Answer: Correct Answer: A

Rationale: During the accumulation period for a variable annuity, the number of accumulation units will grow as the value in the account grows. Once the annuitization phase begins, however, the number of annuity units remains fixed. It is the value, and not the number, of those units that will fluctuate depending on the performance of the subaccounts. The amount of the monthly checks after the first month will depend on the relationship between the AIR (assumed interest rate) and the fund's actual performance.

Answer: Correct Answer: C

Rationale: For the exam, know that A shares’ biggest charge is a front-end load, B shares’ biggest charge is a back-end load, and C shares’ biggest charge is its annual 12b-1 fees. (There are no D shares.) A shares are sold at a public offering price equal to NAV plus a front-end sales charge. A shares may include an annual maintenance fee (12b-1 fee), but this is usually lower for A shares than for B shares or C shares. B shares are sold at the NAV with no front-end sales charge. Instead, B shares charge a back-end load (called a contingent deferred sales charge) to investors who redeem their shares before a certain number of years have passed, as well as a higher 12b-1 fee than A shares. C shares have no front-end load and a small back-end load that applies only if the shares are redeemed within one year. They charge higher annual 12b-1 fees than either A or B shares.

Answer: The Best Answer is B

Rationale: As an investor gets older, portfolio composition should shift to safer assets that generate reliable income. The general rule is to take 100 minus the investor’s age to identify the appropriate investment portion for stocks. Since this investor is age 60, 40% of the portfolio should be held in stocks, and the remaining 60% should be held in bonds. Note that a 100% bond holding is not appropriate because people are living much longer, and they need the extra return that is provided by stocks that can grow in value, in addition to the somewhat lower fixed return provided by bonds.

Answer: The Best Answer is A

Rationale: In periods of deflation, interest rates fall. A fixed income security’s price will go up as interest rates fall. Long-duration securities, such as T-bonds, will rise in value dramatically. Also, since prices are deflating, the fixed interest payments received will buy more and more over time. In times of deflation, real estate and gold prices fall. Stock prices tend to fall as well, since companies are forced to cut their prices, which will impact profitability.