FINRA Investment Companies and Variable Products 2

Question 1

An investor holding accumulation units in a variable annuity's separate account has:

Accepted Answer

A proportional interest in the separate account whose value fluctuates with investment performance

Answer

Accumulation units represent the investor's proportional ownership in the separate account, and their value changes daily based on the performance of the selected subaccounts.

Question 2

Withdrawals from a non-qualified variable annuity taken before age 59½ are generally subject to:

Accepted Answer

Ordinary income tax on earnings plus a 10% IRS early withdrawal penalty on the taxable portion

Answer

Withdrawals of earnings from a non-qualified variable annuity before age 59½ are taxed as ordinary income and subject to a 10% IRS penalty tax, similar to other tax-deferred accounts.

Question 3

Under SEC Rule 12b-1, a mutual fund is permitted to use fund assets to pay for:

Accepted Answer

Distribution and marketing expenses including sales commissions

Answer

Rule 12b-1 specifically authorizes mutual funds to use fund assets to pay for distribution-related costs, such as advertising, marketing materials, and dealer commissions.

Question 4

How do exchange-traded funds (ETFs) primarily differ from traditional open-end mutual funds?

Accepted Answer

ETFs trade on stock exchanges throughout the day at market-determined prices

Answer

Unlike mutual funds that price once daily at NAV after market close, ETFs trade continuously on exchanges at prices set by supply and demand throughout the trading session.

Question 5

During the payout (annuitization) phase of a variable annuity, which of the following statements is correct?

Accepted Answer

The number of annuity units is fixed, but the dollar value of each payment fluctuates

Answer

Once annuitized, the number of annuity units paid each period is fixed; however, the dollar amount varies based on subaccount performance relative to the assumed interest rate (AIR).

(FINRA) FINRA Exams Practice Test

(FINRA) FINRA Exams Practice Test

FINRA Investment Companies and Variable Products 2