Series 6 – Investment Company and Variable Contract Products Representation Qualification Exam Mutual Funds & Investment Companies Flashcards

Which of the following is a money market fund characteristic?

Answer: It seeks to maintain a stable $1.00 NAV

Money market funds are designed to maintain a constant $1.00 NAV by investing in short-term, high-quality instruments.

A mutual fund's expense ratio is calculated as:

Answer: Annual operating expenses divided by average net assets

The expense ratio equals total annual operating expenses divided by the fund's average net assets, expressed as a percentage.

Which pricing method do mutual funds use to determine the price at which purchase and redemption orders are executed?

Answer: Forward pricing

Mutual funds use forward pricing — orders are executed at the next NAV calculated after the order is received.

A fund that automatically reinvests dividends and capital gains distributions to purchase additional shares is using which feature?

Answer: Automatic reinvestment plan

An automatic reinvestment plan directs distributions back into the fund to purchase additional shares, compounding growth.

Which of the following statements about a no-load mutual fund is CORRECT?

Answer: It does not charge a front-end or back-end sales load but may charge 12b-1 fees

A no-load fund has no front-end or contingent deferred sales charges, but it can still assess 12b-1 fees up to 0.25%.

Which of the following best describes the exchange privilege offered by a mutual fund family?

Answer: The ability to move assets between funds in the same family at NAV without a new sales charge

Exchange privileges allow investors to switch between funds within the same family at NAV, avoiding an additional sales charge.