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Series 66 > Ch 11 Investment Vehicles Part II > Flashcards

Ch 11 Investment Vehicles Part II Flashcards

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Series 66 flashcards
1
Q

Describe variable life insurance.

A

A life policy where the death benefit varies depending upon the performance of the investment options

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2
Q

True or False: Forward contracts are exchange traded.

A

False. Futures, not forwards, trade on the exchanges.

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3
Q

May loans be taken against variable life policies?

A

Yes, for a portion of the contract’s cash value

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4
Q

What modification is made to the Straight-Life payout option to guarantee payments for a minimum number of years?

A

Straight-Life with Period Certain

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5
Q

A variable annuity is most suitable for a client who is seeking ________ ____________ over a long period.

A

capital appreciation

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6
Q

Prospectus delivery is required for all ___________ insurance contracts.

A

variable insurance contracts.

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7
Q

Long (buying) calls may be used to hedge a _____ stock position.

A

short stock position.

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8
Q

Sandra buys 1 ABC December 70 Call at 4. What is Sandra’s breakeven point?

A

70 + 4 = 74 (strike price + premium or CALL UP)

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9
Q

Describe the liability of the two partners in a limited partnership.

A

General partners have unlimited liability, while limited partners have limited liability.

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10
Q

Sandra buys 1 ABC December 70 Call at 4. What is Sandra’s strategy?

A

Bullish (to find the strategy for call buyers, use the phrase CALL UP)

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11
Q

True or False: Contribution limits and employment requirements apply to both qualified and non-qualified plans.

A

False. Contribution limits and employment requirements apply to qualified plans only.

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12
Q

What does a limited partnership’s Subscription Agreement state in regard to a purchaser?

A

He is aware of risks, can meet suitability standards, has read disclosure document, and knows the required investment.

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13
Q

Money-market securities have a maturity of __________________.

A

one year or less.

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14
Q

All variable contract premiums are placed in the insurance company’s ________account.

A

separate account.

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15
Q

Over-development and high leverage are the risks associated with a ____ _____________ Program.

A

New Construction Program.

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16
Q

________________ Drilling Programs drill in proven areas.

A

Developmental Drilling Programs

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17
Q

Is a CMO considered a derivative?

A

Yes

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18
Q

Calls and puts are the two ________ of options.

A

types of options.

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19
Q

Is a hedge fund investment considered liquid?

A

No

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20
Q

When calculating the POP for a mutual fund, the sales charge is added to the ______.

A

NAV.

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21
Q

List some of the characteristics of hedge funds.

A

Hedge funds are often leveraged, unregistered, and illiquid.

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22
Q

Describe universal life insurance.

A

A permanent life insurance policy designed so the policy owner may adjust the death benefit and premium payments

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23
Q

True or False: Passive income is income derived from dividends and interest generated by securities in a portfolio.

A

False. Passive income is derived from an investment in a direct participation program (e.g., limited partnership).

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24
Q

At annuitization (payout), what will determine the annuitant’s payment?

A

A fixed number of annuity units with a fluctuating value per unit

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25
Q

What is a covered call position?

A

The sale of a call (obligation to sell) against stock that is owned

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26
Q

In a non-qualified annuity, how is the payout taxed?

A

Only the earnings portion is subject to tax as ordinary income

27
Q

Name three important factors for determining the premium of an equity option.

A

The stock’s market price versus the strike price, time left until expiration, and volatility of the underlying security

28
Q

What happens when an investor’s passive losses exceed her passive income?

A

She is able to carry forward the passive losses.

29
Q

After the initial offering, where are shares of a closed-end management company purchased?

A

In the secondary market (like shares of stock)

30
Q

Prior to selling a DPP, passive losses can only be used as deductions against ____________________.

A

passive income.

31
Q

________ life insurance is suitable for a client who is willing to assume market risk.

A

Variable life insurance

32
Q

__________ is a form of life insurance that may be suitable for people with a fixed time horizon.

A

Term life

33
Q

Are life insurance death benefits taxable?

A

No. Death benefits are received tax-free.

34
Q

When may American-Style options be exercised?

A

On any business day up to the expiration date

35
Q

Long (buying) puts may be used to hedge ____ stock positions.

A

Long (buying) puts may be used to hedge long stock positions.

36
Q

An investor buys 100 shares of RST at 30 and sells 1 RST October 35 call at 2. What is the reason for selling the call?

A

To provide premium income on stable stock. Also note the premium provides a partial hedge against downside risk.

37
Q

True or False: Deferred compensation plans are tax-deductible.

A

False. Employee deferrals and corporate contributions are not tax-deductible until actually paid.

38
Q

With options, what terms are synonymous with buyer?

A

Owner, holder, long

39
Q

With options, what terms are synonymous with seller?

A

Writer, short

40
Q

Define leveraged investing.

A

Using borrowed funds to buy securities (e.g., margin trading) that may lead to greater returns and losses

41
Q

Gold, silver, platinum, and palladium are considered _______________.

A

precious metals.

42
Q

Describe term life insurance.

A

A life insurance policy that pays a death benefit to a beneficiary if the insured dies within the term specified

43
Q

If exercised against, the writer of an equity put option is obligated to ____ the underlying stock.

A

buy

44
Q

What type of fund uses leverage, derivatives, and short positions, and invests in illiquid asset classes?

A

A hedge fund

45
Q

A call option gives the owner the right to _____.

A

buy.

46
Q

Does a variable life policy have a guaranteed minimum death benefit?

A

Yes. Regardless of account performance, the minimum DB is paid (typically, the initial DB listed on the policy’s face).

47
Q

A mutual fund that focuses on a company’s year-to-year earnings momentum is considered a ______ fund.

A

growth fund.

48
Q

Investors who want to generate income on a stock position should ______ an option.

A

sell an option.

49
Q

What type of insurance policy expires at the end of a specified period?

A

Term life insurance. Whole, universal, and variable life insurance policies do not have a preset expiration.

50
Q

An investor sells 1 ABC Jan 50 call at 2 and sells 1 ABC Jan 50 put at 3. What is the investor’s strategy?

A

Stability

51
Q

A client has annuitized her contract under the straight-life option and soon dies. What is her death benefit?

A

$0. There is no death benefit post-annuitization, since the contract is based on her life only.

52
Q

True or False: Performance must be negative for a variable annuity’s payment to fall.

A

False. Performance below the AIR will cause the payment to fall, even if the investment result was positive.

53
Q

True or False: Forward contracts are standardized.

A

False. Futures, not forwards, are standardized by a futures exchange.

54
Q

True or False: European options are considered derivatives because they may only be exercised at expiration.

A

False. European options are considered derivatives because their value is derived from an underlying security.

55
Q

What technique can be used to roll assets from one annuity into another without taxation?

A

A 1035 Exchange

56
Q

Identify the position: An investor buys 1 GDG Mar 50 call at 4 and buys 1 GDG Mar 50 put at 4.

A

A straddle, which is the purchase or sale of both a call and a put with the same stock, expiration and strike price.

57
Q

Identify the acronym: VLI

A

Variable Life Insurance

58
Q

Give some examples of financial derivatives.

A

Rights, warrants, swaps, forwards, options, and structured or exchange-traded notes

59
Q

True or False: Covered call writing is a conservative option strategy that is designed to generate income.

A

True

60
Q

What is the dollar limit that may be contributed annually to a non-qualified annuity?

A

There is no contribution limit.

61
Q

Who typically buys hedge funds?

A

Accredited (sophisticated) investors through Regulation D offerings

62
Q

Given a yield change, ____________ bonds move more in price.

A

long-term bonds move more in price (lower coupon or longer duration are also correct.)

63
Q

Can a variable life policy’s death benefit grow over time?

A

Yes. If the account performance is positive, the benefit will increase.

64
Q

Name some of the different types of money-market instruments.

A

T-Bills, Bankers’ Acceptances (BAs), Commercial Paper, Negotiable CDs

Series 66 (21 decks)

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