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Question 1 of 10
1. Question
Which of the following statements is true regarding Signature guarantee?
Correct
Signature guarantee
In order to process certain mutual fund transactions, such as redemptions of shares within a short time frame following a change of address or bank account information, a fund company can require the investor to provide a signature guarantee. A signature guarantee is a written endorsement from an eligible institution certifying that the signature on the redemption request is valid.Incorrect
Signature guarantee
In order to process certain mutual fund transactions, such as redemptions of shares within a short time frame following a change of address or bank account information, a fund company can require the investor to provide a signature guarantee. A signature guarantee is a written endorsement from an eligible institution certifying that the signature on the redemption request is valid. -
Question 2 of 10
2. Question
Which of the following statements is false regarding Clearly stated investment objectives?
Correct
Clearly stated investment objectives
It is critically important for each fund to have a clearly stated investment objective outlined in the prospectus and statement of additional information so that investors have a clear expectation of the objectives and constraints of the fund. A fund’s investment objectives should also specify the types of securities in which the fund will invest. While the portfolio manager and research analysts retain discretion over the securities in which they invest, they must remain within the stated objectives of the fund.Incorrect
Clearly stated investment objectives
It is critically important for each fund to have a clearly stated investment objective outlined in the prospectus and statement of additional information so that investors have a clear expectation of the objectives and constraints of the fund. A fund’s investment objectives should also specify the types of securities in which the fund will invest. While the portfolio manager and research analysts retain discretion over the securities in which they invest, they must remain within the stated objectives of the fund. -
Question 3 of 10
3. Question
Which of the following statements is true regarding Timing of investment decisions?
Correct
Timing of investment decisions
The timing of investment decisions is critically important to a mutual fund investor in two different ways: the readiness of liquidity of the mutual fund and the ability for the mutual fund to act quickly on changes to economic or company financial information. Mutual funds provide significant liquidity to investors because of the fact that their funds are pooled with a significant number of other investors and each individual investor’s share of the total assets represents a very small proportion of total assets in the fund.Incorrect
Timing of investment decisions
The timing of investment decisions is critically important to a mutual fund investor in two different ways: the readiness of liquidity of the mutual fund and the ability for the mutual fund to act quickly on changes to economic or company financial information. Mutual funds provide significant liquidity to investors because of the fact that their funds are pooled with a significant number of other investors and each individual investor’s share of the total assets represents a very small proportion of total assets in the fund. -
Question 4 of 10
4. Question
Which of the following statements is true regarding Equity income/growth fund?
Correct
Equity income/growth fund
Equity income/growth funds seek to provide returns through a balanced combination of equity dividends and capital appreciation. Stable large-cap equity
securities are the most common type of investment in equity growth/income funds because they are able to provide a significant source of current income
through consistent divided yields while also retaining exposure to capital appreciation potential through increases in the price of the common stock. The
equity/growth income fund differs from strictly an equity growth fund through its greater focus on providing for current income.Incorrect
Equity income/growth fund
Equity income/growth funds seek to provide returns through a balanced combination of equity dividends and capital appreciation. Stable large-cap equity
securities are the most common type of investment in equity growth/income funds because they are able to provide a significant source of current income
through consistent divided yields while also retaining exposure to capital appreciation potential through increases in the price of the common stock. The
equity/growth income fund differs from strictly an equity growth fund through its greater focus on providing for current income. -
Question 5 of 10
5. Question
Which of the following statements is false regarding Total return and after-tax return of a fund?
Correct
Total return and after-tax return of a fund
While the total return of the fund is important, an investor will ultimately only receive the after-tax return. Thus, an investor should prefer a fund with a higher after-tax return, regardless of the comparison between pre-tax returns. A fund’s total return is calculated as the growth in the NAV plus any distributions (i.e., dividends, capital gains, and interest distributed) divided by the beginning NAV. To calculate the after-tax return, multiply the pre-tax total return by one minus the investor’s marginal income tax rate. Funds with identical total returns could differ substantially in terms of after-tax returns for different investors.Incorrect
Total return and after-tax return of a fund
While the total return of the fund is important, an investor will ultimately only receive the after-tax return. Thus, an investor should prefer a fund with a higher after-tax return, regardless of the comparison between pre-tax returns. A fund’s total return is calculated as the growth in the NAV plus any distributions (i.e., dividends, capital gains, and interest distributed) divided by the beginning NAV. To calculate the after-tax return, multiply the pre-tax total return by one minus the investor’s marginal income tax rate. Funds with identical total returns could differ substantially in terms of after-tax returns for different investors. -
Question 6 of 10
6. Question
Which of the following statements is true regarding Geographic concentration fund and international fund?
Correct
Geographic concentration fund and international fund
A geographic concentration fund will invest heavily in the securities of companies that are located in a given geographic area. As an example, suppose an investor believes that certain geopolitical events will cause companies in Eastern Europe to have significant growth opportunities. In order to increase his exposure to this growth, he would seek to invest in a fund that is concentrated in this region. An international fund, for an investor in the United States, would invest primarily in securities issued by companies outside of the United States. This is not to be confused with a global fund, which would invest across international and domestic companies in proportion to their share of the world markets.Incorrect
Geographic concentration fund and international fund
A geographic concentration fund will invest heavily in the securities of companies that are located in a given geographic area. As an example, suppose an investor believes that certain geopolitical events will cause companies in Eastern Europe to have significant growth opportunities. In order to increase his exposure to this growth, he would seek to invest in a fund that is concentrated in this region. An international fund, for an investor in the United States, would invest primarily in securities issued by companies outside of the United States. This is not to be confused with a global fund, which would invest across international and domestic companies in proportion to their share of the world markets. -
Question 7 of 10
7. Question
Which of the following statements is true regarding ETF and hedge fund?
Correct
ETF and hedge fund
An exchange-traded fund (ETF) is a relatively newer type of security that seeks to replicate the performance of a given index or commodity. ETFs are valued throughout the day just as any other security would be and typically have very low fees as the investor is not paying for active management as he would be with most mutual fund investments. A hedge fund is quite the opposite. Hedge funds seek unconventional sources of outperformance by picking individual stocks or market movements to exploit.Incorrect
ETF and hedge fund
An exchange-traded fund (ETF) is a relatively newer type of security that seeks to replicate the performance of a given index or commodity. ETFs are valued throughout the day just as any other security would be and typically have very low fees as the investor is not paying for active management as he would be with most mutual fund investments. A hedge fund is quite the opposite. Hedge funds seek unconventional sources of outperformance by picking individual stocks or market movements to exploit. -
Question 8 of 10
8. Question
Which of the following statements is true regarding Holding period of securities?
Correct
Holding period of securities
The holding period of a mutual fund is defined as the time from the date of acquisition to the date of redemption of the fund. Additionally, the fund itself will have holding periods for each of its underlying securities, also calculated as the time from the date of acquisition to the date of redemption. When a security is owned for less than one year, it is classified as short-term capital gains. Distributions that are the result of short-term capital gains as well as interest and dividend income are all taxed in the same way as dividends at ordinary income tax rates.Incorrect
Holding period of securities
The holding period of a mutual fund is defined as the time from the date of acquisition to the date of redemption of the fund. Additionally, the fund itself will have holding periods for each of its underlying securities, also calculated as the time from the date of acquisition to the date of redemption. When a security is owned for less than one year, it is classified as short-term capital gains. Distributions that are the result of short-term capital gains as well as interest and dividend income are all taxed in the same way as dividends at ordinary income tax rates. -
Question 9 of 10
9. Question
Which of the following statements is false regarding FINRA’s Rule 2000?
Correct
FINRA’s Rule 2000 outlines six components of standards of conduct and duties to
customers and is important in defining and shaping the way in which financial
professionals conduct themselves.Incorrect
FINRA’s Rule 2000 outlines six components of standards of conduct and duties to
customers and is important in defining and shaping the way in which financial
professionals conduct themselves. -
Question 10 of 10
10. Question
Which of the following statements is true regarding Violation of rules?
Correct
Violation of rules
The first example of a way in which a member could violate one of the Rule 2000 mandates is through the use of fraudulent activities as prohibited in Rule 2020. A member would be in violation of Rule 2020 if he used falsified financial statements in order to entice a customer to invest in a particular security. Another example of a violation would be a circumstance in which a member failed to properly know his customer, recommending a highly volatile security for an investor who had a shortterm time horizon and need for principal protection. Simple due diligence and interviews with the customer would have revealed this information.Incorrect
Violation of rules
The first example of a way in which a member could violate one of the Rule 2000 mandates is through the use of fraudulent activities as prohibited in Rule 2020. A member would be in violation of Rule 2020 if he used falsified financial statements in order to entice a customer to invest in a particular security. Another example of a violation would be a circumstance in which a member failed to properly know his customer, recommending a highly volatile security for an investor who had a shortterm time horizon and need for principal protection. Simple due diligence and interviews with the customer would have revealed this information.