Practice Test 8 Flashcards
(114 cards)
1
Q
What terms are associated with over-the-counter trading?
A
Market Maker
Negotiated Market
The over-the-counter market is a negotiated market. Within it, market makers are broker-dealer firms that provide a source for stock that customers wish to buy and a repository for stock that customers wish to sell.
2
Q
How much of an investment company’s assets must be invested in securities before it must register with the SEC as an investment company?
A
40%
3
Q
When discussing the benefits of a Section 1035 exchange with a client, it would be appropriate to point out that the main benefit is:…. TAX SAVINGS.
A
Section 1035 of the Internal Revenue code permits the exchange of one annuity for another without incurring any current tax liability. In other words, the earnings continue to be deferred until the money is actually withdrawn.
4
Q
Mutual fund promotional material may predict a rise in share prices:
A
Like NEVER. NEVER NEVER EVER EVER NEVER> infinity NEVER.
5
Q
A client has purchased a variable annuity with a death benefit clause. At the time of his death, he had invested $20,000 and owned 12,420 accumulation units worth $1.72 each. Under the death benefit provision, his beneficiary would receive:
A
The death benefit clause of a variable annuity states that if a client dies during the accumulation phase, his heir or estate will receive the amount of money invested or the current value of the account, whichever is greater. In this case, he had invested $20,000, but the value of the account currently was $21,362 (12,420 units × $1.72 each).
SO you get the greater.
Do the calculation, and see which is GREAAAATER.
6
Q
The Securities Exchange Act of 1934 covers all of the following EXCEPT: A) trading on exchanges. B) broker dealers and their representatives. C) issuance of corporate securities. D) trading of corporate securities.
A
Issuance..of corporate securities… “ISSUE is key word.
The Securities Exchange Act of 1934 (the people and places act) regulates the secondary market. The Securities Act of 1933 (the paper act) regulates the primary market.
7
Q
What is another way to remember the Securities Exchange Act of 1934?
A
People and Places act.—regulates the secondary market.
8
Q
What’s another way to remember the Securities Act of 1933?
A
The PAPER Act….regulates new “paper”.. regulates the primary (new issues) market.
9
Q
What do variable annuities have regarding the amounts of accumulation units and annuity units?
A
Accumulation units are when you pay in…dollars (calculated specially) for unit.
Upon annitization, you set up your plan.
Your accumulation unit are then annuitized into anuity units; and your Separate account reflexs the value of the selected fund type times the number of units.
10
Q
Which annuity pays the largest check?
A
Single Life Certain
11
Q
What type of annuity pays out the smallest check
A
JWSWR Joint with Survivorship with rights.
Because it’s based off the younger of the two; and will most likely have to last LONGER. so your payments are divided by a Larger number.
12
Q
Any retail communication that includes a ranking, whether independent or not,
A
must be filed with FINRA.
13
Q
Does a radio interviewe need to be filed with FINRA?
A
No,
The radio interview is a public appearance with no filing requirements as there is no indication of any script, slides, or handouts (which would require filing).
14
Q
Cash settlement for a trade occurs
A
on the same day as the trade date.
15
Q
Under the Uniform Practice Code, regular way transactions for common stock settle on the
A
second business day following the trade date
T+2 business days.
16
Q
Under the Uniform Practice Code, regular way transactions for common stock settle on the
A
second business day following the trade date
T+2 business days.
17
Q
2 MOST important things when establishing a client institutional business relationship is…
A
FINRA is concerned about the ability of the person handling an institution’s investment decisions to understand the NATURE of recommended transactions. Once it is established that the person understands the transaction, it is important to establish that HE IS THE ONE…NEO! who will make the investment decision.
18
Q
Why are muni bonds not good / allowed in a IRA retirement acount?
A
Municipal bonds, which generate tax-free interest income, are unsuitable for retirement plans.
One loses the federally tax-free income at distribution.
19
Q
According to investment company rules, open-end investment companies may not distribute long-term capital gains to their shareholders more frequently than:
A
Annually
20
Q
if you noticed the..
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(n):
A
Closed-end….
If the ask price of a fund is less than the NAV, the fund must be a closed-end investment company.
21
Q
In a Rights of Survivorship…
A
In a joint account, checks must be made out to all parties to the account; either party may make trades or receive mail regarding the account.
A)
in the event of death, the remaining tenant has full ownership of the account.
B)
mail can be sent to either of the parties to the account.
C)
trades may be made by either party.
22
Q
mutual funds pay dividends from their:
A
NII
Net Income Investment.
23
Q
What is Net Income Investment? NII
A
(interest received plus dividends received minus expenses).
24
Q
From which of the following is the 12b-1 fee deducted?
A
asset of the fund; and charged quarterly.
A 12b-1 fee is charged quarterly as a percentage of the average annual assets.
25
How much does a company need to have in net assets before being able to do business operations.
A company must have commitments for at least $100,000 in net assets, not $1 million.
100,000 in Net Assets.
100,000 in Net Assets.
100,000. PERIOD. lol. must be nice to have that!
26
If a registered representative wishes to distribute a copy of a national magazine article about the GAON Mutual Fund, which of the following statements is CORRECT?
Copies of published articles, neither paid for nor sponsored by the investment company, are considered independently prepared reprints IPRs and must be approved by the appropriate principal before use.
As with any directed communication relating to investment companies, delivery of a prospectus is required.
27
According to the Conduct Rules, a FINRA member firm may give certain selling concessions to
Other Member Firms.
hey, you gotta secu license? Ya me too-- let's see yours! ok, you get to have concessions...
Members may give other members selling concessions, but sales to the public and to nonmember firms must be made at the public offering price.
28
An investment company portfolio manager who switches among investment classes based upon anticipated market changes is using a technique known as:
Asset Allocation
Changing asset classes in response to market conditions is the technique of allocating one’s assets to take advantage of possible opportunities.
29
What could you tell someone about a a Section 457 plan?
It's Non-qualified. (so you put money in after being taxed)
they can be established by state and local governments and other tax-exempt employers.
AND...
contributions to the plan for eligible employees are made through salary deferral.
30
If a customer has converted his convertible bond into stock, how has his relationship to the corporation changed?
He is now an owner of the corporation.
Once a bondholder converts his bonds into stock, he changes from a creditor to an owner of the corporation.
31
By what age do you have to START taking out your retirement money? AND Meet the Required Minimum.
Minimum distributions from a traditional IRA must begin by April 1 of the year after the owner turns 72.
If you DONT Meet the RMD...you are penatalized 50% , plus 10% on the amount you were supposed to take out.
So...don't fall into this and take out your money on time!
32
Another name for Section 529 plan is
Municiple Fund Securities.
Section 529 plans are state sponsored education plans and defined as municipal fund securities. As such, sale of these plans must be accompanied or preceded by an official statement, not a prospectus, and the broker-dealer must have a principal registered with the MSRB in order to supervise sales of this product.
33
What is retail Communication?
Remember, “retail communication” means any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period...
One would expect that a radio show, an ad in the telephone directory and market letters would be available to that number of retail investors.
34
Is A billboard a retail communication?
Yes, any written....is considered retail-- viewed in the public...
35
What is considered institutional customer communications?
Written communications only available to institutional customers such as banks, insurance companies and investment companies are classified as institutional communications.
36
Dollar cost averaging
cost per share than the average price per share.
37
Under rising stock market conditions, which of the following funds would most likely experience the greatest amount of appreciation?
```
A)
Bond fund.
B)
Balanced fund.
C)
Income fund.
D)
Common stock fund.
```
Key words: under RISING stock market conditions....
so then common stock would be best.
38
What does Life insurance do when you pass? gas... lol..
Life insurance provides funds upon death that may be used to continue to sustain the beneficiaries. It therefore "creates" rather than eliminates an estate. It may be used to eliminate (payoff) estate taxes. Although the cash value build up is tax deferred, that is not the primary purpose of buying a life insurance policy.
39
```
If the value of securities held in a fund's portfolio increases, and the amount of liabilities stays the same, the fund's net assets:
A)
stay the same.
B)
decrease.
C)
increase.
D)
are more liquid.
```
increase.
An appreciation in value of fund assets, without a corresponding increase in liabilities, leads to an increase in the fund's net asset value (total assets minus liabilities equals net assets).
40
Which of the following communications are subject to principal approval before first use?
A)
Mutual fund summary prospectus
B)
Form letter sent to 10 prospective retail customers every week
C)
Quarter-page advertisement in your local newspaper announcing the opening of a second local branch office
D)
Letter to an insurance company recommending a specific security for investment
B)
Form letter sent to 10 prospective retail customers every week
Form letters or group emails more than 25 retail investors within a 30-day period constitutes retail communication and must be preapproved. In this case, 10 letters per week (for a total of 40 in 28 days) exceeds 25 in a 30-day period.
A mutual fund summary prospectus is prepared by the issuer, not the broker-dealer and as such is not subject to approval by the firm.
The announcement of a second location does not promote a product or service of the firm and therefore pre-approval is not required.
Reference: 1.1.1 in the License Exam Manual
41
What does FIFO mean?
FIFO means first in, first out. This is also what the IRS assumes if the method of redemption is not specified.
42
Your customer uses the FIFO method to determine his capital gains for mutual funds. What does this mean?
The first shares purchased are the first shares redeemed.
43
Your client wishes to purchase units in a municipal bond UIT that was issued two years ago. These units would be purchased
from the UIT.
UITs are redeemable securities that are not traded by retail investors in the secondary market; they are purchased and sold directly through the issuer.
44
Are UIT's managed?
No, they just let their investments mature...and
don't have a board of directors...
they have a board of Managers. ironically.
They are kept in a TRUST.
Unit investment Trusts.
45
Where would an investor find a complete list of holdings for a particular mutual fund?
semi annual or annual report
46
What does a statutory prospectus tell?
Investment objectives.
A statutory prospectus will list investment objectives but not holdings.
47
```
Your customer, who owns a small business, would like to make provision for his retirement. You might suggest to him any of the following EXCEPT:
A)
a variable annuity.
B)
a self-employed 401(k) plan.
C)
a Section 457 plan.
D)
a Roth IRA.
```
Section 457.
because....
it's a city/state offered plan.
That type of retirement plan is open only to state and local governments and tax-exempt employers
48
```
Which of the following does NOT issue commercial paper?
A)
Service company
B)
Finance company
C)
Sole proprietorship
D)
Broker-dealer
```
The sole proprietorship.... I guess the LONER... not evough dough??? and credit worthyness??
Sole proprietorship's do not issue commercial paper. The commercial paper market was developed so that corporations could lend to, and borrow from, each other more economically.
Ok, so they just DONT.
ok.
49
Are Defferred Comp plans --"Qualified"
Deferred compensation plans, in which the employee defers salary and/or bonuses to fund a retirement benefit, are NOT qualified plans.
So....it is NOT a corporate qualified plan...
like these..
.
```
A)
defined contribution plans.
B)
profit-sharing plans.
C)
defined benefit plans.
```
50
Which of the following securities is issued at par?
```
A)
Treasury STRIPS
B)
Treasury bills
C)
Treasury notes
D)
Zero coupon bond
```
C)
Treasury notes
Explanation
Of the securities shown, only treasury notes issue at par and pay semiannual interest. The others issue at a discount, pay no interim interest, and are redeemed at par.
51
When are you allowed to have a covered calls in a IRA?
Only if ....it suits the objective of the plan.
ERISA allows the fiduciary of a corporate retirement plan to write covered calls on securities in the portfolio if the strategy is PRUDENT and is consistent with the objectives of the plan.
52
Your client is interested in some of the tax ramifications of investing in variable annuities. You could tell her:
partial withdrawals from nonqualified plans are taxed on a LIFO basis.
AND
if she is dissatisfied with one company, Section 1035 of the Internal Revenue Code will permit her to liquidate one variable annuity and place the funds into a different one without being taxed.
53
How do you tell is a fund is offering as a open or closed-end type fund?
Simple TEST: NAV=NAV, then it's open.
Anything else-- CLOSED.
Test if the offer divided by the NAV is no more than 8.5% sales load that is allowed for open-ended funds. If it is more....than it is a CLOSED-end type--- supply/demands made it more.
If it selling below it's NAV, than obviously it is closed.
NAV=NAV: MUTUAL FUND>.
See example:
ACE Fund's offering price is $9.00, and its net asset value is $9.40. GEM Fund's offering price is $24.00, and its net asset value is $20.00. From these quotes you know that:
ACE Fund is selling below its net asset value, so it must be a closed-end fund. GEM is selling above its NAV by more than the 8.5% sales load allowed for open-end funds, so it also must be a closed-end fund ($4/$24 = 16.7%).
54
Can you have uncovered calls in a IRA?
No.
unlimited loss potential. NOT GOOD>
IRS wants thier tax money.
```
AND BTW:
Uncovered calls (which entail unlimited loss potential) and commodity futures (which are not securities) would not be allowed as investments in a Roth IRA.
```
55
Can you have comodity futures in a IRA?
```
No. they are not securities.
Uncovered calls (which entail unlimited loss potential) and commodity futures (which are not securities) would not be allowed as investments in a Roth IRA.
```
56
Your customer is 61 years old. He would like to take a lump-sum distribution from his SIMPLE plan. What is the tax treatment of this distribution?
ORDINARY TAX INCOME
The distribution is taxed as ordinary income.
A 10% penalty would apply if the customer were younger than age 59½.
57
Regarding fee-based accounts, registered representatives:
must disclose fee schedule, services provided, and the fact that a fee-based program may cost more than paying for the services separately.
58
What is a "no-load" share? how can you tell?
A share purchased at its NAV and sold at its NAV, with a 12b-1 fee amounting no greater than .25% of net asset value, is a no-load share.
59
```
Your client, age 28 has just begun to consider investing outside of her employer’s 401(k) plan. She’s saved $25,000 to allocate toward some capital appreciation and some income. She prefers an investment with moderate risk and some downside protection if the stock market falls. With investing being new to her, she wants to note that she understands and is comfortable with moderate risk as stated, only. Given what has been conveyed, which of the following would be the most suitable?
A)
Equity income fund
B)
Equity index fund
C)
Balanced fund
D)
Specialized fund
```
Balanced...
the Specialized: [think: Sector / biotech is too risky; and likes capitalization long term].
Explaination:
A balanced fund which consists of both equities and debt instruments not only aligns with the growth objective, but also because of the debt instruments in the portfolio adds some downside protection against falls in market.
An index fund and equity income fund are both subject to market risk should the market turn downward.
Sector funds are considerably more aggressive and not suitable for an investor with moderate risk looking for some downside protection.
60
```
A customer would like to know which of the following mutual funds has the highest potential for capital growth. Which would you choose?
A)
Blue-chip preferred stock fund.
B)
Long-term bond fund.
C)
Small-cap technology stock fund.
D)
Blue-chip growth stock fund.
```
Small-Cap TECH fund. Highest risk.
GO WITH YOUR GUT.
Explanation
Bond funds and preferred stock funds offer income and little, if any, potential for growth. A blue-chip stock fund offers conservative growth potential. A technology fund invests in risky stocks and has the highest potential for growth. The customer should be aware that high growth potential also carries high risk.
Reference: 3.9.5 in the License Exam Manual
61
A blue-chip fund offers....
A blue-chip stock fund offers conservative growth potential.
They're big enough to weather storms in the long run and usually outperform index S&P 500 ....
62
Yay! your client inherits uncles' 1million IRA. how does she get taxed, if any?
as ordinary tax each year she takes out.
An inherited IRA will be subject to income taxes to the beneficiary at time of withdrawal, on the same terms as if it had been distributed to the original owner.
63
```
Your customer owns a variable annuity contract, and the AIR stated in the contract is 5%. In January, the realized rate of return in the separate account was 7%, and he received a check based on this return for $200. In February, the rate of return was 10%, and he received a check for $210. To maintain the same payment he received in February, what rate of return would the separate account have to earn in March?
A)
3%.
B)
5%.
C)
10%.
D)
7%.
```
5%
Explanation
If the actual rate of return equals the assumed interest rate, the check will stay the same.
Don't get tricked thinking it's the last month's rate....
64
```
12b-1 fees may be used to cover all of the following charges EXCEPT:
A)
advertising.
B)
sales literature.
C)
cost of prospectus mailings to prospective shareholders .
D)
portfolio management fee.
```
D) Portfolio management fee
Explanation
12b-1 fees may be used to cover the costs associated with soliciting new investment into the fund. This would include costs associated with advertising, sales literature, and the mailing of prospectuses to new investors.
65
```
Which of the following mutual fund share classes has no back-end load, lower operating expenses, and low or no 12b-1 fees?
A)
Class A.
B)
Class B.
C)
Class C.
D)
Class C upon conversion to Class B.
```
Go with your GUT.
you were right thinking Class A.
Turns out...
Class A's fits the description.
Explanation
Class A shares, also known as front-end load shares, have an up-front sales charge that is usually subject to breakpoints. They have no back-end load and are sold with low or no 12b-1 fee and lower operating expenses.
66
If you "over" contribute-- to your IRA...what happens on the taxation of it.
you get taxed on the overage.
67
If a 41-year-old investor who earns $26,000 this year over contributes to his IRA, how much will be subject to the 6% penalty?
The amount by which he over contributed.
(and any EARNINGS too)
Any contribution in excess of the indexed maximum (and the earnings associated with the excess) is subject to a penalty of 6%.
68
```
An accredited investor, age 39, would like to invest $10,000 and wants an investment that is liquid. You recommend a(an)
A)
hedge fund
B)
annuity
C)
mutual fund that invests in both stocks and bonds
D)
direct participation program (DPP)
```
EASY: mutual funds--- you get it back in 7 days.
Explanation
A product is liquid if a customer can sell it quickly at face amount (or very close to it) or at a fair market price without losing significant principal. A mutual fund is the only choice given that is considered liquid.
69
regarding 12b-1 charges
The .75% limitation is for marketing and promotion.
FINRA also permits an additional .25% charge for shareholder servicing
70
Can you call a fund "no-load" if it goes over .25%?
NO.
YOU CAN"T.
LAW prohibit funds from advertising that they are no load if their 12b-1 charge exceeds .25%.
71
Open-end investment company shares normally go ex-dividend on what date?
A date determined by the investment company board of directors.
Careful...you were thinking stocks...
72
```
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)
$2,602.
B)
$2,275.50.
C)
$1,098.
D)
$2,410.
```
Good Job!
Explanation
If a mutual fund has no redemption fee, the investor will receive the bid price per share (net asset value) multiplied by the number of shares being redeemed. In this case, the investor would receive $2,410 ($12.05 × 200 shares).`
73
Open-end investment company shares normally go ex-dividend:
the day AFTER the record date.
74
In a mutual fund, the amount of increases and decreases in the NAV over past years can be reviewed in the:
prospectus.
YOU GOT THIS!
75
COOL! In May, an investor bought 100 shares of ABC for $16 per share. If he decides to give the stock to his nephew in December when the stock is selling for $25 per share, what is his nephew's cost basis?
GIFTS are given-- while the donor is alive...
therefore it is the same as when the donor bought it.... $16 YES YOU ARE RIGHT!
The donor of securities will pass his cost basis to the recipient if the market value at the time of the gift is greater than the donor's cost.
76
Investors with a short time horizon most likely will invest in which class of mutual fund shares?
Class C shares
YEP! YOU KNOW THIS!
77
```
Investors should consider all of the following when investing in a mutual fund EXCEPT the:
A)
expense ratio
B)
underwriter
C)
Investment adviser
D)
time horizon
```
UNDERWRITER-- it don't matter with suitability.
Explanation
Time horizon, Investment policy, track record of the investment adviser, portfolio, expense ratio, and sales load should all be researched when assessing a fund. The identity of the underwriter for the fund, does not bear on its performance or suitability.
78
Separate accounts are similar to mutual funds in that both:
may have diversified portfolios of common stock.
give investors voting rights.
79
transfers can be done from a 401K to a IRA. is that a taxable event?
No.
| Only until you withdraw funds into YOUR HANDS.
80
roll overs are IRA to IRA from custodian to custodian...
once every 12 months per IRA.
if you have more than 1 IRA, you can do one every 12 months ...if you wanted to.
81
```
What happens to outstanding fixed-income securities when interest rates decline?
A)
Coupon rates increase.
B)
Prices increase.
```
.
B)
Prices increase.
82
When evaluating the purchase of an immediate variable annuity for a retiree, the most important factor in determining suitability is:
A)
| the uncertainty of the amount of the monthly check.
83
The NAV of a mutual fund Class A share:
| must be calculated at least twice per business day.
can never be higher than the POP.
can never be so much lower than the POP that the difference exceeds 8.5% of the POP.
Thus, the offering-price range of a Class A mutual fund share is NAV at the lowest (some funds' highest breakpoint eliminates the front-end load entirely) and NAV + 8.5% of the POP at the highest.
84
An investor who works for the city is ready to retire. The city has operated a Section 457 plan for its employees, in which he has participated. What portion of his withdrawals will be taxable?
A)
The entire amount
YEP! That's right!
85
Which of the following might bring about a change in the NAV of a mutual fund?
.
A large number of redemptions.
The fund pays a dividend.
When a mutual fund pays a dividend, cash, an asset, is no longer held by the fund. This would reduce the amount of assets when computing net asset value. On the other hand, if there is an increase in the value of the holdings of the fund, assets increase causing a corresponding increase to the NAV.
86
529s are state education tuition funds...watch these...
Unlike the Coverdell ESA, regardless of your income, anyone can contribute to a 529 and contribution limits are set by the states, not the federal government. Although the donor controls the plan, upon death it is not part of his estate.
87
What does it mean about closed-end funds, the number of shares outstanding?
just means left to buy... and in closed end they are fixed.
so it remains constant.
How many seats are on the boat to buy? Only so many.
88
These are things that are R_ _ _ _ _ _ D for Principal approval before dispersal.
REQUIRED>
B)
form letters mailed to existing customers
C)
independently prepared reprints
D)
form letters mailed to 25 or fewer prospective customers within a 30-day period. (correspondance) and pre-approval is not required..
89
What can Series 6 licensed reps sell/deal with?
Closed-end only offered in the PRIMARY MARKET__ CUZ ITS SOLD WITH PROSPECTUS.
As with open-end funds, the primary market for closed-end funds involves the initial offering of investment company shares sold with a prospectus.
Once the offering is closed to new buyers and the shares trade in the secondary market, limited securities representatives may NO LONGER deal in them.
90
For an ESTABLISHED firm communication sales....
does the principal need to check it first?
And does FINRA need to review it? Yes?
Yes, A firm's principal must approve all retail communications before use.
AND... If FINRA has reviewed the literature, it need not be submitted by every broker-dealer intending to use it.
The FINRA review requirement is within 10 days of first use.
91
Under the Investment Company Act of 1940, which of the following are considered management companies?
Open-end companies.
| Closed-end companies.
92
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?
Full shares?
Fractional shares?
What type of fund is this OPEN or CLOSE? what's your clue?
The shareholder can purchase 37.825 shares. Mutual fund shares may be sold in full or fractional amounts. -- it's considered closed end at this point on the secondary market.
93
What is the Cost Basis of the mutual fund?
The cost basis of mutual fund shares includes the total cost, including sales charges, plus dividends or capital gains reinvested in the fund.
SC+Div or Cap Gains reinvested in the fun = COST BASIS.
94
```
What is the conversion ratio of a convertible bond purchased at par value and convertible at $50?
A)
50:1:0
B)
5:1
C)
2:1
D)
20:1
```
Explanation
The $1,000 par value divided by the $50 conversion price equals 20 shares per bond.
20:1 YES YOU GOT IT!
95
At what age is an individual required to begin taking distributions from a Roth IRA?
There is no age at which distributions are required.
96
An 18-year-old, unmarried high school student sought a safe investment for a $30,000 bequest until after she graduated from college. Her intent was to use the funds for the down payment on a house after graduation. Her agent recommended she choose a variable annuity as a safe haven for the funds. This recommendation is unsuitable because:
A)
withdrawal of her cost-basis is tax-free.
B)
an 18-year-old can't own a variable annuity.
C)
the investment grows tax-deferred.
D)
her situation exposes her to surrender charges and early withdrawal penalties.
Explanation
The funds are not liquid due to the surrender fees, and there is also a 10% penalty on withdrawals before age 59½.
Also-- this is usually the last saving vehicle-- usually IRAs and employor retirement plans are saved up first--- along with an emergency fund that is liquid!
97
1035 Exchange --
Under Internal Revenue Code Section 1035, to accomplish a tax-free exchange, the approved policies do not have to be issued by the same company. (same FAMILY FUND)
98
All of the following statements regarding contract exchanges under Internal Revenue Code Section 1035 are true:
A)
a fixed annuity policyholder cannot use a transfer under Section 1035 to exchange it for a life insurance policy.
B)
permanent life insurance can be exchanged for an annuity contract without generating any tax consequence.
C)
policyholders can exchange a variable life policy for another variable life policy of a different company without generating any tax consequences.
YES THEY ALL ARE!
99
Your client is interested in some of the tax ramifications of investing in variable annuities. You could tell her:
A. withdrawals before age 59½ are not subject to tax penalty if the investment has been held at least five years.
B. partial withdrawals from nonqualified plans are taxed on a LIFO basis.
C. choice of settlement option has no effect upon taxation of the distributions.
D. if she is dissatisfied with one company, Section 1035 of the Internal Revenue Code will permit her to liquidate one variable annuity and place the funds into a different one without being taxed.
B. partial withdrawals from nonqualified plans are taxed on a LIFO basis.
D. if she is dissatisfied with one company, Section 1035 of the Internal Revenue Code will permit her to liquidate one variable annuity and place the funds into a different one without being taxed.
Withdrawal from an annuity is taxed on a LIFO (last in, first out) basis. Section 1035 permits investors to change from one annuity to another without tax, as long as the transfer is not directly to the investor. The customer should also be warned that there may be penalties imposed by the insurance company for early withdrawal.
100
```
A customer who has just started an IRA will be vested:
A)
in five years.
B)
at age 70.
C)
immediately.
D)
in two years.
```
Explanation
Investors are always vested
immediately in their IRAs.
101
The exchange privilege offered by open-end investment companies allows investors to:
exchange shares of one open-end fund for another in the same fund family at a net asset value basis.
Yep you knew it! Good job.
102
All of the following would be subject to the Conduct Rules regarding public appearances EXCEPT:
A)
a seminar discussing the products your firm has available for sale.
B)
an Internet chat room.
C)
a presentation at a high school about mutual funds.
D)
a radio spot saying that your offices have moved.
D)
A radio ad is not a public appearance, because it is not interactive. The other choices fit into the definition of public appearance and are required to meet the standards for public communications.
103
If the owner of a $1 million IRA leaves it to his daughter, which of the following best describes the income tax treatment to the daughter?
She will pay income taxes on the full amount she withdraws each year.
104
```
ERISA regulations apply to which of the following?
A)
Public sector retirement plans.
B)
Federal government employee retirement plans.
C)
Private sector retirement plans.
D)
Armed Forces retirement plans.
```
C)
Private sector retirement plans.
ERISA rules protect private sector retirement plans from mismanagement. Federal government and other public sector retirement plans are covered by other regulations.
105
If a Tamara, a registered representative wishes to open a joint account with her brother, Chris, who is a client of hers, which of the following rules would NOT apply?
A)
The Conduct Rules.
B)
The representative's principal must approve the opening of the account.
C)
The sharing in profits and losses in the account must be proportional to each party's investment in the account.
C)
The sharing in profits and losses in the account must be proportional to each party's investment in the account.
Relationships get exception to the rule. Special!
106
Check this out....
watch out for the word EXCEPT in your test question!
Regarding deadline contribution into an IRA...
You may contribute to an IRA only until the first tax filing deadline (April 15) even if you filed an extension.
Ok, so you can't contribute even after you filed an extension.
107
IPRs...
like this one:
If a registered representative wishes to distribute a copy of a national magazine article about the GAON Mutual Fund, the following statements is CORRECT:
This material meets the definition of an independently prepared reprint.
The article may not be sent without prior or concurrent delivery of the GAON Fund prospectus.
Copies of published articles, neither paid for nor sponsored by the investment company, are considered independently prepared reprints and must be approved by the appropriate principal before use.
As with any directed communication relating to investment companies, delivery of a prospectus is required.
108
```
A customer would like to invest with an objective of current income. All of the following are suitable recommendations EXCEPT
A)
a real estate investment trust
B)
a periodic payment immediate annuity
C)
preferred stock
D)
corporate bonds
```
Explanation
| There is no such thing as a periodic payment immediate annuity.
109
PPI annuity...
There is no such thing as a periodic payment immediate annuity.
110
Member to Member arbitrator...
| If 1 then
1 NPub (keep it non-public)
111
Member to Member arbitrator
| if 3 then
3 Non-Public
112
If Member via AP
| If 1 arbitrator then
1 Public
113
If Memmber via AP
| and 3 is needed...then the other party is
1 NP
| 2P
114
If invovling clien/tcustomer
| and 3 is needed...
1 P
1 NP
1 Finra chair person from rostered list.
