Exam 3 Questions with complete solution (primecare)

Exam 3 Questions with complete solution (primecare)Which type of stock would a person own for the best assurance of receiving dividend income? Cumulative preferred Cumulative preferred stocks give the best assurance of dividend income because no dividends can be paid to common stockholders if any preferred stock dividends are in arrears (owed). The Prime Care Fund is quoted at $25 - $26.70. The prospectus shows that the maximum sales charge for purchases of $25,000 to $49,999 is 4%. Approximately how many shares can a customer buy with $40,000? 1,536 To find the answer, first calculate the sales charge. $40,000 at 4% means $1,600 will be used for sales charges, leaving $38,400 left to purchase shares. $38,400 divided by the net asset value (NAV) of $25 will purchase 1,536 shares. A broker/dealer with a sales agreement with a mutual fund underwriter must I. Use only retail communication provided by the mutual fund. II. Offer no discounts from the public offering price. III. Not sell any securities to the fund from inventory but may perform as a broker for the fund's portfolio transactions. II only, Offer no discounts from the public offering price. Retail communication is provided by the principal underwriter, distributor, or sponsor, not the fund itself. No discounts may be used as an inducement to purchase; NAV plus applicable sales charge = ask price. A broker/dealer may sell from inventory when acting as a "market maker" in that security or as an agent. If a complainant or respondent is not satisfied with an action or an appeal to the NAC, their next level of appeal would be heard by the Security and Exchange Commission. Decisions made by the National Adjudicatory Council can (NAC) be appealed by either the complainant or respondent to the Security and Exchange Commission(SEC). Decisions made by the National Adjudicatory Council can (NAC) be appealed by either the complainant or respondent to the Security and Exchange Commission(SEC). I and II Sales breakpoints are available to individuals, custodian accounts for minor children, joint accounts with spouse and dependents, and trustees for corporate pension plans. Other joint accounts, investment clubs and partnerships are not eligible accounts for breakpoint sales. All of the following apply to defined benefit plans EXCEPT Contributions are tied to the company profits. Defined benefit plans are not tied to the employing company's profit; however, the employer is obligated to provide a certain, specified retirement benefit to an employee. The benefit is based upon a percent of salary multiplied by the number of years of service. What occurs when an annuitant of a variable contract dies during the accumulation period? I. The total contribution is added to the decedent's estate for estate tax purposes. II. The growth in the contract is taxed to the beneficiary at their ordinary income rate. III. The beneficiary always receives a lump sum distribution. I and II only The annuitant's cost basis is added to their estate for estate tax purposes, and the growth of the contract above the cost basis is taxed to the beneficiary at their ordinary income rate. The beneficiary may choose a lump sum distribution, payout of the balance over 5 years, or lifetime payments to start after one year. The administration and management power of FINRA is vested in the Board of Governors. The 27 member Board of Governors manages and administers the affairs of FINRA. Jonathan is convinced that the foreign stock market will outperform the domestic market over the next several years. To profit on this belief, he is likely to include in his portfolio all of the following EXCEPT Bankers' acceptances. A bankers' acceptance (BA) is a short-term money market instrument used to facilitate foreign trade. Investments in foreign stock, ADRs, and international mutual funds are consistent with Jonathan's objectives. John, who is a registered principal for Investments R Us, is involved in a written complaint alleging unauthorized trading. If John does not dispute the charges, he may be requested to sign which of the following? Letter of acceptance, waiver and consent A Letter of Acceptance, Waiver and Consent (AWC) is utilized when charges are not disputed. The defendant, by signing, waives a right to an appeal and accepts the charges and consents to the sanction. Costs associated with variable annuities that are not included in the sales charge may include a) Investment management fees and administrative expenses. b) Premium taxes. c) Mortality risk fee and expense risk fee. d) All of the above. These charges are not included in the sales charge. Depending upon the contract, all are possible expenses or ongoing charges that are deducted from the separate account. What is the maximum front-end sales charge for a mutual fund? 8 ½% of the public offering price The maximum front-end sales charge for a mutual fund is 8 ½% of the public offering price. A mutual fund's net asset value (NAV) is listed at $18.60. The sales charge is 5%. What is the offering price? $19.58 To find the offering price, divide the NAV by the complement of the sales charge. Offer Price = NAV / (100%-Sales Charge %). In this case: Offer Price = $18.60 / (100% - 5%). Which of the following statements is FALSE with respect to value mutual funds? They hold growth stocks and bonds that are deemed to be undervalued in price. Value funds primarily hold value stocks that are deemed to be undervalued in price for any number of reasons and thus have significant upside potential. However these funds do not hold bonds. Your client earns $21,000 and has been contributing $2,000 to an individual IRA account annually for the past 3 years. This year her employer initiated a pension plan, which also covers her. What can be done about her IRA account? She can keep the IRA account and make pre-tax contributions up to $5,500 each year. Individuals covered by a corporate pension plan can make fully deductible IRA contributions of up to $5,500 annually. A single taxpayer making less than $59,000 or joint making less than $95,000 can continue tax-deductible IRA deductions. An equity mutual fund is least likely to have an investment objective of Preservation of capital. Preservation of capital is pursued by investing in high quality, short-term debt, such as T-bills. If a unit investment trust is inactive, an order to liquidate may be instigated by the SEC. The Investment Company Act of 1940 gives the authority to the SEC to initiate a liquidation order for an inactive unit investment trust. How much of a $10,000 loss in securities can be written off against nonpassive income? $3,000 Securities losses are normally capital and can be deducted up to $3,000.