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Series 66 > Ch 11 Investment Vehicles Part II > Flashcards

Ch 11 Investment Vehicles Part II 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
What is a covered call position?
The sale of a call (obligation to sell) against stock that is owned
26
In a non-qualified annuity, how is the payout taxed?
Only the earnings portion is subject to tax as ordinary income
27
Name three important factors for determining the premium of an equity option.
The stock's market price versus the strike price, time left until expiration, and volatility of the underlying security
28
What happens when an investor's passive losses exceed her passive income?
She is able to carry forward the passive losses.
29
After the initial offering, where are shares of a closed-end management company purchased?
In the secondary market (like shares of stock)
30
Prior to selling a DPP, passive losses can only be used as deductions against ____________________.
passive income.
31
________ life insurance is suitable for a client who is willing to assume market risk.
Variable life insurance
32
__________ is a form of life insurance that may be suitable for people with a fixed time horizon.
Term life
33
Are life insurance death benefits taxable?
No. Death benefits are received tax-free.
34
When may American-Style options be exercised?
On any business day up to the expiration date
35
Long (buying) puts may be used to hedge ____ stock positions.
Long (buying) puts may be used to hedge long stock positions.
36
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?
To provide premium income on stable stock. Also note the premium provides a partial hedge against downside risk.
37
True or False: Deferred compensation plans are tax-deductible.
False. Employee deferrals and corporate contributions are not tax-deductible until actually paid.
38
With options, what terms are synonymous with buyer?
Owner, holder, long
39
With options, what terms are synonymous with seller?
Writer, short
40
Define leveraged investing.
Using borrowed funds to buy securities (e.g., margin trading) that may lead to greater returns and losses
41
Gold, silver, platinum, and palladium are considered _______________.
precious metals.
42
Describe term life insurance.
A life insurance policy that pays a death benefit to a beneficiary if the insured dies within the term specified
43
If exercised against, the writer of an equity put option is obligated to ____ the underlying stock.
buy
44
What type of fund uses leverage, derivatives, and short positions, and invests in illiquid asset classes?
A hedge fund
45
A call option gives the owner the right to _____.
buy.
46
Does a variable life policy have a guaranteed minimum death benefit?
Yes. Regardless of account performance, the minimum DB is paid (typically, the initial DB listed on the policy's face).
47
A mutual fund that focuses on a company's year-to-year earnings momentum is considered a ______ fund.
growth fund.
48
Investors who want to generate income on a stock position should ______ an option.
sell an option.
49
What type of insurance policy expires at the end of a specified period?
Term life insurance. Whole, universal, and variable life insurance policies do not have a preset expiration.
50
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?
Stability
51
A client has annuitized her contract under the straight-life option and soon dies. What is her death benefit?
$0. There is no death benefit post-annuitization, since the contract is based on her life only.
52
True or False: Performance must be negative for a variable annuity's payment to fall.
False. Performance below the AIR will cause the payment to fall, even if the investment result was positive.
53
True or False: Forward contracts are standardized.
False. Futures, not forwards, are standardized by a futures exchange.
54
True or False: European options are considered derivatives because they may only be exercised at expiration.
False. European options are considered derivatives because their value is derived from an underlying security.
55
What technique can be used to roll assets from one annuity into another without taxation?
A 1035 Exchange
56
Identify the position: An investor buys 1 GDG Mar 50 call at 4 and buys 1 GDG Mar 50 put at 4.
A straddle, which is the purchase or sale of both a call and a put with the same stock, expiration and strike price.
57
Identify the acronym: VLI
Variable Life Insurance
58
Give some examples of financial derivatives.
Rights, warrants, swaps, forwards, options, and structured or exchange-traded notes
59
True or False: Covered call writing is a conservative option strategy that is designed to generate income.
True
60
What is the dollar limit that may be contributed annually to a non-qualified annuity?
There is no contribution limit.
61
Who typically buys hedge funds?
Accredited (sophisticated) investors through Regulation D offerings
62
Given a yield change, ____________ bonds move more in price.
long-term bonds move more in price (lower coupon or longer duration are also correct.)
63
Can a variable life policy's death benefit grow over time?
Yes. If the account performance is positive, the benefit will increase.
64
Name some of the different types of money-market instruments.
T-Bills, Bankers' Acceptances (BAs), Commercial Paper, Negotiable CDs

Series 66 (21 decks)

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