FINRA Investment Companies and Variable Products 3

Question 1

A mutual fund's net asset value (NAV) per share is calculated by:

Accepted Answer

Subtracting total liabilities from total assets and dividing the result by shares outstanding

Answer

Dividing the fund's total assets by the number of shares outstanding

Answer

Adding unrealized capital gains to the fund's original cost basis

Answer

Multiplying the fund's total return percentage by the number of shares outstanding

Question 2

Variable life insurance primarily differs from a variable annuity in that variable life insurance:

Accepted Answer

Provides a death benefit in addition to cash value accumulation in the separate account

Answer

Does not use a separate account for investment subaccounts

Answer

Is not subject to FINRA registration or oversight requirements

Answer

Does not permit policyholders to allocate premiums among subaccounts

Question 3

Which of the following is a defining characteristic of a unit investment trust (UIT)?

Accepted Answer

It issues a fixed number of redeemable units representing an interest in an unmanaged, fixed portfolio and has a termination date

Answer

It is actively managed by a portfolio manager who adjusts holdings

Answer

It continuously issues new shares to investors at any time

Answer

Its portfolio composition changes frequently in response to market conditions

Question 4

Under FINRA rules, 'mutual fund switching' refers to:

Accepted Answer

Redeeming shares of one mutual fund and purchasing shares of another fund without a sound investment rationale, often to generate commissions

Answer

Moving assets between subaccounts within the same variable annuity contract

Answer

Reallocating assets among different share classes within the same fund family

Answer

Transferring mutual fund positions between brokerage accounts at different firms

Question 5

An investor signs a letter of intent (LOI) to invest $100,000 in a mutual fund over 13 months to qualify for a breakpoint reduction. If the investor only invests $75,000 by the deadline, the broker-dealer will:

Accepted Answer

Retroactively apply the higher sales charge applicable to the $75,000 investment level

Answer

Waive any adjustment as a courtesy to a long-term customer

Answer

Automatically extend the LOI period for an additional six months

Answer

Refund the full difference between the two breakpoint sales charge levels

Question 6

Which variable annuity death benefit provision guarantees that a beneficiary will receive at least the total premiums paid into the contract, regardless of investment performance?

Accepted Answer

Return of premium death benefit

Answer

Enhanced earnings benefit

Answer

Stepped-up death benefit

Answer

Earnings enhancement benefit

Question 7

Under FINRA Rule 2330, before recommending a variable annuity, a registered representative must have a reasonable basis to believe that:

Accepted Answer

The customer has a sufficient time horizon to benefit from the product and can afford its fees and potential surrender charges

Answer

The customer is in the highest marginal tax bracket and needs tax deferral

Answer

The customer has previously owned at least one annuity product

Answer

The customer's net worth exceeds $500,000