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Series 7 > ETFs, MFs, Variable Annuities, and Hedge Funds > Flashcards

ETFs, MFs, Variable Annuities, and Hedge Funds Flashcards

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Series 7 Top-off Exam flashcards
1
Q

ETF Qualities

A

Exchange-Traded Funds trade in the secondary market (NYSE), are marginable, have a lower cost structure, and are more tax efficient (no managers buying/selling individual securities)

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2
Q

UIT Qualities

A

Unit Investment Trusts are professionally selected and passively managed

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3
Q

What are the different types of Mutual Funds?

A

Equity, Fixed Income, Money Market, and Interval

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4
Q

What is the difference between Open-End and Closed-End Funds?

A

Open End Funds continuously issue new shares to the public, while Closed-End Funds only offer new shares one time at opening, then issue based on supply and demand

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5
Q

Open-End Funds NAV is calculated…

A

At least once per business day (always do business based on the next calculation of the NAV)

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6
Q

Public Offering Price (POP)

A

NAV + Sales Charge

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7
Q

In an Open-End Fund, the largest single expense is the…

A

Investment Advisor

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8
Q

12b-1 Fee

A

Promotional expenses for marketing that the issuing fund pays.

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9
Q

In an Open-End Fund, the largest single expense to the customer is the…

A

Load

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10
Q

For Closed-End Funds, what is a Breakpoint?

A

Quantity discount

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11
Q

What is a Breakpoint Sale?

A

When you avoid the breakpoint to maximize your commission

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12
Q

LOI

A

Letter of Intent that allows you to opt into a Closed-End Fund on a conditional basis - follows 13/90 rule: good for 13 months, can be backdated for 90 days

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13
Q

True or False: Investment Clubs are eligible for breakpoints

A

False

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14
Q

DCA

A

Dollar-Cost Average: Fixed dollars that are invested regularly (usually in regular intervals). DCA lowers average cost than those of underlying shares, but does not guarantee a profit

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15
Q

Sales Charge RE POP

A

NAV / (100% - Sales Charge) = POP
POP is always > NAV

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16
Q

Subchapter M / Conduit Pipeline Theory / DIE 90

A

IRS states that as long as the MF passes through 90% of net investment income, they will wait and receive it from the MF shareholders

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17
Q

Disadvantage of Mutual Funds

A

Give up tax control of your investments - you do not decide when to sell individual securities (funds will rebalance per their discretion)

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18
Q

Maximum Sales Charge is…

A

8.5%

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19
Q

Maximum 12b-1 Fee is…

A

0.25% (cannot be more than 0.75%)

20
Q

Maximum Expensary Fee to the fund is…

A

Investment Advisory Fee

21
Q

Variable (Life) Annuity

A

A Mutual Fund with an insurance wrapper - non-qualified retirement plan that uses after-tax money

22
Q

When do you have to start taking distributions from a Variable Annuity?

A

59.5yo

23
Q

If you take distributions from Variable Annuities before 59.5yo, you will…

A

Owe 10% penalty

24
Q

Contributions into a Variable Annuity frow…

A

Tax-Deferred

25
Q

Accumulation Units

A

Treated like shares of stock in a Variable Annuity. Accumulation units are measured daily within a Separate Account (like how shares are measured daily in a Mutual Fund)

26
Q

Separate Account

A

Treated like a Mutual Fund

27
Q

Fixed Annuity risk is assumed by the…

A

Insurance Company

28
Q

Variable Annuity risk is assumed by the…

A

Annuitant (holder)

29
Q

Annuitization

A

Treated like withdrawals from the separate account

30
Q

When annuitizing, Accumulation Units turn into…

A

Annuity Units

31
Q

Instead of Annuitizing, you may…

A

Take a lump sum or random withdrawal

32
Q

Withdrawals from a Variable Annuity are taxed at…

A

Ordinary income tax rates

33
Q

A Random Withdrawal from a Variable Annuity are always taken…

A

Last-In-First-Out (LIFO)

34
Q

Which Annuiziation election yields the largest monthly check?

A

Life Only

35
Q

Assumed Interest Rate (AIR)

A

Payouts will vary based on the AIR (like how payout yields will change based on interest rates).
If Annuity Unit > AIR, then check goes up. If Annuity Unit = AIR, then check stays flat. If Annuity Unit < AIR, then check goes down

36
Q

Exclusion Ratio of a Variable Annuity is…

A

20% (20% tax has already been paid for - you still owe taxes on 80% of the check)

37
Q

REIT

A

Real Estate Investment Trust - Same as a Mutual Fund except for Real Estate (follows the DIE 90 - 90% passthrough of Net Investment Income , NOT LOSSES)

38
Q

DPP: GP vs LP

A

Direct Participation Programs: General Partner vs Limited Partner (Partnerships)
General Partner assumes the liability, Limited Partner provides the funds

39
Q

Within a DPP, there is no admission emission without permission from the…

A

General Partner

40
Q

True or False: Partnerships are liquid.

A

False

41
Q

Within a Partnership, passthrough is conducted with…

A

Both Net Income and Losses

42
Q

What are the different types of DPPs?

A

Real Estate, Oil and Gas, Small-Cap Debt and Equity, Business Development Comopanies (BDCs), Equipment Leasing

43
Q

True or False: Exploratory DPPs are the riskiest out of all DPPs

A

True

44
Q

DPPs are offered…

A

Both in private placement and public offerings

45
Q

What is the point of constructing an Alternative Investment (Hedge Fund / Private Equity Fund / VC Fund)?

A

To be exempt from registration under the Investment Company Act of 1940

46
Q

True or False: Alternative Investments are liquid

A

False

47
Q

Charges and Expenses of Alternative Investments…

A

2% of AUM and 20% of profits

Series 7 (8 decks)

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