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Question 1 of 10
1. Question
What is the purpose of the prospectus?
Correct
The purpose of the prospectus is to ensure that investors have access and are provided with, prior to the purchase of a security, a minimal level of information that is necessary for the investment decision-making process. Such information within the prospectus includes a mutual fund’s objectives, strategy, risks, fees and expenses, and past performance.
Incorrect
The purpose of the prospectus is to ensure that investors have access and are provided with, prior to the purchase of a security, a minimal level of information that is necessary for the investment decision-making process. Such information within the prospectus includes a mutual fund’s objectives, strategy, risks, fees and expenses, and past performance.
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Question 2 of 10
2. Question
Which of the following statements is false regarding the Securities Act of 1933?
Correct
The Securities Act of 1933 defines offer to sell as including “every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value.” However, the act does further clarify that an offer to sell does not include preliminary negotiations or agreements between an issuer and an underwriter who are in contract with an issuer. The act defines prospectus as “any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security.” The act goes on to clarify that a notice, circular, letter, or advertisement is not considered to be a prospectus so long as it states from whom a prospectus can be obtained and does not do any more than identify the security and the price and state from which orders will be executed.
Incorrect
The Securities Act of 1933 defines offer to sell as including “every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value.” However, the act does further clarify that an offer to sell does not include preliminary negotiations or agreements between an issuer and an underwriter who are in contract with an issuer. The act defines prospectus as “any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security.” The act goes on to clarify that a notice, circular, letter, or advertisement is not considered to be a prospectus so long as it states from whom a prospectus can be obtained and does not do any more than identify the security and the price and state from which orders will be executed.
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Question 3 of 10
3. Question
Which of the following statement is NOT one of the contents of a security’s prospectus?
Correct
A security’s prospectus must include certain relevant information related to the fund’s investment objectives, policies and asset allocation, or risk management restrictions. Typically, the prospectus contains a brief sentence or paragraph explaining the overarching objective of the fund. For instance, one objective might be “to achieve maximum total long-term return by investing in investment grade debt securities of varying maturities.” The prospectus will also include several paragraphs outlining the specific strategy employed, and any restrictions in place, in order to achieve the stated objective.
Incorrect
A security’s prospectus must include certain relevant information related to the fund’s investment objectives, policies and asset allocation, or risk management restrictions. Typically, the prospectus contains a brief sentence or paragraph explaining the overarching objective of the fund. For instance, one objective might be “to achieve maximum total long-term return by investing in investment grade debt securities of varying maturities.” The prospectus will also include several paragraphs outlining the specific strategy employed, and any restrictions in place, in order to achieve the stated objective.
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Question 4 of 10
4. Question
In order to stay true to its asset class and style, how much a fixed income fund may be required to maintain?
Correct
The prospectus will also include several paragraphs outlining the specific strategy employed, and any restrictions in place, in order to achieve the stated objective. For instance, a fixed income fund may be required to maintain at least an 80% allocation to fixed income securities in order to stay true to its asset class and style.
Incorrect
The prospectus will also include several paragraphs outlining the specific strategy employed, and any restrictions in place, in order to achieve the stated objective. For instance, a fixed income fund may be required to maintain at least an 80% allocation to fixed income securities in order to stay true to its asset class and style.
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Question 5 of 10
5. Question
In which section of the prospectus are any discounts or waivers detailed?
Correct
A security’s prospectus must include certain relevant information related to the fund’s sales loads, fees, and share classes. The mutual fund prospectus will include a detailed table showing the applicable fees, in percentages, for each available share class. Fees may include maximum sales charge loads, management fees, distribution and service fees (12b-1), and other expenses that are part of the cost of operating the fund. In some circumstances, there may also be potential credits to the investor such as fee waivers, expense reimbursements, or breakpoints for large purchases. Any such discounts or waivers will also be detailed in this section of the prospectus.
Incorrect
A security’s prospectus must include certain relevant information related to the fund’s sales loads, fees, and share classes. The mutual fund prospectus will include a detailed table showing the applicable fees, in percentages, for each available share class. Fees may include maximum sales charge loads, management fees, distribution and service fees (12b-1), and other expenses that are part of the cost of operating the fund. In some circumstances, there may also be potential credits to the investor such as fee waivers, expense reimbursements, or breakpoints for large purchases. Any such discounts or waivers will also be detailed in this section of the prospectus.
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Question 6 of 10
6. Question
Which of the following is NOT a way for investors to capitalize on reduced sales loads?
Correct
A security’s prospectus must include certain relevant information related to each share class’s breakpoints, rights of accumulation, combination of accounts, and letters of intent. Some funds may offer “breakpoints,” or reduced sales loads, as the size of your investment increases. The prospectus provides the investor with additional information as to whether this is available for a given share class and, if so, at what size the breakpoint would take effect. Another way for investors to capitalize on reduced sales loads is through rights of accumulation. If the prospectus offers this option, all accounts owned by family members living at the same address can be combined and considered in reducing the sales loads on a new purchase. Finally, an investor does not necessarily have to invest the full amount immediately.
Incorrect
A security’s prospectus must include certain relevant information related to each share class’s breakpoints, rights of accumulation, combination of accounts, and letters of intent. Some funds may offer “breakpoints,” or reduced sales loads, as the size of your investment increases. The prospectus provides the investor with additional information as to whether this is available for a given share class and, if so, at what size the breakpoint would take effect. Another way for investors to capitalize on reduced sales loads is through rights of accumulation. If the prospectus offers this option, all accounts owned by family members living at the same address can be combined and considered in reducing the sales loads on a new purchase. Finally, an investor does not necessarily have to invest the full amount immediately.
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Question 7 of 10
7. Question
What are the information the prospectus will include concerning the limitations on methods of sale?
Correct
The mutual fund prospectus must provide the potential investor with necessary information on how to acquire shares of the fund. This may include through an authorized intermediary or distributor, by mail, by telephone, online, by bank wire, or by ACH. In addition to the various methods of purchase, the prospectus will contain additional information regarding the fund pricing and net asset value calculations as well as additional information regarding the costs to open various accounts and the types of personal information that will be required upon purchase.
Incorrect
The mutual fund prospectus must provide the potential investor with necessary information on how to acquire shares of the fund. This may include through an authorized intermediary or distributor, by mail, by telephone, online, by bank wire, or by ACH. In addition to the various methods of purchase, the prospectus will contain additional information regarding the fund pricing and net asset value calculations as well as additional information regarding the costs to open various accounts and the types of personal information that will be required upon purchase.
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Question 8 of 10
8. Question
“Correspondence” is one of the definitions Rule …. provide for?
Correct
NASD Rule 2210 Communications with the Public provides for the following definitions: “Sales Literature” and “Correspondence”.
Incorrect
NASD Rule 2210 Communications with the Public provides for the following definitions: “Sales Literature” and “Correspondence”.
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Question 9 of 10
9. Question
How many types of communications covered under FINRA Rule 3230?
Correct
The types of communications covered under FINRA Rule 3230 include:
i. Outbound calls from a member or associated person of a member to a non- broker dealer, including to wireless telephone numbers.
ii. Outbound calls that have been outsourced to a third party.
iii. Abandoned calls, which are those not answered by someone at the member within two seconds of the person’s completed greeting.
iv. Prerecorded messages.Incorrect
The types of communications covered under FINRA Rule 3230 include:
i. Outbound calls from a member or associated person of a member to a non- broker dealer, including to wireless telephone numbers.
ii. Outbound calls that have been outsourced to a third party.
iii. Abandoned calls, which are those not answered by someone at the member within two seconds of the person’s completed greeting.
iv. Prerecorded messages. -
Question 10 of 10
10. Question
Which of the following statements is true regarding telemarketing?
Correct
FINRA Rule 3230 sets forth guidance on telemarketing activities. For purposes of this rule, the term telemarketing is defined as consisting of or relating to a plan, program, or campaign involving at least one outbound telephone call, for example cold-calling. The term does not include the solicitation of sales through the mailing of written marketing materials, when the person making the solicitation does not solicit customers by telephone but only receives calls initiated by customers in response to the marketing materials and during those calls takes orders only without further solicitation.
Incorrect
FINRA Rule 3230 sets forth guidance on telemarketing activities. For purposes of this rule, the term telemarketing is defined as consisting of or relating to a plan, program, or campaign involving at least one outbound telephone call, for example cold-calling. The term does not include the solicitation of sales through the mailing of written marketing materials, when the person making the solicitation does not solicit customers by telephone but only receives calls initiated by customers in response to the marketing materials and during those calls takes orders only without further solicitation.