Finance Unit 4 Missed Questions

Questions and Answers

Which of the following statements about an established FINRA member firm's handling of a mutual fund's sale literature are TRUE? (Select all that apply)

I and III (correct)

II and III

I and IV

II and IV

Which of the following describes the price of a Class A mutual fund share paid by a dealer on contract with the fund's underwriter?

Public offering price minus the sales charge

Public offering price minus the underwriter's concession

Net asset value plus the underwriter's concession (correct)

Net asset value plus the dealer's reallowance

All of the following are considered public communications EXCEPT:

Prospectuses (correct)

Telephone directory advertisements

Market letters

Research reports

Under the rules on communications with the public, filing of advertisements must be done:

May be done within 10 business days after first use Signup and view all the answers

Mutual fund shares that carry a level load are:

Class C shares Signup and view all the answers

If an investor liquidates 200 shares of ACE Fund purchased at a POP of $11.60 and with a NAV of $10.60, experiencing a current POP of $12.50 and current NAV of $11.50, what will the outcome be?

Loss of $20 Signup and view all the answers

The definition of retail communication includes:

Research reports Signup and view all the answers

A broker/dealer with a sales agreement with a mutual fund must return all concessions to the underwriter if a customer redeems his shares:

Within five business days of the initial purchase Signup and view all the answers

Study Notes

FINRA Regulations on Mutual Fund Literature

All sales literature for mutual funds requires approval from a firm's principal before use.
If FINRA reviews the material beforehand, subsequent firms do not need to resubmit it.
FINRA's review timeline is within 10 days of the material's initial use.

Pricing of Class A Mutual Funds

Class A mutual fund shares are purchased at net asset value (NAV) plus the underwriter's concession.
The underwriter sells the shares to the dealer, adding their concession before the public offering price (POP) is set.

Definition of Public Communications

Prospectuses are not classified as public communications as they are prepared by issuers and not broker/dealers.
Public communications include telephone directory ads, research reports, and market letters.

Advertising Rules for Established Firms

Established firms may file advertisements within 10 business days after first use, unlike new firms that must pre-file 10 days in advance.
This rule applies to firms that have been in operation for over one year.

Class C shares carry a level load via a 12b-1 charge, distinguishing them from Class A and B shares, which have front-end and back-end loads, respectively.

Investor Gain/Loss Calculation

An investor who bought 200 shares at a POP of $11.60 and now liquidates at a NAV of $11.50 incurs a total loss of $20.
The loss is calculated based on the difference between the purchase price and the liquidation value multiplied by the number of shares.

Understanding Retail Communication

Research reports are considered retail communication, while memos, emails to investment companies, and television interviews are classified differently.

Redemption and Concessions

A broker/dealer must return concessions to the underwriter if a customer redeems shares within a specified period following purchase, highlighting the importance of timelines in transactions.

Description

Test your understanding of key concepts related to the handling of mutual fund sale literature by FINRA member firms. This quiz covers essential regulations and requirements that firms must adhere to when promoting mutual funds. Sharpen your knowledge and prepare for your finance exam!