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FINRA Series 7
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Question 1 of 30
1. Question
Which of the following are mutual funds that aim to hold stocks that have an undervalued price and tend to pay out dividends:
Correct
Value funds are mutual funds which aim to hold stocks that have an undervalued price and tend to pay out dividends. Since the share prices are undervalued, they are expected to rise in time and give the fund investors capital gains.
Incorrect
Value funds are mutual funds which aim to hold stocks that have an undervalued price and tend to pay out dividends. Since the share prices are undervalued, they are expected to rise in time and give the fund investors capital gains.
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Question 2 of 30
2. Question
Which of the following statements is (are) true for growth funds:
I. They aim to hold stocks that have an undervalued price and tend to pay out dividends.
II. They are suitable for aggressive investors who are comfortable with a high degree of risk.
III. These are less established companies that are growing fast
IV. They are more suitable for investors with a strong aversion to riskCorrect
Growth funds are only suitable for aggressive investors who are comfortable with a high degree of risk. Because growth funds invest in younger, less established companies that are growing fast, the risk with this type of fund is greater than that of investing in an index fund of established companies across the spectrum of the American economy.
Incorrect
Growth funds are only suitable for aggressive investors who are comfortable with a high degree of risk. Because growth funds invest in younger, less established companies that are growing fast, the risk with this type of fund is greater than that of investing in an index fund of established companies across the spectrum of the American economy.
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Question 3 of 30
3. Question
Which of the following are like index funds, are generally considered more conservative, and are more suitable for investors with a strong aversion to risk:
I. Combination mutual funds
II. Income Funds
III. Balanced funds
IV. Value fundsCorrect
Income funds, like index funds, are generally considered more conservative, and are more suitable for investors with a strong aversion to risk. Income funds are not designed for capital gains, or for spectacular contrarian plays, but for safe, predictable, steady income.
Incorrect
Income funds, like index funds, are generally considered more conservative, and are more suitable for investors with a strong aversion to risk. Income funds are not designed for capital gains, or for spectacular contrarian plays, but for safe, predictable, steady income.
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Question 4 of 30
4. Question
Which of the following statements is (are) false for Combination mutual funds?
I. They are a combination of growth funds and income funds
II. They invest in both stocks and bonds
III. Their objective is a balance between capital gains and income
IV. They have the investors with low tolerances to riskCorrect
Combination mutual funds are a cross between, or combination of, growth funds and income funds. In fact, they are often referred to as growth and income funds. They are not as risky as a pure growth fund, and not as conservative as a pure income fund, these funds are popular with investors who are seeking a balanced portfolio.
Incorrect
Combination mutual funds are a cross between, or combination of, growth funds and income funds. In fact, they are often referred to as growth and income funds. They are not as risky as a pure growth fund, and not as conservative as a pure income fund, these funds are popular with investors who are seeking a balanced portfolio.
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Question 5 of 30
5. Question
Balanced funds, unlike many mutual funds, invest in both stocks and bonds. For this reason, balanced mutual funds are also commonly known as:
Correct
Balanced funds, unlike many mutual funds, invest in both stocks and bonds. For this reason, balanced mutual funds are also commonly known as hybrid funds. The objective is a balance between capital gains and income.
Incorrect
Balanced funds, unlike many mutual funds, invest in both stocks and bonds. For this reason, balanced mutual funds are also commonly known as hybrid funds. The objective is a balance between capital gains and income.
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Question 6 of 30
6. Question
Which of the following funds are not usually suitable for investors with low tolerances to risk:
I. Balanced funds
II. Sector funds
III. Money market funds
IV. International fundsCorrect
International funds are not usually suitable for investors with low tolerances to risk. International funds can post spectacular gains, but the risks attendant to investing in foreign companies is very high.
Incorrect
International funds are not usually suitable for investors with low tolerances to risk. International funds can post spectacular gains, but the risks attendant to investing in foreign companies is very high.
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Question 7 of 30
7. Question
Those funds that deliberately choose stocks to achieve the same performance as a broad-based market index, (often the S&P 500), the portfolio will usually achieve roughly the same rate of return as the general market is also known as:
Correct
Index mutual funds are one of the more conservative mutual fund choices. Because these funds deliberately choose stocks to achieve the same performance as a broad based market index, (often the S&P 500), the portfolio will usually achieve roughly the same rate of return as the general market.
Incorrect
Index mutual funds are one of the more conservative mutual fund choices. Because these funds deliberately choose stocks to achieve the same performance as a broad based market index, (often the S&P 500), the portfolio will usually achieve roughly the same rate of return as the general market.
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Question 8 of 30
8. Question
Which of the following is the type of asset allocation fund that changes the investment allocation as the investor ages?
I. Life-cycle funds
II. Net asset value
III. Asset allocation funds
IV. International fundsCorrect
Life-cycle funds are a type of asset allocation fund that change the investment allocation as the investor ages. If the investor is younger, the allocation will involve stocks to increase risk, but as the investor ages, the allocation will involve more bonds to decrease risk.
Incorrect
Life-cycle funds are a type of asset allocation fund that change the investment allocation as the investor ages. If the investor is younger, the allocation will involve stocks to increase risk, but as the investor ages, the allocation will involve more bonds to decrease risk.
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Question 9 of 30
9. Question
If Investors use money market funds to park cash while they are out of the market. They receive which of the following:
I. Interest income
II. Maximum liquidity
III. Lower risk than with securities
IV. Net asset value is guaranteedCorrect
Investors use money market funds to park cash while they are out of the market. They receive interest income, and have maximum liquidity, and generally face lower risk than with securities. Money market interest rates are always changing, and the net asset value is always at one dollar, although this is not actually guaranteed.
Incorrect
Investors use money market funds to park cash while they are out of the market. They receive interest income, and have maximum liquidity, and generally face lower risk than with securities. Money market interest rates are always changing, and the net asset value is always at one dollar, although this is not actually guaranteed.
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Question 10 of 30
10. Question
Mutual funds must offer automatic reinvestment of distributions in order to be allowed to charge the maximum sales charge of the following percentage:
Correct
Mutual funds must offer automatic reinvestment of distributions in order to be allowed to charge the maximum sales charge of 8.5 percent. Additionally, many mutual funds that don’t charge the maximum also allow automatic reinvestment of distributions.
Incorrect
Mutual funds must offer automatic reinvestment of distributions in order to be allowed to charge the maximum sales charge of 8.5 percent. Additionally, many mutual funds that don’t charge the maximum also allow automatic reinvestment of distributions.
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Question 11 of 30
11. Question
Many mutual fund companies allow investors in their fund to transfer their money in and out of different funds in the family without incurring sales charges is also known as
Correct
Many mutual fund companies allow investors in their fund to transfer their money in and out of different funds in the family without incurring sales charges. This is known as a conversion (exchange) privilege.
Incorrect
Many mutual fund companies allow investors in their fund to transfer their money in and out of different funds in the family without incurring sales charges. This is known as a conversion (exchange) privilege.
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Question 12 of 30
12. Question
When a mutual fund charges the fee when the investor withdraws shares (instead of when the investor buys the shares) is also known as:
Correct
When a mutual fund charges the fee when the investor withdraws shares (instead of when the investor buys the shares), it is called a back-end load. Back-end loads encourage investors to invest for the long-term because the load decreases the longer the investor holds the shares.
Incorrect
When a mutual fund charges the fee when the investor withdraws shares (instead of when the investor buys the shares), it is called a back-end load. Back-end loads encourage investors to invest for the long-term because the load decreases the longer the investor holds the shares.
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Question 13 of 30
13. Question
Which of the following occurs when a customer invests a fixed amount of money into a mutual fund on a regular basis—every month, every three months, etc?
Correct
Dollar-cost averaging occurs when a customer invests a fixed amount of money into a mutual fund on a regular basis—every month, every three months, etc. It is popular because it requires no decision making, and because it allows the investor to buy more shares when the price is lower.
Incorrect
Dollar-cost averaging occurs when a customer invests a fixed amount of money into a mutual fund on a regular basis—every month, every three months, etc. It is popular because it requires no decision making, and because it allows the investor to buy more shares when the price is lower.
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Question 14 of 30
14. Question
Which of the following is true for Class A shares?
Correct
Class A shares are bought with a front-end load, and the load can be lowered by investing in large enough amounts to qualify for breakpoints.
Incorrect
Class A shares are bought with a front-end load, and the load can be lowered by investing in large enough amounts to qualify for breakpoints.
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Question 15 of 30
15. Question
Which of the following class of shares is 12b-1 shares?
Correct
Class C shares are 12b-1 shares.
Incorrect
Class C shares are 12b-1 shares.
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Question 16 of 30
16. Question
When a mutual fund shareholder wants to sell, then what strategies mutual fund company should apply?
I. Make withdrawal plans
II. Put restrictions on mutual fund redemption
III. Redeem the shares
IV. Taxation of mutual fund’s investor’s profitsCorrect
When a mutual fund shareholder wants to sell, the mutual fund company redeems the shares; that is, the mutual fund company buys the shares back. When shares are redeemed, they are destroyed, as mutual funds are constantly issuing new shares.
Incorrect
When a mutual fund shareholder wants to sell, the mutual fund company redeems the shares; that is, the mutual fund company buys the shares back. When shares are redeemed, they are destroyed, as mutual funds are constantly issuing new shares.
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Question 17 of 30
17. Question
Many mutual funds allow investors to withdraw funds on a pre-planned, systematic basis. Which of the following relates to this method:
Correct
Many mutual funds allow investors to withdraw funds on a pre-planned, systematic basis. These methods are called withdrawal plans. There are three basic approaches to systematic withdrawal.
Incorrect
Many mutual funds allow investors to withdraw funds on a pre-planned, systematic basis. These methods are called withdrawal plans. There are three basic approaches to systematic withdrawal.
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Question 18 of 30
18. Question
Which of the following is the systematics withdrawal approach that relates to the customer when he wants to receive a fixed dollar amount at every interval:
Correct
The first approach is when the customer wants to receive a fixed dollar amount at every interval. In this case, the fund redeems however many shares necessary at the current net asset value to raise the amount of money requested by the customer.
Incorrect
The first approach is when the customer wants to receive a fixed dollar amount at every interval. In this case, the fund redeems however many shares necessary at the current net asset value to raise the amount of money requested by the customer.
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Question 19 of 30
19. Question
When the customer chooses to redeem shares over a stated amount of time, is known as:
Correct
The customer may choose to redeem shares over a stated amount of time, known as a fixed-time withdrawal plan.
Incorrect
The customer may choose to redeem shares over a stated amount of time, known as a fixed-time withdrawal plan.
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Question 20 of 30
20. Question
Long-term capital gains are capital gains realized from the sale of securities held for longer than a year, and they’re taxed at which of the following the capital gains rate:
Correct
Long-term capital gains are capital gains realized from the sale of securities held for longer than a year, and they’re taxed at the capital gains rate of 15 percent. Capital gains realized from the sale of securities held for less than a year are taxed at regular income tax rates.
Incorrect
Long-term capital gains are capital gains realized from the sale of securities held for longer than a year, and they’re taxed at the capital gains rate of 15 percent. Capital gains realized from the sale of securities held for less than a year are taxed at regular income tax rates.
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Question 21 of 30
21. Question
Which of the following is (are) types of management investment companies?
I. Closed-end MICs
II. Open-End MICs
III. Closed-end funds
IV. Exchange-traded fundsCorrect
There are two types of management investment companies (MICs)—open-end and closed-end. Closed-end MICs are commonly known as publicly traded funds. They are called closed-end because they issue a fixed quantity of shares.
Incorrect
There are two types of management investment companies (MICs)—open-end and closed-end. Closed-end MICs are commonly known as publicly traded funds. They are called closed-end because they issue a fixed quantity of shares.
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Question 22 of 30
22. Question
Which of the following is true related to Open-end funds?
Correct
Open-end funds have an indefinite number of shares, but closed-end funds have a finite number.
Incorrect
Open-end funds have an indefinite number of shares, but closed-end funds have a finite number.
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Question 23 of 30
23. Question
Which of the following investment company operates by issuing shares entitling the owner to a portion of the investment portfolio owned by the trust?
Correct
One type of Investment Company is the unit investment trust (UIT). Unit investment trusts operate by issuing shares entitling the owner to a portion of the investment portfolio owned by the trust. These shares can’t be sold on the market, but only bought back, or redeemed, by the trust itself, and the trust is obligated to purchase them when an investor wants to sell.
Incorrect
One type of Investment Company is the unit investment trust (UIT). Unit investment trusts operate by issuing shares entitling the owner to a portion of the investment portfolio owned by the trust. These shares can’t be sold on the market, but only bought back, or redeemed, by the trust itself, and the trust is obligated to purchase them when an investor wants to sell.
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Question 24 of 30
24. Question
Which of the following funds are designed to track an index, which is a passive type of investing and so requires smaller managing fees?
Correct
Exchange-traded funds (ETFs) are types of mutual funds which are, like stocks, traded on an exchange. Many exchange-traded funds are designed to track an index, which is a passive type of investing and so requires smaller managing fees.
Incorrect
Exchange-traded funds (ETFs) are types of mutual funds which are, like stocks, traded on an exchange. Many exchange-traded funds are designed to track an index, which is a passive type of investing and so requires smaller managing fees.
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Question 25 of 30
25. Question
Which of the following is (are) the advantages of Exchange-traded funds (ETFs)?
I. They trade on the stock market
II. They derive at least 75% of its income from the real estate-related activity
III. They have lower fees
IV. They provide the diversification which comes with mutual fundsCorrect
The advantage of ETFs is that they provide the diversification which comes with mutual funds, the lower fees which come with index funds, and the flexibility of trade which comes with ordinary shares of stock
Incorrect
The advantage of ETFs is that they provide the diversification which comes with mutual funds, the lower fees which come with index funds, and the flexibility of trade which comes with ordinary shares of stock
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Question 26 of 30
26. Question
Which of the following private investment funds are legally restricted to very wealthy individuals:
Correct
Hedge funds are private investment funds that are legally restricted to very wealthy individuals, individuals who have an income surpassing the requisite threshold and at least a $1 million net worth
Incorrect
Hedge funds are private investment funds that are legally restricted to very wealthy individuals, individuals who have an income surpassing the requisite threshold and at least a $1 million net worth
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Question 27 of 30
27. Question
Which of the following are a specialized type of investment in real estate that trade on the stock market, and which have special tax advantages for investors:
Correct
Real estate investment trusts (REITs) are a specialized type of investment in real estate that trade on the stock market, and which have special tax advantages for investors.
Incorrect
Real estate investment trusts (REITs) are a specialized type of investment in real estate that trade on the stock market, and which have special tax advantages for investors.
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Question 28 of 30
28. Question
Which kind of real estate investment trusts REITs purchase real estate equity, owning real estate and making profit off of rent revenue or capital gains when the real estate is sold:
Correct
Equity REITs purchase real estate equity, owning real estate and making profit off of rent revenue or capital gains when the real estate is sold.
Incorrect
Equity REITs purchase real estate equity, owning real estate and making profit off of rent revenue or capital gains when the real estate is sold.
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Question 29 of 30
29. Question
Funds of funds (FOFs) are investments that invest in other funds, rather than investing directly in securities such as stocks or bonds. They are also known as:
Correct
Funds of funds (FOFs) are investments that invest in other funds, rather than investing directly in Securities such as stocks or bonds. It can also be called multi-manager investment.
Incorrect
Funds of funds (FOFs) are investments that invest in other funds, rather than investing directly in Securities such as stocks or bonds. It can also be called multi-manager investment.
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Question 30 of 30
30. Question
Why are the investors attracted towards the blind pools?
I. The reputation of the individuals
II. The reputation of the company
III. No tax rate
IV. Low riskCorrect
The reason investors are willing to invest in blind pools is due to the reputation of the individuals or company managing the fund.
Incorrect
The reason investors are willing to invest in blind pools is due to the reputation of the individuals or company managing the fund.