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CFP Exam > CFP Investment Companies > Flashcards

CFP Investment Companies Flashcards

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1
Q

Closed End Investment Company:

Initial market cap?

A

Fixed initial market cap bc a specific number of shares are initially sold to the public

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2
Q

Open End Investment Company:

Initial market cap?

A

Unlimited number of shares

NAV = (assets - liabiities) /

Shares Outstanding

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3
Q

Unit Investment Trust:

Equity or fixed income?

Managed by?

Active or passive management?

Units or shares?

A

Equity or fixed income? BOTH, TYPICALLY FIXED INCOME

Managed by? TRUSTEE

Active or passive management? PASSIVE, SELF-LIQUIDATING

Units or shares? UNITS

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4
Q

Mutual Funds, aggressive growth have what type of securities?

A

small cap

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5
Q

Growth mutual funds have what kind of P/E ratio? Dividend?

A

High P/E, no dividend

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6
Q

Value Fund, have what type of securities? P/E? Dividend?

A

Undervalued

Low P/E

High dividend yields

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7
Q

BALANCED FUND have what type of securities?

A

More bonds than a typical equity fund

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8
Q

MM Funds have what type of securities?

A

Highly liquid

Maturities of < 90 days

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9
Q

INDEX FUNDS have what type of securities? Are they tax efficient?

A

Passive strategy

TAX EFFICIENT, low turnover

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10
Q

Lifecycle fonds have what type of securities?

A

Asset allocation changes as investor gets closer to returement

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11
Q

Global funds have what type of securities?

A

International

AND

US

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12
Q

How do NO LOAD FUNDS handle fund expenses?

A

Do not charge a sales commission when purchased or redeemed

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13
Q

How doLOAD FUNDS handle fund expenses?

A

Charge a sales commission when purchased or refeemed

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14
Q

“A” Shares

Load/No-load?

12b-1 fee?

Redemption fee?

Appropriate for?

A

Load/No-load? FRONT-END LOAD (SALES COMMISSION)

12b-1 fee? YES, SMALL

Redemption fee? NO BACK-END

Appropriate for? L-T INVESTORS

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15
Q

“B” SHARES:

Load/No-load?

12b-1 fee?

Redemption fee?

Appropriate for?

A

Load/No-load? BACK-END ONLY

12b-1 fee? YES, HIGH (typically 1%)

Convertible? YES, to A shares

Appropriate for? Many funds no longer offer B shares

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16
Q

“C” SHARES:

Load/No-load?

12b-1 fee?

Redemption fee?

Appropriate for?

A

“Load/No-load? NONE

12b-1 fee? YES, MAX 1%

Redemption fee? SMALL

Convertible? NO

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17
Q

ETF: EXCHANGE TRADED FUNDS

A

A portfolio of stocks that represent an index

Low cost of ownership

Passive, BUT CAN ALSO BE ACTIVELY MANAGED

TAX EFFICIENT

18
Q

REITs: Real Estate investment Trusts

Correlation to stock market?

Hedge against?

Must distribute __% of income

3 types of REITS?

A

Correlation to stock market? LOW

Hedge against? INFLATION

Must distribute __% of income: 90%

3 types of REITS?
EQUITY
MORTGAGE
HYBRID

19
Q

ADR: American Depository Receipts

A

Foreign stock held in domestic banks’ foreign branch

Cap gains include currency fluctuation, THEREFORE THEY DO NOT ELIMINATE EXCHANGE RATE RISK

Dividends paid in US $

20
Q

The value of an OPTION is derived from what?

A

The value of another underlying asset

21
Q

One option contract with a premium of $2 will cost how much?

A

$200

(One option contract controls 100 shares of the underlying security)

22
Q

A CALL OPTION is the right to ____ a specified number of shares at a specified price.

A

A CALL OPTION is the right to BUY a specified number of shares at a specified price.

Buyers believe price will RISE

Sellers believe price will FALL

23
Q

A PUT OPTION is the right to ___ a specified number of shares at a specified price.

A

A PUT OPTION is the right to SELL a specified number of shares at a specified price.

Buyers believe price will FALL

Sellers believe price will RISE

24
Q

What are the 3 reasons people invest in options?

A

-Hedging

Speculation

Income

25
Q

An OPTION PREMIUM consists of what two components?

A

Intrinsic value (cannot be less than 0)

Time Value

26
Q

To calculate the gain or loss on an option, what things must be considered?

A

“STOPS”

St: Stock gain or loss if you own the underlying stock
O: Options gains or loss
P: Premium paid/received
S: Shares controlled or owned

27
Q

When the exam asks a question about “protecting profits” or “locking in gains”, what type of option is right for this investor?

A

Buying a put

28
Q

Long Straddles involve buying what?

A

A put and a call option on the same stock (expecting volatility)

29
Q

Short straddles involve SELLING or BUYING?

A

An investor sells a put and a call option

Appropriate when NOT expecting volatility

30
Q

What is a collar?

A

A strategy where the investor owns the underlying stock

Wants to protect downside risk without paying the entire cost of the put option

31
Q

The Black/Scholes Model is used to determine the value of a

A

CALL option

32
Q

The Black/Scholes Model considers what variables?

A

Current price (DIRECT)

Time until expiration (DIRECT)

Risk-free rate of return (DIRECT)

Volatility of underlying asset (DIRECT)

**Strike price has an indirect relationship

33
Q

Put/Call Parity values a PUT based on what?

A

The value of a corresponding call option

34
Q

What does the BINOMIAL PRICING MODEL use to value an option?

A

Based on the assumption that a stock can only move in one of two directions

This model explains prices based upon the underlying asset price moving in two directions

35
Q

LEAPs
Long Term Equity Anticipation Securities characteristics

A

Longer expiration periods than traditional options (up to 2 years)

Premium is higher

36
Q

What are WARRANTS and who are they issued by?

Typical expiration period?

A

Essentially long-term call options

issued by a CORPORATION

Typically 5-10 years

37
Q

Which strategy can cause the investor to experience the greatest loss?

A

Selling a naked call

38
Q

An OPTION CONTRACT gives the holder the ___ to do something;
FUTURES contracts ____ the holder to make or take delivery of the underlying asset.

A

An OPTION CONTRACT gives the holder the RIGHT to do something;
FUTURES contracts OBLIGATE the holder to make or take delivery of the underlying asset.

39
Q

Cash dividends drive the price of the underlying security down. What happens to call option prices?

A

Also go down

40
Q

Call options are created by _______; warrants are issued by _______.

A

Call options are created by INDIVIDUALS; warrants are issued by CORPORATIONS.

CFP Exam (23 decks)

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