Question 1

Ms. Mix always assures her clients that she will be calling them with quarterly recommendations for rebalancing their portfolios if there are any changes that she feels are appropriate. This has worked out well for her pocketbook since she has always been able to tweak each of her clients’ investment portfolios a little each quarter by recommending that they redeem their shares in one fund that hasn’t performed as well in the last quarter and use the proceeds to invest in another that has. Her clients feel cared for since she is in such regular contact with them. Is Ms. Mix violating any securities regulations with this policy of hers?

Options :

A : No. Ms. Mix is merely providing good service to her customers.

B : Yes. Mutual funds are not designed to be short-term investments.

C : It depends. There is no violation as long as her clients’ portfolios are increasing in value.

D :

Yes. Any recommendation that benefits a registered representative is deemed to be in violation of FINRA’s rules regarding fair dealing.

Answer: B

Question 2

In order for the Invest4U Mutual Fund to qualify as a regulated investment company under Internal Revenue Code Subchapter M, it must:

Options :

A : distribute at least 90% of its net investment income to its shareholders.

B : distribute at least 98% of its net income from capital gains to its shareholders.

C : invest at least 75% of its monies in diversified securities.

D : Both A and B are required for Invest4U to qualify as a regulated investment company.

Answer: D

Question 3

Giant Investments filed a registration statement with the SEC for a new fund it wanted to introduce and has received word that the registration statement is now effective. Based on this, Jack, a registered representative with Giant Investments, can tell a client that:

Options :

A :

because the SEC has recently announced the fund’s registration statement effective, the client can rest assured that it is a sound long-term investment.

B :

the SEC pronouncement on the effectiveness of the registration statement means only that the SEC has deemed that enough information has been provided in the registration statement for the client to judge the quality of the investment for himself.

C : the SEC warrants that there have been no misstatements of fact in the registration statement.

D :

because the SEC has recently approved the fund, it is likely to be a much safer investment than other, older funds in the same fund category.

Answer: B

Question 4

Which of the following statements regarding CMOs is false?

Options :

A : CMOs are zero-coupon bonds that are backed by real estate.

B : Relative to other bonds, CMOs are illiquid.

C : CMO investors are divided into classes, and the class determines when the investor will receive payments of principal.

D : CMOs are considered to have lower risk and, therefore, offer lower returns.

Answer: A

Question 5

Which of the following formulae is used to calculate the net dividend income per share of a mutual fund?

Options :

A :

Subtract operating expenses from dividend and interest income and divide the result by the number of outstanding shares.

B : Divide gross investment income by the number of outstanding shares.

C :

Subtract operating expenses from the income derived from dividends, interest, and short -term capital gains earned by the fund and divide the result by the number of outstanding shares.

D :

Add dividends, interest, and short-term and long-term capital gains earned by the fund; subtract operating expenses; then divide the result by the number of outstanding shares.

Answer: A

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