Series 65- Chapter 13 STC Flashcards

Series 65- Chapter 13 STC Flashcards A customer wishes to invest $50,000 in three different mutual funds. The investment adviser representative should notify the customer that if she invested the entire $50,000 in one fund, she could save money because of the

quantity discounts available through:A. Sales charge

breakpointsB. The availability of a withdrawal planC. The possibility of exchanging one fund for another without paying a sales chargeD. Automatic reinvestment of dividends and capital gains

• Sales charge breakpointsThe investment adviser

representative should advise the client that she could save money because of the quantity discount option on large purchases available through purchases at sales charge breakpoints Regarding equity-indexed annuities, which of the following statements is FALSE?A. If the index declines in value, there is a floor as to how much an investor may loseB. If the index increases in value, there is a cap as to how much an investor may gainC. Performance is typically linked to a stock indexD. Supervision of the firm's sales practices is not required since these are insurance products

• Supervision of the firm's sales practices is not required

since these are insurance productsAlthough they are insurance products, equity-indexed annuities are subject to many FINRA rules. Broker-dealers must always have adequate controls in place to supervise the sales activities of their RRs. The product is issued with both a floor (that limits loss on the downside) and a cap (that limits the gain on the upside).Regarding inverse ETFs, which of the following statements is TRUE?A. Inverse ETFs move in tandem with the underlying index.B. Inverse ETFs are designed for long-term investors.C. Inverse ETFs use derivatives in order to move in opposition to the underlying index.D.Inverse ETFs will reset their portfolios quarterly.

• Inverse ETFs use derivatives in order to move in

opposition to the underlying index.Inverse ETFs are designed to give investors a return that's roughly equivalent to shorting a stock index. When the underlying index is falling, inverse ETFs should be increasing in value. The inverse ETF does this by actually selling stock short and using derivatives, such as options and futures. These products will actually reset their portfolios on a daily basis and are typically suitable for short-term investors.An equity-indexed annuity is suitable for which of the following clients?A. An person who needs a minimum guaranteed return with the potential for a greater return than CDs offerB. A person who desires a high rate of return with little riskC. A client who needs tax-free income with limited riskD. A person who needs a guaranteed return for life with no risk

• An person who needs a minimum guaranteed return with

the potential for a greater return than CDs offerEquity-indexed annuities are NOT considered securities. Instead, they are hybrid products that combine elements of both fixed and variable annuities. The return of an EIA is linked to the performance of an underlying stock index. The insurance company that issues an equity-indexed annuity guarantees a minimum rate of return (as in a fixed annuity), but the annuity's ultimate return (which is capped) will vary depending on the performance of the index to which it is linked. To receive the EIA's guarantees, an investor must be willing to accept the limited potential gain.All of the following statements are TRUE regarding open-end and closed-end investment companies,

EXCEPT:A. Open-end fund shares only trade at their NAV,

but closed-end fund shares may trade either above or below their NAV.B. Open-end funds can issue full or partial shares, but closed-end funds can only issue full shares.C.Open-end fund shares are redeemable, but closed-end fund shares are not redeemable.D. Both open and closed-end funds have fixed capitalizations.

• Both open and closed-end funds have fixed

capitalizations.Open-end investment companies (i.e.,

mutual funds) are always issuing and redeeming shares in the primary market. This means that their capitalization is always increasing as investors buy new shares, or decreasing as investors redeem old shares. Closed-end investment companies trade on exchange and have a fixed capitalization. Only open-end fund shares trade at their net asset value (NAV). Closed-end fund shares may trade either above or below their NAV depending on the supply and demand on the exchange.Which of the following statements is NOT TRUE of hedge funds?A. They are not sold with a prospectus.B. They are typically registered with the SEC under the Securities Act of 1933.CThey may charge performance feesDThey are often sold under Regulation D Rule 506.

• They are typically registered with the SEC under the

Securities Act of 1933.Hedge funds are private investment pools that are typically sold under an exemption (Regulation D Rule 506) and are therefore not required to register with the SEC under either the Securities Act of 1933 or the Investment Company Act of 1940. Since hedge funds are not subject to the Act of 1933 or Act of 1940, they are not required to sell with a prospectus. The first hedge funds used leverage and short selling strategies in an attempt to outperform the market. Modern hedge funds invest in a wide variety of financial instruments and employ a number of different aggressive investment strategies.Hedge funds are typically available to a limited range of professional or wealthy investors and these investors are often charged performance fees by the fund managers Shares of which type of investment company are redeemable?A. A fund that's exempt from registration under the Investment Company Act of 1940B. An investment company that has registered with the SECC. An open-end management companyD. A closed-end management company

• An open-end management companyShares of open-end

management companies (mutual funds) are redeemable.This means that investors who want to sell their mutual fund shares, must sell them back to the mutual fund, rather than to another investor on a stock exchange. Shares of closed-end funds are exchange-traded. Simply being registered with the SEC doesn't give any indication as to whether a fund's shares are redeemable.An investor is long a 3x Bearish Inverse Leveraged Nasdaq 100 Index ETF. If the index declines by 10%, the value of

the ETF will:A. Increase by 10%B. Increase by 30%C.

Decrease by 10%D. Decrease by 30%

• Increase by 30%For inverse leveraged ETFs, their value

should move in the opposite direction of the underlying index by the given leverage factor (e.g., 3x). In this question, if the index declines by 10%, the value of the ETF will increase by three times that amount, (i.e., 30%).

An equity-indexed annuity is a type of:A. Fixed annuity that

tracks the performance of a designated mutual fundB.Variable annuity that tracks the S&P 500 IndexC. Fixed annuity that offers the potential for greater returnsD.Variable annuity that tracks the DJIA

• Fixed annuity that offers the potential for greater

returnsAn equity-indexed annuity is a type of fixed (non-variable) annuity; therefore, SEC registration is not required for these contracts. The owner receives a guaranteed minimum rate of return, but has significant upside potential since the annuity's return is tied to a benchmark index (e.g., the S&P 500 Index. If the index underperforms, the investor will simply receive the

minimum rate. On the other hand, if the index performs well, the investor will receive the indexed return based on contractual provisions.A 30-year-old client needs protection for his family in the event of his death. Currently, his income is low, but he does want to develop cash value. As he moves forward in