CFP Investment Companies Flashcards by Sarah Moul

Closed End Investment Company:

Initial market cap?

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

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Open End Investment Company:

Initial market cap?

Unlimited number of shares

NAV = (assets - liabiities) /

Shares Outstanding

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Unit Investment Trust:

Equity or fixed income?

Managed by?

Active or passive management?

Units or shares?

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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Mutual Funds, aggressive growth have what type of securities?

small cap

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

High P/E, no dividend

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

Undervalued

Low P/E

High dividend yields

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BALANCED FUND have what type of securities?

More bonds than a typical equity fund

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MM Funds have what type of securities?

Highly liquid

Maturities of < 90 days

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

Passive strategy

TAX EFFICIENT, low turnover

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Lifecycle fonds have what type of securities?

Asset allocation changes as investor gets closer to returement

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Global funds have what type of securities?

International

AND

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How do NO LOAD FUNDS handle fund expenses?

Do not charge a sales commission when purchased or redeemed

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How doLOAD FUNDS handle fund expenses?

Charge a sales commission when purchased or refeemed

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“A” Shares

Load/No-load?

12b-1 fee?

Redemption fee?

Appropriate for?

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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“B” SHARES:

Load/No-load?

12b-1 fee?

Redemption fee?

Appropriate for?

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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“C” SHARES:

Load/No-load?

12b-1 fee?

Redemption fee?

Appropriate for?

“Load/No-load? NONE

12b-1 fee? YES, MAX 1%

Redemption fee? SMALL

Convertible? NO

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ETF: EXCHANGE TRADED FUNDS

A portfolio of stocks that represent an index

Low cost of ownership

Passive, BUT CAN ALSO BE ACTIVELY MANAGED

TAX EFFICIENT

REITs: Real Estate investment Trusts

Correlation to stock market?

Hedge against?

Must distribute __% of income

3 types of REITS?

Correlation to stock market? LOW

Hedge against? INFLATION

Must distribute __% of income: 90%

3 types of REITS?
EQUITY
MORTGAGE
HYBRID

ADR: American Depository Receipts

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 $

The value of an OPTION is derived from what?

The value of another underlying asset

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

$200

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

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

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

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

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

What are the 3 reasons people invest in options?

-Hedging

Speculation

Income

An OPTION PREMIUM consists of what two components?

Intrinsic value (cannot be less than 0) Time Value

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

"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

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

Buying a put

Long Straddles involve buying what?

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

Short straddles involve SELLING or BUYING?

An investor sells a put and a call option Appropriate when NOT expecting volatility

What is a collar?

A strategy where the investor owns the underlying stock Wants to protect downside risk without paying the entire cost of the put option

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

CALL option

The Black/Scholes Model considers what variables?

Current price (DIRECT) Time until expiration (DIRECT) Risk-free rate of return (DIRECT) Volatility of underlying asset (DIRECT) **Strike price has an indirect relationship

Put/Call Parity values a PUT based on what?

The value of a corresponding call option

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

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

LEAPs Long Term Equity Anticipation Securities characteristics

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

What are WARRANTS and who are they issued by? Typical expiration period?

Essentially long-term call options issued by a CORPORATION Typically 5-10 years

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

Selling a naked call

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

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.

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

Also go down

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

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