Practice Test 8 Flashcards
What terms are associated with over-the-counter trading?
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.
How much of an investment company’s assets must be invested in securities before it must register with the SEC as an investment company?
40%
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.
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 In other words, the earnings continue to be deferred until the money is actually withdrawn.
Mutual fund promotional material may predict a rise in share prices:
Like NEVER. NEVER NEVER EVER EVER NEVER> infinity NEVER.
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:
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.
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.
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.
What is another way to remember the Securities Exchange Act of 1934?
People and Places act.—regulates the secondary market.
What’s another way to remember the Securities Act of 1933?
The PAPER Act….regulates new “paper”.. regulates the primary (new issues) market.
What do variable annuities have regarding the amounts of accumulation units and annuity units?
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.
Which annuity pays the largest check?
Single Life Certain
What type of annuity pays out the smallest check
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.
Any retail communication that includes a ranking, whether independent or not,
must be filed with FINRA.
Does a radio interviewe need to be filed with FINRA?
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).
Cash settlement for a trade occurs
on the same day as the trade date.
Under the Uniform Practice Code, regular way transactions for common stock settle on the
second business day following the trade date
T+2 business days.
Under the Uniform Practice Code, regular way transactions for common stock settle on the
second business day following the trade date
T+2 business days.
2 MOST important things when establishing a client institutional business relationship is…
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.
Why are muni bonds not good / allowed in a IRA retirement acount?
Municipal bonds, which generate tax-free interest income, are unsuitable for retirement plans.
One loses the federally tax-free income at distribution.
According to investment company rules, open-end investment companies may not distribute long-term capital gains to their shareholders more frequently than:
Annually
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):
Closed-end….
If the ask price of a fund is less than the NAV, the fund must be a closed-end investment company.
In a Rights of Survivorship…
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.
mutual funds pay dividends from their:
NII
Net Income Investment.
What is Net Income Investment? NII
(interest received plus dividends received minus expenses).
From which of the following is the 12b-1 fee deducted?
asset of the fund; and charged quarterly.
A 12b-1 fee is charged quarterly as a percentage of the average annual assets.
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!
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.
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.
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.
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.
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.
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!
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.
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.
Is A billboard a retail communication?
Yes, any written….is considered retail– viewed in the public…
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.
Dollar cost averaging
cost per share than the average price per share.
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.
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.
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).
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
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.
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.
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.
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.
Where would an investor find a complete list of holdings for a particular mutual fund?
semi annual or annual report
