TheorySeries 6 Practice Test Video
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Q1An investor purchases $45,000 of Class A shares in a mutual fund. The fund's breakpoint schedule offers a reduced sales load at $50,000. The investor signs a letter of intent (LOI) to invest an additional $10,000 within 13 months. Which of the following BEST describes the immediate effect of the LOI?
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✓ Correct answer: The investor receives the $50,000 breakpoint sales load rate on the current $45,000 purchase immediately
A letter of intent allows investors to receive the breakpoint discount immediately on current purchases, with the understanding they intend to reach the qualifying amount within 13 months; shares are escrowed as collateral but the reduced load applies upfront.
Q2A mutual fund's portfolio has securities with a total market value of $120 million. The fund has liabilities of $5 million, and 10 million shares are outstanding. An investor redeems 500 shares at 4:01 PM Eastern Time on a Tuesday. At which price will the redemption be processed?
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✓ Correct answer: The NAV calculated at 4:00 PM on Wednesday ($11.50 or the next computed price)
Under forward pricing rules (SEC Rule 22c-1), any order received after the 4:00 PM ET cutoff must be executed at the NEXT computed NAV — meaning Wednesday's 4:00 PM calculation — not Tuesday's closing price.
Q3A customer holds Class B mutual fund shares and has been told her shares will 'convert' after eight years. What is the PRIMARY benefit of this conversion feature?
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✓ Correct answer: The shares convert to Class A shares, eliminating the ongoing 12b-1 fee charged on Class B shares
Class B shares typically convert to Class A shares after a set holding period, after which the higher 12b-1 fee assessed on Class B shares is replaced by the lower Class A 12b-1 fee, reducing ongoing fund expenses for long-term holders.
Q4Under FINRA rules, which of the following correctly describes how Rights of Accumulation (ROA) differ from a Letter of Intent (LOI) when qualifying for mutual fund breakpoints?
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✓ Correct answer: ROA gives a breakpoint discount based on the combined current and historical account value; LOI gives a breakpoint discount based on a stated future purchase commitment
Rights of Accumulation allow investors to aggregate prior holdings plus the current purchase to qualify for a breakpoint; a Letter of Intent projects future intended purchases to qualify immediately for a reduced load, making them complementary but distinct mechanisms.
Q5A Unit Investment Trust (UIT) differs from an open-end mutual fund primarily because a UIT:
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✓ Correct answer: Has a fixed, unmanaged portfolio and a stated termination date
A UIT is organized with a fixed portfolio of securities and a defined termination date; it does not continuously offer new shares and is not actively managed, distinguishing it from open-end mutual funds.
Q6An investor is comparing Class A and Class C mutual fund shares for a projected 18-month holding period with a $20,000 investment. Which statement MOST accurately describes Class C shares for short-term investors?
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✓ Correct answer: Class C shares may be more cost-effective for short-term holders because they typically have no front-end load, though they carry higher ongoing 12b-1 fees
Class C shares carry no front-end load and usually a small or no back-end load after one year, but their higher 12b-1 fees make them costlier than Class A for long-term holders; for an 18-month horizon, the absence of an upfront charge may yield lower total costs.
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