ALT & Suitable Investments Flashcards
A high net worth investor seeking dividends would be most likely to invest in ___
a BDC-Business Development Company
A type of limited partnership where specific investments of the partnership aren’t known at the time of the partnership formation is a___
Blind pool limited partnership
___ is a security giving the holder an undivided interest in a pool of mortgages.
Pass through certificate
PO Tranche is a ___ w/in a CMO that only pays out the ___ of mortgage payments; the holder received no ___.
Typically bought at a discount to face value so that investors benefit from ___
Principal-Only Tranche; principal portion; interest payments.
Home owners paying off the mortgages early.
Floating rate tranche has ___ tied to recognized interest rate index like __. Usually caps how high its paid rate can go & floors how low its paid rate can go.
Varying interest rate; SOFR
When investment performance of each asset class varies from the anticipated rate of return, the portfolio must be ___ by ___.
Rebalanced; liquidating portions of overperforming classes & investing proceeds in underperforming classes.
CMO Targeted amortization classes (__) have the same level of ___ but a lower level of ___ than a Planned Amortization Class.
Prepayment risk; extension risk
An ETN is a variation of a structured product. But the ETN has less ___ because they trade on an exchange. ETNs also are more ___ than structured products & corporate bonds.
Liquidity risk
Tax-efficient
Direct participation programs (__) offer ___ to the investor.
Professional management
____ is the obligation to understand an investment & its risks before recommending it to
Customers.
Reasonable-basis suitability obligation
___ requires a B-D who has control over a customer account to refrain from trading activity that is excessive in size or frequency given the customer’s investment goals.
Quantitative suitability obligation
