Investment Company and Variable Contracts Products Representative Series
6 Exam Questions and Answers
Question 1. Which term best matches the following description: an update required when information on an associated person's
registration form becomes inaccurate or incomplete and must be reported within applicable timeframes?
A. Supervisory delegation
B. Form U4 amendment
C. Retail communication
D. Conflicts inventory
Correct Answer: B. Form U4 amendment
Explanation: Form U4 amendment is the correct concept because it is an update required when information on an associated person's
registration form becomes inaccurate or incomplete and must be reported within applicable timeframes. The wording in the question points to the
defining feature rather than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the
facts stated here. Recognizing that defining feature is the most reliable way to identify Form U4 amendment.
Question 2. Which term best matches the following description: a mutual fund designed to replicate or track a specified market index with
limited active security selection?
A. Index mutual fund
B. Class B shares
C. ABLE qualified disability expense
D. Investment Advisers Act of 1940
Correct Answer: A. Index mutual fund
Explanation: Index mutual fund is the correct concept because it is a mutual fund designed to replicate or track a specified market index with
limited active security selection. The wording in the question points to the defining feature rather than to a merely associated idea. The other
choices are legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the most
reliable way to identify Index mutual fund.
Question 3. Which statement about Ex-dividend effect in a mutual fund is most accurate?
A. An annuity payout option designed to continue payments while either of two covered annuitants remains alive
B. A distribution by a regulated investment company of realized net capital gains to shareholders
C. The reduction in a fund's net asset value when a distribution is paid, all else equal
D. An annuity in which the accumulation period precedes the start of periodic annuity payments
Correct Answer: C. The reduction in a fund's net asset value when a distribution is paid, all else equal
Explanation: Ex-dividend effect in a mutual fund is correctly described as the reduction in a fund's net asset value when a distribution is paid, all
else equal. That description captures the core characteristic tested by this item. The remaining descriptions belong to different concepts and
would lead to a different regulatory, product, accounting, or operational analysis. On exam questions, match the term to its defining feature
before considering secondary details.
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,Question 4. Which choice correctly distinguishes No-load fund from Investment Company Act of 1940?
A. No-load fund: the federal statute regulating registered investment companies and imposing requirements involving structure, custody,
governance, disclosure, and transactions; Investment Company Act of 1940: a mutual fund that does not impose a front-end or deferred
sales load, although it may still charge operating expenses and permitted service fees
B. No-load fund: the insurer's general asset account that supports guarantees rather than the fluctuating investment options of a separate
account; Investment Company Act of 1940: the federal statute regulating registered investment companies and imposing requirements
involving structure, custody, governance, disclosure, and transactions
C. No-load fund: a mutual fund that does not impose a front-end or deferred sales load, although it may still charge operating expenses and
permitted service fees; Investment Company Act of 1940: a diversified fund whose asset allocation generally becomes more conservative as
a stated target date approaches
D. No-load fund: a mutual fund that does not impose a front-end or deferred sales load, although it may still charge operating expenses and
permitted service fees; Investment Company Act of 1940: the federal statute regulating registered investment companies and imposing
requirements involving structure, custody, governance, disclosure, and transactions
Correct Answer: D. No-load fund: a mutual fund that does not impose a front-end or deferred sales load, although it may still charge operating
expenses and permitted service fees; Investment Company Act of 1940: the federal statute regulating registered investment companies and
imposing requirements involving structure, custody, governance, disclosure, and transactions
Explanation: No-load fund means a mutual fund that does not impose a front-end or deferred sales load, although it may still charge operating
expenses and permitted service fees, whereas Investment Company Act of 1940 means the federal statute regulating registered investment
companies and imposing requirements involving structure, custody, governance, disclosure, and transactions. The correct choice keeps the two
concepts separate and assigns each description to the proper term. The distractors either reverse the concepts or substitute a feature belonging
to another topic. That distinction matters because the two terms can lead to different regulatory, economic, or operational consequences.
Question 5. A investment company and variable contracts products representative is reviewing a situation described as follows: the
disclosure document describing a registered fund's objectives, risks, fees, performance, management, and other material information.
Which concept is most directly involved?
A. 12b-1 fee
B. Mutual fund late trading
C. Investment company prospectus
D. Net asset value
Correct Answer: C. Investment company prospectus
Explanation: Investment company prospectus is the best answer because it is the disclosure document describing a registered fund's
objectives, risks, fees, performance, management, and other material information. The scenario gives the investment company and variable
contracts products representative facts that point directly to that concept. The other choices can arise in related securities situations but do not fit
the specific description provided. Applying the precise definition to the facts is the best way to resolve this type of scenario.
Question 6. A municipal bond has a 5.5% coupon, $1,000 par value, and a market price of $980.00. What is its current yield?
A. 5.50%
B. 2.00%
C. 6.61%
D. 5.61%
Correct Answer: D. 5.61%
Explanation: Current yield equals the annual coupon interest divided by the bond's current market price. Annual interest is $55.00, and dividing
by $980.00 gives approximately 5.61%. The coupon rate uses par value as its base, so it is not the same as current yield when the bond trades
away from par. Current yield also excludes the effect of any gain or loss realized as the bond moves toward maturity or is called.
Question 7. A Class A mutual fund has an NAV of $40.00 and a front-end sales charge equal to 5.00% of the public offering price. What
is the approximate public offering price?
A. $42.11
B. $42.00
C. $40.05
D. $38.10
Correct Answer: A. $42.11
Explanation: When the sales charge is stated as a percentage of the public offering price, POP equals NAV divided by one minus the
sales-charge percentage. Dividing $40.00 by 0.9500 produces a public offering price of approximately $42.11. Simply adding the stated
percentage to NAV treats the sales charge as a percentage of NAV and therefore uses the wrong base. This distinction is a common mutual fund
calculation because sales-load percentages are normally quoted relative to the offering price.
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,Question 8. Which term best matches the following description: the requirement to disclose material facts about the relationship,
services, fees, scope, and material conflicts before or at the time of a recommendation?
A. Compliance Obligation under Regulation Best Interest
B. Disclosure Obligation under Regulation Best Interest
C. Stop-limit order
D. Market order
Correct Answer: B. Disclosure Obligation under Regulation Best Interest
Explanation: Disclosure Obligation under Regulation Best Interest is the correct concept because it is the requirement to disclose material facts
about the relationship, services, fees, scope, and material conflicts before or at the time of a recommendation. The wording in the question points
to the defining feature rather than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match
the facts stated here. Recognizing that defining feature is the most reliable way to identify Disclosure Obligation under Regulation Best Interest.
Question 9. Which statement about Information barrier is most accurate?
A. A disclosure document providing material information about a registered securities offering or investment company
B. Policies and controls designed to restrict the flow of material nonpublic information between business units
C. The minimum ongoing equity requirement for margin accounts under FINRA rules, subject to higher house requirements
D. An order that becomes a market order when the specified stop price is reached or triggered
Correct Answer: B. Policies and controls designed to restrict the flow of material nonpublic information between business units
Explanation: Information barrier is correctly described as policies and controls designed to restrict the flow of material nonpublic information
between business units. That description captures the core characteristic tested by this item. The remaining descriptions belong to different
concepts and would lead to a different regulatory, product, accounting, or operational analysis. On exam questions, match the term to its defining
feature before considering secondary details.
Question 10. Which concept-and-description pairing is correctly matched?
A. Net asset value - the per-share value of an investment company calculated from portfolio assets minus liabilities
B. Letter of intent - investing equal dollar amounts at regular intervals, resulting in more shares purchased when prices are lower and fewer
when prices are higher
C. Deferred annuity - a supplemental investment company disclosure document containing information beyond the prospectus and available to
investors without charge
D. Open-end investment company - the federal statute regulating investment advisers and establishing registration, fiduciary, disclosure, and
antifraud obligations
Correct Answer: A. Net asset value - the per-share value of an investment company calculated from portfolio assets minus liabilities
Explanation: Only the pairing for Net asset value is accurate: it is the per-share value of an investment company calculated from portfolio assets
minus liabilities. Each incorrect choice attaches a valid-sounding description to the wrong concept. Because the distractors are drawn from
related exam material, they can appear plausible unless both parts of the pairing are checked. Verify the term and its defining feature together
before selecting a matched pair.
Question 11. Which choice correctly distinguishes Market order from FINRA gift rule?
A. Market order: the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to specified
exclusions and conditions; FINRA gift rule: an order to buy or sell promptly at the best price reasonably available, with execution
emphasized over price certainty
B. Market order: a sale of a security the seller does not own or delivers with borrowed securities, creating an obligation to cover the position;
FINRA gift rule: the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to specified
exclusions and conditions
C. Market order: an order to buy or sell promptly at the best price reasonably available, with execution emphasized over price certainty; FINRA
gift rule: trading while in possession of material nonpublic information in breach of a duty or other applicable legal prohibition
D. Market order: an order to buy or sell promptly at the best price reasonably available, with execution emphasized over price certainty; FINRA
gift rule: the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to specified
exclusions and conditions
Correct Answer: D. Market order: an order to buy or sell promptly at the best price reasonably available, with execution emphasized over price
certainty; FINRA gift rule: the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to
specified exclusions and conditions
Explanation: Market order means an order to buy or sell promptly at the best price reasonably available, with execution emphasized over price
certainty, whereas FINRA gift rule means the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year,
subject to specified exclusions and conditions. The correct choice keeps the two concepts separate and assigns each description to the proper
term. The distractors either reverse the concepts or substitute a feature belonging to another topic. That distinction matters because the two
terms can lead to different regulatory, economic, or operational consequences.
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, Question 12. Which statement about Annual compliance certification is most accurate?
A. A FINRA communication distributed or made available to 25 or fewer retail investors within any 30-calendar-day period
B. The specific representative or principal qualification authorizing an associated person to perform or supervise defined securities activities
C. A principal-level certification process concerning the firm's processes for establishing, maintaining, reviewing, testing, and modifying
compliance policies and supervisory procedures
D. Review of offering terms, compensation, diligence, syndicate arrangements, distribution practices, and required filings or disclosures
Correct Answer: C. A principal-level certification process concerning the firm's processes for establishing, maintaining, reviewing, testing, and
modifying compliance policies and supervisory procedures
Explanation: Annual compliance certification is correctly described as a principal-level certification process concerning the firm's processes for
establishing, maintaining, reviewing, testing, and modifying compliance policies and supervisory procedures. That description captures the core
characteristic tested by this item. The remaining descriptions belong to different concepts and would lead to a different regulatory, product,
accounting, or operational analysis. On exam questions, match the term to its defining feature before considering secondary details.
Question 13. Which term best matches the following description: the yield at which a new municipal security is offered to investors based
on its reoffering price?
A. Double-barreled bond
B. Eastern account
C. MSRB Rule G-46
D. Reoffering yield
Correct Answer: D. Reoffering yield
Explanation: Reoffering yield is the correct concept because it is the yield at which a new municipal security is offered to investors based on its
reoffering price. The wording in the question points to the defining feature rather than to a merely associated idea. The other choices are
legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the most reliable way to
identify Reoffering yield.
Question 14. An investor is in a 22% marginal federal income tax bracket and is considering a tax-exempt municipal bond yielding 4.5%.
Ignoring state and local taxes, what taxable yield is approximately equivalent?
A. 3.51%
B. 5.77%
C. 5.49%
D. 4.72%
Correct Answer: B. 5.77%
Explanation: Tax-equivalent yield equals the tax-exempt yield divided by one minus the investor's marginal tax rate. Here, 4.5% divided by 0.78
equals approximately 5.77%. Multiplying the municipal yield by one minus the tax rate would calculate an after-tax taxable yield rather than the
equivalent taxable yield. The calculation is useful when comparing taxable and federally tax-exempt income on a consistent after-tax basis.
Question 15. A investment company and variable contracts products representative is reviewing a situation described as follows: the rule
limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to specified exclusions and
conditions. Which concept is most directly involved?
A. FINRA gift rule
B. T+1 settlement
C. Delivery versus payment
D. Front running
Correct Answer: A. FINRA gift rule
Explanation: FINRA gift rule is the best answer because it is the rule limiting business-related gifts to employees of other firms to 300 dollars per
individual per year, subject to specified exclusions and conditions. The scenario gives the investment company and variable contracts products
representative facts that point directly to that concept. The other choices can arise in related securities situations but do not fit the specific
description provided. Applying the precise definition to the facts is the best way to resolve this type of scenario.
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6 Exam Questions and Answers
Question 1. Which term best matches the following description: an update required when information on an associated person's
registration form becomes inaccurate or incomplete and must be reported within applicable timeframes?
A. Supervisory delegation
B. Form U4 amendment
C. Retail communication
D. Conflicts inventory
Correct Answer: B. Form U4 amendment
Explanation: Form U4 amendment is the correct concept because it is an update required when information on an associated person's
registration form becomes inaccurate or incomplete and must be reported within applicable timeframes. The wording in the question points to the
defining feature rather than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match the
facts stated here. Recognizing that defining feature is the most reliable way to identify Form U4 amendment.
Question 2. Which term best matches the following description: a mutual fund designed to replicate or track a specified market index with
limited active security selection?
A. Index mutual fund
B. Class B shares
C. ABLE qualified disability expense
D. Investment Advisers Act of 1940
Correct Answer: A. Index mutual fund
Explanation: Index mutual fund is the correct concept because it is a mutual fund designed to replicate or track a specified market index with
limited active security selection. The wording in the question points to the defining feature rather than to a merely associated idea. The other
choices are legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the most
reliable way to identify Index mutual fund.
Question 3. Which statement about Ex-dividend effect in a mutual fund is most accurate?
A. An annuity payout option designed to continue payments while either of two covered annuitants remains alive
B. A distribution by a regulated investment company of realized net capital gains to shareholders
C. The reduction in a fund's net asset value when a distribution is paid, all else equal
D. An annuity in which the accumulation period precedes the start of periodic annuity payments
Correct Answer: C. The reduction in a fund's net asset value when a distribution is paid, all else equal
Explanation: Ex-dividend effect in a mutual fund is correctly described as the reduction in a fund's net asset value when a distribution is paid, all
else equal. That description captures the core characteristic tested by this item. The remaining descriptions belong to different concepts and
would lead to a different regulatory, product, accounting, or operational analysis. On exam questions, match the term to its defining feature
before considering secondary details.
1
,Question 4. Which choice correctly distinguishes No-load fund from Investment Company Act of 1940?
A. No-load fund: the federal statute regulating registered investment companies and imposing requirements involving structure, custody,
governance, disclosure, and transactions; Investment Company Act of 1940: a mutual fund that does not impose a front-end or deferred
sales load, although it may still charge operating expenses and permitted service fees
B. No-load fund: the insurer's general asset account that supports guarantees rather than the fluctuating investment options of a separate
account; Investment Company Act of 1940: the federal statute regulating registered investment companies and imposing requirements
involving structure, custody, governance, disclosure, and transactions
C. No-load fund: a mutual fund that does not impose a front-end or deferred sales load, although it may still charge operating expenses and
permitted service fees; Investment Company Act of 1940: a diversified fund whose asset allocation generally becomes more conservative as
a stated target date approaches
D. No-load fund: a mutual fund that does not impose a front-end or deferred sales load, although it may still charge operating expenses and
permitted service fees; Investment Company Act of 1940: the federal statute regulating registered investment companies and imposing
requirements involving structure, custody, governance, disclosure, and transactions
Correct Answer: D. No-load fund: a mutual fund that does not impose a front-end or deferred sales load, although it may still charge operating
expenses and permitted service fees; Investment Company Act of 1940: the federal statute regulating registered investment companies and
imposing requirements involving structure, custody, governance, disclosure, and transactions
Explanation: No-load fund means a mutual fund that does not impose a front-end or deferred sales load, although it may still charge operating
expenses and permitted service fees, whereas Investment Company Act of 1940 means the federal statute regulating registered investment
companies and imposing requirements involving structure, custody, governance, disclosure, and transactions. The correct choice keeps the two
concepts separate and assigns each description to the proper term. The distractors either reverse the concepts or substitute a feature belonging
to another topic. That distinction matters because the two terms can lead to different regulatory, economic, or operational consequences.
Question 5. A investment company and variable contracts products representative is reviewing a situation described as follows: the
disclosure document describing a registered fund's objectives, risks, fees, performance, management, and other material information.
Which concept is most directly involved?
A. 12b-1 fee
B. Mutual fund late trading
C. Investment company prospectus
D. Net asset value
Correct Answer: C. Investment company prospectus
Explanation: Investment company prospectus is the best answer because it is the disclosure document describing a registered fund's
objectives, risks, fees, performance, management, and other material information. The scenario gives the investment company and variable
contracts products representative facts that point directly to that concept. The other choices can arise in related securities situations but do not fit
the specific description provided. Applying the precise definition to the facts is the best way to resolve this type of scenario.
Question 6. A municipal bond has a 5.5% coupon, $1,000 par value, and a market price of $980.00. What is its current yield?
A. 5.50%
B. 2.00%
C. 6.61%
D. 5.61%
Correct Answer: D. 5.61%
Explanation: Current yield equals the annual coupon interest divided by the bond's current market price. Annual interest is $55.00, and dividing
by $980.00 gives approximately 5.61%. The coupon rate uses par value as its base, so it is not the same as current yield when the bond trades
away from par. Current yield also excludes the effect of any gain or loss realized as the bond moves toward maturity or is called.
Question 7. A Class A mutual fund has an NAV of $40.00 and a front-end sales charge equal to 5.00% of the public offering price. What
is the approximate public offering price?
A. $42.11
B. $42.00
C. $40.05
D. $38.10
Correct Answer: A. $42.11
Explanation: When the sales charge is stated as a percentage of the public offering price, POP equals NAV divided by one minus the
sales-charge percentage. Dividing $40.00 by 0.9500 produces a public offering price of approximately $42.11. Simply adding the stated
percentage to NAV treats the sales charge as a percentage of NAV and therefore uses the wrong base. This distinction is a common mutual fund
calculation because sales-load percentages are normally quoted relative to the offering price.
2
,Question 8. Which term best matches the following description: the requirement to disclose material facts about the relationship,
services, fees, scope, and material conflicts before or at the time of a recommendation?
A. Compliance Obligation under Regulation Best Interest
B. Disclosure Obligation under Regulation Best Interest
C. Stop-limit order
D. Market order
Correct Answer: B. Disclosure Obligation under Regulation Best Interest
Explanation: Disclosure Obligation under Regulation Best Interest is the correct concept because it is the requirement to disclose material facts
about the relationship, services, fees, scope, and material conflicts before or at the time of a recommendation. The wording in the question points
to the defining feature rather than to a merely associated idea. The other choices are legitimate exam concepts, but their definitions do not match
the facts stated here. Recognizing that defining feature is the most reliable way to identify Disclosure Obligation under Regulation Best Interest.
Question 9. Which statement about Information barrier is most accurate?
A. A disclosure document providing material information about a registered securities offering or investment company
B. Policies and controls designed to restrict the flow of material nonpublic information between business units
C. The minimum ongoing equity requirement for margin accounts under FINRA rules, subject to higher house requirements
D. An order that becomes a market order when the specified stop price is reached or triggered
Correct Answer: B. Policies and controls designed to restrict the flow of material nonpublic information between business units
Explanation: Information barrier is correctly described as policies and controls designed to restrict the flow of material nonpublic information
between business units. That description captures the core characteristic tested by this item. The remaining descriptions belong to different
concepts and would lead to a different regulatory, product, accounting, or operational analysis. On exam questions, match the term to its defining
feature before considering secondary details.
Question 10. Which concept-and-description pairing is correctly matched?
A. Net asset value - the per-share value of an investment company calculated from portfolio assets minus liabilities
B. Letter of intent - investing equal dollar amounts at regular intervals, resulting in more shares purchased when prices are lower and fewer
when prices are higher
C. Deferred annuity - a supplemental investment company disclosure document containing information beyond the prospectus and available to
investors without charge
D. Open-end investment company - the federal statute regulating investment advisers and establishing registration, fiduciary, disclosure, and
antifraud obligations
Correct Answer: A. Net asset value - the per-share value of an investment company calculated from portfolio assets minus liabilities
Explanation: Only the pairing for Net asset value is accurate: it is the per-share value of an investment company calculated from portfolio assets
minus liabilities. Each incorrect choice attaches a valid-sounding description to the wrong concept. Because the distractors are drawn from
related exam material, they can appear plausible unless both parts of the pairing are checked. Verify the term and its defining feature together
before selecting a matched pair.
Question 11. Which choice correctly distinguishes Market order from FINRA gift rule?
A. Market order: the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to specified
exclusions and conditions; FINRA gift rule: an order to buy or sell promptly at the best price reasonably available, with execution
emphasized over price certainty
B. Market order: a sale of a security the seller does not own or delivers with borrowed securities, creating an obligation to cover the position;
FINRA gift rule: the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to specified
exclusions and conditions
C. Market order: an order to buy or sell promptly at the best price reasonably available, with execution emphasized over price certainty; FINRA
gift rule: trading while in possession of material nonpublic information in breach of a duty or other applicable legal prohibition
D. Market order: an order to buy or sell promptly at the best price reasonably available, with execution emphasized over price certainty; FINRA
gift rule: the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to specified
exclusions and conditions
Correct Answer: D. Market order: an order to buy or sell promptly at the best price reasonably available, with execution emphasized over price
certainty; FINRA gift rule: the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to
specified exclusions and conditions
Explanation: Market order means an order to buy or sell promptly at the best price reasonably available, with execution emphasized over price
certainty, whereas FINRA gift rule means the rule limiting business-related gifts to employees of other firms to 300 dollars per individual per year,
subject to specified exclusions and conditions. The correct choice keeps the two concepts separate and assigns each description to the proper
term. The distractors either reverse the concepts or substitute a feature belonging to another topic. That distinction matters because the two
terms can lead to different regulatory, economic, or operational consequences.
3
, Question 12. Which statement about Annual compliance certification is most accurate?
A. A FINRA communication distributed or made available to 25 or fewer retail investors within any 30-calendar-day period
B. The specific representative or principal qualification authorizing an associated person to perform or supervise defined securities activities
C. A principal-level certification process concerning the firm's processes for establishing, maintaining, reviewing, testing, and modifying
compliance policies and supervisory procedures
D. Review of offering terms, compensation, diligence, syndicate arrangements, distribution practices, and required filings or disclosures
Correct Answer: C. A principal-level certification process concerning the firm's processes for establishing, maintaining, reviewing, testing, and
modifying compliance policies and supervisory procedures
Explanation: Annual compliance certification is correctly described as a principal-level certification process concerning the firm's processes for
establishing, maintaining, reviewing, testing, and modifying compliance policies and supervisory procedures. That description captures the core
characteristic tested by this item. The remaining descriptions belong to different concepts and would lead to a different regulatory, product,
accounting, or operational analysis. On exam questions, match the term to its defining feature before considering secondary details.
Question 13. Which term best matches the following description: the yield at which a new municipal security is offered to investors based
on its reoffering price?
A. Double-barreled bond
B. Eastern account
C. MSRB Rule G-46
D. Reoffering yield
Correct Answer: D. Reoffering yield
Explanation: Reoffering yield is the correct concept because it is the yield at which a new municipal security is offered to investors based on its
reoffering price. The wording in the question points to the defining feature rather than to a merely associated idea. The other choices are
legitimate exam concepts, but their definitions do not match the facts stated here. Recognizing that defining feature is the most reliable way to
identify Reoffering yield.
Question 14. An investor is in a 22% marginal federal income tax bracket and is considering a tax-exempt municipal bond yielding 4.5%.
Ignoring state and local taxes, what taxable yield is approximately equivalent?
A. 3.51%
B. 5.77%
C. 5.49%
D. 4.72%
Correct Answer: B. 5.77%
Explanation: Tax-equivalent yield equals the tax-exempt yield divided by one minus the investor's marginal tax rate. Here, 4.5% divided by 0.78
equals approximately 5.77%. Multiplying the municipal yield by one minus the tax rate would calculate an after-tax taxable yield rather than the
equivalent taxable yield. The calculation is useful when comparing taxable and federally tax-exempt income on a consistent after-tax basis.
Question 15. A investment company and variable contracts products representative is reviewing a situation described as follows: the rule
limiting business-related gifts to employees of other firms to 300 dollars per individual per year, subject to specified exclusions and
conditions. Which concept is most directly involved?
A. FINRA gift rule
B. T+1 settlement
C. Delivery versus payment
D. Front running
Correct Answer: A. FINRA gift rule
Explanation: FINRA gift rule is the best answer because it is the rule limiting business-related gifts to employees of other firms to 300 dollars per
individual per year, subject to specified exclusions and conditions. The scenario gives the investment company and variable contracts products
representative facts that point directly to that concept. The other choices can arise in related securities situations but do not fit the specific
description provided. Applying the precise definition to the facts is the best way to resolve this type of scenario.
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