Chapter 11

Question 1

Mortgage REITs

Answer 1

Provide funding to real estate purchasers by acting in the same capacity as a bank by borrowing funds from investors and investing them in mortgages.

Question 2

Equity REITs

Answer 2

Own and operate income-producing real estate.

Question 3

Hybrid REITs

Answer 3

A combination of mortgage and equity REITs.

Question 4

When an investor can take advantage of buying a security that invests in the actual equity ownership of real estate as well as investing in an interest-rate sensitive security, this is considered a:

Answer 4

Hybrid REIT

Question 5

If an investor is able to benefit from some tax features and is able to tolerate the illiquid nature of some products a(n) _____ should be recommended.

Answer 5

partnership

Question 6

To invest in a limited partnership, an investor must complete the:

Answer 6

Subscription Agreement

Question 7

Oil, gas, gold and timber are all known as:

Answer 7

natural resource wasting assets

Question 8

Depletion

Answer 8

The deduction allowed for naturally wasting assets

Question 9

The _____ is filed with the state of legal domicile to create a partnership.

Answer 9

Certificate of Limited Partnership

Question 10

Balanced Drilling Programs

Answer 10

Drill in proven areas and also look for new oil

Question 11

A REIT could derive income from:

Answer 11

Interest, rent from residential or commercial property, and capital gains

Question 12

The point at which a program stops losing and starts making money is known as the:

Answer 12

cross-over point

Question 13

Passive Income

Answer 13

Derived from an investment in a direct participation program

Question 14

Over-development and high leverage are the risks associated with a(n):

Answer 14

New Construction Program

Question 15

If an investor has acknowledged being aware of risks, the ability to meet suitability standards, has read the disclosure document, and knows the required investment, they have filled out the:

Answer 15

Subscription Agreement

Question 16

Trading of REITs are most similar to:

Answer 16

closed-end management companies, since both trade in the secondary market.

Question 17

___% of the gross proceeds represents the maximum allowable underwriting compensation for a limited partnership.

Answer 17

10%

Question 18

If a non-accredited investor wishes to participate in hedge fund investing a registered representative can recommend:

Answer 18

a fund of hedge funds.

Question 19

An investment pool that typically has a complex investment strategy, is leveraged, and employs long and short strategies

Answer 19

Hedge Fund

Question 20

General partnerships, limited partnerships, join ventures and Subchapter S corporations are all:

Answer 20

Direct Participation Programs

Question 21

The limited partner makes her check payable to the:

Answer 21

party named in the Subscription Agreement

Question 22

Areas to be drilled have not been at the time the program is created.

Answer 22

Blind pool

Question 23

A _____ may charge a fee in addition to the fees charged by the hedge fund managers

Answer 23

fund of hedge funds

Question 24

All of the following actions create a conflict of interest for a general partner, EXCEPT if the general partner:
A) Accepting a payment not to compete with the program
B) Holding partnership monies in his personal bank account
C) Selling property that he owns to the partnership
D) Lending money to the partnership at prevailing interest rates

Answer 24

D) Lending money to the partnership at prevailing interest rates

Question 25

An individual wants to buy an interest in an oil and gas limited partnership that has the LEAST amount of risk. The MOST suitable recommendation would be a(n):

Answer 25

Income program

Question 26

A limited partner has contributed capital to a direct participation program. Two years later, he extends a loan. The limited partner is considered:

Answer 26

a limited partner for the capital contribution and a creditor for the loan