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

NAV = (Total Assets − Total Liabilities) ÷ Shares Outstanding; open-end mutual funds compute this once daily at market close.

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

Variable life insurance combines the investment flexibility of a separate account with a permanent death benefit, which is the core feature that distinguishes it from a variable annuity.

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

A UIT holds a fixed, unmanaged portfolio of securities, issues a set number of units, and has a predetermined termination date, after which assets are distributed to unitholders.

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

Mutual fund switching involves selling one fund and buying another without a legitimate reason, typically done to generate transaction-based compensation in violation of FINRA suitability and churning standards.

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

When an investor fails to fulfill a LOI commitment, the fund retroactively imposes the higher sales load that would have applied to the actual amount invested, typically by redeeming escrowed shares to cover the difference.

(FINRA) FINRA Exams Practice Test

(FINRA) FINRA Exams Practice Test

FINRA Investment Companies and Variable Products 3