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Question 1 of 10
1. Question
Which of the following statements is false regarding Money market funds?
Correct
Money market funds
Money market funds play an important role for investors in providing both security of principal and liquidity. Specific examples of short-term instruments include:
Treasury bills: fixed income securities issued by the US government with durations of one year or less. Due to their short duration, these securities do not make coupon payments but are issued at a discount from par so that the return occurs through the increase from the purchase price to par over the
duration of the security.
Certificates of deposit: securities issued by banks with fixed interest payments and maturities up to five years. Certificates of deposit are also
guaranteed by the FDIC in the same way that banks accounts are protected.
Commercial paper: fixed income securities issued by companies to finance short-term obligations. Commercial paper is issued at a discount to par and
does not make interest payments. Durations of 270 days or less do not require registration with the SEC.
Bankers acceptances: fixed income securities issued by firms to finance short-term obligations and are guaranteed by a commercial bank. Durations
typically range only up to one year. Bankers acceptances are issued at a discount to par and do not make interest payments.Incorrect
Money market funds
Money market funds play an important role for investors in providing both security of principal and liquidity. Specific examples of short-term instruments include:
Treasury bills: fixed income securities issued by the US government with durations of one year or less. Due to their short duration, these securities do not make coupon payments but are issued at a discount from par so that the return occurs through the increase from the purchase price to par over the
duration of the security.
Certificates of deposit: securities issued by banks with fixed interest payments and maturities up to five years. Certificates of deposit are also
guaranteed by the FDIC in the same way that banks accounts are protected.
Commercial paper: fixed income securities issued by companies to finance short-term obligations. Commercial paper is issued at a discount to par and
does not make interest payments. Durations of 270 days or less do not require registration with the SEC.
Bankers acceptances: fixed income securities issued by firms to finance short-term obligations and are guaranteed by a commercial bank. Durations
typically range only up to one year. Bankers acceptances are issued at a discount to par and do not make interest payments. -
Question 2 of 10
2. Question
Which of the following statements is true regarding Diversified and non-diversified mutual funds?
Correct
Diversified and non-diversified mutual funds
The investment universe provides for a wide array of available mutual funds, ranging from those that specialize in a given industry, sector, or valuation (nondiversified funds) to those that are meant to provide the investor with some level of risk mitigation through diversification, such as balanced funds or target date funds. In order to qualify as a diversified fund under the various tax and securities laws, a fund must meet the tax laws and the securities lawsIncorrect
Diversified and non-diversified mutual funds
The investment universe provides for a wide array of available mutual funds, ranging from those that specialize in a given industry, sector, or valuation (nondiversified funds) to those that are meant to provide the investor with some level of risk mitigation through diversification, such as balanced funds or target date funds. In order to qualify as a diversified fund under the various tax and securities laws, a fund must meet the tax laws and the securities laws -
Question 3 of 10
3. Question
Which of the following statements is true regarding Offering price of a mutual fund?
Correct
Offering price of a mutual fund
The offering price, or public offering price, of a mutual fund is the price at which the fund can be purchased by an investor. The offering price may be identical to the net asset value (the total value of fund assets less expenses divided by the number of outstanding shares) or may differ depending upon whether any sales loads are charged. The offering price is simply equal to the net asset value plus any applicable sales loads that the fund charges.Incorrect
Offering price of a mutual fund
The offering price, or public offering price, of a mutual fund is the price at which the fund can be purchased by an investor. The offering price may be identical to the net asset value (the total value of fund assets less expenses divided by the number of outstanding shares) or may differ depending upon whether any sales loads are charged. The offering price is simply equal to the net asset value plus any applicable sales loads that the fund charges. -
Question 4 of 10
4. Question
Which of the following statements is true regarding primary share classes?
Correct
For most investors, there are three primary share classes available within mutual funds that provide for varying expense structures depending upon the investors expected holding period:
Class A shares charge investors a front-end sales charge but typically charge lower annual 12b-1 fees than other share classes.
Class B shares do not charge a front-end sales charge and instead impose a contingent deferred sales charge (CDSC) according to a defined schedule
over the first several years of holding the fund (often six years).
Class C shares do not charge a front-end sales charge and usually impose some type of percentage-based fee if the shares are sold within a short time
from the date of purchase (i.e., one year). Also, the 12b-1 fees are higher and the shares never convert into B shares or C shares.Incorrect
For most investors, there are three primary share classes available within mutual funds that provide for varying expense structures depending upon the investors expected holding period:
Class A shares charge investors a front-end sales charge but typically charge lower annual 12b-1 fees than other share classes.
Class B shares do not charge a front-end sales charge and instead impose a contingent deferred sales charge (CDSC) according to a defined schedule
over the first several years of holding the fund (often six years).
Class C shares do not charge a front-end sales charge and usually impose some type of percentage-based fee if the shares are sold within a short time
from the date of purchase (i.e., one year). Also, the 12b-1 fees are higher and the shares never convert into B shares or C shares. -
Question 5 of 10
5. Question
Which of the following statements is true regarding Sales charges and expenses for mutual funds?
Correct
Sales charges and expenses for mutual funds
Mutual funds contain a number of different fees and expenses, and it is important for investors to understand how each will impact their investment performance prior to selecting a fund.
Front-End Sales Charge: This fee is imposed when Class A shares are purchased.
Contingent Deferred Sales Charge (CDSC): A CDSC is normally imposed on Class B shares and follows a declining schedule as a percentage of assets
redeemed.
Asset Based Charges: Mutual funds also charge an amount against invested assets each year that includes charges related to management fees,
marketing, and distribution fees (12b-1 fees), fees to the fund’s investment adviser, transfer agent, and custodian, and any other operating expenses.Incorrect
Sales charges and expenses for mutual funds
Mutual funds contain a number of different fees and expenses, and it is important for investors to understand how each will impact their investment performance prior to selecting a fund.
Front-End Sales Charge: This fee is imposed when Class A shares are purchased.
Contingent Deferred Sales Charge (CDSC): A CDSC is normally imposed on Class B shares and follows a declining schedule as a percentage of assets
redeemed.
Asset Based Charges: Mutual funds also charge an amount against invested assets each year that includes charges related to management fees,
marketing, and distribution fees (12b-1 fees), fees to the fund’s investment adviser, transfer agent, and custodian, and any other operating expenses. -
Question 6 of 10
6. Question
Which of the following statements is false regarding Role of dividends?
Correct
Role of dividends
Open-end investment companies, or mutual funds, distribute any dividends and realized capital gains back to investors as current income. Once this occurs, those distributions are no longer part of the fund’s assets. However, this distribution has no impact on the total number of shares outstanding. As a result, any distributions of dividends and capital gains from the fund have the effect of reducing the net asset value, which is defined as the total assets held by the fund less operating expenses and divided by the number of outstanding shares.Incorrect
Role of dividends
Open-end investment companies, or mutual funds, distribute any dividends and realized capital gains back to investors as current income. Once this occurs, those distributions are no longer part of the fund’s assets. However, this distribution has no impact on the total number of shares outstanding. As a result, any distributions of dividends and capital gains from the fund have the effect of reducing the net asset value, which is defined as the total assets held by the fund less operating expenses and divided by the number of outstanding shares. -
Question 7 of 10
7. Question
Which of the following statements is true regarding Breakpoints?
Correct
Breakpoints are frequently offered to investors purchasing Class A shares to minimize the impact of the front-end sales charge. Depending upon the specific fund family, a fund may offer specific increasing reductions in the front-end sales charge for larger purchases or with commitments to future purchases.
Incorrect
Breakpoints are frequently offered to investors purchasing Class A shares to minimize the impact of the front-end sales charge. Depending upon the specific fund family, a fund may offer specific increasing reductions in the front-end sales charge for larger purchases or with commitments to future purchases.
-
Question 8 of 10
8. Question
Which of the following statements is true regarding Letters of intent?
Correct
Letters of intent
Letters of intent allow investors to commit to a certain level of purchases over some specified future period of time (typically 90 days before the letter through 13 months following the letter) to achieve breakpoint pricing on front-end sales loads. If an investor unexpectedly is not able to complete all of the purchases required in the letter of intent to achieve the breakpoint pricing, the fund has the ability to retroactively apply the higher front-end sales charge that would have been collected.Incorrect
Letters of intent
Letters of intent allow investors to commit to a certain level of purchases over some specified future period of time (typically 90 days before the letter through 13 months following the letter) to achieve breakpoint pricing on front-end sales loads. If an investor unexpectedly is not able to complete all of the purchases required in the letter of intent to achieve the breakpoint pricing, the fund has the ability to retroactively apply the higher front-end sales charge that would have been collected. -
Question 9 of 10
9. Question
Which of the following statements is true regarding Rights of accumulation?
Correct
Rights of accumulation
Rights of accumulation within the context of a mutual fund purchase refers to the practice whereby a mutual fund family will consider other purchases and other current holdings in determining whether or not an investor qualifies for breakpoint pricing on the front-end sales charge. The fund family will look at the total amount you have invested in the past, and may also be willing to consider amounts invested in other asset classes and styles under the same fund family, other types of accounts you hold whether retirement or education savings accounts, and accounts of direct family members such as spouses or children.Incorrect
Rights of accumulation
Rights of accumulation within the context of a mutual fund purchase refers to the practice whereby a mutual fund family will consider other purchases and other current holdings in determining whether or not an investor qualifies for breakpoint pricing on the front-end sales charge. The fund family will look at the total amount you have invested in the past, and may also be willing to consider amounts invested in other asset classes and styles under the same fund family, other types of accounts you hold whether retirement or education savings accounts, and accounts of direct family members such as spouses or children. -
Question 10 of 10
10. Question
Which of the following statements is true regarding Redemption of mutual fund shares?
Correct
Redemption of mutual fund shares
Contrary to an investment in an equity or fixed income security of a single issuer, investors in mutual funds have the ability to redeem either whole or fractional shares. This is particularly beneficial for smaller investors in their establishment of diversified investment portfolios. If investors had to purchase whole shares of each underlying security within a portfolio, it would be extremely difficult to manage asset allocation and would result in significant fund requirements to make additional purchases or liquidate positions.Incorrect
Redemption of mutual fund shares
Contrary to an investment in an equity or fixed income security of a single issuer, investors in mutual funds have the ability to redeem either whole or fractional shares. This is particularly beneficial for smaller investors in their establishment of diversified investment portfolios. If investors had to purchase whole shares of each underlying security within a portfolio, it would be extremely difficult to manage asset allocation and would result in significant fund requirements to make additional purchases or liquidate positions.