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The current yield on a bond fund refers to
Answer : D
The current yield on a bond fund is the return that the fund earned from interest income only. The return from interest income plus the return due to the capital appreciation of the securities make up the total return earned by the fund. The investor's total return is equal to the return on the income received from the fund plus any change in the net asset value of the fund.
An agent cannot tell a client that a mutual fund is ''no load'' if the fund has
I . a front-end load
II . a contingent deferred sales load
III . 12b-1 fees
Answer : B
If a fund has either Selection I or Selection II, an agent cannot tell a client it is ''no load.'' If the fund has either a front-end load, a contingent deferred sales load, or both, the client must be told that the fund has a load. If the 12b-1 fees on a fund are 0.25% or less of the annual average net assets, it is not considered to be a load fund.
When selling shares in a closed-end investment company, an agent must inform the client of any
I . commissions
II . underwriting fees
III . miscellaneous offering expenses
Answer : A
When selling shares in a closed-end investment company, an agent must inform the client of any commissions, underwriting fees, or miscellaneous other offering expenses involved.
Cal Turner calls his client and recommends that the client sell his shares in the Alpha High Quality Bond Fund and use the proceeds to buy shares in the Omega High Quality Bond Fund. Cal has done nothing unethical if his recommendation is based on the fact that
Answer : C
Cal has done nothing unethical if his recommendation that a client sell his shares in the Alpha Fund and buy shares of the Omega Fund is due to the fact that the Alpha Fund has been performing poorly relative to other funds in the same category. While past performance is no guarantee of future performance, a client may not want to hang on to a fund that isn't returning as much as its competition.
Cassie Clueless has recommended that a client purchase shares of a mutual fund prior to its ex-dividend date, so that the client will receive the dividends when they are distributed.
In which of the following situations might this recommendation be justifiable and not in violation of NASAA rules?
I . The investor has refused to provide Cassie any information regarding his investment goals.
II . The investor is a young professional with an investment goal of long-term capital appreciation.
III . The investor is a retiree in a low tax bracket and needs current income to augment her social security check.
Answer : C
If Cassie makes her recommendation based on the scenario described in Selection III, she is not violating any NASAA rules. It is advantageous for an investor who is a retiree in a low tax bracket and needs current income to augment her social security check to buy shares of a mutual fund before its ex-dividend date in order to receive the dividend income. The NASAA rule states only that an agent cannot indicate that the purchase of shares of a mutual fund prior to the ex-dividend date would be advantageous to the client ''unless there are specific, clearly described tax or other advantages to the customer.'' It would be unethical for Cassie to recommend this strategy to an investor whose investment goals were unknown to her, as in Selection I, or to an investor who is looking for long-term capital appreciation and has no need for the dividend income--which will be taxable--as in Selection II .
