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

Mr. Cross wanders into your office with a $35,000 check that he has received from his recently-deceased wife’s insurance company and wants you to advise him how to invest it, since that is your job, as he puts it. You ask him to fill out a standard investor profile questionnaire, but he refuses to do so. You offer to fill it out for him, based on his answers to your verbal questions, but he still refuses and calls you a “nibby-nose.” Based on this, you can:

Options :

A : allocate the $35,000 any way you choose since you have an uncooperative client.

B : advise him to invest the money in a money market mutual fund instead of holding it as cash.

C : advise him to invest the money in an S&P 500 Index fund.

D : The advice provided in either Choice B or Choice C would be appropriate.

Answer: B

Question 3

Uncle Scrooge (uncharacteristically) wants to set up a Section 529 college savings plan for his nephew, Louie. If he does so:

Options :

A : he can contribute at most $2,000 a year.

B : his contributions will be tax deductible.

C :

any withdrawals that Louie makes to cover tuition, books, and room and board will be free from both federal and state taxes.

D :

and Louie decides not to go to college, Uncle Scrooge can name Louie’s brother, Huey, as the beneficiary of the plan without any tax consequences.

Answer: D

Question 4

All government bonds and the majority of corporate bonds are traded:

Options :

A : on the floor of the NYSE.

B : via electronic communication networks (ECNs).

C : on regional exchanges.

D : in the over-the-counter market.

Answer: D

Question 5

Which of the following statements regarding the purchase and redemption of mutual fund shares is false?

Options :

A : Mutual fund shares may not be purchased on margin.

B : An investor can both purchase and sell fractional shares of mutual funds.

C : When an investor redeems his shares, the mutual fund must pay for the shares within 7 business days.

D :

If an investor places an order to buy or redeem shares of a mutual fund before 4 P.M.EST on a day when the markets are open, the price will be based on the fund’s net asset value (NAV), as calculated at the end of that trading day.

Answer: C