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FINN 3053 > Exam 4- Chapter 17 > Flashcards

Exam 4- Chapter 17 Flashcards

1
Q

A fund for which the supply of shares is not fixed but can increase or decrease daily with purchases and redemptions of shares.

A

open-end mutual fund

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2
Q

A closed-end investment company that specializes in investing in mortgages, property, or real estate company shares.

A

real estate investment trust (REIT)

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3
Q

Specialized investment companies that have a fixed supply of outstanding shares.

A

closed-end investment companies

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4
Q

A fund that sells a fixed number of redeemable shares that are redeemed on a set termination date.

A

unit investment trust (UIT)

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5
Q

mutual fund

A

let you pool your money with other investors to “mutually” buy stocks, bonds, and other investments
- run by professional money managers who decide which securities to buy

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6
Q

why invest through mutual funds?

A
  • diversification
  • liquidity
  • professional management
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7
Q

Market value of all assets owned divided by shares outstanding

A

Net Asset Value (NAV)

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8
Q
  • Shares traded on primary market
  • Directly bought from (sold to) fund
  • All transactions occur at 4pm
  • Share price is Net Asset Value (NAV)
  • Majority of funds
A

Open-end Funds

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9
Q
  • Shares traded on secondary market
  • Share price could deviate from NAV
  • Minority of funds
A

Closed-end Funds

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10
Q
  • Attempt to ‘beat’ a benchmark
  • Trade frequently
  • Fees can be > 1%
  • Majority of funds
A

Active Funds

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11
Q
  • Attempt to ‘track’ a benchmark
  • Trade infrequently
  • Fees often < 0.10%
  • Minority of large funds
A

Passive Funds

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12
Q

short term funds: (3)

A
  • Money market funds
  • Tax-exempt
  • Ultra short bond funds
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13
Q

types Long-term Funds: (3)

A
  • Equity
  • Bond
  • Hybrid / Balanced
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14
Q

Funds consisting of common and preferred stock securities.
- Growth
- Income
- Value
- Sector
- International

A

equity funds

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15
Q

bond funds

A

Funds consisting of fixed income capital market debt securities.

  • Intermediate term
  • Long term
  • Corporate
  • Sovereign
  • Municipal
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16
Q

fund managers buy securities in proportions similar to those included in a specified major stock index

A

index funds

17
Q

long term mutual funds that are also designed to replicate a particular stock market index
- mostly passive
- generally more liquidity than closed-end funds
- extremely low cost (<20%)

A

exchange-traded funds (ETFs)

18
Q
  • fixed number of shares
  • shares traded on exchange
  • price based on NAV
  • trading occurs all day
A

exchange-traded funds (ETFs)

19
Q
  • no limit on shares
  • shares not traded on an exchange, but bought from and sold to fund
  • price based on NAV
  • trades at market close only
A

open-end mutual fund

20
Q
  • fixed number of shares
  • shares traded on an exchange
  • price based on supply and demand, not NAV
  • trading occurs all day
A

closed-end mutual funds

21
Q

marked to market

A

Describes the prices on outstanding futures contracts that are adjusted each day to reflect current futures market conditions.

22
Q

equal to the market value of the assets in the mutual fund portfolio divided by the number of shares outstanding.

A

The net asset value of a share in a mutual fund

23
Q

A mutual fund with an up-front sales or commission charge that the investor must pay.

A

load fund

24
Q

no-load fund

A

A mutual fund that does not charge up-front sales or commission charges on the sale of mutual fund shares to investors.

25
Q

Fees relating to the distribution costs of mutual fund shares.
- Covers marketing and administrative expenses

A

12b-1 fees

26
Q

Management Fee

A

generally the largest fee charged
- Compensates managers

27
Q

Expense Ratio =

A

Management Fee + 12b-1 Fee

28
Q

hedge fund

A

investment pools that invest funds for (wealthy) individuals and other investots (e.g. commercial banks).
- offer a high degree of privacy for their investors
- arent subject to regulations for protection of individuals

a pooled investment fund that holds liquid assets and that makes use of complex trading and risk management techniques to improve investment performance and insulate returns from market risk

29
Q
  • Not required to register with SEC or disclose information about fund (style, holdings, performance)
  • Even if they get >100 investors and/or assets > $100 million, still very limited disclosure
  • Only “accredited” investors (high minimum investments)
A

hedge funds

30
Q
  • Borrow money to invest
  • Not uncommon for hedge funds to have 20:1 leverage ratio
  • Margin Calls (2007 Death Spiral)
A

Buying on margin

31
Q
  • Borrow a security and sell it
  • If it’s price falls, you buy it back at a lower price (sell high, buy low)
  • If it’s price increases, you lose money
A

Short selling

when a trader borrows shares from a broker and immediately sells them with the expectation that the share price will fall shortly after. If it does, the trader can buy the shares back at the lower price, return them to the broker, and keep the difference, minus any loan interest, as profit

32
Q
  • Forecast Stock A will outperform Stock B
  • Short Stock B
  • Use funds to go long Stock A
  • As long as A has a higher return than B, fund profits
  • Event Driven, Fixed-Income, Global Macro, etc….
A

Long/short

33
Q

market directional - these funds seek high returns using leverage, typically investing based on anticipated events

A

more risky

34
Q

market neutral or value orientation - these funds have moderate exposure to market risk, typically favoring a longer-term investment strategy

A

moderate risk

35
Q

market neutral - these funds strive for moderate, consistent returns with low risk

A

risk avoidance

36
Q

Returns: REVENUE

  • payments (dividends)
  • capital gains (change in NAV)

___ ___ load ___ revenue

A

front end loads reduce revenue

37
Q

Returns: EXPENSES

  • Fees (% of assets under management at some point in time)

__ __ load __ expenses

A

rear end loads increase expenses

FINN 3053 (14 decks)

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