Series 6 Exam

Front 1

The Sales Price of variable annuity contracts, must be based on?

Back 1

Separate Account

Front 2

The greatest immediate potential tax liability to an investor would be?

Back 2

A variable annuity contract holder electing a lump-sum settlement at the end of the accumulation period. The earning would be taxed as ordinary income in the year of the distribution. Also, an investor exchanging growth fund shares that have appreciated for income fund shares could incur a tax liability.

Front 3

When an underwriting syndicate guarantees the issuing corporation a fixed sum of money for an entire issue of securities and attempts to market the issue at the syndicates own risk?

Back 3

Firm-Commitment Underwriting

Front 4

The maximum amount of sales charge to completion that may be levied on a contractual plan is?

Back 4

9%

Front 5

Involves the investments taking place regardless of the price levels of the shares. It usually involves the regular investment of fixed amounts of monies for securities. It does not protect against loss in a declining market. The value of the shares could be worth less than the investor paid for them. The average cost per share is less than the average price per share.

Back 5

Dollar Cost Averaging

Front 6

An investor would be subject to the greatest degree of financial risk when investing in?

Back 6

Common Stock

Front 7

When an underwriting group, which was formed to distribute an initial issue of securities, undertakes no financial commitment to the issuer not assures the issuer that any specific amount of stock will be sold?

Back 7

Best-Efforts-Underwriting

Front 8

Securities are usually issued as part of a continuous offering and the securities are redeemed by the company.

Back 8

Open-end Investment Companies

Front 9

Under a contractual plan with a 50% front-end load, if an investor terminates the program anytime within the first 18 months?

Back 9

He/she would receive the current net asset value of the account plus a refund of all sales charges in excess of 15% of the total payments made into the plan.

Front 10

In the event an investor has not made payment by the fifth full business day after the trade date and request for an extension of time has not been authorized?

Back 10

The broker/dealer must cancel or otherwise liquidate the transaction.

Front 11

When dividend payments to common stockholders decrease, but the price of the common stock remains unchanged, the yield on the common stock would?

Back 11

Decrease

Front 12

An investor desiring to purchase mutual funds just prior to the next dividend date of record should be aware of?

Back 12

By buying dividends, the investor will incur income tax liability on the accrued dividends. In addition, the dividends to be distributed will be included in the price of the shares since it is figured as part of the NAV until the time o the ex-dividend date. There are no benefits to such a program and that would incur a tax liability.

Front 13

The shares of an open-ended investment company may be redeemed or repurchased at a price based upon?

Back 13

The net asset value of the fund shares next computed after the fund or broker/dealer receives the order.

Front 14

The main purpose of plan-completion insurance in investment company contractual plans is to?

Back 14

Complete the plan with a lump-sum settlement in the event of the investor's death. The investors heirs or estate does not receive the proceeds of the plan completion insurance but are paid to the custodian.

Front 15

A FINRA member may reward employees of another member firm with gifts when?

Back 15

No single recipient receives gifts valued in excess of $100 per year.

Front 16

Most common stocks are trades in units of?

Back 16

100 shares

Front 17

Shareholders of mutual funds would have the following options?

Back 17

1.Automatically reinvesting all distributions of dividends and capital gains into the fund in additional shares; this has a compounding of shares effect. 2. Transferring ownership of shares without permission from the fund. 3. A shareholder would have to invest a specified minimum amount of funds and could purchase additional full and fractional shares of the fund. The investor can liquidate a portion of the invested capital in cases of emergency without affecting the diversification of the total investment.

Front 18

Fundamental investment policy of an open-ended investment company can be changed if?

Back 18

It is approved by the directors and majority vote of the stockholders.

Front 19

What is the maximum allowable sales charge on a single-payments variable annuity contract?

Back 19

Reasonable

Front 20

Investors seeking current income should buy?

Back 20

Bonds and Preferred stocks that pay interest and dividends. For example: Municipal bonds, U.S Government bonds and corporate bonds.

Front 21

A unsecured corporate offering with a long-term maturity backed by the "good faith and credit" of the issuing corporation?

Back 21

Debenture

Front 22

The normal mutual fund management fee is?

Back 22

1/2 of 1% of the average annual net asset value. This is computed daily, usually at the close of the NYSE.

Front 23

Operating expenses of an open-end investment company would include?

Back 23

1. Accounting fees
2. Management fees
3. Custodian fees

Front 24

A single-life variable annuity settlement option where the investor receives payments until the investor dies and provides for further payment to beneficiaries in the event the investor should die before the end of a specifies period of time.

Back 24

Life Annuity with Period Certain

Front 25

The most important determinant of the suitability of a broker's buy recommendation to a customer?

Back 25

The relationship of the product recommended to the investment objectives and financial circumstances of the customer.

Front 26

It is not advisable for an investor to participate in short-term trading in mutual funds with a sales load because?

Back 26

The impact of recurring sales charges which drastically reduce the potential for profit.

Front 27

The sales charge of a mutual fund may be reduced or eliminated?

Back 27

1. Through reinvestment of income dividends.
2. By making large dollar purchases of fund shares.
3. By purchasing additional shares under the investor's rights of accumulation.
4. By receiving a sales load discount through volume purchasing under a Letter of Intent (LOI)

Front 28

An immediate annuity may be purchased by a?

Back 28

Single purchase payment

Front 29

The most senior claim against the assets of a corporation in the event of corporate liquidation would be?

Back 29

Mortgage bonds.

Front 30

Exchanging shares of one open-end investment company for those of another on a dollar for dollar basic at the respective NAV?

Back 30

Exchange Privilege

Front 31

An investor who purchased mutual fund shares based on a Letter of Intent (LOI) would have the sales charge deducted from?

Back 31

Each payment at the rate stipulated in the Letter of Intent (LOI).

Front 32

In the event that registered representatives working for one broker/dealer opens a variable contract or UIT account for themselves through the offices of another broker dealer, they must?

Back 32

1. The RR must be advised that the employing broker/dealer will be notified that the registered representative is opening the account. 2. The written notice of the opening account must be sent to the employing broker/dealer prior to executing the initial order for the RR. 3. If the employing broker/dealer requests, duplicate confirmations and statements must be forwarded to the employing broker/dealer.

Front 33

Periodic payments due investors, under most mutual fund automatic withdrawal plans, are provided for by?

Back 33

Liquidation of shares in the investors account.

Front 34

Corporate bonds usually have a face amount of?

Back 34

$1,000.

Front 35

The delivery of a prospectus by an investment company would be required when selling?

Back 35

Variable Annuities, Mutual Fund Shares, Face-amount Certificates and Contractual Plan Certificates.

Front 36

Under IRS rules, an employee who has made contributions to an IRA may accept early distribution without penalty?

Back 36

If the employee is disabled.

Front 37

A RR of a FINRA member must submit to arbitration if a claim is submitted by?

Back 37

The employing member firm, a registered representative of another firm or a customer from the general public.

Front 38

During the pay-in period of a variable annuity contract, the number of accumulation units?

Back 38

Varies as well as the value of each unit because while making purchase payments, an annuitant purchases additional accumulation units.

Front 39

The term "aftermarket" refer to?

Back 39

Secondary Market (OTC Market)

Front 40

In an open-end investment company, the net investment income represents?

Back 40

Net income from dividends and interest paid on securities in the fund portfolio. It does NOT include the net long-term capital gains/loses on the sale of portfolio securities.

Front 41

When a mutual fund sells shares with a sales charge and offers a reinvestment plan, this means that?

Back 41

The investor's income dividends and capital gains distributions can be automatically used to purchase additional shares of the fund. This, in turn, has a compounding of shares effect.

Front 42

When an individual purchases common stock shares in a corporation, that person enjoys the rights of?

Back 42

The right to receive a share of any residual assets in the event the corporation is dissolved/liquidated. Also, the investor would have the right to subscribe to any new issues of similar stocks in order to preserve the investor's proportionate ownership in the company (preemptive rights). Lastly, in the event the director/corporate officers were jeopardizing the corporation through negligent or illegal acts, the investor would have the right to go to court to prevent such action and to sue for damages. However, an investor owning common stock does NOT have the right to receive a fixed portion of the company's earning in the form of dividends. That would be for preferred stock.

Front 43

The primary difference between an underwriting syndicate and a selling group, formed in connection with a public offering, lies in the fact that?

Back 43

The selling group does not have any financial commitment to purchase the shares of the corporation that are being offered. An underwriting syndicate does have some type of financial commitment to the marketing of the shares.

Front 44

When an investor tenders mutual fund shares in good order for redemption the investment company is obligated to remit payments to the investor by not later than?

Back 44

Seven Calendar days after receipt of the shares.

Front 45

Under any type of contractual plan for the purchase of mutual fund shares, an individual investor has a total of how long to cancel the contract to receive the current net asset value of the account, plus all of the sales load paid?

Back 45

45 days

Front 46

Aggressive growth fund portfolios?

Back 46

There is a high potential for long-term appreciation of the invested capital. This type of fund will generally show fluctuations in value of the portfolio with a greater volatility than normal stock market indexes. This type of fund is for growth; therefore, the current investment income generated by such a portfolio would tend to be insignificant. This fund would have the potential of offering good protection against the rages of inflation.

Front 47

Sales charge discounts are allowed under?

Back 47

Rights of accumulation, breakpoints, letter of intent, reinvestment of dividends and capital gains. For example: Purchasing a substantial dollar amount of investment company shares, an investor elects to reinvest income dividends, shares are purchased under right of accumulation by the trustee of the company pension plan.

Front 48

In order to have a tax-free distribution of earnings in a ROTH IRA account the account must have?

Back 48

Been open for five years and the earnings must have been paid out on or after age 59 1/2 or due to one of the following: death, disability or first-time home buyer expenses up to $10,000.

Front 49

When the annuity period (pay-out period) begins, the initial payments from the variable annuity would be determined by?

Back 49

The value of the annuitant's interest in the separate account (amount of money used to make payments), the type of annuity option the investor selects (how it is to be paid), the annuitant's age and sex (longevity) and the assumed interest rate (AIR).

Front 50

In an IRS tax-qualified corporate retirement plan, the schedule that describes the length of time participants must be employed before he obtains certain rights to benefits of the plan is?

Back 50

Vesting provisions

Front 51

A purchaser of cumulative preferred stock is entitled to?

Back 51

Later payment of omitted dividends.

Front 52

The net asset value per share of a mutual fund would be increased through the?

Back 52

Appreciation in the value of the securities in the fund portfolio. The worth of any mutual fund is based on the value of the fund's underlying portfolio of securities.

Front 53

A RR should explain to a prospective investor that dollar cost averaging involves?

Back 53

Continuous investing in shares at stated intervals, regardless of the price level of the shares.

Front 54

If an investor, using a contractual plan, elects to use the spread-load method of deducting sales charges, the maximum sales charge deducted for any one payment is?

Back 54

20%

Front 55

Variable annuities would allow the investor to postpone the ordinary income tax liability to the investor who purchases a?

Back 55

Single-premium deferred annuity or a periodic-premium deferred annuity. This will allow the investor to postpone investment income received from dividends and capital gains in the account to be taxed at a later time. NOT Immediate Annuities.

Front 56

Under a non-qualified deferred compensation plan, it is true that?

Back 56

Income taxes on such compensation plans are deferred until constructive receipt. Under current IRS rules, deferred compensation plans do not require IRS approval. These deferred compensation plans may be offered to some employee and not to others. Employees involved in a deferred compensation plan may not use such accumulated funds as collateral for a bank loan.

Front 57

The security that represents the most junior claim against the assets of a corporation in the event of liquidation would be?

Back 57

Common Stock

Front 58

The asked price of mutual fund shares is arrived by taking?

Back 58

The current NAV and adding to it the sales load.

Front 59

Under the Uniform Gifts to Minors Act, securities contributed by the donor must be transferred to?

Back 59

The name of the custodian for the benefit of the minor.

Front 60

An investor who initiates a contractual plan involving a 50% first year sales charge has a right to receive a refund of at least a portion of the sales load within a maximum period of?

Back 60

18 months

Front 61

An insurance company's largest expense that is levied against the value of the separate account for variable annuities is known as?

Back 61

Investment Management Fee

Front 62

A broker/dealer would be required to be registered as an investment adviser whenever the broker/dealer?

Back 62

Provides a financial planning service to customers and charges a separate fee for such services.

Front 63

Which securities may contain convertible features that allow the holders to exchange the securities for other issues of the company?

Back 63

Preferred Stock and Corporate Bonds. Common stock is not convertible.

Front 64

According to the Investment Company Act of 1940, distributions to shareholders must be accompanied by?

Back 64

A written statement disclosing the source of the distribution.

Front 65

Under the Uniform Gifts to Minors Act, a gift may not be made to ?

Back 65

Two or more minors jointly in the same account. There can be only one minor and one custodian per account.

Front 66

The spousal IRA rules are applicable to?

Back 66

Married persons with a non-working spouse and allows for a total higher aggregate contribution limit.

Front 67

The type of preferred stock which has a provision for an extra dividend above the stock's regular market rate dividend is known as a?

Back 67

Participating Preferred Stock

Front 68

Who must approve the underwriting of an investment advisory contract of an investment company?

Back 68

Shareholders and a majority of the board of directors.

Front 69

Under the Uniform Gifts to Minors Act, whose social security number should be furnished on accounts?

Back 69

The minor's.

Front 70

Mutual fund withdrawal plans contain the characteristics of?

Back 70

Requiring a minimum investment, and in addition, the money's that are paid out to the investor would be drawn from the invested principal and invested income and/or company gains, if any.

Front 71

An individual establishing a Keogh plan must also make contributions for?

Back 71

Full-time employees with one or more years of service only.

Front 72

A corporate bond rating would be lowered due to the?

Back 72

The earnings from the interest payments do not generate the required amount. There is a high probability of deficit operations due to poor business conditions. There is a likelihood that the principal will not be recovered at the maturity of the bond issue.

Front 73

Taxes on dividends and interest collected and distributed by a regulated investment company on the securities in the portfolio are paid by?

Back 73

The shareholder.

Front 74

Under the Investment Company Act of 1940, the maximum sales load that can be deducted from the first 12 monthly payments against a contractual periodic payments is?

Back 74

50%

Front 75

Prices of shares of a growth fund fluctuate?

Back 75

With the changing values of the securities in the portfolio. (Any mutual fund is only as strong as the value of the underlying portfolio of securities.

Front 76

A general obligation municipal bond?

Back 76

Is backed by the full faith and credit of the issuing jurisdiction.

Front 77

The custodian for an investment company would most frequently be a?

Back 77

Commercial bank.

Front 78

Under the Investment Company Act of 1940, the maximum sales load to completion which may be deducted as a sales charge on a mutual fund contractual plan is?

Back 78

9%

Front 79

Concerning mutual fund withdrawal plans?

Back 79

The withdrawal payments may be assigned to any beneficiary the shareholder desires. The investor can withdrawal his principal from the plan at any time. Periodic payments to the investor can completely exhaust principal.

Front 80

The distribution of a traditional IRA or a KEOGH plan must begin no later than age?

Back 80

70 1/2

Front 81

As to repayment of principal, which debt obligation issued by the same corporation would be the most secure?

Back 81

Mortgage bond

Front 82

Advantages to an investor who purchases open-end investment company shares would include?

Back 82

The opportunity to obtain diversification of investments, have regular and systematic investment of small sums and have professional management of the investments.

Front 83

Open-end investment company shares usually go ex-dividend on the?

Back 83

Day after the record date.

Front 84

Which bond allows a federal personal income tax exemption for interest income?

Back 84

Municipal bonds

Front 85

Under the Investment Company Act of 1940, an open-end investment company may have?

Back 85

Only one capital issue and limited bank borrowing.

Front 86

Concerning mutual fund contractual or periodic payment plans?

Back 86

Periodic payments made by the investor are in fixed dollar amount for a fixed period of time.

Front 87

Deferred annuities may be purchased by?

Back 87

Single purchase payment, Series of equal purchase payments, Series of unequal purchase payments.

Front 88

Payments to lottery winners over a period of time are considered to be structured settlements and are funded with annuities which present what type of risk?

Back 88

Liquidity

Front 89

Confirmations of customers trades?

Back 89

Should ALWAYS be provided the day after the trade date. They don't have a choice.

Front 90

Reduced sales charges are permitted to be given to a?

Back 90

Single fiduciary account (such as a employee profit sharing plan). NEVER to investment clubs or people banding together.

Front 91

A contractual plan has?

Back 91

Automatic reinvestment of dividends and distributions.

Front 92

In the event a contract holder dies during the accumulation period, the account value or a minimum death benefit would be paid to the?

Back 92

Designated beneficiary.

Front 93

Concerning tax qualified retirement plans, it is true that?

Back 93

The employer contributions are tax deductible, the retirement fund accumulates on a tax deferred basis and employer contributions are not currently taxed to the employee. It is NOT true that each employee may contribute unlimited amounts. The IRS does set limits on the amount an employee may contribute.

Front 94

The type of underwriting that may be canceled in the event the entire issue is not sold is known as an?

Back 94

All-or none underwriting

Front 95

The primary risk faced by a bondholder is?

Back 95

Interest Rate Risk

Front 96

Marketable debt of the U.S Treasury includes?

Back 96

T-Bills and T-Bonds

Front 97

The investment that carries the least amount of risk?

Back 97

Treasury Bond. Treasury securities are very safe, since they are direct obligations of the U.S Treasury. More safe than a Mortgage bond.

Front 98

A variable annuity would be most appropriate for someone concerned about?

Back 98

Inflation Risk

Front 99

When stock is sold out of inventory, the firm is acting as?

Back 99

Dealer

Front 100

A fund's initial contract with its investment adviser can be for no longer than a two yea duration and must be re-approved annually by?

Back 100

The board of directors or by a majority vote of the fund shareholders.

Front 101

The ask price of an open end investments company is determined by?

Back 101

Adding the sales charge to the NAV.

Front 102

A regulated investment company must?

Back 102

Distribute at least 90% of its net investment income and long term capital gains (net realized capital gains).

Front 103

A mutual fund's investment advisory fee is based upon?

Back 103

The total net assets of the fund and is usually the largest single expense of the fund (1/2 of 1% is typical).

Front 104

Which elements in a variable life insurance policy do not vary with investment experience of the spate account?

Back 104

Premiums and Minimum Death Benefit.

Front 105

TSAs are "qualified plans," since all the money contributed is pre-tax dollars which means the clients tax basis is?

Back 105

Zero. Upon withdrawal, all (100%) moneys will be taxed as ordinary income.

Front 106

The total return of a separate account includes?

Back 106

Dividend Income, Realized capital gains and Unrealized capital gains. NOT Assumed interest rate.

Front 107

When purchasing a variable annuity, a client should expect?

Back 107

A guaranteed ceiling on expense charges, To bear the investment risk and A tax penalty for early withdrawal prior to age 59 1/2.

Front 108

When a client buys a deferred variable annuity, the purchase price will be based on?

Back 108

The value of an accumulation unit at the time the insurance company accepts the contract.

Front 109

Concerning Variable Annuities?

Back 109

The value of the owner's account may fluctuate during the accumulation period, the annuitant's monthly payment will fluctuate during the annuity period and the Variable annuity contract comes under federal/state securities laws.

Front 110

The value of a variable annuity accumulation unit rises when?

Back 110

The value of the separate account increases. (If the NAV goes up, just like a mutual fund).

Front 111

The factors that affect the amount of the first payment under a variable annuity are?

Back 111

The number of annuity units owned, the dollar value of an annuity unit and the assumed interest rate (AIR).

Front 112

All broker/dealer records are subject to FINRA investigator access at?

Back 112

Anytime

Front 113

Prior to or at the time a transaction is completed, a client must be sent a confirmation indicating?

Back 113

The price and number or securities bought or sold, Whether the member acted as a broker or dealer in the transaction, and If acting as a broker, the amount of the commissions charges.

Front 114

How long does a customer have to file for arbitration?

Back 114

6 Years. A RR cannot force a client to arbitrate. The client may force the RR for up to 6 years.

Front 115

To open an IRA with a broker/dealer, the client must complete?

Back 115

A new account form and an IRA adoption agreement (a IRA adoption agreement is sometimes known as a trust agreement).

Front 116

FINRA's Board of Governors get their authority from?

Back 116

FINRA Bylaws

Front 117

Regarding loans on Variable Life policies?

Back 117

The amount of a loan will be deducted from proceeds upon death, The effect of a loan on the cash value and benefits is permanent, An amount equal to the loan is transferred from the separate account to the general account where it will earns a much LOWER RATE of interest AND The insured may only borrow a certain percentage of the cash value (75%).

Front 118

To charge the full 8.5% sales charge, a mutual fund must offer?

Back 118

Breakpoints, Right of Accumulation and Dividend reinvestment at NAV per share.

Front 119

A defensive stock would normally have a beta of?

Back 119

Less than One. Defensive stocks have low risk, therefore a beta would be less than one.

Front 120

Mutual funds acting as distributors of fund shares under section 12b-1 SEC regulations must have their plan approved initially and re-approved at least annually by?

Back 120

Majority of the shareholders, Board of Directors of the fund and Unaffiliated members of the board.

Front 121

Fixed premium variable life offers?

Back 121

A guaranteed minimum death benefit and a fluctuating cash value.

Front 122

The annual fee for 12b-1 mutual funds charge a distribution fee that may not exceed?

Back 122

8.5%

Front 123

Civil penalties for violation of the Insider Trading Act of 1988 is?

Back 123

$1,000,000 or 300% of profits or losses avoided, whichever is more.

Front 124

A retail communication would include?

Back 124

Any written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. For example: A website, Seminar Text, or A market letter sent to 30 retail customers.

Front 125

Any client may contribute up to how much per year to a Coverdell ESA on behalf of beneficiary who is under age 18?

Back 125

$2,000. Also, the $2,000 limit does not count against the maximum for other IRAs.

Front 126

Advertising which states past rates of return on variable life policies must also state?

Back 126

1. Sales Charges 2. One, five and 10 year separate account performance and 3. Investment Objectives. (Investment options allowing clients to self direct their cash value into different sub- accounts within the separate account must be explained in the prospectus.)

Front 127

If a dollar has depreciated, a Japanese bank will be able to?

Back 127

Buy more dollars per yen.

Front 128

An RR must disclose the 12b-1 distribution fee to customers in the?

Back 128

Prospectus

Front 129

The Statement of Additional Information (SAI) of a fund must be given out?

Back 129

Upon REQUEST, It includes the fund's financial statements, It is more detailed than the summary prospectus.

Front 130

Net redemptions in a fund over a period of time will occur if?

Back 130

The value of the shares redeemed exceeds the value of the shares purchased. Net Redemptions = More money is coming out than coming in.

Front 131

The maximum sales charge on a single premium immediate variable annuity under FINRA rules is?

Back 131

Reasonable

Front 132

If a stock goes down in value, but its annual dividend stays the same. The stock's current yield will?

Back 132

Go up.

Front 133

Which security has the most financial risk?

Back 133

Common stock

Front 134

The easiest way for a corporation to raise short-term funds is to issue?

Back 134

Commercial Paper. Commercial paper is usually 9 months (270 days).

Front 135

Uniform Gifts to Minors Act (UGMA)?

Back 135

There may be only one minor and one custodian per account.

Front 136

Tax implication may result from?

Back 136

Automatic reinvestment of dividends, Exchanging from one fund to another in the same family without a sales charge and Realized appreciation on fund shares.

Front 137

If a fund does not offer all: Right to reinvest dividends, The Right of Accumulation, and Breakpoints for Quantity Purchases....the sales charge would be reduced to?

Back 137

6 1/4%

Front 138

The client assumes the investment risk on

Back 138

Variable Annuities, Variable Life Insurance, and Mutual Funds. NOT Fixed Annuities. The Insurance company bears the investment risk on fixed annuities, not the client.

Front 139

Closed End mutual fund IPOs may be sold with a prospectus with what license?

Back 139

Series 6

Front 140

To calculate the surrender value of a deferred annuity, you would need to know?

Back 140

The value of accumulation units next calculated (forward pricing).

Front 141

An early withdrawal prior to age 59 1/2 from a Traditional IRA would result in?

Back 141

Ordinary income taxes and a 10 % IRS Penalty.

Front 142

The Insider Trading Act of 1988 makes registered representatives liable for?

Back 142

Activities of others who receive inside information from the RR, The profits made from trading on inside information, The losses avoided by trading on inside information.

Front 143

Banks are not permitted to join FINRA because?

Back 143

Banks are not a member of FINRA but many banks do own subsidiary companies that may become FINRA member broker/dealers.

Front 144

On a mutual fund, the investment advisory fee is paid from?

Back 144

Operating income from the fund.

Front 145

Components of stockholder's equity in a corporation would be?

Back 145

Common Stock, Preferred Stock and Retained Earnings. All belonging to the shareholders.

Front 146

The form sent to the client after the trade date but before the settlement date is called the?

Back 146

Confirmation Form

Front 147

Under Federal Reserve Board Regulation T, when a customer does not pay by the end of the fifth business day and no extension has been granted, the broker/dealer must?

Back 147

Liquidate the trade. Sell out the securities to someone else. Freeze the customer's account for a least 90 days and charge any loss to the customer who failed to pay on time.

Front 148

When the amount of commission is disclosed on the confirmation, the trade was made as an?

Back 148

Agent

Front 149

Municipal GO bonds are backed by?

Back 149

The full faith and credit of the issuer.

Front 150

Growth portfolios have?

Back 150

Low yields, High Betas, High appreciation potential.

Front 151

Selling dividends are considered to be?

Back 151

Included in the price paid. It is best to buy on or after the ex-dividend date, since dividends are taxable and the price of the stock will be reduced by the amount of the dividend on the ex-date.

Front 152

Registered Representatives may never buy new issues?

Back 152

For their own account since they are considered to be restricted persons under FINRA.

Front 153

The type of underwriting agreement that requires that the entire issue be returned to the issuer if it is not all sold out is?

Back 153

All or none underwriting

Front 154

What may result in a tax implication for a client?

Back 154

Right of exchange and automatic dividend reinvestment. All dividends are taxable, even if re-invested.

Front 155

When the U.S dollar becomes stronger, it means?

Back 155

Foreign currencies may be exchanged for les dollars and U.S goods cost more abroad.

Front 156

Open-end funds and U.S Government savings bonds are?

Back 156

Not marketable, so they cannot be traded in the secondary market. They have to be redeemed instead of resold.

Front 157

Unit Investment Trust have?

Back 157

No management fee. No board of directors since their portfolio is often fixed and there is little to manage.

Front 158

The offering price for a closed end mutual fund depends on?

Back 158

What the clients are willing to pay (Supply and demand).

Front 159

T-bills have?

Back 159

12 months or less to maturity and Sold at a discount.

Front 160

Who are eligible for a tax qualified annuity (TSA)?

Back 160

Public School Teachers, University Professors and Public School Administrators. NOT University students.

Front 161

An investment company that is exempt from taxes if it passes through 90% or more of its net investment income to shareholders is a?

Back 161

"Regulated" investment company.

Front 162

SIPC covers?

Back 162

Cash and securities held for customers by insolvent broker/dealers. It covers the value of customers accounts up to $500,000 of which $250,000 may be in cash in the event a broker/dealer becomes insolvent. SIPC DOES NOT cover fraud or poor investments.

Front 163

You should invest in long term bonds when?

Back 163

Interest rates have been high but are expected to drop.

Front 164

A customer who is interested in tax-free income would invest in?

Back 164

A municipal bond.

Front 165

When you annuitize an immediate annuity?

Back 165

You are locked into lifetime payments and cannot change your mind. It is not suitable for short term.

Front 166

Growth or appreciation of the securities held in the fund's portfolio AS WELL as dividends and interest earned will cause what to increase?

Back 166

NAV

Front 167

Mutual fund transfer agent responsibilities consist of?

Back 167

Issuing fund shares, Canceling redeemed shares, and Disbursing distributions to shareholders.

Front 168

The custodian for a mutual fund is usually a?

Back 168

Commercial Banker.

Front 169

You inherit mutual fund shares upon the death of a relative, your basis is?

Back 169

Their value at your relative's death with no tax liability.

Front 170

The right of accumulation in an open end fund means?

Back 170

The fund will allow the client a break point on future purchases after the total value of shares purchased reaches a certain point. Once the value of your shares equals a break point, you will be able to buy additional shares at a reduced sales charge.

Front 171

Roth IRA's?

Back 171

All contributions are never tax deductible. All qualified distributions are tax free. Contributions are dependent upon earned income but not age. The maximum annual contribution is limited to $5,500.

Front 172

What is guaranteed on a variable life policy?

Back 172

Mortality expenses, Minimum Death Benefit, and Operating Expenses. NOT cash value.

Front 173

Upon annuitizing a NON-QUALIFIED Annuity, income will be taxed how?

Back 173

Part non-taxable and part taxed as ordinary income upon receipt.

Front 174

Fund shareholders have the right to?

Back 174

Vote to elect fund directors, To approve the investment advisory agreement and To approve any changes in the fund's investment objectives or policies. The board of directors always controls the timing of distributions NOT the mutual fund shareholders.

Front 175

Hypothetical illustrations on a variable annuity may be made?

Back 175

As long as past performance is not projected into the future. If they are based on an AIR, which is not guaranteed.

Front 176

Dividends may be paid in other than cash on what type of security?

Back 176

Common Stock

Front 177

New account forms must contain "suitability" factors such as?

Back 177

Name and address of employer, Investment Objectives, Social security or tax identification number, etc. The Beneficiary DOES NOT need to be on the new account form.

Front 178

The maximum amount eligible for FINRA simplified arbitration procedure is?

Back 178

$50,000

Front 179

The maximum penalty for FINRA minor rule violations is?

Back 179

$2,500 and censure. For major violations, the amount is unlimited and membership may be revoked or suspended.

Front 180

Joint Tenants with the Right of Survivorship include?

Back 180

Equal ownership, Ownership automatically passes to survivors upon death of a joint tenant and there may be two or more joint tenants.

Front 181

Ownership by Tenants in Common may be?

Back 181

Unequal and upon death, ownership passes to the estate of deceased tenant in common.

Front 182

On a Defined Benefit pension plan, the actuary would need to know?

Back 182

Employee's age, Employee turnover rate and the Projected earning of the plan. They would NOT need to know the Employee's risk tolerance.

Front 183

Deferred Compensation plans?

Back 183

Covered employees may lose their benefits if the company they work for becomes insolvent. Deferred compensation plans are usually not currently funded, so employees are general creditors and Deferred compensation plans may be set up to cover only highly paid employees. ERISA provisions is NOT required.

Front 184

If a corporation wants to offer its stock at a fixed price for an indefinite period of time into the future, it would issue?

Back 184

Warrants.

Front 185

Any rate of return more than zero will cause the value of accumulation units to?

Back 185

Increase

Front 186

A registered rep may sell interests in privately offered limited partnerships to clients if?

Back 186

The RR informs his broker/dealer prior to the transaction. The RR provides all documents and data as required by his broker/dealer.

Front 187

How long does mutual funds offer to reinvest due to emergencies?

Back 187

120 days

Front 188

Many mutual funds within the same family of funds, offer investors a conversion privilege which permits them to?

Back 188

Exchange shares of one fund for those of another fund under the same management, at NAV.

Front 189

If a distribution (dividend or capital gain) is paid out to a client in a given year, it must be reported on?

Back 189

That same year's tax return (At the time the distribution is made).

Front 190

Who has the authority to approve the investment adviser's contract with an open-end mutual fund?

Back 190

The Board of Directors of the fund.

Front 191

The term Management Company refers to?

Back 191

Non-diversified companies, Open-end companies and closed-end companies.

Front 192

The market value of a stock is determined by?

Back 192

Supply and demand (What people are willing to pay).

Front 193

When would be the best time for an investor to purchase long term fixed interest rate bonds?

Back 193

When long term rates are high and are starting to go down.

Front 194

The NAV per share of a mutual fund will vary relative to the?

Back 194

Value of the fund's portfolio.

Front 195

Mutual fund dividends are?

Back 195

The fund pays dividends from net investment income. Reinvested dividends are taxable.

Front 196

The market price of a closed end investment company is determined by?

Back 196

Supply and demand (What people are willing to pay).

Front 197

Clients would pay a commission, instead of a sales charge on?

Back 197

Shares of a closed-end fund sold in the secondary market. New issues (primary offerings) NEVER have a commission, new issues have a sales charge.

Front 198

What is the maximum sales charge on a variable annuity?

Back 198

There is no maximum. It should be reasonable.

Front 199

Variable annuity?

Back 199

Offers variable monthly payments. A variable annuity is a hedge against inflation risk.

Front 200

What factors determine the pay-out from a variable annuity?

Back 200

Age and sex of the annuitant, Mortality experience of the insurance company, The rate of return in the separate account. (Variable annuities are NOT subject to insurability).

Front 201

When a client withdrawals part of the money from a Traditional IRA after age 59 1/2?

Back 201

There is no penalty. The amount withdrawn is subject to tax as ordinary income.

Front 202

When selling shares of open end investment companies, the prospectus?

Back 202

Must be delivered before or during the face-to-face sales presentation. (On unsolicited sales, the prospectus must be given out no later than the confirmation, which is the day after the trade date.)

Front 203

What mutual fund service must be offered continually to its shareholders?

Back 203

Transferring ownership of shares. (Transferring ownership of shares applies to open end and closed end shares. Open end funds only continuously offer new shares. Closed end fund DO NOT allow to exchange shares within the same family, but open end does allow for an exchange.

Front 204

The exchange or conversion privilege offered by some mutual funds that are in the same family refers to the right of?

Back 204

Converting fund shares to a different fund within the same family without paying a sales charge.

Front 205

The NAV of a mutual fund must be calculated at least?

Back 205

Daily

Front 206

Regarding sales charge?

Back 206

Mutual fund sales charge may not exceed 8.5% of the OFFERING PRICE according to FINRA rules. To charge the full 8.5%, funds must offer the right of accumulation, breakpoints and reinvestment of dividends at NAV. According to the Investment Company Act of 1940, the maximum sales charge for purchasing a contractual plan is 9%.

Front 207

A variable annuity contract guarantees?

Back 207

A fixed maximum mortality expense factor, A fixed maximum administrative expense factor. A variable annuity does NOT guarantee a rate of return or an AIR.

Front 208

General Obligation bonds are?

Back 208

Backed by the taking power of the municipal government, (Backed by the full faith and power)They are second only to U.S government securities in safety. They are very safe.

Front 209

In a non-qualified variable annuity, the annuitant bears?

Back 209

The investment risk. (Insurance companies bear the investment risk on fixed products).

Front 210

When calculating the investment performance of a separate account, you would take into account?

Back 210

Realized capital gains, Unrealized capital gains, and Dividend Income.

Front 211

Corporate bonds are issued in standard denominations of?

Back 211

$1,000

Front 212

SIPC covers different accounts separate up to $500,000 ($250,000 cash) if they are in?

Back 212

Different names. If the separate accounts were in the same exact name, there would only be single coverage.

Front 213

Reductions (break points) in the maximum sales charge for investment company shares may be made available under?

Back 213

An investor purchases a substantial dollar amount of shares. An investor elects to reinvest income dividends. Shares are purchased by a trustee for a company pension plan. (Members of Investment Clubs are not eligible for reductions "break points").

Front 214

An open end investment company may?

Back 214

Borrow Money. Lend Money. Buy call option contracts. (Open end companies MAY NOT issue preferred stocks or bonds "Only closed end companies can").

Front 215

Current yield and yield to maturity on bonds?

Back 215

Move in the same direction.

Front 216

Reinvested Capital gain distributions, Distributed Capital Gains and Reinvested Income Dividends are?

Back 216

All taxable as taxable income.

Front 217

Per UGMA account?

Back 217

There should be only one custodian and one minor per account.

Front 218

When a client chooses to have fund shares distributed to her using a fixed time withdrawal plan?

Back 218

They will receive a variable number of dollars for a fixed amount of time.

Front 219

The exchange period for converting a variable life policy into a whole life policy must be for a period of not less than?

Back 219

24 months (2 years)

Front 220

Variable life policies contain what length of a free look period?

Back 220

45 days. This will allow a full refund of all moneys paid. After the 45 day free look period "Current cash value plus all sale charges will be deducted in excess of 30% of the premium in the first year and 10% of the premium in the second year.

Front 221

The maximum sales charge allowed on a variable life policy (or a variable annuity) is?

Back 221

A reasonable sales charge.

Front 222

When establishing a KEOGH plan, the plan must include?

Back 222

All full-time employees with at least one year of service. Must be 21 or older as well.

Front 223

The three types of investment companies are?

Back 223

Management companies, face amount certificate companies and Unit Investment Trust.

Front 224

Management companies are?

Back 224

Diversified companies, Open end Companies and Closed end companies. (Unit Investment Companies are not a management company).

Front 225

When referring to retirement plans, the words "non-qualified" mean?

Back 225

Plans not approved by the IRS, Plans under which employers may discriminate on type of employees to be covered. Plans where employers do not establish vesting schedules. (Non-qualified plans do NOT offer tax deductible contributions and tax deferred growth or comply with ERISA).

Front 226

For an owner to be paid a dividend, his name should be recorded on the stock record book of the issuer's transfer agent by the?

Back 226

Record date

Front 227

What can be used to fund an IRA?

Back 227

Mutual funds, Variable annuities, Fixed annuities. (Ordinary life insurance may NOT, any Life insurance in general may NOT).

Front 228

A person has to have _______ __________ to fund a IRA.

Back 228

Earned Income

Front 229

ROTH IRAs are?

Back 229

Available to anyone with earned income, regardless of age. Qualified distributions are tax free. All contributions are NEVER tax deductible. There is a 10% penalty for non-qualified distributions taken under age 59 1/2.

Front 230

Only employees of non-profit organizations, such as public school teachers, school district employees and employees of religious affiliates (such as a Minister) or charities are?

Back 230

Eligible for TSAs.

Front 231

Clients may make early withdrawals from IRA plans without penalty if?

Back 231

They die or become disabled.

Front 232

A client has how long to roll over a pension plan into an IRA without penalty?

Back 232

60 days (60 days "roll over")

Front 233

What age do you have to begin withdrawing funds from a Traditional IRA or KEOGH?

Back 233

No later than April 1st of the year after you attain age 70 1/2.

Front 234

You cannot sell what type of bonds, they must be redeemed?

Back 234

Savings Bonds (Series EE and I savings bonds).

Front 235

Who sets the record date, declaration date, ex-dividend date and payable date?

Back 235

The board of directors. (FINRA sets the "ex-date" ((Not the ex-dividend date)) , which is two business days prior to the record date).

Front 236

Who sets the ex-dividend date on a mutual fund?

Back 236

The board of directors.

Front 237

Simplified Arbitration procedures limit the amount subject to arbitration between customers and registered representatives to?

Back 237

$50,000. Larger disputes over $50,000 must go through full arbitration.

Front 238

Regarding the Code of Arbitration Procedure?

Back 238

Arbitration is binding. Registered Representatives and Firms must Arbitrate. Members MUST arbitrate. Customers may be required to sign a pre-dispute arbitration agreement.

Front 239

What type of security is issued with the shortest expiration date?

Back 239

Rights. They expire within 30 days. They are worthless once they expire.

Front 240

The type of stock that may receive an extra dividend, if declared would be?

Back 240

Participating Preferred.

Front 241

Who sets Monetary policy?

Back 241

The Federal Reserve Board. For example (the discount rate).

Front 242

Who sets Fiscal Policy?

Back 242

Congress. For example a change in Tax Law.

Front 243

Regulation T requires?

Back 243

The account to be frozen. A sell-out to occur. Cash transactions for 90 days. (Regulation T does NOT require the account to be closed).

Front 244

Characteristics of aggressive growth portfolios are?

Back 244

Beta factor of more than one, Low yields, and aggressive growth portfolios have Low Dividend. Usually they don't have any dividends.

Front 245

Who is eligible for a TSA?

Back 245

College teachers, Nurses at a non-profit hospital, Employees of charities. (College students are NOT eligible for a TSA).

Front 246

In an attempt to increase the money supply, the Fed is pursuing a "loose money" supply. This should cause the current yield on bonds to?

Back 246

Decrease. Yield will decrease and bonds will go up in value (bonds would increase).

Front 247

Interest earned on what type of security is exempt from federal taxes?

Back 247

Municipal bond is tax free (tax exempt). However, capital gains are taxable.

Front 248

During times of inflation, what type of stock appreciates the most?

Back 248

Common Stock

Front 249

Unsecured Corporate debt is called?

Back 249

Debenture. A Debenture is the most risky type of bond.

Front 250

A short-term security issued by a corporation is called?

Back 250

Commercial Paper

Front 251

A Series 6 license will allow a person to sell?

Back 251

Open end mutual funds, Variable annuities, and Closed end funds with a PROSPECTUS.

Front 252

Exchange listed securities are to be sold?

Back 252

OTC when the exchanges are closed.

Front 253

Trading on Inside Information?

Back 253

Prohibits using inside information to make profits or avoid losses. The Insider Trading Act of 1988 increases the civil penalties to 300% of profits or losses avoided, or $1,000,000, whichever is more.

Front 254

Long term capital gains occur when you sell a stock that you held for more than?

Back 254

12 months

Front 255

Short-term capital gains occur when you sell a stock you held for?

Back 255

12 months or less

Front 256

The ask price or public offering price (POP) of an open end investment company, when you buy mutual fund, includes?

Back 256

The sales charge or load and the pricing formula must be disclosed in the prospectus.

Front 257

If the ask price of a fund is less than the NAV, it must be a?

Back 257

Closed end fund. Closed end funds trade in the secondary market and prices are set by supply and demand so it is possible for the ask price to be higher or lower than the NAV.

Front 258

The expense ratio of a mutual fund includes?

Back 258

12b-1 distribution fees, if any, Investments Advisory Fees, and Operating Expenses. (The sales charge is subtracted from the ask price NOT from the investment income "Expense Ratio."

Front 259

The Investment Advisory Fee is paid out of the?

Back 259

Investment Income

Front 260

A prospectus is required when selling?

Back 260

Variable annuities, Variable Life, and Mutual Funds. (A prospectus is not required when selling Fixed Annuities because fixed annuities are not securities and only a life insurance is needed).

Front 261

On a variable life insurance?

Back 261

The premium is fixed, The death benefit may vary above the minimum.

Front 262

An annuity that offers the annuitant a designated payment amount will have what type of pay out?

Back 262

Fixed amount for a variable time. For example: (A fixed annuity will have level monthly payments for as long as the annuitant lives, which is a variable time).

Front 263

An investor who owns shares of a mutual fund actually owns?

Back 263

An undivided interest in the fund's portfolio. In other words: (A mutual fund investor owns a proportionate, undivided interest in the whole portfolio, which is known as mutuality).

Front 264

The maximum sales charge that can be levied on a spread load contractual plan over the first 48 months is?

Back 264

16%

Front 265

An investment company that has no board of directors and issues redeemable securities backed by a portfolio of specified securities is known as a?

Back 265

Unit Investment Trust. UITs are not mutual funds and they have no board of directors (management), no management fee.

Front 266

Mutual funds make capital gain distributions?

Back 266

Annually

Front 267

Dividends are paid?

Back 267

Quarterly

Front 268

What is subject to taxes?

Back 268

Capital gain distribution, Reinvested dividends, Exchange with the same family or complex of funds. (A Return of Principal would not have any taxes.

Front 269

Doing a cash surrender after age 59 1/2 would result in?

Back 269

No penalty and the higher amount will be taxed as ordinary income upon withdrawal.

Front 270

Yields will go up on a secondary market bond if?

Back 270

Interest rates in the economy go up. Bond market prices go down. (If Interest rates go up, yields will go up).

Front 271

Money Market funds mature in one year or less and would be suitable for?

Back 271

Negotiable certificates of deposit, Treasury Bills, and Banker acceptances. (Not Bonds)

Front 272

The interest paid by U.S Government securities are subject to?

Back 272

Federal taxes and exempt from state taxes.

Front 273

What date is the market price of a mutual fund reduced by the amount of a dividend?

Back 273

Ex-dividend date

Front 274

When must a mutual fund Statement of Additional Information be given out?

Back 274

Upon request.

Front 275

Regulation T requires mutual fund purchases to be paid for no later than?

Back 275

Five business days.

Front 276

If interest rates decrease?

Back 276

Money market funds would have lower yields. Common stock funds would appreciate. (The stock market usually goes up when interest rates are lowered).

Front 277

The Federal Reserve may purchase a "loose" or "easy" money policy by?

Back 277

Lowering the "federal funds" rate charged to banks that borrow.

Front 278

Closed end funds may be sold with a Series 6 license only in the?

Back 278

Primary market. (Shares of an open-end fund investment company may be sold with a Series 6 license).

Front 279

An investment banker buys all the shares of a new issue of stock from the issuer with the intent to resell them to the public at the POP. This is a?

Back 279

Firm Commitment. A firm commitment is when the underwriter knows that he can resell the stock at the public offering price.

Front 280

The least amount of information regarding a mutual fund would be found in?

Back 280

An online quote. (A Statement of Additional Information would have more information than a online quote).

Front 281

Safe-keeping of the securities in a mutual fund portfolio is the responsibility of the?

Back 281

Custodian. (Usually a commercial bank who charges a Custodial Fee).

Front 282

What would not be considered to be an asset?

Back 282

Unused Line of Credit. (If used, it would be a liability). (Cash, Fully paid securities, Home would be all assets).

Front 283

Zero coupon Bonds are?

Back 283

Sold at a discount, They may be traded in the Secondary Market, Interest in taxable each year but paid at maturity. They don't pay interest until maturity.

Front 284

Closed End Funds are?

Back 284

Do not continuously redeem shares held by investors, They are usually capitalized through a one time public offering, and After the initial offering, trading in shares may take place on an exchange or in the OTC market.

Front 285

Unsecured corporate debt is know as a?

Back 285

Debenture

Front 286

A municipal security backed by the full faith and credit of the issuer is a?

Back 286

General Obligation Bond

Front 287

Regarding rollovers of one qualified plan to another qualified plan?

Back 287

They must be made within 60 days of a distribution to avoid taxes, There is no limit on the amount that may be rolled over, They may be made once a year.

Front 288

When a client is a retired individual who requires current income. What would be suitable?

Back 288

A growth and income fund, A bond fund, A balance fund. (A special situation fund "sector fund" would be NOT suitable for a client requiring current income because they are risky and generate little or no income).

Front 289

On qualified plans, the word "vesting" refer to?

Back 289

Ownership of the employer's contributions by the employee after a period of time. Any employee contributions are vested immediately.

Front 290

Clients usually purchase a variable life insurance policy because?

Back 290

Appreciation. (Variable life contracts invest the client's cash value in a separate account, appreciation may occur but there is no guarantee).

Front 291

When the value of your mutual fund shares increases above what you paid for them, it is known as?

Back 291

Growth. (However, if you redeem your shares at an appreciated price, the resulting "capital gain" will be taxable).

Front 292

FINRA may?

Back 292

Bar you from the securities business, Bar you from working for a broker/dealer in any capacity, Fine you more than $25,000. (FINRA can NOT bar you from opening your own account).

Front 293

When you buy shares, you pay?

Back 293

The ask price.

Front 294

When you redeem shares, you receive the?

Back 294

Bid (or the NAV).

Front 295

An affiliated person of a broker/dealer would have to disclose?

Back 295

Conviction of any felony, Securities fraud, Having been charged with the unlawful taking of property (stealing), Bankruptcy.

Front 296

When a client is near the breakpoint, what can you do to help them reach the breakpoint?

Back 296

Have them sign a letter of intent.

Front 297

SIPC covers?

Back 297

Investors of a defunct firm. (Covers investors of an insolvent broker/dealer. SIPC does NOT cover mutual fund accounts). Coverage is $500,000 per separate customer, of which $250,000 may be in cash.

Front 298

Variable Annuities?

Back 298

A prospectus is required, The investor bears the investment risk, There is no guaranteed rate of return, They have to follow state regulation.

Front 299

What happens when the annuitant dies during the accumulation period?

Back 299

The minimum death benefit or value of the account is paid to the beneficiary, but may be subject to tax above cost basis.

Front 300

A mutual fund sales charge is best defined as the?

Back 300

The difference between what the client pays and the issuer receives. (The sales charge is added to the NAV. NAV + sales charge equals the ASK price. The maximum sales charge is 8.5 % of the ask price).

Front 301

The term Net Asset Value also means?

Back 301

Bid or Redemption price. (They all have the same meaning).

Front 302

Buying units during the accumulation period of a flexible premium variable annuity will result in?

Back 302

A variable number of units with varying prices.

Front 303

The sales charge on an open-end mutual fund?

Back 303

Is a percentage of the ASK price. It is a nonnegotiable amount stated in the prospectus based on the amount of purchase. It is sometimes called the load or spread. (It's never the bid price).

Front 304

When buying open-end fund shares, you would typically buy from?

Back 304

Transfer agent. Fund to the transfer agent to you. (The transfer agent of the open-end fund keeps track of who own the shares, so when you buy new shares, the fund would direct the transfer agent to register them in your name and send them to you).

Front 305

Fund net redemptions over a period of time may cause?

Back 305

The fund to liquidate portfolio securities they wanted to hold, A capital gain tax implication to redeeming investors, The total NAV of the fund to drop. (The NAV per share would NOT drop from fund net redemptions).

Front 306

What is not suitable for a retired individual interested in preservation of capital along with current income, but with limited risk.?

Back 306

Limited partnerships, (DPPs), Precious metal funds, Small cap stock funds. (Very risky).

Front 307

A client who is interested in preservation of capital and current income, but with limited risk would be suitable for?

Back 307

60% long term bond funds; 40% large cap stock funds.

Front 308

A asset allocation that is aggressive would be?

Back 308

50% growth stocks, 30% small cap stocks, 20% foreign stocks. (Risky investments, such as growth stocks are considered to be very aggressive).

Front 309

A retiree who need to supplement their retirement income, but is worried about conserving principal would be suitable for?

Back 309

30% stocks; 60% bonds; 10% cash.

Front 310

A client who has a moderate risk tolerance who also wants current income and want to retire within 20 years would be most suitable for?

Back 310

60% stocks, 30% bonds and 10% cash.

Front 311

If you are recommending stocks with a good dividend history, your customer's investment objective is ?

Back 311

Income. (Blue chip stocks have a history of paying dividends, also known as value stocks).

Front 312

ROTH IRAs?

Back 312

Contributions are NEVER tax deductible. Distributions do not have to begin at age 70 and 1/2. Qualified distributions are not taxable. Direct contributions may be made by anyone with earned income under the current year's threshold, regardless of age.

Front 313

Traditional IRAs?

Back 313

Contributions are NEVER tax deductible. They may be "rolled over" to a Roth IRA without any tax implications. Children are ineligible. They are available to anyone who has unearned income under age 70 1/2.

Front 314

Coverdell ESAs?

Back 314

Contributions to Coverdell ESAs are NOT tax deductible. Anyone can contribute on behalf of beneficiaries who are under age 18. The maximum contribution is $2,000 per year per beneficiary. Qualified Distributions are not taxable to student beneficiaries.

Front 315

You cannot exchange an annuity for a?

Back 315

Life insurance policy. Because you would be better off tax wise since proceeds of a life insurance policy are tax free to a beneficiary, but annuity payments left to a beneficiary are taxable beyond the annuitant's cost basis.

Front 316

Exchanges?

Back 316

The contracts exchanged must be owned by the same person. The exchange of contracts may be made with the same insurer or with a different issuer. The exchanges cannot put the client in a better overall tax position. Taxes are deferred until the second contract is surrendered or annuitized.

Front 317

What tax is considered to be regressive?

Back 317

Sales tax. (Since everyone, rich or poor, pays the same rate).

Front 318

What stock will probably have a low beta factor?

Back 318

Public Utility Stocks. (They have a less risk than the market as a whole).

Front 319

Treasury Strips?

Back 319

They are issued by securities firms, They are also known as zero coupon securities. They are sold at a discount from par. (They are NOT issued by the US Government.

Front 320

You can buy shares of an open ended mutual fund from the?

Back 320

Underwriter, Broker/dealer, Investment Company. (You may not buy shares of an open end mutual fund from the custodian). "The custodian safeguards the portfolio of the fund, but does not sell shares."

Front 321

Where is the most suitability information regarding your client found?

Back 321

New Account Form

Front 322

Federal registration as an Investment Adviser is required when an adviser manages mutual funds or accounts with assets of how much?

Back 322

$1,000,000 or more.

Front 323

The telephone Consumer Protection Act of 1991 permits phone solicitation only between the hours of?

Back 323

8:00am and 9:00pm in the time zone where the party being called is located. (A RR may NOT participate in a 24-hour telephone solicitation hot line .....obviously not).

Front 324

What is the maximum sales charge that can be levied during the first 12 months of a periodic payment contractual plan?

Back 324

50%

Front 325

When redeeming shares of a fund with a back end load (contingent deferred sales charge), the sales charge is based upon?

Back 325

NAV at purchase or NAV at redemption, whichever is less.

Front 326

What is needed when calculating the expense ratio of a fund?

Back 326

Custodial fee, Investment Advisory fee, Transfer agent fee. (Note: the sales charge is NOT an expense of the fund).

Front 327

What type of security might pay a dividend in stock?

Back 327

Common stock.

Front 328

Mutual funds and variable life are very similar in that the both have?

Back 328

Prospectus requirements, Separate accounts, Management fees. (However, they both have different tax implications. Variable life has better tax treatment compared to mutual funds).

Front 329

If John Smith gives a gift of fund shares to his son, John Jr., and appoints his brother Robert Smith as custodian. Shares should be registered to?

Back 329

Robert Smith, for the benefit of John Smith Jr.

Front 330

Treasury Bills, Rights and Commercial Paper all trade in the?

Back 330

Money market. Because they all mature in one year or less. (For example: US Government T-bonds trade in the capital market because they mature in 30 years, If it matures in over one year, it trades in the capital market).

Front 331

Who sets the record date on a mutual fund?

Back 331

The Fund Directors. (FINRA only sets the ex date on stocks). The board of directors (fund directors) sets the ex-dividend date.

Front 332

A mutual fund may delay a request for redemption due to?

Back 332

An order from the SEC, The NYSE suspends trading, The NASD OTC market suspends trading. (A mutual fund may NOT delay a request for redemption based upon a decision of the fund manager or adviser).

Front 333

A bond that is backed by user fees is a?

Back 333

Revenue bond. (Municipal bond). Such as the users of a toll road or a bridge.

Front 334

A client who pays late on Regulation T?

Back 334

His account is frozen, Credit may not be extended for 90 days, He may continue to make purchases for cash only. (His account will remain open).

Front 335

To offset a recession, the government will?

Back 335

Lower the federal funds rate, lower the discount rate, lower reserve requirements. (To offset a recession, the government wants to put more money back into circulation, which has the effect of lowering interest rates. "THE GOVERNMENT WOULD NOT RAISE TAXES.")

Front 336

To discourage inflation, the government may?

Back 336

Raise the reserve requirements, Increase the federal funds rate, Raise Taxes. (They would NOT repurchase government securities).

Front 337

Money market funds invest primarily in short term instruments. The investment manager to this type of fund would have a primary concern of?

Back 337

Purchasing Power Risk. (Investors in money market funds expect a rate of return that meets or exceeds the rate of inflation).

Front 338

An investor in an intermediate bond fund would like to take on slightly more risk. What would you recommend?

Back 338

Balanced fund

Front 339

Securities Investor Protection Corporation (SIPC)?

Back 339

Does not cover cash accounts , Does not insure against issuer default. Mutual funds are not covered by SIPC.

Front 340

A mutual fund custodian?

Back 340

Safeguards the physical assets of the fund. Receives interest and dividends from portfolio securities. Performs payable and receivable functions on portfolio securities transactions.

Front 341

Projections on future income on variable products are?

Back 341

Not permitted. (Investment performance illustrations may not imply that gains or income realized in the past will be repeated in the future). However, hypothetical illustrations of mathematical principles are not considered to be projections of performance and are allowed.

Front 342

What is guaranteed on a variable life contract?

Back 342

The minimum death benefit (face amount) is guaranteed.

Front 343

When you die during the accumulation period of a variable annuity, the cash value or minimum death benefit?

Back 343

Goes to the beneficiary.

Front 344

The expense guarantee on a variable annuity means that?

Back 344

Expenses cannot exceed a certain specified maximum amount. (Variable annuities offer two guarantees. First, the expense guarantee says that is insurer expenses increase above a certain specified maximum, those additional expenses may not be passes on to the client. Second, the mortality guarantee states that if annuitants live longer than expected, that increased cost cannot be passed on to clients.

Front 345

The effects of policy loans on a variable life consists of?

Back 345

The loan could cause the policy to lapse. The loan will permanently reduce the amount of accumulated cash value. The loan will reduce the amount payable at death. (The cash value will NOT continue to ear the investment rate in a separate account with a policy loan open).

Front 346

An open end mutual fund has a NAV of $18.50 and an ASK rice of $20.00. What is the sales charge as a percentage of the offering price?

Back 346

7.5%. The sales charge is always calculated as a percentage of the ASK price. First, find the sales charge in dollars by subtracting the NAV (or BID) price from the ASK price, which is $1.50. Then, divide $1.50 (which is also known as the spread) by the ASK of $20.00 to find the sales charge of 7.5%.

Front 347

Muni bonds backed by user fees are?

Back 347

Revenue bonds

Front 348

T-Bills are?

Back 348

Sold at a weekly auction at discount. They are direct obligations of the U.S Government. Interest is subject to federal tax. They trade in the money market because they mature in one year or less.

Front 349

What is true when an investor sells a Muni bond (Revenue bond) for more than their cost basis?

Back 349

Any gain is taxable as a capital gain in the year of the sale.

Front 350

Capital distributions from a mutual fund?

Back 350

Capital gain distributions may only be made annually (once a year), Capital gain distributions are taxable whether automatically reinvested or not, the investor has no control over the timing of the distribution.

Front 351

Mutual funds must send what type of financial reports to shareholders?

Back 351

A semi-annual report and an annual report. (Mutual funds shareholders must receive two financial reports from the fund every year. Shareholders receive both a semi-annual report that includes unaudited financial data and the annual report that includes audited financials.

Front 352

What is true about a mutual fund that invests only in Muni bonds?

Back 352

Capital gains are taxable, Dividends paid are not taxable at the federal level.

Front 353

An annuitant who annuitizes a variable annuity would receive the highest monthly payments by selecting which pay out option?

Back 353

Life Income (Because the insurer "insurance company" keeps the money if the client dies").

Front 354

A 41 year old annuitant surrenders a non-qualified variable annuity for cash. What would be the tax implications?

Back 354

The earnings (not the entire amount) are taxable as ordinary income and are subject to a 10% IRS penalty.

Front 355

What is true about the tax implications of variable life insurance?

Back 355

Death benefits payable to a beneficiary are not taxable, Loans are taxable as capital gain, Upon death, the proceeds are included in the value of the insured's estate, Amounts received upon cash surrender are taxed.

Front 356

A Registered Rep does not have to notify their employing broker/dealer if they engage in?

Back 356

Receiving income from a trust that they do not control. (They do NOT have to not

Front 357

Interest on Muni bonds is exempt from?

Back 357

Federal tax. (Interest on Muni bonds is exempt from federal income tax, but not necessarily state and local taxes. For example, if you live in Arizona and buy a Muni bond issued in California, you will have to pay Arizona State income tax in the interest. However, if you live in Arizona and buy an Arizona Muni, interest is exempt from federal, state and local taxes.

Front 358

On a variable life insurance policy, the insurer may subtract all of the following expenses from the separate account?

Back 358

Administrative expense fee, Mortality expense fee, Management fee. (The insurer of a variable life policy may NOT subtract the Sales Charge or Commission).

Front 359

Taking cash surrender on a variable life policy will result in?

Back 359

Ordinary income tax to the extent of the gain. (Taxable income generated to investors on all insurance products, including annuities, is always taxed as ordinary income, NOT capital gain).

Front 360

Mutual fund investors share proportionately in portfolio gains and losses, which is known as?

Back 360

Mutuality. (Mutual fund investors have an undivided proportionate interest in portfolio gains and losses, which is called "mutuality." Systematic risk is the risk of the market overall and cannot be avoided, even by diversification or spreading the risk. Dollar cost averaging is a strategy that requires investors to invest a fixed amount periodically over a period of time, although it does not guarantee profits).

Front 361

Who may change the investment objective of a mutual fund?

Back 361

Fund directors and majority vote of the shareholders. (The fund's shareholders and board of directors must approve any change in the fund's investment objectives, such as from a growth fund to an income fund).

Front 362

When long term interest rates change, the price of which securities trading in the secondary market will be most affected?

Back 362

Long term bonds. (The longer the term to maturity, the greater the risk to bondholders, so bonds with longer terms to maturity experience greater fluctuations in price, or volatility, when interest rates change.

Front 363

A mutual fund custodian is responsible for?

Back 363

Safeguarding the physical assets of the fund. Paying for portfolio transactions made by the fund. Receiving interest and dividends on portfolio securities. For example a custodian for a UGMA account. (Disbursing dividend and capital gains distributions to shareholders is the responsibility of the Transfer Agent).

Front 364

Which investment is least suitable for a retired school teacher with a conservative risk tolerance?

Back 364

High Yield bond fund. (High yield bonds (also known as junk bonds) are very risky since they are usually issued as unsecured debentures. They have high yields since they have low safety ratings).

Front 365

A capital gain occurs?

Back 365

Whenever a mutual fund shares are redeemed for more than their purchase price. (A capital gain occurs when you sell a capital asset, such as stock, bonds or mutual fund shares, for more than you paid. However, if you sell the asset for less than you paid, a capital loss will occur. Unrealized gain or appreciation is NOT taxable, since you have NOT yet sold the security.

Front 366

A Registered Principal must approve?

Back 366

All New accounts, Seminar scripts and Retail Communications (including advertising material and seminar scripts). Your Registered Principal must REVIEW all correspondence. ((A Registered Principal must NOT approve a Mutual fund prospectus. Since the prospectus must be published by the fund in accordance with standards contained in the Securities Act of 1933 and related SEC and FINRA rules and regulations.

Front 367

What should a registered representative advise a new client who is a student with only $1,000 in savings and $15,000 in student loans?

Back 367

He should build up his financial reserves before investing. He may have to liquidate his investment if an emergency occurs.

Front 368

Non-qualified retirement plans?

Back 368

They are also known as deferred compensation plans. They may be discriminatory in nature. Employees are considered to be general creditors. Non-qualified plans DO NOT have to comply with ERISA concerning vesting, non-discrimination and eligibility. (Non-qualified plans are somewhat risky because most are unfunded and if the employer goes broke, the employee is treated as an unsecured creditor at the bankruptcy proceeding).

Front 369

A client tells you that they want to buy fund shares just prior to the ex-date so they can receive the dividend. You should advise them that?

Back 369

The dividend they will receive is included in the price they will pay. The price of the shares will be reduced by the amount of the dividend on the ex-date. They might be better off to wait, since dividends are taxable. (Advising a client to buy just prior to the ex-date in a violation and known as selling dividends).

Front 370

All of the following are considered to be non-cash compensation for registered representatives?

Back 370

Travel expense, Gifts, Season tickets for a major sports team. (Educational meeting expenses would NOT be considered a non-cash compensation and are exempt from this limitation. Furthermore, RRs may NOT give gifts to customers).

Front 371

Your client likes mutual funds, but is unhappy with the funds she already owns. When discussing her options which of the following is the least important item of consideration?

Back 371

Taxability of distributions. (All mutual fund distributions are taxable, so that is the item of least importance. "The client would want to consider the sales charge, 12b-1 fee and the most important is the investment objectives").

Front 372

Stocks sold in the OTC market?

Back 372

They are handled by securities dealers who are also known as market makers. Prices are subject to negotiation. The narrower the spread, the more active the stock. The exchanges are known as "auction" markets. "It is NOT sold at the auction price."

Front 373

The offering price of an open mutual fund is determined by?

Back 373

A formula disclosed in the prospectus. (The pricing formula is NAV plus SALES CHARGE equals the ASK price. Whenever the NAV (or bid) price changes, so does the ASK price.

Front 374

Warrants are attached to?

Back 374

Bonds. (Rights are NOT attached to bonds).

Front 375

All are true about rights?

Back 375

They are short term. They may be exercised or sold prior to their expiration. They allow investors to buy more stock in proportion to what they have. (Rights are not attached to bonds, Warrants ARE attached to bonds).

Front 376

When selling variable life insurance, registered representatives must give clients?

Back 376

Variable Life Prospectus AND a Investment Company Prospectus. (One prospectus will go to the variable life account and the other prospectus will go to the Unit Investment Trust.

Front 377

What is true about a 529 college savings plan?

Back 377

Contributions are not tax deductible, but earning are tax deferred. Qualified distributions are tax free. Accounts may be opened for anyone. The majority of states set a maximum limit of $200,000 per student. Tax deferred earnings withdrawn from 529 plans to pay for qualified education expenses are free from federal income taxes, but contributions are NOT taxable. Earnings for non-qualified purposes are taxable as ordinary income and are subject to a 10% IRS penalty.

Front 378

A client considering buying an open end mutual fund is confused by a quotation of $10 BID - $10.87 ASK, with a sales charge of 8%. What can you tell him?

Back 378

The sales charge is calculated as a percentage of the ASK price, not the BID price. (Open end mutual fund sales charges are calculated as a percentage of the ASK price, not the BID or NAV. To verify, find the difference between the BID and the ASK, which in this case is $.87. Next, divide the sales charge of $.87 by the ASK price of $10.87 to find the sales charge or load is actually 8%.

Front 379

You will receive a mutual fund dividend if you own shares on which of the following dates?

Back 379

Record Date. (On mutual funds, the ex-dividend date is set by the board of directors and is usually the day after the record date, so if your name is reflected as the owner of the shares on the record date, you will get the dividend.

Front 380

Grandparents with a combines adjusted gross income (AGI) of $125,000 wants to set up a Coverdell ESA (Educational Savings Account) on behalf of their grandchild. What is true regarding this?

Back 380

The grandchild must be under age 18. (The account may be opened for any student who is under age 18. The maximum annual contribution limit is $2,000 per beneficiary. ESA contributions are not tax deductible, but, like a ROTHIRA, amounts deposited grow tax free until withdrawn. Withdrawals are also tax free to the client that the amount of the withdrawal does not exceed the beneficiary's qualified education expenses. To contribute to an ESA a person does not have to have earned income, but there are upper income limitations. If your modified adjusted gross income (MAGI) is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. Total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. Account assets must be used before the student reaches the age of 30.

Front 381

Municipal general obligation bonds are backed by?

Back 381

The full faith and credit of the issuer. ("Muni revenue bonds are backed by user fees").

Front 382

Which type of annuity uses accumulation units?

Back 382

Single premium deferred and Periodic payment deferred. (Immediate annuities do NOT use accumulation units).

Front 383

Advantages offered by mutual funds include?

Back 383

There is NO liquidity risk since the fund must redeem shares within 7 calendar days. The fund's portfolio is professionally managed. The fund's portfolio is safeguarded by an independent custodian. (SIPC does NOT provide coverage for the fund portfolio. SIPC covers customers accounts held by insolvent broker/dealers. The mutual fund portfolios must be held by an independent custodian.

Front 384

What is true about a portfolio of convertible bonds?

Back 384

The bonds are senior to a portfolio of preferred stocks. The yields of convertible bonds will be lower than on a portfolio of comparable non-convertible bonds. They are convertible into common stock of the same issuer at the discretion of the bond holder. Downside risk is hedged by the value of the common stock the bonds are convertible into.

Front 385

Common dividends would be paid?

Back 385

Last in line to receive their distributions.

Front 386

ADRs (American Depository Receipts are?

Back 386

Receipts for the shares of a foreign corporation held in trust by a U.S bank that entitles the owner to all the dividends and capital gains distributed by the foreign corporation. They are used to facilitate trading of foreign securities in this country. (ADRs is NOT a U.S Government or Agency security).

Front 387

What are examples of U.S Government or Agency securities?

Back 387

T-bills, Series EE bonds, GNMAs

Front 388

The maximum maturity of commercial paper is?

Back 388

270 days (Commercial paper trades in the money market and represents short term borrowing of U.S Corporations). It is exempt from the SEC registration.

Front 389

Which of the following cannot be traded in the OTC market? Exchange listed stock. Series EE bonds. Closed end mutual funds. Corporate bonds.

Back 389

Series EE bonds. Series EE bonds are non-marketable, meaning they cannot be traded in the secondary market. Owners must redeem them at maturity.

Front 390

What is true about a mutual fund prospectus?

Back 390

It is part of the SEC registration statement. A mutual fund prospectus is a "summary" of the SEC registration statement, but it is not the complete registration statement. It may NOT be highlighted or altered to show important features during a sales presentation. However, SEC registration of a security does not constitute SEC approval.

Front 391

New account forms must include?

Back 391

Name of the account owners, Name and address of employer, Tax ID or social security number and the Names and addresses of their employers. (It does NOT need the Beneficiary or the Beneficiary designation on the new account form.

Front 392

Under a mutual fund's right of accumulation the price you pay for fund shares is based upon?

Back 392

The value of the shares already owned and the shares currently being purchased. (Don't confuse a Letter of Intent (LOI) with the Right of Accumulation. Under a LOI, the investor is granted a breakpoint up front. However, mutual funds that offer the Right of Accumulation don't allow a break point until the value of the shares already owned and the value of the shares currently being purchased equal a break point as indicated in the prospectus).

Front 393

12b-1 fees are treated as an?

Back 393

Expense of the fund and are paid out of investment income, NOT the spread or sales charge.

Front 394

All are true about open end mutual funds?

Back 394

To find the Ask price, the sales charge is added to the BID price. Shares may be pledged as collateral for a bank loan. A securities firm hired to distribute new shares is known as the fund underwriter.

Front 395

A 65 year old teacher surrenders a non-qualified annuity for cash. How is the distribution taxed?

Back 395

Earnings are taxed as ordinary income, but no tax is due on the return of invested principal. (Just because the investor is a teacher doesn't mean that this is a 403b TSA. The question states that the annuity is non-qualified, which means it was purchased with after tax dollars, so only the earnings will be taxable upon distribution. There is no penalty since the teacher is past age 59 1/2.

Front 396

Upon distribution, an employee's own contributions to a 401k are?

Back 396

All taxable as ordinary income. 401k plans are qualified plans and none of the employee's contributions have ever been taxed, so upon distribution, the entire amount will be taxable as ordinary income.

Front 397

A 30 year old client might purchase a variable life insurance policy for which of the following reasons?

Back 397

Taxed deferred growth in the separate account. A guaranteed minimum death benefit. Non taxable death benefits for the beneficiary. (A variable life policy has no guaranteed rate of return or guaranteed cash value).

Front 398

If the stock price goes up but the amount of the dividend stays the same, the current yield will do?

Back 398

Will go down.

Front 399

A father buys stock for $1,000. When the stock increases in value to $5,000 he gives it to his son, who sells it right away. What was the son's cost basis in the stock?

Back 399

$1,000. On gifts, the recipient assumes the donor's cost basis. Upon death, the value of the inherited shares is stepped up to current market value.

Front 400

The Federal Reserve Board has embarked on a policy of buying securities in the open market. Their activities will?

Back 400

Stimulate the economy by putting more money in circulation. (When the FRB wants to stimulate the economy they often buy U.S Government securities from securities dealers and banks who have them in their inventory. This takes those securities out of circulation and infuses money into the economy, which in turn makes interest rates go down. If they want to SLOW down the economy, they sell U.S Government securities.

Front 401

If the Federal Reserve Board wants to slow sown the economy, they sell?

Back 401

U.S Government Securities.

Front 402

Participants in a Keogh plan must?

Back 402

Pay social security taxes. Have earned income. Control their own business. Cover all eligible employees. Contributions to Keogh plans are based upon "earned" income from self employment income.

Front 403

What is true about a growth fund?

Back 403

It might experience rapid appreciation. It pays little in dividends. It has a lot of common stock in its portfolio. Growth funds invest heavily in stocks of newer companies who tend to reinvest their earnings to "grow" the company, rather than pay dividends. As a result, growth funds are generally are not suitable for older investors since growth takes time .

Front 404

All contractual plans are required to grant investors a?

Back 404

45 day free look.

Front 405

A client who pulls out of a contractual plan after one month will receive?

Back 405

The value of their account plus all sales charges. ( All contractual plans are required to grant investors a 45 day free look, which allows them to pull out of the plan and receive all monies back, including the current value of their account and all sales charges).

Front 406

All are true about closed end mutual funds?

Back 406

They have a management fee. They may be sold in the secondary market at their market price. They have a fixed number of shares. They may be purchased in the secondary market through a broker/dealer who represents the selling shareholder.

Front 407

All are advantages of open end mutual fund ownership?

Back 407

The day to day investment decisions are made by the portfolio manager. The right to exchange at NAV within the same complex of funds. Fund shares provide excellent collateral for bank loans. Fund shares are redeemed at the NEXT days closing price. Mutual fund pricing is always based upon the price next calculated, which is also known as forward pricing.

Front 408

All are disadvantages of open end mutual fund ownership?

Back 408

Withdrawal plans may deplete principal. Exchanges made within the same family may be taxable. Shareholders have no control over the timing of distributions. (Although most funds allow the Right to Exchange shares of one fund for shares of another fund in the same family or "complex" of funds without a sales charge, the IRS treats exchanges as a redemption and repurchase, so capital gains taxes may apply).

Front 409

All are important factors to consider when comparing mutual funds?

Back 409

Total return, Standardized yield, Expense Ratio. (Mutual funds may NOT project performance nor may they relate past performance to future results).

Front 410

If a registered representative is found guilty under the Code of Procedure for handling trade practice complaints, FINRA may levy all of the following penalties?

Back 410

A fine in excess of $25,000, Censure, Denial of registration with any other broker/dealer firm. (FINRA cannot prevent you from opening a personal trading account with a broker/dealer of your choice).

Front 411

If a mutual fund customer fails to complete a Letter of Intent (LOI), the fund may?

Back 411

Subtract any amounts due from shares held by the fund in escrow. Send the customer a bill for the difference. (Depending upon the language in the fund's prospectus, if an investor fails to complete a Letter of Intent within 13 months, the fund may either subtract amounts due from shares they are holding in escrow or send the customer a bill for the additional sales charge due).

Front 412

An investor has a $1,000 short term capital gain. If he is in a 25% tax bracket, how much of this gain is taxable.

Back 412

$1,000. (This question is NOT asking how much tax is due. It is asking how much is taxable. The entire $1,000 short term gain is taxable as ordinary income.

Front 413

A mutual fund prospectus shows the following table:

Sales charge on initial purchase 2.00%
Sales charge on reinvested dividends or gains 1.00%
Management fee .75%
12b-1 fee .50%

What is this fund's expense ration?

Back 413

1.25%. (Sales charges are not fund expenses. They are subtracted from the ASK price by the underwriter, sponsor or distributor up front, and the fund only receives the NAV. However, both the management fee and the 12b-1 fee are expenses of the fund).

Front 414

If a registered representative is asked to appear before a FINRA Conduct Committee, they can do all of the following?

Back 414

Have their attorney present. Examine the charges. Examine the evidence. (They can NOT have the proceeding moved to a federal court. Although a registered representative who has been found guilty of violating a FINRA rule may appeal to the SEC and ultimately federal court, they cannot initially seek to remove the initial proceeding to federal court. Remember, FINRA has initial jurisdiction over member firms and their associated persons).

Front 415

What is true when a parent with a 529 plan that has appreciated 20% elects to withdraw all of the funds and use them to remodel his home?

Back 415

Ordinary income tax plus a 10% IRS penalty applies to the earnings. (Contributions to a 529 college savings plans are NOT tax deductible, so if a non-qualified distribution is made, it is only the earnings that are subject to ordinary income tax and a 10% IRS penalty).

Front 416

A mutual fund custodian performs all of the following functions?

Back 416

Pays commissions to broker/dealers who execute portfolio transactions, Safeguards the fund's portfolio, Receives interest and dividends on securities held in the fund's portfolio. (A custodian does NOT provide record keeping for the fund. It is the fund's transfer agent who performs the fund's record keeping, including issuing fund shares, canceling redeemed shares and disbursing dividend and capital gains distributions to shareholders).

Front 417

On a unsolicited trade, when is the latest time a prospectus can be delivered?

Back 417

With the confirmation. (When soliciting mutual fund sales, you must give out a prospectus at or prior to the time of your face to face sales presentation. However, if the sale is unsolicited, the prospectus must be delivered no later than the time of the confirmation, which is the day after the trade date).

Front 418

What is true regarding retail communication used in connection with the sales of an open end load fund?

Back 418

It must be reviewed and approved by a registered principal. When used to solicit business the retail communication must be accompanied by a prospectus. It is paid for by the fund underwriter. (It NEVER contains projected performance figures. Mutual fund underwriters pay for the cost of retail communications out of sales charge collected. Although past performance figures may be presented, projecting future performance is NOT allowed.

Front 419

All of the following are true about variable annuities?

Back 419

They offer tax deferred appreciation. There is a mortality expense guarantee. Account ownership during the pay-out period is measured in annuity units. The investment account that underlies the annuity is called the separate account. (Although there is no life insurance protection for variable annuities, variable annuities DO contain what is known as a mortality expense guarantee, which states that is annuitants live longer than expected, it is the insurer who must bear this risk).

Front 420

All are violations of FINRA rules?

Back 420

A registered representative makes trades in his own account based on information that has not yet been made public. A registered representative promises to buy back a security for 6% more than the amount paid if it does not earn at least 6%. A registered representative sells mutual fund shares that have no up-front sales charges without explaining that there may be a contingent deferred sales charge upon redemption. (Registered Representatives must disclose all material information to prospects, including any contingent deferred sales charges or back end loads. Further, insider trading is NOT allowed nor may a specific rate of return be guaranteed. However, it is okay for a registered representative to state that they can sell securities in all states they are licensed in).

Front 421

When a registered representative who sells only variable products elects to open an account to buy stock through another broker/dealer they must do what?

Back 421

Notify both their employing firm and he executing firm in writing. (FINRA rules state that registered representatives who want to buy securities, other than mutual fund shares, from other broker/dealers must notify both their employing firm and the executing (selling) firm in writing of their intent).

Front 422

A registered representative would need the prior written approval of their employing broker/dealer firm before participating in what private securities transactions?

Back 422

Acting as a general partner in a limited partnership. Selling products of other broker/dealers. Receiving indirect compensation from outside sources for securities transactions. (Participating in private securities transactions outside of your employing broker/dealer is permitted as long as the registered representative has their prior written approval).

Front 423

If a mutual fund elects to advertise past performance figures, such as total return, all of the following are true?

Back 423

Total return calculations assume the reinvestment of all capital gains and dividends. Computation of total return must be made in accordance with standardized procedures. Average annual total return quotations must be shown for 1, 5 and 10 year periods. Advertising past performance figures is allowed under FINRA rules. (Mutual fund total return, if advertised, must assume the reinvestment of all capital gains and dividends, be calculated in accordance with standardized procedures and show figures for 1,5 and 10 year periods. However, advertising may not state that past performance is indicative of future results.

Front 424

Mutual fund advertising may include?

Back 424

Past performance, Current Yield, Average annual total return. (An application to open a new account may NOT be included in the advertisement. Although mutual fund account applications may be attached to the prospectus, they cannot be included in advertisements).

Front 425

Advertising of yields on a Muni bond mutual fund may include?

Back 425

Current yield, Tax equivalent yield, Average annual total return. (Advertising of yields may NOT include yield projections).

Front 426

What would make a registered representative suspicious of money laundering?

Back 426

When a client has no concern about the amount of commissions charged. A client has No investment objective in mind. A client has no suitability concerns. (Funds being wired from another broker/dealer would NOT be a suitability concern. Broker/dealers often wire funds to other broker/dealers to settle transactions, which is not considered to be a suspicious activity. However, the receipt of large amounts of wired funds from other sources could be considered suspicious and should be reported to your Registered Principal).

Front 427

What is true about money market mutual funds?

Back 427

They attempt to maintain a stable NAV of $1.00 per share. They are NOT federally insured by the FDIC. Investments are limited to securities with remaining maturities of not more than 397 days (13 months). They must invest only in securities that are rated in the top two categories for safety. Money market funds typically invest in short term securities that have one year or less to maturity, although technically they can invest in securities that have up to 13 months (397 days) remaining to maturity as long as their average portfolio maturity does not exceed 90 days. Money market funds are no loads and they attempt to maintain a stable NAV of $1.00 a share. Investments are limited to securities with minimal risk that have Moody's or Standard and Poor's safety ratings in the top two categories. Most money market funds are NOT insured.

Front 428

What is true about a variable life insurance policy?

Back 428

The premium is fixed but the death benefit varies. (Most variable life insurance is issued with a fixed premium and a guaranteed minimum death benefit. However, depending upon the performance of the separate account, the death benefit may vary above the minimum. It is variable/universal life that has both a variable premium and a variable death benefit).

Front 429

All are true about IRAs?

Back 429

Contributions to a traditional IRA may be tax deductible. Aggregate contributions limits are higher on spousal IRAs. Participants may have both a Keogh and an IRA. Qualified distributions from Roth IRAs are tax free. (A person who has both self employment income and income as an employee could have both an IRA and a Keogh).

Front 430

All are true about variable annuities?

Back 430

Upon annuitization, annuitants will receive a variable payments for a variable period of time, Future rates of return may NOT be projected, The annuitant owns annuity units during the pay out period, The mortality risk is guaranteed by the insurer NOT the annuitant. (Variable annuities do NOT have a guaranteed rate of return, but they do have both mortality and administrative expense guarantees, which state that it is the insurer who must bear the risk if expenses in these areas exceed certain specified limits.

Front 431

All are considered to be equity securities?

Back 431

Common stock, Preferred stock, Convertible preferred stock. (Bonds are debt securities NOT equity "stock").

Front 432

What is true regarding unrealized appreciation?

Back 432

It is also known as paper profit, It is also known as unrealized growth, It is taken into consideration when calculating total return, Unrealized appreciation is NOT taxable. (Unrealized appreciation (or growth) is on paper only, and is NOT taxable. However, if an investor elects to redeem his mutual fund shares for more than he paid, he will have a 'realized' capital gain, which is taxable).

Front 433

What is true about warrants?

Back 433

They are attached to some bonds. They are issued for a long period of time, often 30 years. They may be detached from a bond and sold in the market. (Warrants are attached to bonds to make them easier to sell. If the market price of the underlying stock goes up above the subscription price in the warrant, the warrant can be detached and either exercised or sold in the market. However, don't confuse warrants with conversion, which conversion allows a bondholder to exchange a bond for common stock of the same issuer).

Front 434

Which yield would be highest on a bond selling in the secondary market at a discount?

Back 434

Yield to maturity. (When a bond is selling at a discount in the secondary market, both its current yield and yield to maturity will be higher than its nominal interest rate. However, the yield will be higher than the current yield since it also takes into account the difference between the discounted market price and the bonds par value at maturity).

Front 435

What is the current yield on a 5% bond selling in the secondary market at 50?

Back 435

10%. (Bonds have a par value of $1,000. If a bond has a nominal yield of 5%, that would be 5% of par, or $50 a year. If you can buy the bond in the secondary market for $500, then its current yield would be 10% ($50 divided by $500). Or you could simply take 50 divided by 5 and that would leave you with 10).

Front 436

Who sets fiscal policy?

Back 436

Congress. (Congress and the President set fiscal policy, such as a change in tax law).

Front 437

Who sets monetary policy?

Back 437

The Federal Reserve Board. (The Federal Reserve Board sets monetary policy, such as raising interest rates to slow down the rate of inflation).

Front 438

Who sets the prime rate?

Back 438

Banks. (Although they are influenced by what the FRB "Federal Reserve Board" does, banks actually set the prime rate, which is their best interest rate available to large commercial customers).

Front 439

What is true about callable bonds?

Back 439

Their indenture must state the call date and the call price. (Callable bonds are issued when interest rates are high. If rates drop, the insurer may call the bond at par, which of course makes bond holders very unhappy, since the market price of the bond is higher than par. Issuers of callable bonds must disclose the first call date and the call price in the bond's indenture).

Front 440

All are true about U.S Treasury bonds?

Back 440

Capital gains are taxable. Interest is exempt from state income tax. They are issued in large denominations. They are directly back by the U.S government. (U.S Government bonds are directly backed by the federal government and their interest payments are exempt from state income tax, but NOT exempt from federal tax. However, if the bond is sold in the secondary market for more than its purchase price, a taxable capital gain will occur).

Front 441

All are true regarding general obligation municipal bonds?

Back 441

They have low rates of return. They are not suitable for investors in low tax brackets. Interest is exempt from federal income tax. (Since municipal bond interest is exempt from federal income tax (but not necessarily state income tax), investors are willing to accept a lower rate of return, which makes them unsuitable for investors in low tax brackets. General obligation (or full faith and credit) municipal bonds are backed by taxes, NOT user feed. Revenue bonds are backed by user fees).

Front 442

What is true regarding municipal revenue bonds?

Back 442

Capital gains are taxable. Municipal bond interest is only 'double exempt' from both state and federal income tax for investors who live in the same state where the bond was issued. Municipal revenue bonds are backed by user fees (such as from a toll road), so municipal revenue bonds are slightly more risky than general obligation bonds, which are backed by taxes.

Front 443

If an investor is in a 25% tax bracket, a 6% municipal bond would have a corporate equivalent yield of?

Back 443

8%. (You would divide .06 by 75% (100%-25%) to determine that the corporate equivalent would be 8%. ".6 divided .75 = .8

Front 444

When selling open-end mutual funds, what is true about the prospectus delivery requirements?

Back 444

A prospectus must always be given. Open-end mutual funds are ALWAYS subject to the prospectus delivery requirements. If the sale is solicited, the prospectus must be given out at or prior to the sale. If the sale is unsolicited, the latest time it can be delivered is with the confirmation, which goes out the next business day.

Front 445

All are true about the exchange markets?

Back 445

They are also known as auction markets. Market prices are set by supply and demand. There is less dollar volume on the NYSE than on the NASDAQ market. (Redeemable securities, such as shares of open-end mutual funds, CAN NOT be sold in the secondary market "exchange market." Upon redemption, open-end mutual funds are not re-sold, but instead destroyed. However, closed-end mutual fund shares are marketable, meaning that they can be sold in the secondary market, either on exchanges or OTC. The NASDAQ trades A LOT MORE shares than the NYSE).

Front 446

Under Federal Reserve Board Regulation T, when is the latest time to pay?

Back 446

5 business days. (Although regular way settlement is 3 business days after the trade under FINRA Uniform Practice Code, the latest time an investor may settle a trade is actually 5 business days FRB Regulation T).

Front 447

Under Regulation T, is a customer does not pay on time and no extension has been granted, the brokerage firm must?

Back 447

Liquidate the trade. Freeze the customer's account for 90 days. Require cash in advance while the account is frozen. (If a customer does NOT settles within 5 business days, under FRB Regulation T, the broker/dealer firm must liquidate the trade (also known as a 'sell out') and freeze the customer's account for 90 days, during which time the customer may still make trades, but they have to pay cash in advance).

Front 448

If the Federal Reserve want to slow down the economy, they could do all of the following?

Back 448

Raise the federal funds rate. Increase the discount rate. Increase the reserve requirements. (The Federal Open Market Committee tries to control the money supply by either buying or selling outstanding U.S. Government securities to U.S. Government securities dealers or member banks. When the FOMC buys U.S Government securities, they would have to pay for them with cash, which would pump money into the economy and cause interest rates to go down. If they want to slow down the economy, they would sell U.S Government securities instead.

Front 449

Which security has the least amount of purchasing power risk?

Back 449

Common stock. Any investment product that has a fixed rate of return is subject to inflation or purchasing power risk. However, over a period of time, common stocks have kept pace with inflation, so investing in a common stock mutual fund or a variable annuity is a way to 'hedge' against inflation).

Front 450

Mutual fund dollar cost averaging is a defensive strategy that?

Back 450

May result in an average cost per share that is lower than the average price per share. (Dollar cost averaging requires that the investor invest the same amount every month in the same mutual fund regardless of share price. If shares values fluctuate over a period of time, the investor's average cost per share may be lower than his average price. However, DCA does not guarantee a profit).

Front 451

What is the least important factor in determining an investor's suitability?

Back 451

Educational background. (The investor's investment objectives are the most important).

Front 452

All are true about growth portfolios?

Back 452

The are considered to be risky, They pay little in dividends, They usually have high price/earnings ratio, (Growth portfolios invest in the stocks of newly emerging companies, which are risky, pay little in dividends and have high price/earnings ratios. They are most suitable for younger investors with long time horizons).

Front 453

What would be the most suitable for the parents of a high school freshman who is planning on college?

Back 453

Treasury bills. (The parents have a short time horizon, so they are looking for safety and preservation of capital).

Front 454

High yield (or junk) bonds are considered to be?

Back 454

Very risky. Since they are generally low rated unsecured debentures, backed only by the general credit of the issuing corporation. High yield bonds offer high nominal rates of return to offset that risk.

Front 455

What is true about specialized mutual fund portfolios?

Back 455

They are often non-diversified. They present more risk. They are also called sector funds. They have high betas. (Sector (or specialized) mutual funds (such as precious metals funds) are generally non-diversified and carry high beta (or risk). Beta is measured in relationship to the market as a whole, as reflected in the Standard and Poor's 500 stock index. A high beta would be a sector fund and a low beta would be a defensive fund.

Front 456

What is true about discretionary agreements?

Back 456

They are a limited power or attorney. They must be in writing. They are required for the amount and type. (An investor may give their registered representative written discretionary authority to make trades in their account, as long as the trades are suitable. However, registered representatives don't need discretionary authority for the timing or price of trades as long as the customer specifies the amount and type of securities to be traded).

Front 457

What is true regarding a rights offering?

Back 457

Rights are short term. Rights may be exercised or sold in the market up until expiration. Rights trade in the same market where underlying stock trades. Rights enable the holders to protect their proportionate ownership. (Pre-emptive rights allow investors to protect their proportionate interest in their equity holdings of a corporation. For example, if you own 5% of a corporation's outstanding stock and the company elects to issue more new shares, you can buy 5% of the new shares, at a discount. However, if you don't want to subscribe to the rights offering, you can either sell your rights or let them expire. Rights offerings are short term, usually 30 days. Exercising your rights will prevent 'dilution' of ownership.

Front 458

A general obligation municipal bond is?

Back 458

Backed by the full faith and credit of the issuer. (General obligation municipal bonds are often called 'full faith and credit' bonds, since they are backed by the taxing powers of the issuing municipality. Interest is always exempt from federal income tax, but not necessarily state income tax, unless the purchaser of the bond lives in the same state as the issuer. Muni bond capital gains are taxable.

Front 459

Changes in the level of long term interest rates will have the greatest effect on the market of?

Back 459

Maturities of 10 years or more. (Since long term bonds have greater 'duration' (or price volatility), they are more sensitive to interest rate changes in the economy. In other words, when interest rates go up, the market prices of long term bonds will fall more than the market prices of short term bonds).

Front 460

What is an example of fiscal policy?

Back 460

Passage of a tax law reducing the tax rate on dividends. (Fiscal policy is set by the President and or Congress, such as a change is tax law).

Front 461

What is classified as investment companies under the Investment Company Act of 1940?

Back 461

Management Companies, Unit Investment Trusts and Face Amount Certificate Companies.

Front 462

Closed-end funds?

Back 462

Do NOT redeem shares. (Closed-end mutual funds are a type of management company. They have a fixed capital structure and once issued, their shares trade in the secondary market based upon supply and demand, so their market price can be higher or lower than NAV. Closed-end shares are NOT redeemable, but they ARE marketable.

Front 463

Open-end mutual funds?

Back 463

May purchase senior securities. Open-mutual funds may purchase and hold senior securities, such as preferred stocks and bonds, in their portfolio. However, they can only issue common shares to their investors. They may sell at NAV( a no-load fund) or more( a load fund), but open-end shares never sell for less than their NAV.

Front 464

What is true about the exchange privilege offered within a family of funds?

Back 464

Exchanges may generate capital gains or losses. Exchanges are done at NAV without a sales charge. The exchange privilege must be described in the fund's prospectus, if offered. (Not all mutual funds offer the right to exchange shares of one fund with shares of another fund in the same mutual fund family. The exchange privilege offer is not required. If offered, exchanges are usually done without any sales charge, but since the IRS treats the exchange as a redemption and re-purchase, taxable capital gains may occur.

Front 465

What is true regarding mutual fund withdrawal plans?

Back 465

They spread out the investor's tax liability. (Mutual funds offer withdrawal plans to investors who have larger balances, which enables them to take money out of the fund gradually, rather than as a lump sum redemption, which could have adverse tax implications. However, if an investor withdrawals more than his account is earning, the fund will have to redeem shares which would have the effect of exhausting the account over a period of time. Withdrawal plans may not be guaranteed).

Front 466

The NAV of an open-end fund is $9.50 and the ASK price is $10. What is the sales charge as a percentage?

Back 466

5%.

Front 467

The NAV of an open-end fund is $9.50 and the ASK price is $10. If the investor invests $10,000 and the sales charge is reduced to 4%, approximately how many shares could he buy?

Back 467

1,011. You take 10,000 x .04 = 400, You take 10,000 - 400 = 9,600. 9,600 divided by 9.50 (the NAV per share) = 1,011

Front 468

An investor bought open-end mutual fund shares in January when the NAV was $19 and the ASK price was $20. In December of the same year, the investor elects to redeem the shares when the NAV is $14 and the ASK price in $15. What is the investor's tax implication.

Back 468

Short-term capital loss of $6 per share. (When you buy open-end shares, you pay the ASK (offering price) price. When you redeem them, you get the NAV (bid price). This customer paid $20 in January and received $14 per share when he redeemed his shares in December, for a capital loss of $6 per share. The loss is short-term, since he owned the shares one year or less).

Front 469

Who sets the policy that governs the operation of a mutual fund?

Back 469

The board of directors. ( The board of directors of a mutual fund is elected by the fund's shareholders to establish the investment policy of the fund, select and oversee the fund's investment adviser, transfer agent and custodian and to establish dividend and capital gains policy).

Front 470

All is true about the initial advisory contract of an open-end mutual fund?

Back 470

It must be approved by a majority vote of the shareholders. It must be re-approved annually by the board of directors of a majority vote of the shareholders. (The investment adviser's initial contract must be in writing for no longer than two years and be approved by a majority vote of the shareholders. The contract must be re-approved annually by the fund's board of directors or by a majority vote of the shareholders and must provide for termination at any time by either the board of directors or majority shareholder vote with 60 days notice).

Front 471

What is true about the ASK price of an open-end mutual fund?

Back 471

It changes every business day. It is based upon a formula disclosed in the prospectus. It includes the sales charge, if any. (On new offerings of common stock the public offering price (ASK price) is fixed in the prospectus. However, on open-end mutual funds the ASK price will change every day, depending upon the value of the underlying portfolio. So, instead of a fixed price in the prospectus, the mutual fund published the formula for determining the price, which is NAV + Sales Charge (if any) = ASK Price

Front 472

What is true regarding contingent deferred sale charge?

Back 472

They are based upon either NAV at purchase, or NAV at redemption, whichever is less. (Many funds offer Class B shares, which are subject to a back-end load, or contingent deferred sales charge, which encourages investors to hold their shares for a specified period of time, after which no sales charge applies. If a fund has a back-end load, they cannot call themselves a no-load. 12 (b)-1 fess (or distribution fees) are fees that many funds charge as an expense to shareholders every year to reimburse themselves for the cost of marketing their own shares. Redemption fees are administrative fees that some funds charge to offset the expenses involved in handling the paperwork on redemption).

Front 473

Which class of mutual fund shares would be best for a buy and hold investor?

Back 473

Class B. (Class B shares usually have no front-loaded sales charge, which means that investors can purchase shares for NAV. Hoever, if they hold their shares for less than a specified period of time, a back-end load sales charge applies. So, since Class A shares are subject to a front-load sales charge on every purchase, a buy and hold investor would be better off with Class B shares since no sales charge would apply to either purchase or redemption).

Front 474

All are true about a mutual fund Statement of Intention?

Back 474

It is valid for a total of 13 months. It may be backdated up to 3 months. The fund will hold in escrow some of the shares purchased. A Statement of Intention is also known as a Letter of Intent, which is different from the right of accumulation. If an investor sign a Statement of Intention, they will receive a reduced sales charge on their current investment, as long as they fulfill their commitment within 13 months. The fund will hold in escrow some of the shares purchased just in case the investor does not complete the Letter of Intent "Statement of Intention').

Front 475

What are withdrawal plans offered by mutual funds?

Back 475

Fixed dollar plan, Fixed share plan, Fixed time plan. (A fixed dollar withdrawal plan will pay the customer a fixed amount each month until the account is exhausted. A fixed time plan will make variable payments to a customer for a specified period of time, such as 10 years, at which time the account will be exhausted. Or, the customer can specify how many shares he wants redeemed each month and the plan will make variable payments until all the shares are redeemed. Withdrawal plans cannot be guaranteed.

Front 476

What is true about mutual fund dividends?

Back 476

Re-invested dividends have the effect of increasing the investor's cost basis. (It is true that reinvested dividends increase the investor's cost basis since they are always taxable in the year of the distribution. Mutual funds dividends may be taxed at either ordinary income rates or long-term capital gains rates depending upon whether or not the dividend distribution is a qualified dividend or not. Qualified dividends are taxed at long-term capital gains rates. Non-qualified dividend distributions are taxed at ordinary income rates).

Front 477

May an offeror provide a registered representative business development and educational enhancement items, such as software packages containing fund data for broker use or prospection lists?

Back 477

Yes. The provision of such items that are utilized by registered representatives for business purposes is permitted, provided that these items are not preconditioned on the achievement of a sales target.

Front 478

An investor in a 25% tax bracket who makes a $1,000 short-term capital gain upon redeeming his mutual fund shares would have to pay how much in taxes?

Back 478

$250. (Short-term capital gains resulting from the sale or redemption of securities held for one year or less are taxable as ordinary income. Since the short-term gain is $1,000 and since the investor is in a 25% tax bracket, $250 is the tax due).

Front 479

What would require the disclosure of a firm's name?

Back 479

A public appearance. Slide presentations. A sales script. Brochure. (Non-scripted, extemporaneous remarks during a public appearance do not require a registered representative to disclose the firm's name. The firm's name must be disclosed in all retail communications and correspondence. Accordingly, sales scripts, slide presentations and brochures used in connection with a public appearance must disclose the firm's name).

Front 480

What is not taxable?

Back 480

Unrealized appreciation. (Unrealized growth or appreciation is known as paper profits and is not currently taxable. However, if the investor redeems his shares for more than he paid, a taxable, realized capital gain will result. However, Traditional IRA distributions, Annuity distributions, Capital Gains resulting from the sale of municipal bonds are all taxable).

Front 481

What is true about advertising mutual fund total return?

Back 481

Calculations must assume the reinvestment of all dividends and capital gain distributions. Calculations must be made in accordance with standardized procedures. If average total return is included, quotations must be for 1, 5 and 10 year periods. If average total return is included, quotations must be updated quarterly. (Total return is defined as yield plus growth. When a mutual fund advertises total return, the quotations must be updated quarterly).

Front 482

Earnings that the mutual fund shares generate under the UGMA are taxed to the child at whose tax bracket?

Back 482

The parent's.

Front 483

What is true regarding the UGMA?

Back 483

There can be only one child and one custodian per account. The minor's social security number is required. Gifts are irrevocable. There are no limits on the size of gifts to minors. (Note that it is NOT the recipient that pays the gift tax. It is the donor. If you are married, both you and your spouse may give up to the gift tax exclusion to a person each year. The purpose of the federal gift tax is to prevent you from giving away all of your assets prior to death in order to avoid estate taxes).

Front 484

New account forms for clients must include?

Back 484

The age of the client. Their employers tax ID number. Information required to determine suitability. (Clients must disclose the name and address of their employer on new account forms. A person associated with a member firm must, prior to opening an account or placing an initial order for the purchase or sale of corporate securities with another member firm, notify both their employing firm and the executing firm, in writing, of their intent. The executing firm must also notify the employing firm of their intent to open such an account and, upon written request of the employing firm, send them duplicate copies of all trade confirmations).

Front 485

What is currently not taxable to mutual fund shareholders?

Back 485

Undistributed portfolio investment income. (Although investment income generated by the mutual fund will cause share values to increase, it is not taxable to mutual fund shareholders until it is distributed. Once distributed, share values will decrease by the amount of the distribution. Mutual funds usually distribute dividends quarterly, but capital gains distributions may only be once a year.

Front 486

When are mutual fund dividends and capital gain distributions taxable to the shareholders?

Back 486

In the year of the distribution. (Mutual fund dividend and capital gain distributions are taxable to the fund's shareholders in the year of the distribution. The mutual fund will send the shareholder a 1099 indicating the amount and source of the distribution, since they may be taxable at different rates.

Front 487

All are true about closed-end mutual funds?

Back 487

They have a fixed capital structure. They trade in the secondary market with prices set by market demand (supply and demand). They are marketable. (Closed-end mutual funds are NOT redeemable.

Front 488

Open-end investment company shares are quoted at $14.17 - $15.32. To determine the sales charge as a percentage of the amount invested, the procedure would be to?

Back 488

Divide $1.15 by $15.32 (the ASK price "offering price, in which includes the sales charge."

Front 489

An investment company is obligated to remit payment to the investor for the redemption of shares within how many days?

Back 489

7 calendar days

Front 490

Monthly payments received by a customer who invested in a variable annuity will vary based upon the performance of the?

Back 490

Separate account.

Front 491

During the pay-in period of a variable annuity, the owner/annuitant owns?

Back 491

Accumulation Units. (Ownership of a variable annuity during the pay-in (or accumulation) period is measured in accumulation units. Ownership of a variable annuity during the pay-out (or annuity) period is measured in annuity units.

Front 492

Pay- in period of a variable annuity, the owner/annuitant owns?

Back 492

Accumulation units. Pay-in = Accumulation units.

Front 493

Pay-out period of a variable annuity, the owner/annuitant owns?

Back 493

Annuity units. Pay-out = Annuity Units

Front 494

During the accumulation period of a variable annuity, account earnings are?

Back 494

Tax deferred until the owner withdrawals the money. ( During the accumulation (or pay-in) period of a variable annuity, all account earnings are automatically reinvested on a tax-deferred basis, meaning that the annuitant won't have to pay taxes until he surrenders or annuitizes the contract.

Front 495

If an owner/annuitant selects the fixed-period payout option when annuitizing a variable annuity, they will receive?

Back 495

A variable amount for a fixed time. (If the client annuitizes with payments to be made over a fixed period of time, he will receive a variable monthly payment (depending upon the performance of the separate account) for a specified period of time. At the end of the fixed period, the account balance will be exhausted.

Front 496

What is true about fixed annuities?

Back 496

They are subject to purchasing power risk. Premiums are invested in the insurer's general account. Registered Representatives must have a state life insurance license to sell them. (Since the rate of return is fixed on a fixed annuity, the insurance company bears the investment risk. For example, if the guaranteed rate is 5%, that is what they will have to pay, even though they may be earning less than that in their general account.

Front 497

A feature of a variable annuity that states that the insurer bears the risk that annuitants could live longer than expected is called the?

Back 497

Mortality expense guarantee.

Front 498

If an owner/annuitant selects the life income option when annuitizing a variable annuity, they will receive?

Back 498

Variable payments for a variable period of time. (If a client annuitizes a variable annuity with the life income option, they will receive variable payments each month that will vary depending upon the performance of the separate account for a variable period of time, which would be their life time.

Front 499

On a variable annuity, if for any reason the costs of administering the plan increase, the company is responsible for the increased expenses. This is known as?

Back 499

Operating expense guarantee (or Administrative expense guarantee).

Front 500

An owner/annuitant's measurement of ownership in the separate account of variable annuity during the pay-out period is known as?

Back 500

Annuity Units. (Used to measure the clients interest in the separate account).

Front 501

What is true about variable annuity separate accounts?

Back 501

They are similar to shares of an open-end mutual fund. Unit owners have the right to vote for the board of managers. They have no guaranteed rate of return. (Variable annuity separate accoutns are most commonly open-end mutual funds, which are considered to be a type of management company. Management companies have management fees, which are charged by the investment adviser for managing the separate account. Variable annuity separate accounts DO have management fees.

Front 502

Regarding variable annuities , what is true about the assumed investment rate (AIR)?

Back 502

It is never guaranteed. It may be used for illustration purposes only. The monthly payment will remain constant as long as the actual rate of return in the separate account is the same as the AIR. The AIR only applies to the pay-out (or annuity) period.

Front 503

If a variable annuity separate account has an AIR of 5% and an actual rate of return of 4%, what will happen to the value of an accumulation unit?

Back 503

It will go up in value from the prior month. (Since the AIR does not apply during the accumulation period (pay-in period), any rate of return more than zero will cause the value of accumulation units to increase in value.

Front 504

An annuitant invested $20,000 in a single premium deferred variable annuity. By age 50, his account balance has grown to $50,000 and he elects to take cash surrender. Assuming that he is in a 25% tax bracket, what is his total tax implication in dollars?

Back 504

$10,500. (Do the math)

Front 505

An annuitant invested $20,000 in a single premium deferred variable annuity. By age 50, his account balance has grown to $50,000 and he elects to take a partial withdrawal in the amount of $10,000. Assuming he is in a 25% tax bracket, what is his total tax implication in dollars.

Back 505

$3,500.

Front 506

What is true regarding the annuitization of a deferred variable annuity prior to age 59 1/2?

Back 506

The IRS 10% penalty is waived for the annuitization. The client's tax bill is spread out over his expected life span. Distributions are treated partly as a return of principal and partly as ordinary income. (The IRS 10% premature distribution penalty applies to partial withdrawals and cash surrenders of annuities prior to age 59 1/2 but not the annuitization process.

Front 507

What is true about variable life insurance?

Back 507

Loans are NOT taxable on variable life insurance. Illustrations may be based upon an AIR. Death benefits are tax free to beneficiaries. It has a guaranteed, minimum death benefit. Does NOT have a guaranteed rate of return. The death benefit may NEVER go below the minimum guaranteed in the policy. Policy owners may borrow money from their variable life insurance company, using the cash value in their policy as collateral for the loan. Loans are not taxable.

Front 508

What is true about variable life insurance?

Back 508

It has a fixed, level premium. Cash values are invested in a separate account. Death benefits may vary above the minimum guaranteed in the contract. (While life insurance death benefits paid to a beneficiary are not subject to income tax, they are included in the value of the owner/insured's estate.

Front 509

On variable life insurance, all of the following charges are subtracted from the separate account?

Back 509

Management fee, Mortality expense fee, Administrative fee.

Front 510

What is true about variable/universal life insurance?

Back 510

It has a flexible premium (universal). It is convertible. Both the death benefit and the cash value will vary depending upon the amount of premium paid. Registered representatives must give clients a prospectus relating to the variable life contract and another prospectus relating to the underlying separate account. (Universal life has a flexible premium unlike 'Variable life' has a level (fixed premium). Registered representatives must give out two prospectuses, one on the policy and one on the underlying separate account. Since it is variable, clients have up to two years to change their minds and convert the policy to a level premium, fixed rate of return traditional whole life policy without taking a physical exam, which is known as 'conversion.'

Front 511

Which exchange is not eligible for tax deferral under IRC Section 1035?

Back 511

An exchange of a variable annuity for variable life insurance is not eligible. (You can not make an exchange unless it leaves you in the same overall tax position or worse. For example, you can exchange life insurance for an annuity, since you would be worse off because life insurance proceeds paid to a beneficiary are not taxable but annuity death benefits are. Or, you can exchange a fixed annuity for a variable, since you would be in the same position. But you cannot exchange an annuity for life insurance.

Front 512

All of the following are true about Keogh plans?

Back 512

Corporate officers are eligible if they also have self employment income. Self employed persons with Keogh plans must also cover their employees who are at least age 21, full time and have worked there for at least one year. Contributions are made to Keogh plans with before tax dollars. (Keogh Plans are for the self employed, partners and their employees. Since, they are qualified plans under ERISA, self employed persons must cover all their full time employees who are at least age 21 who have worked there at least one year. However, at the employer's option, he can cover employees who are between the ages of 18 and 21, which of course, is better than the law requires.

Front 513

All is true about the contract exchange privilege contained in a variable life policy?

Back 513

The insured may convert to a fixed life insurance product, like traditional whole life. Conversion must be allowed for at least to years. Evidence of insurability is NOT required. No physical exam is needed. The converted policy will have the same contract date and death benefit as the minimum guaranteed in the variable life contract. (Variable life insurance products may be converted to traditional whole life for up to two years after issue without any requirement to prove insurability.

Front 514

What is the penalty for violating the required minimum distribution (RMD) rules that apply to Traditional IRAs starting at age 70 1/2?

Back 514

50%. If you violate the RMD rules related to Traditional IRAs, there is a 50% penalty levied on the amount you should have withdrawn, but didn't. For example, if you should have withdrawn $10,000 from your Traditional IRA this year, but only withdrew $5,000, there would be a $2,500 penalty.

Front 515

All are true regarding Traditional IRAs?

Back 515

Contributions MAY be tax deductible for Traditional IRAs. ROTH IRAs are NOT (NEVER) tax deductible. There are no maximum income limits on Traditional IRAs. Earnings grow on a tax deferred basis. Anyone with earned income is eligible. You can always contribute to a Traditional IRA as long as you have earned income.

Front 516

On Traditional IRAs, premature distribution penalties are waived for?

Back 516

First time home buyer expense up to $10,000. Death, disability or divorce. Annuitization based upon life expectancy of 5 years or age 59 1/2, whichever is longer. Medical premiums for unemployed individuals. (The 10% IRS premature distribution penalties (but not the taxes) are waived on Traditional IRAs for all of the above listed.

Front 517

All of the following are true regarding ROTH IRAs?

Back 517

Required minimum distribution rules do NOT apply to ROTH IRAs. Contributions are never tax deductible. Distributions do not have to begin at age 70 1/2 on ROTH IRAs. (Qualified tax free earnings may be made from a Roth IRA if the money account has been open for at least five years and the earnings are paid out when the participant is age 59 1/2 or older.

Front 518

Over a period of time, an individual has contributed $20,000 to a ROTH IRA. At age 50 his account balance is $50,000 and he elects to withdraw $10,000. Assuming he is in a 25% tax bracket, what is his total tax implication in dollars?

Back 518

None, since contributions may always be withdrawn from a ROTH IRA without tax or penalty. (Tax treatment of partial withdrawals is different on ROTH IRAs than it is on deferred annuities. On annuities, the first money out is considered to be the earnings and is taxed as ordinary income, even if less than the cost basis. However, on a ROTH IRA, contributions may always be withdrawn without tax or penalty, since they were made with AFTER tax dollars.

Front 519

All is true on about Coverdell ESAs?

Back 519

Anyone can contribute on behalf of beneficiaries who are under age 18. Contributions are NOT 'NEVER' tax deductible on Coverdell ESAs. The child for whom the account is being established may make contributions. Qualified distributions are tax free to the student beneficiary. (Anyone can contribute to a Coverdell ESA on behalf of beneficiaries who are under age 18. There is no age limit or earned income requirement. Contributions are NOT tax deductible).

Front 520

All are true about 529 College Savings Plans?

Back 520

Contributions are NOT subject to income limitations in 529 College Savings Plan. There may be only one student per account. Earnings withdrawn to pay for qualified higher education expenses are tax free. Multiple accounts may be opened for the same student. (A person can open a 529 College Savings Plan on behalf of any eligible beneficiary. Contributions are not subject to any income limits, and although multiple accounts may be opened for the same beneficiary, there can be only one student per account. Earnings withdrawn to pay for qualified higher education expenses are free from federal income tax.

Front 521

If a client with a variable annuity annuitizes with a fixed amount pay-out option, he will receive?

Back 521

Fixed payments for a variable period of time. (If a client annuitizes with fixed amount pay-out option, he will receive the same amount every month for a variable period of time, which means until the account is exhausted).

Front 522

Under the Investment Advisers Act of 1940, all of the following are considered to be investment advisers?

Back 522

Financial planners. Individuals who sell research for a fee. Individuals who sell investment advice for a fee. ( Under the Investment Advisers Act 1940, lawyer, accountants, teachers and engineers are exempted from registration as investment advisers as long as their professional advice is solely incidental, meaning that they do NOT charge any separate fees for it ).

Front 523

An example of 'selling away' in which is prohibited and unethical?

Back 523

Engaging in private securities transactions outside their firm's regular course of business without first informing the firm in writing. (Under FINRA Rules of Conduct, it is considered to be unethical for a registered representative to 'sell away' from their firm UNLESS they first inform their firm in writing. Most member firms will not allow their RR to sell away due to possible conflicts and compliance issues).

Front 524

Materials that a firm uses to train or educate registered representatives of other broker/dealers are considered to be?

Back 524

Institutional Communication. Institutional Communication = Education Material used to train other broker dealers. (Materials a firm uses to train or educate registered representatives of other broker/dealers (whether affiliated or not), the material would be considered an institutional communication).

Front 525

Under the Bank Secrecy Act, broker/dealer firms are required to file a currency transaction report for each cash transaction that exceeds?

Back 525

$10,000. The Bank Secrecy Act requires every financial institution to file a Currency Transaction Report (CTR) with FinCEN (Financial Crimes Enforcement Network) for each cash transaction that exceeds $10,000).

Front 526

FINRA Rule 5130 prohibits member firms from selling shares of a new common stock issue to any account in which a 'restricted' person has an economic or beneficial interest, including selling shares to the immediate family members of a restricted person. Immediate family is defined to include all?

Back 526

Parents, Brothers, Sisters, Children. (However, the definition of immediate family does not include aunts and uncles).

Front 527

Under SEC Regulation S-P, broker/dealer firms must provide clients with privacy protection when?

Back 527

When the customer relationship is established and annually thereafter. (Regulation S-P requires all financial services firms to provide customers with their privacy protection notice at the time the customer relationship is established and annually thereafter).

Front 528

What SEC Regulation allows issuers of variable life insurance to sell policies privately to pre-qualified purchasers without SEC registration?

Back 528

SEC Regulation D. (Regulation D, allows new securities to be sold without SEC registration as long as the issuer complies with this rule. Regulation D may be used for any type of security, including stock and limited partnership units, but most recently it has been used by issuers of variable life insurance policies who are selling new policies to any number of pre-qualified accredited investors who have a net worth of $1 million or more. However, Regulation D specifies that only 35 non-accredited purchasers are allowed. No public advertising is permitted).

Front 529

What open-end mutual fund could be considered to be a no-load?

Back 529

A fund with a 12-b1 fee in excess of .25% of average annual expenses. (No load funds may NOT have a front end load sales charge, a contingent deferred sales charge "back-end load" or a 12b-1 fee in excess of .25 of 1% of average annual assets).

Front 530

On an open end mutual fund the spread is also known as the?

Back 530

Sales charge and Load.(The "spread" is the difference between an open-end mutual fund's NAV (net asset value) and it's ASK or public offering price. The spread is also known as the load or the sales charge.

Front 531

On an open-end mutual fund, the redemption price is also known as the?

Back 531

Bid price and the Net asset value (NAV).

Front 532

On and open-end mutual fund, who pays the 12b-1 fee?

Back 532

The shareholders. (Since 12b-1 fees, which are also known as 'distribution' fees, are expenses of the fund they are paid by the shareholders. In other words, the higher the fund's expenses are, the less money the fund will have available to distribute to shareholders as dividends).

Front 533

Early withdrawals from a Traditional IRA are normally subject to?

Back 533

Ordinary income tax and a 10% penalty.

Front 534

Traditional IRAs are subject to Required Minimum Distribution Rules that require distributions to begin no later than April 1st of the year following the year the participant reaches age 70 1/2. If no required distributions are made, there is a penalty of?

Back 534

50%

Front 535

Rule 12b-1 fee expenditures may be used for each of the following?

Back 535

Compensation of underwriters. Printing and mailing of sales literature. Preparation of retail communications. (12b-1 fees are expenses related to the distribution of fund shares, such as the printing and mailing of advertising and retail communications, and for compensating underwriters).

Front 536

What would be the most suitable recommendation for a 75 year old retired widow who wants to generate income to supplement her social security while preserving her capital?

Back 536

U.S Government bond fund. (The U.S government bond fund offers both safety and a higher yield than a money market fund). "Think conservative for older people."

Front 537

If a client purchases a variable life insurance policy in the secondary market, what is true?

Back 537

Premiums will be based upon the insured's life. The death benefit will be paid upon the death of the insured. "A variable life insurance policy owner may sell their policy in the secondary market, which is known as a "life settlement" transaction. Although the new owner must now pay the premium and will most likely name them self as beneficiary, the premium will continue to be based upon the life of the insured and the death benefit will be paid when the insured dies. The INSURED is most likely the previous owner of the contract.

Front 538

A RR has a client who needs cash. Under FINRA rules, if the RR recommends that the client sell their variable life insurance policy to a life settlement firm, what is true?

Back 538

The RR may be compensated if paid directly by their employing firm. (FINRA rules governing the sale and distribution of variable contracts prohibit a RR from accepting any compensation from other than the member firm with which the RR is associated).

Front 539

Under FINRA rules relating to the sale of variable life insurance in the secondary market, what is true?

Back 539

RRs must obtain price quotes from multiple sources in order to satisfy best execution requirements. (When engaging in a life settlement transaction on behalf of a customer, RRs must obtain price quotes from multiple sources in order to satisfy best execution requirements).

Front 540

What is the purpose of a survivorship life insurance policy that pays only when the second party dies?

Back 540

To provide funds to pay estate taxes.

Front 541

Are gifts of a personal nature, such as wedding gifts or congratulatory gifts for the birth of a child, permissible?

Back 541

Yes.

Front 542

Who owns the rights to client accounts developed by a registered representative?

Back 542

The registered representative's broker/dealer. (Customer accounts developed by a registered representative while representing a B/D firm revert to the B/D when a registered representative terminates employment.

Front 543

Are promotional items of nominal value that display the offeror's logo, such as golf balls, shirts, towels and pens, subject to the $100 annual gift limit?

Back 543

No. This is allowed. The rules do not apply to these types of nominal promotional items.

Front 544

Copies of customer complaints must be kept for ____ years at the firm's office of supervisory jurisdiction (OSJ)?

Back 544

Four years. (A complaint is defined as a written statement by a customer or a person acting on behalf of a customer alleging a grievance in connection with a securities transaction. If a complaint cannot be resolved by the member firm, it must be referred to FINRA. If a complaint involves allegations of unlawful activities, it must be reported to FINRA within 10 business days. Copies of all complaints must be maintained at the firm's OSJ for FOUR years, along with record indicating how they were resolved.

Front 545

Under FINRA rules, all is true?

Back 545

Registered principals must approve all new accounts in writing. Registered representatives must notify their firm prior to engaging in outside business activities. Registered representatives must have the permission of their firm prior to engaging in private securities transactions.

Front 546

Which federal law classified mutual funds as "federal covered" securities?

Back 546

National Securities Markets Improvements Act of 1996. (The National Securities Markets Improvements Act of 1996 classified mutual funds as "federal covered" securities, which means they must register with the SEC, rather than with the states.

Front 547

All mutual fund advertisements, sales material and correspondence that include performance information must include a prominent "text box" that sets forth?

Back 547

Maximum sales charge, Annual Expense Ratio, and Standardized 1, 5 and 10 year return information. (12b-1 fees ARE NOT disclosed in the text box).

Front 548

All is true about the management fee on an open-end mutual fund?

Back 548

It is an annual expense of the fund, It is a component of the fund's expense ratio, It is a percentage of average annual assets, the MANAGEMENT FEE is NOT included in the spread. (Typically, the management fee is 1/2 of 1% of the fund's average net assets and is often one of the fund's highest expenses.

Front 549

FINRA administers the continuing education program for the securities industry, which consists of two mandatory programs: the Regulatory Element and the Firm Element. All registered individuals must satisfy the Regulatory Element?

Back 549

Within 120 days of their 2nd anniversary and every three years thereafter. (The Firm Element must be completed annually).

Front 550

If an 80 year old client with a traditional IRA dies, his spousal beneficiary may do all of the following?

Back 550

Transfer the assets into an "inherited" IRA and begin taking required minimum distributions over their life expectancy no later then December 31st. Transfer the assets into their own IRA and follow the same distribution rules as if the IRA had been theirs originally. Take the assets as a lump sum and pay taxes on the distribution all at once. You may NOT roll over the assets into a variable annuity and defer taxes indefinitely. (Rollovers may be made only from one qualified plan to another. Most annuities are considered to be non-qualified funds. Traditional IRAs are qualified funds).

Front 551

If a broker/dealer firm wants to terminate a RR, they have______ days to send a copy of the Form U-5 to FINRA.

Back 551

30 Days. (If a registered person leaves one firm to join another, the new employer must file a Form U-4 for the new employee and obtain a copy of the Form U-5 filed by the employer's former firm. If the new employer ask for a copy of the U-5 it must be provided in 2 business days).

Front 552

If a client who invested $1,000 in front-end load contractual plan 50 days ago wants to terminate the plan, what will he receive?

Back 552

The net asset value plus all sales charges in excess of 15% of the amount invested. (Front end load contractual plans are permitted to levy a sales charge of 50% of the total amount invested during the first year of the plan. Federal law requires that refunds be given if the customer wants to pull out of the plan within the first 45 days, they must receive a refund equal to their NAV plus all of their sales charge. If the customer wants to pull out of the plan after 45 days, but within 18 months, they are entitled to a refund equal to their NAV plus all of their sales charge except for 15% of the amount invested. If they were to pull out after 18 months, they would receive only their NAV ONLY!

Front 553

May an offeror reimburse a registered representative's "prospecting trip" expenses, such as travel and lodging expenses, meals during the trip?

Back 553

Yes.

Front 554

FINRA retains jurisdiction over a terminated registered representative for ____ years?

Back 554

Two

Front 555

All of the following are true regarding Coverdell Education Savings Accounts?

Back 555

The maximum contribution limit is $2,000 per year per beneficiary. Distributions are tax free if used for qualified education expenses. High income individuals may not contribute. (Coverdell Education Savings Accounts and Section 529 Plans are two different things entirely! The ESA (Education Savings Account) provides tax free distributions for qualified education expenses, pre-school through higher education. The 529 plan provides tax free distributions for qualified higher education expenses. Coverdell contributions are limited to $2,000 per year per beneficiary under age 18. Not everyone can contribute to a Coverdell ESA. There is not an earned income requirement, but there is an upper income threshold ($110K AND $220K if filing separately) above which you cannot contribute to an ESA.

Front 556

A RR engaging in which of the following outside activities need not report it to their broker/dealer firm?

Back 556

Church choir leader. (Engaging in a passive activity, such as leading the church choir, volunteering is not considered to be outside employment or business activity.

Front 557

What is the main difference between a Coverdell ESA and a Section 529 plan?

Back 557

Contribution limits. (Section 529 plans allow for a maximum annual contribution of 5 times the gift tax exclusion for the year as long as no more gifts are given to that person for the next 5 years. Coverdell contributions are limited to $2,000 per year per beneficiary.

Front 558

A RR's home office is not considered to be a branch office as long as?

Back 558

Both their home address and principal business address appears on their business cards.

Front 559

A federal tax that is designed to ensure that individuals, trusts, estates and corporations pay at least some income tax is known as the?

Back 559

Alternative Minimum Tax. (AMT)

Front 560

All are characteristics of class B mutual fund shares?

Back 560

Most suitable for buy and hold investors, Contingent deferred sales charge (also known as back-end load), higher 12b-1 fees than class A shares. (Class A shares have a front loaded sales charge

Front 561

A married couple filed a joint income tax return reporting modified adjusted gross income of $200,000. Assuming both are over age 50, how much could they each contribute in pre-tax dollars into a Roth IRA?

Back 561

Zero. (ROTH IRA contributions are always made in after tax dollars. Although there are no maximum income limits for contributions to a traditional IRA.

Front 562

All of the following must appear on a business card?

Back 562

Name of broker/dealer, Name of registered representative, and Broker/dealer's phone number. (The name of the registered principal does NOT have to be on the card).

Front 563

Broker/dealers must keep records of each retail communication for _____ years?

Back 563

Three years. (Member firms must keep a separate file containing all retail communications, starting from the date of first use and continuing for three years after last use).

Front 564

Hedge funds differ from mutual funds in all of the following ways?

Back 564

Fee charged, Liquidity, Investor Suitability. (Hedge fund advisers are required to be registered with the SEC and are generally under the same requirements as mutual fund advises).

Front 565

Currency transaction reports (CTRs) are required to filed on wire transfers in excess of?

Back 565

$3,000

Front 566

A client that want to invest in the gold mining industry should invest in a ______ fund?

Back 566

Precious Metals/ (A precious metals fund is a type of sector fund that invests almost exclusively in the stock of mining companies involved in the extraction of precious metals.

Front 567

A 65 year old retired client who seek to supplement his retirement income has an investment objective of?

Back 567

Income. (Most retirees have little need for tax shelter since they are in lower tax brackets and they are unable to wait very long for their invested capital to grow. Money market funds are designed to provide preservation of capital, but provide little income in periods of low interest rates).

Front 568

If a broker/dealer receives a complaint about a RR and subsequently clears the RR from any wrong doing, what should they do with the complaint?

Back 568

Keep it on file. (Copies of all complaints must be maintained at the firm's OSJ for four years, along with a record indicating how they were resolved. Complaints kept for 4 years!

Front 569

The biggest risk involved in managing an international fund is related to changes in?

Back 569

Currency exchange rates. (International funds invest only in the securities of foreign countries, which involves substantial currency risk, which is the risk that changes in the rate of exchange will adversely affect an investment.

Front 570

A young, working married couple has saved $15,000 towards a down payment for a home they hope to buy in two years. Which of the following investments would best suit their objective?

Back 570

Money market fund. (The money market fund offers a highly liquid investment that will keep their money safe during their relatively short time horizon).

Front 571

As a self-regulatory organization, FINRA has the authority to?

Back 571

Issue rules. (FINRA does NOT have the authority to issue court orders, make securities or issue injunctions.

Front 572

The right to exchange the shares of one mutual fund for shares of another mutual fund without a sales charge usually applies when the exchange is made between?

Back 572

Funds in the same family.

Front 573

If a customer wants to invest money in a mutual fund and hold those shares for a long period of time, which class of shares would you recommend?

Back 573

Class B Shares. (Further Class B Shares may initially be subject to higher 12b-1 distribution fees than Class A shares, most Class B shares will automatically convert to Class A shares if held long enough).

Front 574

A 35 year old employed married couple wants to save money in order to send their twins to college in 15 years. Which of the following investments would be most suitable in view of their investment objectives?

Back 574

Growth stocks. (In view of their 15 year time horizon, which will enable them to ride out short term fluctuations of the stock market, this couple should invest in a diversified portfolio of long term growth stocks rather than income producing securities).

Front 575

Broker/dealer firms must conduct a compliance review with all their registered representatives how often?

Back 575

Annually. (FINRA rules require that member firms conduct an annual compliance review designed to address compliance issues and questions. All registered representatives and registered principals are required to attend).

Front 576

As a Registered Representative, when are you allowed to process unsolicited request?

Back 576

At any time. (Solicited request should only be between 8am and 9pm of the persons location).

Front 577

Using multiple asset classes in an investment portfolio reduces which type of risk?

Back 577

Market risk. (Investing in multiple asset classes including stocks, bonds, real estate, precious metals and cash equivalents will reduce market risk).

Front 578

What is true about required minimum distributions from traditional IRAs?

Back 578

They are mandatory as of April 1st following the calendar year in which the owner reaches age 70 1/2.

Front 579

What type of annuity guarantees a states interest rate and provides an opportunity to earn additional interest based upon the performance of a securities market index?

Back 579

Equity index annuity. (Unlike a traditional fixed annuity, an equity index annuity credits interest to the owner's account based upon the performance of a particular stock index, often the S&P 500. If the index does well, the owner participates in the growth of the index. If the index does poorly, the owner will receive the contract's guaranteed minimum rate of return.

Front 580

Investors who acquire restricted or control securities may resell them in the market without registration if they comply with?

Back 580

SEC Rule 144. (In order to resell restricted or control securities , they must either by registered or sold under SEC Rule 144, which allows them to be sold to the public if certain conditions are met. RRs may NOT solicit orders to sell restricted or control securities).

Front 581

At their request, a B/D may hold the mail of a customer who is traveling out of the country for up to?

Back 581

3 months.

Front 582

A firm that stands ready to buy or sell specified securities from their inventory position at states prices in the secondary market is known as a?

Back 582

Market maker.

Front 583

When a B/D firm receives a large buy order from a customer and buys the same stock their own account prior to executing the customer's order, they are guilty of?

Back 583

Front running. (Front running is an unethical business practice that involves placing a personal order ahead of a large, previously received order from a customer that may move the market. By running in front of the customer's order a registered representative or firm may profit. and it's unethical).

Front 584

When a healthy person sells their variable life insurance policy to a third party for less than its net death benefit, but for more than its cash surrender value, this transaction is known as?

Back 584

Life settlement. (Life settlements involve selling an existing life insurance policy to a third party for less than the net death benefit, but for more than the cash surrender value).

Front 585

All of the following are guaranteed by the issuer of a variable annuity?

Back 585

Mortality expenses, Administrative expenses, Operating expenses. (Variable annuities to NOT have a guaranteed rate of return).

Front 586

In order to register as a RR, individuals must complete Form?

Back 586

U-4. (Should a RR person resign or be terminated, the member must file Form U-5 within 30 days of the termination date).

Front 587

New FINRA members and firms who have not filed advertising previously must pre-file all advertisements with the FINRA Advertising Department at least 10 days prior to first use for a period of how long?

Back 587

12 months. After one year, such firms must file their advertising within 10 days of first use. The one year period of time begins on the date that the firm is registered in FINRA's CRD system.

Front 588

Under the Anti-Money Laundering Regulations, when a registered representative notices that their client makes several wire transfers of less than $10,000 to accounts in other states they should?

Back 588

Complete a Suspicious Activity Report (SAR). (Anytime a client makes multiple transactions for under $10,000 that would be cause for the filing for filing a SAR.

Front 589

Under FINRA rules, the maximum illustrated hypothetical rate of return that can be used in sales literature regarding variable life or variable annuities is?

Back 589

12%. A RR may use any combination of assumed rates of return up to and including a rate of 12% as long as one of the returns shown is a 0%.

Front 590

Regarding variable life insurance products, what is true regarding the illustration of mathematical principals?

Back 590

Illustrations may be used if FINRA rules are followed, The illustration can use up to a 12% rate of return, so long as it also shows a 0% rate of return. (Illustrations of the mathematical principles underlying variable life insurance are allowed if FINRA rules are followed. An illustration may never be used to predict the future. The illustration may include up to a 12% gross rate of return, so long as the illustration also includes a 0% rate of return. The illustration must also include the MAXIMUM Not the minimum mortality and expense charges associated with each rate of return).

Front 591

The Bank Secrecy Act requires financial institutions to file Currency Transaction Reports with the Financial Crimes Enforcement Network (FINCEN), which is a division of the federal _______ Department.

Back 591

Treasury. FINCEN is a part of the federal treasury department.

Front 592

Regulation S-P is a federal regulation that?

Back 592

Requires firms to deliver a privacy notice to new customers. (Regulation S-P requires member firms to disclose their policies and procedures regarding customer privacy no later than when the customer relationship is established, usually at the time a new customer account is opened. Customers must also be given an updated notice at least annually).

Front 593

Regulation D is a federal regulation that?

Back 593

Regulates the sale of private placements. (SEC Regulation D is the federal private placement rule, which states that new securities may be sold without federal registration as long as sales are made to 35 or less non-accredited investors. There is no limit on the number of accredited investors that may subscribe to a private offering.

Front 594

When would you be allowed to share your commission?

Back 594

With another Registered Representative of your firm. (You are allowed to share your commission with another registered representative that is also employed by your broker/dealer or by a broker/dealer firm controlled by your firm).

Front 595

What is correct regarding a hearing with FINRA?

Back 595

The respondent has the right to an attorney, Fines after a hearing may be unlimited, The respondent may be subject to suspension or expulsion. (The respondent does NOT have the right to have the hearing removed to a court of law).

Front 596

If a RR is asked to give a power point presentation to a group regarding the merits of investing in various mutual funds, whose approval is required?

Back 596

The registered representative's registered principal. (A public appearance is defined as participation in a seminar, forum (including an interactive electronic forum), radio or TV interview, or other public appearance or public speaking activity. Generally, seminar scripts are considered to be sales literature and are subject to the approval of a registered principal prior to use).

Front 597

A client is confused when an open-end mutual fund with a sales charge of 8% is quoted with an ask price of $10.87 and a bid price of $10.00. What can you tell her?

Back 597

The sales charge is quoted as a percentage of the ask price, not the bid. (On an open-end mutual fund, the sales charge is always calculated as a percentage of the ASK price, which in this case is $10.87. The difference between the ASK price and the BID prices is known as the "spread", which in this case is $.87. The spread is also known as the sales charge, or load. 8% of $10.87 is .87 cents.

Front 598

On September 1st an investor redeemed their shares of the XYZ growth fund at a loss and reinvested the proceeds in the ABC money market fund. If the investor redeems his ABC shares on September 25th and reinvests the proceeds back into the XYZ growth fund, his loss on September 1st?

Back 598

This is not allowed. (Under the wash sale rule, you cannot take a loss on a security you purchase within 30 days of selling it at a loss. The rule actually says that a loss is disallowed if you buy back the same security, or a substantially similar security, within 30 days before or after selling it at a loss).

Front 599

SEC Regulation D allows issuers to sell securities to an unlimited number of accredited investors without registration. All of the following are considered to be accredited investors?

Back 599

A natural person who has a net worth that exceeds $1,000,000. Registered investment companies. Banks and insurance companies. (Registered investment advisers would NOT be an accredited investor).

Front 600

A registered representative may borrow money from a client?

Back 600

With the written consent of their broker/dealer. (RRs who wish to borrow from or lend money to customers are required to provide prior written notice to their firm and the firm must approve the arrangement in writing. RRs may only borrow money from immediate family members, are in the business of lending money, are registered representatives of the same firm, have a personal relationship with the registered representative outside the broker/customer relationship, have a business relationship with the registered representative outside the broker/customer relationship.

Front 601

A customer will receive a mutual fund dividend if they own shares on the?

Back 601

Record date. (The ex-dividend date on mutual funds is set by the fund's board of directors and it is usually the day after the record date. If an investor's name appears on the ownership rolls of the fund on the record date, they will receive the dividend).

Front 602

Prior to making a recommendation to a customer, a RR must have ______________________ that their recommendation is suitable, based upon the customer's risk tolerance, other security holdings, financial situation (income and net worth), financial needs and investment objectives.

Back 602

A reasonable grounds for believing. (FINRA Rules concerning suitability states that a RR shall have "reasonable grounds for believing that their recommendation is suitable for such customer upon the basis of the facts disclosed by the customer as to his other security holdings and as to his financial situation and needs."

Front 603

What is considered regular way settlement under FINRA's Uniform Practice Code?

Back 603

T+3 business days.

Front 604

What communications must be approved by a registered principal prior to use?

Back 604

A letter recommending the firm's services, to be sent to 35 potential customers. An advertisement for a new mutual fund, to be placed in several financial magazines. (A retail communication includes and written (including electronic) communication that is distributed or made available to more than 25 retail investors within any 30 calendar-day period. Advertisements are considered to be retail communications as well. A letter send to less than 25 is considering to be correspondence. Correspondence need not to be approved by a registered principal prior to use, although it is subject to review).

Front 605

According to FINRA rules, the maximum sales charge on a variable annuity is?

Back 605

The sales charge must be reasonable. (The maximum sales charge allowed under FINRA rules for open-end mutual funds is 8.5% of the ASK price. This question however is in regards to a variable annuity. Variable products sales charges must be reasonable).

Front 606

A registered representative who learns of a customer's death should?

Back 606

Cancel all open orders. (The RR must mark the account deceased, cancel all open orders and await the appropriate legal documents, death certificate as an example).

Front 607

When a RR engages in outside securities transactions without the knowledge of their firm, it is known as?

Back 607

Selling away. (FINRA Rule 3040 deals with private securities transactions, which is also known as "selling away."

Front 608

All of the following are true about closed-end mutual funds?

Back 608

May sell at a discount from NAV, Have a fixed number of shares, Are sold in the secondary market with prices set by supply and demand. Both open-end and closed-end mutual funds are classified as "management" companies, since they both hire investment advisory firms to professionally manage their portfolios).

Front 609

Decisions made under FINRA's Code of Arbitration?

Back 609

Are binding on all parties. (Findings under FINRA'S Code of Arbitration Procedure are binding on all parties involved and cannot be appealed).

Front 610

All of the following are true regarding mutual fund "Profiles"?

Back 610

They are also known as a "standardized" summary, They may contain an application to invest, Investors who buy based upon a Profile must receive a full prospectus. The CAN be sent without a prospectus. (A profile (or standardized summary) includes the key information contained in a mutual fund prospectus, along with an application to invest. Potential investors who receive Profiles have the option of purchasing shares or requesting a full prospectus).

Front 611

The mutual fund transfer agent is responsible for?

Back 611

Issuing new shares and cancelling redeemed shares as well as sending out customer confirmations and fund distributions. A mutual fund transfer agent is responsible for disbursing dividend and capital gain distributions to shareholders.

Front 612

A mutual fund custodian is responsible for?

Back 612

Safeguarding the physical assets of the fund, Paying for portfolio transactions made by the fund, Receiving dividends and interest on portfolio securities. (A mutual fund custodian is not responsible for disbursing dividends and capital gain distributions to shareholders, that would be the transfer agent).

Front 613

Regular Arbitration is available for disputes amount to $_________?

Back 613

The Regular arbitration procedure, which involves an arbitration panel, is available for public and industry disputes without dollar limit.

Front 614

If registered representative send out 30 different emails to 30 different customers, her communications are considered to be?

Back 614

Correspondence. (If the same email was sent to more than 25 retail customers within any 30 day period, it would be classified as a retail communication, which always requires prior principal approval).

Front 615

Customer complaints regarding which of the following requires member firms to notify FINRA promptly?

Back 615

A RR engages in the misappropriation of customer funds or securities. A RR forges a customer's name on a power of attorney granting discretion. (If a member firm receives a customer complaint alleging theft, misappropriation of customer assets or forgery, the member must notify FINRA promptly, no late than within 30 calendar days).

Front 616

Class A shares of a mutual fund usually have?

Back 616

Front-end sales charge. (Class A shares have a front-end loaded sales charge "maximum 8.5% of the ASK price". Class B shares have a back-end load, which is also known as a contingent deferred sales charge. Class C shares have little or no sales charge at all, but often impose redemption fees is shares are redeemed within the first year).

Front 617

Monetary disputes of up to how much are handled through Simplified Arbitration?

Back 617

$50,000. (FINRA's Simplified Arbitration Procedure handles disputes of $50,000 or less).

Front 618

If a B/D firm requires customers to sign a pre-dispute arbitration agreement when opening a new account, the agreement must state all of the following?

Back 618

Arbitration is final and binding upon the parties, The parties waive their right to go to court, Arbitration procedures are more limiting than court proceedings. (Pre-dispute arbitration agreements are included in most new account forms. However, such agreements must disclose to the customer that they are waiving their right to go to court, that arbitration may be more limiting than a court procedure and that there is no appeal from arbitration).

Front 619

If a RR of B/D firm opens an account at another member firm to purchase shares of an open-end mutual fund, the executing member firm must?

Back 619

Open the account and process orders as per their usual procedures. (Although special rules apply when a registered representative with one firm seeks to open a trading account with another member firm, those rules do NOT apply when the registered representative is opening an account elsewhere just to buy shares of an open-end mutual fund).

Front 620

What is true regarding sales contests held by broker/dealers?

Back 620

Sales contests are allowed if NASD and FINRA rules are followed. The sales contest must include total production. All products must be given equal weighting. (NASD Rule 2830 and FINRA Rule 2320 govern sales contests. These rules require that the sales contest include total production and equal weighting of all available products. Pre-approval of sales contests by FINRA is NOT required).

Front 621

What is true concerning arbitration?

Back 621

There is a six year statue of limitations. Al awards must be paid within 30 days of a decision. Decisions are final and binding on all parties. It is mandatory for member-to-member or associated person disputes. However, customers have the option to arbitrate a dispute or bring a lawsuit, unless they signed a pre-dispute arbitration agreement when they opened their account).

Front 622

What is true regarding the tax implications of variable life insurance?

Back 622

Upon death, the proceeds are included in the value of the insured's estate. Death benefits payable to a beneficiary are not taxable. (On life insurance, whether it is variable or not, the death benefit payable to a beneficiary is not taxable but the policy proceeds are included in the value of the insured's estate. Policy loans are not taxable, but cash surrenders are to e extent that the amount received exceeds the amount of premiums paid in.