Chapter 10: Packaged Securities Flashcards
DCA average cost per share formula
Total amount invested / # shares purchased
POP of mutual fund formula
NAV / (100% - sales charge %)
Accumulation units vs annuity units
- Accumulation units
- purchased during pay-in phase. Similar to shares on a mutual fund
- Annuity units
- during payout phase, accumulation units are converted into a fixed number of annuity units.
- Investors receive a fixed number of annuity units periodically (usually monthly) with a variable value, depending on the performance of the securities in the separate account
Assumed interest rate (AIR)
- A projection of the performance of the securities in the separate account over the life of a variable annuity contract.
- If the asumed rate matches the actual performance, investor will receive expected payouts.
- If does better, payout increases. If does worse, payout decreases
REITS can avoid being taxed like a corporation if (3 requirements):
- At least 75% of the income comes from real estate related activities
- At least 75% of the REIT’s assets are in real estate, govt. securities, and/or cash
- At least 90% of the net income received is distributed to shareholders (who pay taxes on their income)
ABC aggressive growth fund has a net asset value of $9.20 and a public offering price of $10.00. What is the sales charge percent?
- A. 6.8%
- B. 7.5%
- C. 8%
- D. 8.7%
C. 8%
- Sales charge % = POP - NAV / POP
- Sales charge % = $10.00 - $9.20 / $10.00
- Sales charge % = $0.80 / $10.00
- Sales charge % = 8%
ABC aggressive growth fund has a NAV of $9.12 and a POP of $9.91. If there is a 5% sales charge for investments of $30,000 and up, how many shares can an investor who is depositing $50,000 purchase?
- A. 5,045.409 shares
- B. 5,208.333 shares
- C. 5,219.207 shares
- D. 5,482.456 shares
B. 5,208.333
- Step 1:
- POP = NAV / (100% - sales charge %)
- POP =$9.12 / (100% - 5%)
- POP = $9.12 / 95%
- POP = $9.60 per share
- Step 2:
- $50,000 / $9.60 = 5,208.333 shares
An investor who purchases a variable life insurance policy faces which of the following risks?
- A. the insurance company may have to increase the premium if the securities held in the separate account underperform the market
- B. the insurance company may decrease the premium if the securities outperform the market
- C. the policy may have no cash value if the securities held in the separate account underperform
- D. the death benefit may fall below the minimum in the event that the securities held in the separate account underperform
C. the policy may have no cash value if the securities held in the separate account underperform
________ are closed end index funds that are traded on an exchange. They provide investors with diversification along with the ability to sell short and purchase shares on margin.
ETFs
________ are exchange traded funds that are designed using many derivative products, such as options to attempt to profit from a decline in the value of the underlying securities (like the S&P 500). They can be used to profit from a decline in a broad market index or in a specific sector, such as energy or financials.
Inverse ETFs
________ is a type of packaged security that is similar to a zero coupon bond. Investors make either a lump sum payment or periodic payments in turn for a larger future payment. Very few around today.
Face amount certificate
________ allows shareholders to receive a reduced sales charge when the amount of the funds held plus the amount purchased is enough to reach a breakpoint. There is no time limit.
Rights of accumulation
A ________ signed by an investor allows him to receive a breakpoint (quantity discount) right away after the initial purchase, even if the investor hasnt yet deposited enough money to acheive the breakpoint.
Letter of intent
- This document states that as long as the investor deposits enough withing a 13 month period he will receive the discounted sales charge right away.
- Can be backdated up to 90 days, meaning it may apply to a previous purchase
