STC Series 7 Chapter 9 Test Exam
2025 With 100% Correct Answer
An investor places an order to buy shares of a mutual fund after that investment company has
determined its net asset value for the day. The RR instructs the fund company to purchase the
shares at that day's NAV for the investor. Which of the following statements concerning this
potential trade is TRUE?
A. This is a sales practice violation known as late trading
B. This is an acceptable practice known as market timing
C. The RR would need to have prior written approval by a principal of the firm to execute this
order
D. The investor may only purchase Class B shares in this case, since Class A shares are not
available under this arrangement - CORRECT ANSWER✔✔A. This is a sales practice violation
known as late trading
This activity would constitute a sales practice known as late trading, which is prohibited under
federal securities laws. According to securities law, orders placed after the close of trading for
the day (and after the determination of the closing NAV) must be filled at the next calculated
NAV, which is usually the price at the end of the next business day. Investors placing orders after
the close of the market (based on information that they have learned after the close), and
seeking to purchase shares at prices determined before the close, are engaging in late trading,
which clearly places other investors in that mutual fund at a clear disadvantage. The investor
must receive the price as calculated by the fund company at the NAV on the following day.
Which of the following statements is TRUE regarding dollar cost averaging?
A. It is a systematic method of investing
B. If employed, the average price will be less than the average cost
C. It can only be set up through a payroll deduction plan
D. The benefits can be obtained if one invests in a money-market fund - CORRECT
ANSWER✔✔A. It is a systematic method of investing
, Dollar cost averaging is a systematic method of investing that results in the average cost of the
securities purchased being less than the average of the prices paid (not the other way around).
The benefits are not obtained with funds that have a stable asset value, such as money-market
funds.
Regarding ETFs, which of the following statements is TRUE?
A. ETFs are considered hedge funds by the SEC.
B. ETFs may only hold equity positions.
C. ETFs grow tax-deferred.
D. Typically, ETFs may be sold short. - CORRECT ANSWER✔✔D. Typically, ETFs may be sold short.
Exchange-traded funds (ETFs) are investments that resemble UITs. These products may be sold
short, may be purchased on margin, and may invest in either equity or debt instruments. A fixed
portfolio is typically constructed to either track a specific index (e.g., the Wilshire 5000) or a
given market segment (e.g., airlines or medical companies).
An ETF's portfolio typically remains constant unless there is a change to the underlying index or
in one of the individual investments within the fund. Since ETFs are not hedge funds, there is no
requirement for the investors to be accredited.
An individual has been purchasing shares of a mutual fund and has chosen to reinvest all
distributions rather than take the payments. If the individual chooses to sell the shares
purchased through these reinvestments, the cost basis will be:
A. The purchase price of these shares
B. Zero since reinvestment is made with pretax dollars
C. The same as the purchase price on previous investments
D. The purchase price less any sales charge - CORRECT ANSWER✔✔A. The purchase price of
these shares
Investors must report all distributions from a mutual fund as taxable income, whether
reinvested or not. When an individual chooses to reinvest the distributions, the cost basis is the
purchase price of the shares.
2025 With 100% Correct Answer
An investor places an order to buy shares of a mutual fund after that investment company has
determined its net asset value for the day. The RR instructs the fund company to purchase the
shares at that day's NAV for the investor. Which of the following statements concerning this
potential trade is TRUE?
A. This is a sales practice violation known as late trading
B. This is an acceptable practice known as market timing
C. The RR would need to have prior written approval by a principal of the firm to execute this
order
D. The investor may only purchase Class B shares in this case, since Class A shares are not
available under this arrangement - CORRECT ANSWER✔✔A. This is a sales practice violation
known as late trading
This activity would constitute a sales practice known as late trading, which is prohibited under
federal securities laws. According to securities law, orders placed after the close of trading for
the day (and after the determination of the closing NAV) must be filled at the next calculated
NAV, which is usually the price at the end of the next business day. Investors placing orders after
the close of the market (based on information that they have learned after the close), and
seeking to purchase shares at prices determined before the close, are engaging in late trading,
which clearly places other investors in that mutual fund at a clear disadvantage. The investor
must receive the price as calculated by the fund company at the NAV on the following day.
Which of the following statements is TRUE regarding dollar cost averaging?
A. It is a systematic method of investing
B. If employed, the average price will be less than the average cost
C. It can only be set up through a payroll deduction plan
D. The benefits can be obtained if one invests in a money-market fund - CORRECT
ANSWER✔✔A. It is a systematic method of investing
, Dollar cost averaging is a systematic method of investing that results in the average cost of the
securities purchased being less than the average of the prices paid (not the other way around).
The benefits are not obtained with funds that have a stable asset value, such as money-market
funds.
Regarding ETFs, which of the following statements is TRUE?
A. ETFs are considered hedge funds by the SEC.
B. ETFs may only hold equity positions.
C. ETFs grow tax-deferred.
D. Typically, ETFs may be sold short. - CORRECT ANSWER✔✔D. Typically, ETFs may be sold short.
Exchange-traded funds (ETFs) are investments that resemble UITs. These products may be sold
short, may be purchased on margin, and may invest in either equity or debt instruments. A fixed
portfolio is typically constructed to either track a specific index (e.g., the Wilshire 5000) or a
given market segment (e.g., airlines or medical companies).
An ETF's portfolio typically remains constant unless there is a change to the underlying index or
in one of the individual investments within the fund. Since ETFs are not hedge funds, there is no
requirement for the investors to be accredited.
An individual has been purchasing shares of a mutual fund and has chosen to reinvest all
distributions rather than take the payments. If the individual chooses to sell the shares
purchased through these reinvestments, the cost basis will be:
A. The purchase price of these shares
B. Zero since reinvestment is made with pretax dollars
C. The same as the purchase price on previous investments
D. The purchase price less any sales charge - CORRECT ANSWER✔✔A. The purchase price of
these shares
Investors must report all distributions from a mutual fund as taxable income, whether
reinvested or not. When an individual chooses to reinvest the distributions, the cost basis is the
purchase price of the shares.
