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investments > Chapter 4 - mutual funds and other investment companies > Flashcards

Chapter 4 - mutual funds and other investment companies Flashcards

1
Q

net asset value (NAV)

A

= (market value of assets - liabilities) / shares outstanding

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2
Q

unit investment trust

A
  • Money pooled from many investors that are invested in a portfolio fixed for the life of the fund
  • Management fees can be lower than those of managed funds
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3
Q

Redeemable trust certificates

A

shares or units

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4
Q

Open-end fund

A

ready to redeem or issue shares at their net asset value

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5
Q

closed-end fund

A
  • do not redeem or issue shares
  • however, you can sell shares to other investors
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6
Q

load

A

a sales charge

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7
Q

exchange-traded funds (ETFs)

A

Similar to an open-end mutual fund except for shares of ETFs are through brokers

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8
Q

commingled funds

A
  • Partnerships of investors that pool funds
  • The management firm that organizes the partnership, does so for a fee
  • The fund offers units, which are bought and sold at NAV
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9
Q

commingled funds

A
  • Partnerships of investors that pool funds
  • The management firm that organizes the partnership, does so for a fee
  • The fund offers units, which are bought and sold at NAV
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10
Q

Real Estate Investment Trusts (REITs)

A

Invest in real estate or loans secured by real estate
They raise capital by borrowing from banks and issuing bonds or mortgages
Most highly leveraged, with a typical debt ratio of 70%

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11
Q

equity REITs

A

invest in real estate directly

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12
Q

mortgage REITs

A

invest primarily in mortgage and construction loans

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13
Q

hedge funds

A

Allows private investors to pool assets to be invested by a fund manager

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14
Q

mutual fund

A

common name for an open-end investment company

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15
Q

money market funds

A
  • Invest in money market securities such as T-bills, CP, repos, or CDs
  • Average maturity is a little more than 1 month
  • NAV is fixed at $1 per share
  • So there are no capital gains or losses tax
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16
Q

government funds

A

holds short-term US treasury or agency securities and repos collateralized by such securities

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17
Q

prime funds

A

hold other money market securities such as CP or CDs

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18
Q

equity funds

A
  • Invest primarily in stock, may hold fixed-income securities
  • Commonly hold a small fraction of total assets in MM securities to provide liquidity for the redemption of shares
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19
Q

Income funds

A

tend to hold shares of firms with high div yields that provide high current income

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20
Q

growth funds

A

willing to forgo current income, focusing instead on the prospectus for capital gains

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21
Q

specialized sector funds

A

concentrate on a particular industry

22
Q

bond funds

A
  • Specialize in the fixed-income sector
  • Further specialization e.x. Corporate, T, MBS, or muni bonds, or maturity
23
Q

global funds

A

invest in securities worldwide

24
Q

international fudns

A

invest in securities of firms located outside the US

25
Q

regional funds

A

concentrate on a particular part of the world

26
Q

emerging market funds

A

invest in companies of developing nations

27
Q

balanced funds

A

Hold both equities and fixed-income securities in stable proportions

28
Q

life-cycle funds

A

asset mix can range from aggressive to conservative

29
Q

Static allocation life-cycle funds

A

maintain a stable mix across stocks and bonds

30
Q

target-date funds

A

gradually become more conservative as time passes

31
Q

funds of funds

A

mutual funds that invest in other mutual funds

32
Q

Asset allocation and flexible funds

A
  • May dramatically vary the proportions allocated to each market in accordance with the portfolio manager’s forecast of performance in each sector
  • Engaged in market timing
33
Q

index funds

A

try to match the performance of a broad market index

34
Q

operating expenses

A
  • the costs incurred by the mutual fund in operating the portfolio
  • Include administrative expenses and advisory fees paid to the manager
  • Typically range from 0.2% to 1.5%
  • The expenses are periodically deducted from the assets of the fund
35
Q

front end load

A

a commission or sales charge paid when you purchase the shares

36
Q

low load funds

A

have loads that range up to 3% of invested funds

37
Q

no load funds

A

have no front-end sales charges

38
Q

back-end load

A
  • a redemption, or “exit” fee incurred when you sell your shares
  • Typically, funds that impose back-end loads reduce them by one percentage point for every year the funds are left invested
39
Q

12B-1 charges

A
  • SEC allows managers of 12b-1 funds to use fund assets to pay for distribution costs
  • Advertising, promotional literature including annual reports and prospectuses, and commissions paid to brokers who sell the funds to investors
  • Fees are deducted from the assets
  • These fees are limited to 1% of a fund’s average net assets per year
40
Q

RoR for fund =

A

= (NAV1 - NAV0 + income and capital gain distribution) / NAV0

41
Q

soft dollars

A
  • a PM earns soft-dollar credits with brokerage firms by directing the fund’s trades to that broker
  • Based on those credits, the broker will pay for some of the mutual fund’s expenses
42
Q

how does taxation work in mutual funds?

A
  • Taxes are paid only by the investor in the mutual fund, not by the fund itself
  • as long as: The fund is sufficiently diversified and virtually all income is distributed to shareholders
43
Q

turnover

A

the ratio of the trading activity of a portfolio to the assets of the portfolio

44
Q

Smart beta funds/actively managed ETFs

A
  • Have other investment objectives other than tracking indexes
  • Such as value, growth, dividend yield, liquidity, recent performance, or volatility
45
Q

synthetic ETFs: Exchange-traded notes(ETNs)/ exchange-traded vehicles(ETVs)

A
  • Nominally debt securities but with payoffs linked to the performance of an index
  • Often an illiquid and thinly traded asset class
46
Q

total return swap

A

with an investment bank in which the bank agrees to pay the ETF the return on the index in exchange for a relatively fixed fee

47
Q

bank discount rate (T-bill quotes)

A

rBD = (10,000 - P) / 10,000 * (360 / n)

48
Q

margin call occurs when:

A
  • MV <= borrowed / (1 - MMR)
  • equity / MV <= MMR
49
Q

margin equity =

A

= position value - borrowing + additional cash

50
Q

short sale equity =

A

= total margin account - market value

investments (14 decks)

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