Practice Test Flashcards
What’s the name of the rule that makes employers keep money in their accounts for employee’s retirement?
Funding
Participation
Vesting
FUNDING.
ERISA mandates minimum FUNDING standards for plans. These minimums ensure that benefits will be available for payment upon retirement of the participants.
Where would an investor expect to find closed-end investment company shares traded?
OTC
The exchanges
What is the conversion ratio of a convertible bond purchased at par value and convertible at $50?
20:1
The $1,000 par value divided by the $50 conversion price equals 20 shares per bond.
If interest rates in general are rising, the price of T-bills should:
Fall.
Like the price of other debt instruments, the price of outstanding T-bills decreases as interest rates rise
DON”T over think it.
The Investment Company Act of 1940 requires that a mutual fund do which of the following?
Have 100,000 minimum capitalization.
AND
Provide semiannual reports to shareholders. (every 6 months.)
A meeting between the issuer and underwriter to ensure that the prospectus is true and accurate is called:
Due Dilligence meeting.
Yay!
Ginnie Mae issues pass-through certificates. What does this mean?
The investor receives principal and interest after the homeowner has made his monthly mortgage payment.
The term pass-through means that Ginnie Mae has received money from the homeowner and passed it through to the investor.
Which of the following constitute a public appearance?
Zoom meeting or like it…
Radio ad
TV commercial
TV Interview.
Interactive electronic formum: ZOOM…GOOGLE MEET…
TV Interview.
A public appearance, which is considered a form of communication with the public, involves the personal presence of, or the possibility of interacting electronically with, an officer or other spokesperson of a firm.
A customer establishes a nonqualified periodic payment deferred annuity and makes payments for three years. If the customer suddenly dies, which of the following statements correctly identifies the tax consequences to the beneficiary?
The beneficiary must pay ordinary income tax on proceeds exceeding the cost basis.
When an annuitant dies during the accumulation period of a nonqualified annuity, the proceeds exceeding the annuity’s cost basis are taxable as ordinary income to the beneficiary.
An electric company issued mortgage senior lien bonds, with an 8-7/8 coupon, priced at 96. Each bond pays annual interest of:
A coupon of 8-7/8 represents an annual interest payment of 8-7/8% of $1,000, or $88.75. Because the interest rate always applies to par, which is $1,000, the issue price does not have an effect.
Your firm has prepared some institutional sales material on several of the securities it deals in and has provided it to three mutual funds. One of the fund managers calls your firm to ask for some extra copies of the material, because he would like to send it to some of his investor friends. This request:
No you cannot share.
Institutional communication is just that: institutional. A member firm may not distribute such material to anyone who is not an institutional investor and may not treat material as institutional if the firm has reason to believe that it will be, or has been, forwarded to anyone who is not an institutional investor.
Which of the following actions comes under the guidelines concerning COMMUNICATION with the public?
I Posting an internal memo giving sales tips to registered representatives
II Distributing a letter to all clients regarding a new mutual fund family
III Distributing copies of a magazine article about investment opportunities to existing customers only
IV. Calling a client to discuss a new investment strategy
A)
II and III
An internal memo is not a public communication. Under FINRA Rule 2210 communications with the public are defined as written, therefore the phone call is not a form of communication with the public.
All of the following are advantages of Section 529 plans EXCEPT:
A)
there are few restrictions as to who may be designated first beneficiary.
B)
the assets in the account are not regarded as part of the owner’s estate for tax purposes.
C)
the account remains the property of the donor, even after the beneficiary reaches legal age.
D)
gift tax rules do not apply, as long as the account is eventually used for higher education purposes.
D.
Gift tax rules do apply to contributions to a Section 529 plan. The limit beyond which the gift tax applies is an indexed annual limit.
Which of the following statements regarding 403(b) plans is NOT true?
A)
An employer can also make contributions to the 403(b) plan on behalf of the nonworking spouse of an employee.
B)
Employee contributions have both a dollar limit and a percentage of salary limit.
C)
If all contributions are qualified, the employee’s cost basis in the account is zero.
D)
Distributions from a 403(b) plan follow the same distribution rules as those for other qualified plans.
A. An employer can also make contributions to the 403(b) plan on behalf of the nonworking spouse of an employee.
Explaination: Only employees (not spouses) of 403(b) or 501(c)(3) organizations may be covered under 403(b) plans.
Your customer originally invested $20,000 into the ACE Growth Fund and has reinvested dividends and gains of $8,000. His shares in ACE are now worth $40,000. He exchanges his investment to the ACE Income Fund. Which of the following statements is TRUE?
He must declare $12,000 as a taxable gain upon exchange into the ACE Income Fund.
The exchange privilege offers exchange without an additional sales charge, but the exchange is still taxable. The customer is taxed on the gain of $12,000 ($40,000 − $28,000). The taxes on $8,000 (dividends and capital gains) were taxed in the years distribution took place.
