Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Mutual Funds & Investment Companies 1 — Questions and Answers
Question 1: Under the Investment Company Act of 1940, a mutual fund is classified as which type of investment company?
- Closed-end company
- Open-end management company (Correct answer)
- Unit investment trust
- Face-amount certificate company
Correct answer: Open-end management company
Mutual funds are classified as open-end management companies because they continuously issue and redeem shares at NAV.
Question 2: A mutual fund's net asset value (NAV) per share is calculated by:
- Dividing total liabilities by total shares outstanding
- Dividing (total assets minus total liabilities) by total shares outstanding (Correct answer)
- Multiplying total assets by the expense ratio
- Subtracting the sales charge from the public offering price
Correct answer: Dividing (total assets minus total liabilities) by total shares outstanding
NAV equals total fund assets minus liabilities, divided by the number of shares outstanding.
Question 3: Which type of mutual fund sales charge is deducted at the time of purchase?
- Contingent deferred sales charge
- 12b-1 fee
- Front-end load (Correct answer)
- Back-end load
Correct answer: Front-end load
A front-end load is a sales charge collected at the time of purchase, reducing the amount invested.
Question 4: What is the maximum sales charge permitted on a mutual fund under FINRA rules?
- 5.5%
- 6.0%
- 7.0%
- 8.5% (Correct answer)
Correct answer: 8.5%
FINRA limits mutual fund sales charges to a maximum of 8.5% of the public offering price.
Question 5: A breakpoint in mutual fund sales is best described as:
- The point at which a fund stops accepting new investors
- A reduced sales charge available when purchases reach a certain dollar threshold (Correct answer)
- The date on which dividends are declared
- The minimum initial investment required to open a fund account
Correct answer: A reduced sales charge available when purchases reach a certain dollar threshold
Breakpoints are investment thresholds at which investors qualify for reduced front-end sales charges.
Question 6: Which of the following best describes a 12b-1 fee?
- A fee charged when shares are redeemed within a certain period
- An annual fee used to cover the fund's distribution and marketing expenses (Correct answer)
- A fee paid to the portfolio manager for investment advice
- A transaction fee charged on every trade within the fund
Correct answer: An annual fee used to cover the fund's distribution and marketing expenses
A 12b-1 fee is an annual charge deducted from fund assets to pay for distribution, marketing, and sometimes shareholder services.
Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Mutual Funds & Investment Companies 1
Under the Investment Company Act of 1940, a mutual fund is classified as which type of investment company?