the letter of intent, a maximum of $15,000 must be invested to bring the total to $25,000

An individual invests $10,000 in the ABC family of funds and signs a letter of intent (LOI) for the additional funds that are required to reach the first breakpoint available at $25,000. What's the minimum amount the individual must invest to satisfy the letter of intent?

QID:6207517

Mark For Review

A Investing another $25,000 in the ABC fund family within the next 13 months

B Investing another $15,000 with the same broker-dealer, but in a different fund family

C Investing another $15,000 in the same family of funds within the next 16 months

D Investing another $15,000 in the ABC fund family within 13 months

C The POP at close of the next business day.

• Mutual fund share purchases and redemptions are forward priced, which means that the price is based on the next computed NAV at the close of business. For orders that are placed before 4:00 p.m. ET, the price is based on that day's close. However, since the purchase in this question was placed after 4:00 p.m. ET, the price will be the POP as calculated at the close of the next business day.

If an investor places an order to purchase mutual fund shares after 4:00 p.m. ET, what will he pay?

QID:6207507

Mark For Review

A The NAV at close of that day.

B The NAV at close of the next business day.

C The POP at close of the next business day.

D The POP at close of that day.

B Domestic aggressive growth fund

• Funds that invest in foreign securities, either stocks or bonds, have exchange-rate or currency risk. This is the risk that the value of income or gains from the security will be adversely affected by changes in the value of the foreign currency. Funds that invest only in domestic (U.S.) securities don't carry this risk for U.S. investors

Which of the following funds is NOT subject to exchange-rate risk?

QID:6207515

Mark For Review

A International bond fund

B Domestic aggressive growth fund

C Global equity index fund

D Asia equity fund

A The sale of shares of one mutual fund with the proceeds of the sale used to purchase shares of another mutual fund

Which of the following BEST describes switching?

QID:6207508

Mark For Review

A The sale of shares of one mutual fund with the proceeds of the sale used to purchase shares of another mutual fund

B A change in a client's investment objectives

C The conversion of Class B shares to Class A shares after a preset period

D The transfer of a customer's account from one broker-dealer to another

A High growth potential

• A sector fund invests in a chosen industry or field, and is only diversified within that specific sector. These funds are also referred to as specialized funds and are generally more risky than other funds, thereby offering greater growth potential

An investor will typically choose to invest in a sector fund to achieve:

QID:6207511

Mark For Review

A High growth potential

B Low risk

C High dividends

D International investment focus

D 100% minus the 6% sales charge

A mutual fund has an NAV of $32.50 and a sales charge of 6%. In order to find the public offering price, an investor must divide the NAV of $32.50 by:

QID:6207502

Mark For Review

A The 6% sales charge

B The number of shares outstanding

C 100% plus the 6% sales charge

D 100% minus the 6% sales charge

B Money-market mutual fund

Which of the following mutual funds is MOST suitable for an investor who will be in need of funds in a short period and wants to protect his principal amount?

QID:6207513

Mark For Review

A A high-yield bond fund

B Money-market mutual fund

C A high-grade bond fund

D A conservative growth fund

A Class A shares

• Class A shares are associated with mutual funds that assess a front-end load (sales charge). With this type of fund, the sales charge is assessed immediately at the time the shares are purchased by the investor

The mutual fund shares that assess a front-end load at the time of purchase are referred to as:

QID:6207518

Mark For Review

A Class A shares

B Class B shares

C Class C shares

D Class M shares

D A surrender charge and a tax on any increase in the value of the annuity

• Investors who take partial withdrawals from a variable annuity may be subject to a surrender charge (CDSC) based on how long the annuity was held. In addition, earnings on the annuity are withdrawn first which results in tax liability.

An investor who decides to take a partial surrender of a variable annuity may be subject to:

QID:6207524

Mark For Review

A A surrender charge

B A tax on any increase in the value of the annuity

C A capital gain based on the value of the annuity at the time of the withdrawal

D A surrender charge and a tax on any increase in the value of the annuity

C Separate account

The account that determines the value of a variable annuity is referred to as the:

QID:6207535

Mark For Review

A Accumulation account

B Annuity account

C Separate account

D General account

D Five years

The initial contribution to a 529 plan can be front-end loaded for a maximum of how many years?

QID:6207523

Mark For Review

A One year

B Two years

C Three years

D Five years

A Immediate tax deductions

A variable annuity DOES NOT provide:

QID:6207534

Mark For Review

A Immediate tax deductions

B Tax-deferred growth

C A hedge against inflation

D The ability to make a tax-free exchange to another variable annuity

C Mortality risk charges

Which of the following expenses guarantees that annuitants will continue receiving payments from a variable annuity if they outlive their life expectancy?

QID:6207536

Mark For Review

A Management fee

B Expense risk charges

C Mortality risk charges

D Administrative expenses

B The amount invested in the annuity

• The death benefit is the greater of the amount invested or the value of the annuity at the time of death. In this question, since the amount invested is greater than the value of the annuity at the time of death, the amount invested is the amount to which the beneficiary is entitled

An individual purchased a variable annuity, but died during the accumulation period. At the time of death, the value of the annuity was less than the amount invested. In this case, a beneficiary is entitled to:

QID:6207528

Mark For Review

A Nothing, since there are no death benefits in a variable annuity

B The amount invested in the annuity

C The value of the annuity at the time of death

D The fixed amount purchased at the time the annuity contract was approved

B The number of annuity units remains the same over time.

Which of the following statements is TRUE regarding annuity units in a variable annuity?

QID:6207520

Mark For Review

A The number of annuity units decreases over time.

B The number of annuity units remains the same over time.

C The number of annuity units increases over time.

D The value of annuity units remains the same over time.

A Cash

Contributions to a 529 plan are made in the form of:

QID:6207532

Mark For Review

A Cash

B Stocks

C Bonds

D Mutual fund shares

C Variable annuities

The investor assumes all of the investment risk in which of the following?

QID:6207539

Mark For Review

A Equity-indexed annuities

B Fixed annuities

C Variable annuities

D Variable and equity-indexed annuities

A Straight-life annuity

Which of the following settlement options offers the fewest guarantees?

QID:6207522

Mark For Review

A Straight-life annuity

B Life annuity with period certain

C Joint and last survivor annuity

D Unit refund life annuity

D Can be established between any individuals

A joint and last survivor life annuity settlement option:

QID:6207530

Mark For Review

A Can only be established between husband and wife

B Can only be established between immediate family members

C Can only be established between relatives

D Can be established between any individuals

B Starts when the payments begin

The period certain that can be added to a life annuity:

QID:6207521

Mark For Review

A Starts when the annuitant passes away

B Starts when the payments begin

C Comes at a lower cost if the period is longer

D Comes at a higher cost if the period is shorter

A Unit refund life annuity

An individual has annuitized his variable annuity, but died before the value of the units had been paid out. If the primary beneficiary receives the remaining value, what payout option was selected by the annuitant?

QID:6207525

Mark For Review

A Unit refund life annuity

B Life annuity with period certain

C Straight life only

D Predetermined payment

B The health of the annuitant

In a variable annuity, the size of the first monthly payment is based on all of the following criteria, EXCEPT:

QID:6207529

Mark For Review

A The account value

B The health of the annuitant

C The chosen settlement option

D The age and gender of the annuitant

D Seven business days

A registered representative has submitted a completed application for the purchase of a variable annuity along with a check from the customer. How long does the broker-dealer have to determine whether the purchase is suitable for the customer?

QID:6207533

Mark For Review

A One business day

B Two business days

C Five business days

D Seven business days

C The state, county, and city only

A city has established a local government investment pool (LGIP). LGIPs allow for investments by which of the following entities?

QID:6207526

Mark For Review

A The city only

B The state and the city only

C The state, county, and city only

D All and any type of investor

B Contributions are made pre-tax and distributions are taxable.

Which of the following statements is TRUE concerning qualified annuities?

QID:6207538

Mark For Review

A Contributions are made pre-tax and distributions are tax-free.

B Contributions are made pre-tax and distributions are taxable.

C Contributions are made after-tax and distributions are tax-free.

D Contributions are made after-tax and distributions are taxable.

A Tax-deferred growth

Which of the following features applies to a variable annuity, but not to a mutual fund?

QID:6207537

Mark For Review

A Tax-deferred growth

B Management fees

C Administrative expenses

D Sales charge

B Tax-free growth on qualified withdrawals

A 529A or ABLE account provides for which of the following?

QID:6207527

Mark For Review

A Taxable qualified withdrawals

B Tax-free growth on qualified withdrawals

C Pre-tax contributions

D Growth that's taxed at a lower rate

Variable annuities typically assess which of the following types of sales charge?

QID:6207531

Mark For Review

AFront-end sales charge

B12b-1 fees

CContingent deferred sales charge

DCommission

Variable annuities typically assess which of the following types of sales charge?

QID:6207531

Mark For Review

A Front-end sales charge

B 12b-1 fees

C Contingent deferred sales charge

D Commission

B Paying taxes on the exchange to the new annuity

With a 1035 Exchange, all of the following are concerns, EXCEPT:

QID:6207543

Mark For Review

A Incurring a surrender charge on the original annuity

B Paying taxes on the exchange to the new annuity

C Starting a new surrender period

D The loss of existing benefits

A $20,000 annually

The maximum distribution that may be taken from a 529 plan to pay for private school tuition for grades K through 12 is:

QID:6207544

Mark For Review

A $20,000 annually

B $20,000 lifetime

C $30,000 annually

D $30,000 lifetime

C The plan guarantees the beneficiary's enrollment into a specific college.

Each of the following statements are TRUE of a prepaid tuition plan, EXCEPT:

QID:6207541

Mark For Review

A Donors are generally required to be residents of the state that offers the plan.

B The plan generally allows the benefits to be transferred to another sibling of the original beneficiary.

C The plan guarantees the beneficiary's enrollment into a specific college.

D The plan covers the cost of tuition and book fees.

D Market risk

• allow the owners to choose how their premiums are invested. Although variable contract policyholders can choose their investments, their returns are not guaranteed. Since market risk is inherent in most securities, this is the risk that is of the greatest concern for the owners of variable life insurance policies

For a person who has a variable life insurance policy, which of the following risks is of the greatest concern?

QID:6207545

Mark For Review

A Credit risk

B Interest rate risk

C Inflation risk

D Market risk

A A loan can be taken during the accumulation or annuity period.

All of the following statements are TRUE of a loan taken from a variable annuity, EXCEPT:

QID:6207542

Mark For Review

A A loan can be taken during the accumulation or annuity period.

B A loan avoids surrender charges.

C A loan avoids potential taxes.

D A loan avoids potential early distribution penalties.

D Decrease by 2.50%

• An inverse ETF will move in the opposite direction of the index that it's tracking. Also, if the ETF is leveraged, the movement will be the leverage factor times the change in the index. In this case, the ETF is both inverse and leveraged; therefore, the result is that the value of the ETF is expected to decrease by 2.50%.

A 2x leveraged inverse ETF is tracking the S&P 500 Index. If the S&P 500 rises by 1.25%, the expectation is that the ETF will:

QID:6207551

Mark For Review

A Increase by 1.25%

B Increase by 2.50%

C Decrease by 1.25%

D Decrease by 2.50%

A Lending money to the partnership

• the limited partners have limited liability, while the general partner has unlimited liability. A limited partner will lose her limited liability status (and become a general partner) if she negotiates contracts for the partnership, hires or fires employees for the partnership, or assists in raising money for the partnership. However, limited partners are permitted to lend money to the partnership without being considered a general partner.

A limited partner may be treated as a general partner for all of the following reasons, EXCEPT:

QID:6207566

Mark For Review

A Lending money to the partnership

B Negotiating contracts for the business

C Hiring employees for the business

D Assisting in raising capital for the partnership

A They have no management responsibility.

Which of the following is a characteristic of limited partners in a limited partnership?

QID:6207560

Mark For Review

A They have no management responsibility.

B They have unlimited liability.

C They cannot lend money to the partnership.

D They have limited profit potential.

C 90%

For a REIT to avoid double taxation on dividends that are distributed to investors, what's the minimum percentage of income that must be distributed?

QID:6207554

Mark For Review

A 75%

B 80%

C 90%

D 95%

D Secured creditor, general creditor, limited partner, general partner

When a limited partnership is dissolved, what's the priority of payment from first to last?

QID:6207559

Mark For Review

A General creditor, limited partner, secured creditor, general partner

B Secured creditor, general partner, general creditor, limited partner

C Secured creditor, general creditor, general partner, limited partner

D Secured creditor, general creditor, limited partner, general partner

B Equity REITs

Real estate investment trusts (REITs) that invest in properties are referred to as:

QID:6207562

Mark For Review

A Mortgage REITs

B Equity REITs

C Hybrid REITs

D Property REITs

D Increase by 3.75%

A 3x leveraged ETF is tracking the S&P 500 Index. If the S&P 500 rises by 1.25%, the expectation is that the ETF will:

QID:6207557

Mark For Review

A Decrease by 1.25%

B Decrease by 3.75%

C Increase by 1.25%

D Increase by 3.75%

C Wildcat drilling

• involves drilling in unproven areas and therefore presents the greatest risk of failure.

Of the following limited partnership programs, which one typically has the MOST risk?

QID:6207547

Mark For Review

A Raw land

B Developmental

C Wildcat drilling

D New construction

B Raw land program

• Raw land programs purchase tracts of undeveloped land in the hope that they appreciate in value. Raw land investment offers no depreciation and little or no income. As a result, it's considered the riskiest type of real estate program

Which type of real estate limited partnership has the MOST risk?

QID:6207565

Mark For Review

A New construction program

B Raw land program

C Government-assisted housing program

D Existing property programs

A 1%

General partners must contribute no less than what amount to the program?

QID:6207552

Mark For Review

A 1%

B 3%

C 5%

D 10%

A ETNs are secured by the assets they track.

• considered unsecured securities since the issuer doesn't hold the assets that are being tracked

Which of the following statements is NOT TRUE of exchange-traded notes (ETNs)?

QID:6207564

Mark For Review

A ETNs are secured by the assets they track.

B ETNs are subject to the creditworthiness of the issuer.

C ETNs don't make regular interest payments.

D ETNs can be linked to nearly any index or asset.

B Leveraged S&P 500 ETF

Which of the following is appropriate for short-term trading?

QID:6207548

Mark For Review

A Growth mutual fund

B Leveraged S&P 500 ETF

C Variable annuity

D Limited partnership

D ETFs are redeemed at their net asset value.

Which of the following statements is NOT TRUE of an exchange-traded fund (ETF)?

QID:6207561

Mark For Review

A ETFs trade on exchanges.

B ETFs can be leveraged.

C ETFs are purchased at the market price plus commission.

D ETFs are redeemed at their net asset value.