INS Mutual Funds and Individual
Securities
Exam Study Guide
This document contains the questions that will be on the exam.
When you have studied the course materials, reviewed the questions
in this document, and feel that you are ready to take the exam,
return to the login page to take the online exam.
A Center for Continuing Education
1465 Northside Drive, Suite 213
Atlanta, Georgia 30318
(404) 355-1921 – (800) 344-1921
Fax: (404) 355-1292
4/2013
Page 1
Mutual Funds and Individual Securities
Final Exam
1. A mutual fund company is:
a. an investment company which offers shares of pooled securities to the public.
b. required to offer both closed and open-end funds.
c. limited to offering a maximum of ten different funds.
d. regulated by the US Treasury.
2. Systematic withdrawal programs:
a. from equity funds can be used as an alternative to using a bond fund to generate income.
b. are only available as a tool for making required minimum distributions from qualified plans.
c. from equity funds are highly speculative, and so are suitable for only the most aggressive
client.
d. from equity funds are very safe, and so are suitable for the most conservative client.
3. Two funds with the same objective:
a. always have the same risk level.
b. are required to have the same risk level.
c. can have different risk levels.
d. can never have the same risk level.
4. Mutual fund distribution options generally include:
a. receiving dividend and capital gain income, or receiving dividend income and reinvesting
capital gain income.
b. receiving dividend and capital gain income, reinvesting income, or receiving dividend income
and reinvesting capital gain income.
c. reinvesting income, or receiving dividend income and reinvesting capital gain income.
d. receiving dividend and capital gain income or reinvesting all income.
5. The objective of capital appreciation within a mutual fund indicates the fund will be managed
with the goal of:
a. growth in the share value of the portfolio.
b. increased growth from both capital appreciation and reinvested income from common stocks.
c. generating income from dividends from stocks, government or corporate bonds and other
sources.
d. following its objective only to the extent that it will not cause loss of capital.
6. NAV stands for:
a. net account value.
b. new account value.
c. net advantage value.
d. net asset value.
4/2013
Page 2
7. An objective including preservation of capital is an indication the fund will be managed with the
goal of:
a. growth in the share value of the portfolio.
b. increased growth from both capital appreciation and reinvested income from common stocks.
c. generating income from dividends from stocks, government or corporate bonds and other
sources.
d. following its objective only to the extent that it will not cause loss of capital.
8. Total return is:
a. a calculation which incorporates the change in share price over a period of time and assumes
distributions are reinvested as they are received.
b. not as important a calculation as is the yield calculation.
c. should be the only return figure disclosed to a client.
d. is always a positive number if the yield of the fund is a positive number.
9. Financial or default risk of bonds:
a. is nonexistent.
b. is evaluated by several rating agencies.
c. is the risk the issuing entity will call the bonds.
d. is the risk the issuing entity will not call the bonds.
10. Which of the following statements about sales loads is inaccurate?
a. Sales loads may be front-end, back-end, spread over a period of time, or charged in some
other manner.
b. Sales loads are never charged on reinvested dividends.
c. Back-end loads are charged if shares are liquidated within a certain period of time from
purchase.
d. Funds with higher than average sales loads may have special management requirements.
11. Generally, the higher quality the bond, the greater relative impact rate changes have on price
because:
a. high quality bonds are usually long term issues.
b. high quality bonds are usually short term issues.
c. bond rating agencies downgrade bonds when interest rates rise.
d. a high quality bond’s price is based primarily on interest rate since default risk is low.
12. Which of the following subjects is not likely to be included in a prospectus?
a. The name of the fund.
b. Fund investment objectives.
c. Financial highlights and performance.
d. Top ten shareholders.
13.
a.
b.
c.
d.
A UIT is a closed-end mutual fund often composed of pools of:
corporate high-yield bonds.
small cap equities.
municipal bonds.
blue chip equities.
14. Although interest from municipal bonds is generally federally income tax-exempt:
4/2013
Page 3
a. capital gain distributions are not.
b. capital gain distributions are not unless they are reinvested.
c. the IRS requires including it in income if a municipal bond fund includes bonds from more
than one state.
d. dividends from a mutual fund resulting from interest from municipal bonds are not federally
tax-exempt.
15. GNMA pass-throughs are:
a. a pool of mortgages which passes interest only payments to investors.
b. a pool of mortgages which passes principal only payments to investors.
c. a pool of mortgages which passes interest and principal payments to the investors.
d. a pool of ARMs which passes interest only payments to investors.
16. The type of bond fund that is comprised mainly of bonds issued by municipalities and states
for projects such as roads, schools and buildings is:
a. government bond fund
b. junk bond fund
c. municipal bond fund
d. global bond fund
17.
a.
b.
c.
d.
The major risk of a US Government Treasury fund is:
pre-payment risk.
interest rate risk.
default risk.
exchange rate risk.
18. Defensive stocks:
a. fluctuate greatly in price during economic downturns.
b. fluctuate greatly in price during economic upturns.
c. fluctuate greatly in price in both economic upturns and downturns.
d. are issued by companies offering products or services whose demand does not fluctuate
greatly with economic swings.
19.
a.
b.
c.
d.
Exchange rate risk is a risk associated with:
US government funds.
ARM funds.
Municipal bond funds.
World bond funds.
20. Which of the following is not a stock exchange?
a. The New York Stock Exchange
b. The OTC
c. The American Stock Exchange
d. The Pacific Stock Exchange
4/2013
Page 4
21. A values approach to stock selection:
a. looks for stocks based on strong earnings and revenue growth.
b. looks for stocks which are undervalued in price given their potential for growth.
c. is used by most equity fund managers.
d. looks for stocks which have increased in value by a specified percentage over a specified
time frame.
22. A limit order is:
a. an order to buy at a certain price.
b. used to sell stock if the price hits a certain level.
c. an order to buy or sell at the best price in the market at the time the order is placed with the
market maker.
d. an order which includes the price at which the stock will be either bought or sold and how
long the order is to be in effect.
23. Regular investing through bank-drafts from a savings or checking account to a mutual fund:
a. is the only method available to enable dollar-cost averaging.
b. is very complicated, so should only be used for clients who will be making large purchases.
c. normally includes a minimum required draft amount of at least $1000.
d. can give the smaller saver access to the purchase of mutual funds.
24. The OTC:
a. is a stock exchange.
b. is the most expensive place to trade stocks.
c. is a negotiated market.
d. only trades in Blue-Chip equities.
25. Exchange rate risk is the risk:
a. that the underlying corporation or issuing entity will be unable to meet the obligations of the
security.
b. that the currency in a foreign country will decrease in value relative to other currencies.
c. that a security will not increase in value to keep pace with inflation.
d. that political events will result in price fluctuations in a security.
26. Common objectives found in a fund are
a. capital appreciation, income, total return and guarantee of principal.
b. capital appreciation, income, total return and preservation of capital.
c. capital gains, income, total return and preservation of capital.
d. capital appreciation, 10% yield, total return and preservation of capital.
27. A stop-loss order is:
a. an order to buy at a certain price.
b. used to sell stock if the price hits a certain level.
c. an order to buy or sell at the best price in the market at the time the order is placed with the
market maker.
d. an order which includes the price at which the stock will be either bought or sold and how
long the order is to be in effect.
4/2013
Page 5
28. The fund:
a. must meet its stated objective.
b. managers guarantee that the fund will meet its objective.
c. is guaranteed to meet its objective by the SEC.
d. is managed with the intent of meeting its stated objective.
29. A note typically matures in:
a. 10 years or more.
b. 1 year or less.
c. 5 years or less.
d. 10 years or less.
30. A mutual fund objective of total return indicates the fund will be managed with the goal of:
a. growth in the share value of the portfolio.
b. increased growth from both capital appreciation and reinvested income from common stocks.
c. generating income from dividends from stocks, government or corporate bonds and other
sources.
d. following its objective only to the extent that it will not cause loss of capital.
31. A put option is:
a. an option to sell a security at a specific price.
b. an option to buy a security at a specific price.
c. profitable to the buyer of the put if the stock to which the put applies raises in price.
d. profitable to the buyer of the put if the put expires.
32. Financial or default risk in equity securities:
a. includes the risk that the corporation will be unable to pay dividends and/or that financial
difficulties will cause the share value to fall.
b. is nonexistent.
c. is evaluated by several rating agencies.
d. is the risk the corporation will not issue stock in the future.
33. In which of the following cases will a profit be made by the purchaser?
a. A put option is purchased for $300 and the stock to which the put applies rises by a total of
$400.
b. A call option is purchased for $300 and the stock to which the call applies rises by a total of
$500. The call is exercised and the stock is sold by the call purchaser.
c. A call option is purchased for $300 and the stock to which the call applies rises by a total of
$200.
d. A put option is purchased for $300 and the stock to which the put applies falls by a total of
$200.
34. Of the following bond rating descriptions, which indicates the highest quality?
a. High quality
b. Speculative
c. Prime
d. Medium Grade
4/2013
Page 6
35. Which of the following is not a reason a mutual fund might use options?
a. to increase yield.
b. to protect against loss.
c. to guarantee a specified yield.
d. to add diversification without the expense of buying more securities.
36. Equities are generally considered to be a hedge against inflation because:
a. over time they have moved upward as inflation indices have gone up.
b. measured every five years, equities have risen to a greater degree than the inflation rate.
c. they do not contain any interest rate risk.
d. most experts say so.
37. Which of the following securities products could not be used for income?
a. mutual funds
b. treasuries
c. municipal bonds
d. All of the products listed above could be used for income.
38. Of the following types of municipal bonds, which are backed by the full faith, credit and taxing
authority of the issuing municipality?
a. special tax bonds.
b. general obligation bonds.
c. revenue bonds.
d. private activity bonds.
39. Which of the following is not a characteristic of mutual funds used for income?
a. If income is taken via distribution of dividends, the amount of the check will vary based solely
on the number of days in the period for which the check is payable.
b. Account values will fluctuate.
c. The yield and return of the fund is not guaranteed.
d. If income is taken via distribution of dividends, the amount of the check can vary based on
the yield of the account and the number of days in the period for which the check is payable.
40. US Government securities are generally considered to have less risk of default than:
a. insured municipal bonds.
b. blue chip equities.
c. high yield corporate bonds.
d. all of the above.
41. Mutual funds can have all the following features or characteristics except:
a. systematic withdrawals
b. guaranteed returns
c. diversification
d. professional management
4/2013
Page 7
42. ARM funds:
a. invest primarily in adjustable rate mortgage securities
b. have the same risks as money market funds, but return higher yields
c. are all guaranteed by the full faith and credit of the US government.
d. are too risky and should not be purchased.
43. Purchasing power risk is the risk:
a. that the underlying corporation or issuing entity will be unable to meet the obligations of the
security.
b. that the currency in a foreign country will decrease in value relative to other currencies.
c. that a security will not increase in value to keep pace with inflation.
d. that political events will result in price fluctuations in a security.
44. High yield corporate:
a. bond funds are low risk, high yield funds.
b. bonds have a default risk equal to the relatively higher return of their coupon rates.
c. bond funds are composed of corporate bonds with higher coupon rates than bonds issued by
more financially stable companies.
d. bond funds are exclusively invested in bonds.
45. A mutual fund company is:
a. an investment company which offers shares of pooled securities to the public.
b. required to offer both closed and open-end funds.
c. limited to offering a maximum of ten different funds.
d. regulated by the US Treasury.
46.
a.
b.
c.
d.
Convertible bonds
are less expensive than the common stock of the same issuer.
are riskier than the common stock of the same issuer.
are riskier than high-yield bonds.
have certain guarantees which generally reduce the risk of the bonds compared to common
stock issued by the same company.
47. A fund’s features, such as initial investment amount, ability to dollar-cost average or make
systematic withdrawals:
a. are the most important aspect of a fund in determining its suitability for a client.
b. are an important aspect in deciding which among a number of suitable funds may be best for
a client.
c. can dramatically reduce the return of a fund.
d. can generate higher commissions for the representative.
48.
a.
b.
c.
d.
Equity-income funds are generally less aggressive than:
small-cap funds.
world stock funds.
growth funds.
all of the above.
4/2013
Page 8
49. The SEC yield of a fund:
a. can be calculated and reported to the public in any manner the mutual fund desires.
b. is an optional calculation for the mutual fund company to report to shareholders.
c. should not be disclosed to a client because it is too confusing.
d. is a complex calculation which incorporates risk premiums, special accounting for foreign
security distributions, among other complicated computations.
50. Political risk is the risk:
a. that the underlying corporation or issuing entity will be unable to meet the obligations of the
security.
b. that the currency in a foreign country will decrease in value relative to other currencies.
c. that a security will not increase in value to keep pace with inflation.
d. that political events will result in price fluctuations in a security.
4/2013
Page 9