Investment Terminology Quiz

Questions and Answers

What is a breakpoint sale?

The sale of investment company shares in dollar amounts just below the point at which the sales charge is reduced on quantity transactions to incur the higher sales charge. (correct)

The sale of investment company shares in dollar amounts at the point at which the sales charge is reduced on quantity transactions to reduce the sales charge.

The payment of compensation to a registered representative after she ceases to be employed by a member.

The sale of investment company shares in anticipation of a distribution soon to be paid.

What must an investor do if they purchase a mutual fund based solely on seeing the summary prospectus?

Be able to access a full prospectus no later than confirmation of sale.

A diversified growth fund charging 0.4% of net assets per year as a 12b-1 fee may not make which statement?

The fund is a no-load fund. (correct)

The fund will have a calculated fully disclosed expense ratio.

The fund will have a diversified portfolio with a stated investment objective.

The fund will pay its investment adviser a specified percentage of funds under management.

Which of the following is not classified as an investment company under the Investment Company Act of 1940?

Private investment companies. Signup and view all the answers

Which class of shares uses a CDSC as the main sales charge?

Class B Shares Signup and view all the answers

Which of the following would cause a change in the net asset value (NAV) of a mutual fund share?

The fund pays a small dividend. Signup and view all the answers

What is the maximum sales charge for Class A shares?

8.5% of the total investment Signup and view all the answers

Which statement about bond mutual funds is false?

A bond mutual fund may issue bonds. Signup and view all the answers

How often must mutual fund shares be priced?

Once per business day Signup and view all the answers

Which action would not increase the NAV per share of a mutual fund?

A large number of investors making deposits in the fund. Signup and view all the answers

Which is not an example of a management company under the Investment Company Act of 1940?

A Windmill Income UIT. Signup and view all the answers

What must a mutual fund's prospectus disclose if it has been in existence for 15 years?

Its performance over the last 1, 5, and 10 years. Signup and view all the answers

Which of these would not be included in a mutual fund's list of expenses?

Underwriter's sales loads Signup and view all the answers

Which is not part of the expense ratio of a mutual fund?

CDSC. Signup and view all the answers

What is it called when a fund sponsor allows an investor to move funds between its funds?

An exchange privilege Signup and view all the answers

Under the Investment Company Act of 1940, which is not considered an investment company?

Hedge fund Signup and view all the answers

Which of these actions would be unlawful regarding the use of a mutual fund prospectus?

Calling an investor's attention to a section that may be interesting Signup and view all the answers

An investor can take advantage of intraday price changes when investing in which?

Exchange-traded funds Signup and view all the answers

From where does the investment return of a variable annuity come?

The performance of the selected subaccounts within a separate account. Signup and view all the answers

A letter of intent may be backdated to include a prior purchase up to how many days?

90 days Signup and view all the answers

Class B mutual fund shares are also called?

Back-end load shares Signup and view all the answers

Study Notes

Mutual Funds Overview

A breakpoint sale refers to selling investment company shares just below the threshold for reduced sales charges, incurring the higher charge.
Investors must have access to the full prospectus by the time of sale if they only see the summary prospectus.

Regulatory Framework

The Investment Company Act of 1940 does not classify private investment companies as investment companies.
Unit investment trusts are not considered management companies under the Investment Company Act.

Fee Structures and Charges

A diversified growth fund with a 0.4% 12b-1 fee cannot claim it is a no-load fund.
Class A shares cannot have sales charges exceeding 8.5% of the total investment.
Class B shares typically utilize contingent deferred sales charges (CDSC).

Performance and Valuation

NAV of mutual fund shares is affected by portfolio securities sold for capital gains and decline in market value.
Mutual fund shares must be priced at least once per business day.
When many investors deposit funds, the NAV per share remains unchanged despite increased assets.

Disclosure Requirements

Mutual funds must disclose performance over the last 1, 5, and 10 years if they have existed for 15 years.

Expense Analysis

Certain costs, such as broker-dealer sales charges and underwriter's sales loads, are not included in a mutual fund's expense list.
The CDSC is not part of the fund's expense ratio since it is applied against the sale proceeds.

Rights and Privileges

An exchange privilege allows investors to transfer funds between different funds within the same fund family.

Legal Considerations

Sending a prospectus to uninterested parties or altering the document is unlawful.
Highlighting or directing attention to a specific part of a prospectus is prohibited.

Investment Vehicles

Investors can benefit from intraday price movements with closed-end and exchange-traded funds, unlike open-end funds.
Variable annuity returns depend on the performance of selected subaccounts within a separate account.

Purchase Agreements

A letter of intent for mutual fund purchases can be backdated to include prior purchases up to 90 days.
Class B shares are known as back-end load shares due to their fee structure.

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Description

Test your knowledge of important investment terms with this quiz. One of the key definitions you will explore is the concept of a breakpoint sale. See how well you understand these financial terms and their implications in trading.