Introduction to Investment companies

Question 1

municipal fund securites

Answer 1

funds or trusts offered by individual states or local governments

Question 2

Plans regulated by the MSRB

Answer 2

municipal fund securites

Question 3

Program disclosure document is required to sell

Answer 3

municipal funds

Question 4

Inverse ETF

Answer 4

strategy to hedge against market declines

Question 5

“short” funds

Answer 5

Inverse ETF

Question 6

Investment company act of 1940

Answer 6

defines an investment company to hold and manage a portfolio of securities for its investors

Question 7

Asset requirements of an investment company

Answer 7

40% of total assets in investment securities

Question 8

529 prepaid tuition plans

Answer 8

lock in tuition prices for the future

Question 9

To receive full benefits of these plans students need to attend in state public college

Answer 9

529 prepaid tuition plans

Question 10

NAV ( Net Asset Value)

Answer 10

price investors receive when they redeem mutual fund shares

Question 11

Calculated at the end of each business day

Answer 11

NAV and POP

Question 12

Diversified company rule

Answer 12

75 - 5 - 10 rule

Question 13

The 75- 5 - 10 rule

Answer 13

• 75% of assets invested
• no more than 5% of fund assets invested in 1 issue
• no more than 10% of any corporation’s voting stock

Question 14

Diversification

Answer 14

reduces nonsystematic risk

Question 15

business risk

Answer 15

the decline of value for an individual security

Question 16

hedge funds

Answer 16

limited partnerships only available to accredited investors. limited to 99 investors and do not register with the SEC

Question 17

These securities are high risk, expensive and aggressive

Answer 17

hedge funds

Question 18

mutual fund requirements

Answer 18

• clearly defined investment objective
• minimum net assets of $100K
• minimum 100 investors

Question 19

Fund can only issue common stock

Answer 19

Mutual funds

Question 20

Section 529 plans

Answer 20

state- sponsored qualified tuition programs (QTPs)

Question 21

investors can contribute up to 15k per year to this plan without incurring a gift tax.

Answer 21

Section 529 plans

Question 22

Local Government Investment Pools

Answer 22

established by state or local government entities to allow for investment of public funds

Question 23

investment objectives include safety of principle and daily liquidity. Not available to the general public

Answer 23

LGIP ( local government investment pools)

Question 24

Leveraged ETF

Answer 24

these ETFs use derivatives and bonds ro magnify the return of an underlying index. ( short term investing, has higher costs and risks)

Question 25

529 plan transfer/ rollover

Answer 25

plan assets can roll over to another 529 plan every 12 months without tax consequence.

Question 26

Who can have 529 plan asset be transferred over to?

Answer 26

Plan assets can be transferred from one relative to another without tax consequence.

Question 27

closed-end fund

Answer 27

one-time issuance of a fixed number of shares. trades on exchanges or OTC. (common stock, preferred stock and bonds)

Question 28

shares may trade at, above or below NAV

Answer 28

Closed- end fund

Question 29

ABLE program (529A)

Answer 29

account for a disabled person can hold up to $100k in account without losing eligibility for social security, Medicaid and Medicare

Question 30

Exchange traded funds (ETFs)

Answer 30

investment company that invests in stocks in a benchmark index.

Question 31

ETFs are actively managed. True or False

Answer 31

False. ETFs are NOT actively managed

Question 32

Interval Funds

Answer 32

registered as closed-end funds, they do not trade on an exchange. (often makes tender offers)

Question 33

2 types of investment companies

Answer 33

- unit investment trusts | - management investment companies

Question 34

Investment company registration requirements

Answer 34

must register with the SEC and a prospectus must be provided to all investors

Question 35

mutual fund

Answer 35

an open- end management company that is a continuous primary offering

Question 36

Shares of this fund are issued and redeemed and do not trade

Answer 36

mutual funds

Question 37

customer must be given a prospectus prior or at time of sale of this fund

Answer 37

mutual funds

Question 38

customers buy this fund at POP and sell at NAV

Answer 38

mutual funds