Practice Test Flashcards
What advantage does a Variable Life Annuity have over a WL cash value policy?
Deferred taxes. and hedge against inflation.
An income-seeking investor is concerned with the possibility of rising interest rates over the next few years. Of the choices listed, his best investment selection would be:
A) Treasury bonds.
B) Treasury bills.
C) Collateralized mortgage obligations.
D) municipal bonds.
B) Treasury bills.
A nonqualified deferred compensation plan:
A) does not guarantee that the employer will fulfill its obligation
B) must be offered to all employees
C) must be approved by the IRS
D) guarantees payment to the employee even if the company becomes insolvent
A) does not guarantee that the employer will fulfill its obligation
The disclaimer stating that the SEC does not approve or disapprove of a securities issue must appear
on all mutual fund tombstones, prospectuses, and advertising material
All of the following items require review by a principal of the member firm EXCEPT
A)
independently prepared reprints
B)
form letters mailed to existing customers
C)
a training presentation that is marked for internal use only
D)
form letters mailed to 25 or fewer prospective customers within a 30-day period
IPRs
independently prepared reprints
Your customer is interested in income that is as free of default risk as possible. Which of the following funds would you consider suitable to recommend to him?
A)
A balanced fund that purchases only AA rated bonds or higher.
B)
A fund that specializes in municipal revenue bonds.
C)
The Topley Investment Grade Corporate Bond Fund.
D)
The Ellis Government Bond Fund.
D)
The Ellis Government Bond Fund.
To which securities market does the Securities Act of 1933 apply? A) The OTC market. B) Securities traded between accredited investors. C) The new issue market. D) Listed securities sold on an exchange.
C)
The new issue market.
Which of the following is a major advantage of a nonqualified variable annuity compared to a mutual fund? A) Voting for the board of directors. B) Tax deferral. C) Diversification. D) Receiving dividends.
TAX DEFERRAL.
A nonqualified variable annuity has the advantage of tax deferral over investing in a mutual fund; the other choices are common to both investments.
Which of the following is a key advantage of purchasing a variable annuity? A) Minimal penalty for early withdrawal. B) Tax-free withdrawals. C) Protection against market risk. D) Tax deferral.
TAX DEFERRAL.
DMF Company has convertible bonds (convertible at $50) outstanding. The current market value of DMF's stock is $42. The bond indenture contains an antidilution feature. If DMF declares a 10% stock dividend, the new conversion price will be A) higher than $50 B) $50 C) the stock's current market price D) lower than $50
D)
lower than $50
B/c…
With an antidilution feature, the issuer will increase the number of shares available upon conversion if the company declares a stock split or stock dividend. This is done to keep the bondholder whole. Originally, the bond converts to 20 shares ($1,000 ÷ 50), because of the 10% stock dividend, the bond needs to convert to 22 shares, which means the conversion price is reduced to $45.45 ($1,000 ÷ 22 = $45.45).
Which of the following is the safest from default risk? A) AAA unsecured bond B) High-yield bond C) Industrial Development Revenue bond D) AA secured bond
A)
AAA unsecured bond
A customer owns 200 shares of ABC Growth Fund, which has a POP of $12 and an NAV of $11. She wants to convert these shares to ABC Balanced Fund, which has a POP of $14.77 and an NAV of $13.66. ABC offers a conversion privilege. At what price will the ABC Balance Fund shares be purchased? A) $12. B) $11. C) $14.77. D) $13.66
D)
$13.66.
An investor has been investing $100 per month for the past three months. The purchase prices were $20, $25, and $10. What is average cost per share purchased? A) $15.79 B) $18.33 C) $100 D) $5.45
15.79.
see how many shares were bought for each $100 spent.
(100/20: 4. 100/25: 5. 100/10: 10. total of 19 shares.
since there’s 3 months…$300 spent.
so…
$300/19: 15.79.
Walla!
The value of which of the following is used to determine an annuitant's payment amount during the payout period of a variable annuity contract? A) Cost of Living Index. B) Accumulation unit. C) Dow-Jones Industrial Average. D) Annuity unit.
D)
Annuity unit.
once you have annuitized, it is made into annuity units.
If the AIR is 4%; and the next month’s S.A. did 5%, then you’d expect the payout to be more or less, or the same?
More.
What do you look at to gauge if paying more than AIR or less than?
You look at the previous month’s payout, and if the S.A. did more or less or EQUAL to AIR.
Name some qualified accounts.
401K plans 501(c)3 Trust Approved by the IRS Cannot discriminate- open to all. Contributions \$\$ are tax deductible Tax deferred
Characteristics of a Non-qualified plans
Can pick and choose, Discriminate
Not approved by IRS
$$ put in has already been taxed. (after tax money)
So…NOT tax deductible
Growth is taxed (excess of cost basis-what you put in)
NOT a trust. Nope, it’s not.
Tax deferred.
What do qualified and Non qualified plans have in common
Both are tax deferred.
What are some characteristics of:
Non Qualified Deferred Compensation Plans– Section 457
Benefit “Seniority” employees being paid the highest, and just a few years away from retirement.
SET UP BY: state & local gov. & tax exempt employers for their employees and Indep. Contractors
Earnings grow tax deferred.
Withdraws are taxed at time of distribution.
Employees can defer up to 100% of earnings –up to a max indexed limit.
