Investment Companies Flashcards

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1
Q

what are the 3 types of investment companies?

A
  1. closed end
  2. open end
  3. unit investment trust (UIT)
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2
Q

what are the characteristics of a closed end fund?

A
  • have a fixed initial market capitalization
  • a specific number of shares are initially sold to the public
  • shares are then traded on an organized exchange
  • no new shares issued by the fund
  • sold at a premium or discount to NAV
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3
Q

what are the characteristics of an open end fund?

A
  • unlimited number of shares
  • fund family will continue to issue shares so long as the fund receives contributions
  • shares are bought and sold directly from the fund family
  • shares trade at NAV
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4
Q

what is the formula for NAV?

A

NAV = (assets - liabilities) / shares outstanding

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5
Q

what are the characteristics of a unit investment trust (UIT)?

A
  • can be fixed or equity
  • managed by trustee
  • no investment manager
  • self liquidating
  • passive management
  • no trading of assets within the trust
  • issues “units” not shares
  • units can be sold back to UIT at NAV
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6
Q

what is an aggressive growth mutual fund?

A

invests in small caps and offers the greatest potential for capital appreciation

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7
Q

what is a growth mutual fund?

A

invests in equities that have a high P/E, little to no dividends, and are growing earnings and revenue rapidly

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8
Q

what is a growth and income mutual fund?

A

invests in equities and income-producing assets

primary objective is to provide capital appreciation and income

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9
Q

what is a value mutual fund?

A

invests in undervalued funds that have a low P/E ratio, high dividend yields, and a positive future outlook

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10
Q

what is a balanced mutual fund?

A

invests in more bonds than a typical equity fund

seeks a well-balanced return in the form of both income and capital appreciation

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11
Q

what is a bond mutual fund?

A

provides investors with a liquid bond investment that is cost effective and fairly conservative

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12
Q

what is a money market mutual fund?

A

highly liquid, appropriate for an emergency fund, and invests in securities with maturities of less than 90 days

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13
Q

what is an index mutual fund?

A

tracks the performance of various market indices

passive investment strategy and is tax efficient

low turnover rates which minimizes cap gains distributions

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14
Q

what is a sector mutual fund?

A

invests in sectors of the US economy (tech, healthcare, financials, etc.)

not well diversified, low r-squared

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15
Q

what is an asset allocation mutual fund (aka lifecycle mutual fund)?

A

well-diversified portfolio including stocks, fixed income, international, and money market securities

asset allocation changes as the market conditions change or as investor gets closer to retirement goal

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16
Q

what is a global mutual fund?

A

invests in international AND US securities

17
Q

what is an international mutual fund?

A

invests only in international securities (not US)

18
Q

what is a no-load fund?

A

does not charge a sales commission when purchased or redeemed

19
Q

what is a load fund?

A

charges a sales commission when purchased or redeemed

20
Q

what are examples of loan funds?

A

A shares
B shares
C shares

21
Q

what is an A Share?

A

has a front-end loan (up front sales commission)

small 12b-1 fee

no redemption or back-end loan

22
Q

when is an A share an appropriate investment?

A

for long-term investors

23
Q

what is a B Share?

A

has a back-end sales loan (redemption fee)

high 12b-1 fee

no front-end sales load

can be converted to A Shares

24
Q

what is a C Share?

A

has no front-end loan

has a small back-end loan and high 12b-1 fee

do not convert to A shares

25
Q

when is a C Share an appropriate investment?

A

for short-term investors

26
Q

what does ETF stand for?

A

Exchange Traded Funds

27
Q

what is an ETF?

A

a portfolio of stocks that represent an index

traded on an exchange, traded intra-day

low cost of ownership because they are typically passive investments

tax efficient because of low asset turnover and passive investment strategy

28
Q

what does REIT stand for?

A

Real Estate Investment Trust

29
Q

what are REITs?

A

have low correlation with the stock market and add diversification to a portfolio

must distribute 90% of investment income to shareholders to maintain tax-exempt status

30
Q

what are the 3 types of REITs?

A
  1. equity
  2. mortgage
  3. hybrid
31
Q

what is an equity REIT?

A

invest in real estate for capital appreciation

income is generated from rental income and appreciation

32
Q

what is a mortgage REIT?

A

invest mostly in mortgages and construction loans

make the spread between the lending and borrowing rate

33
Q

what is a hybrid REIT?

A

combo of both equity and mortgage REITs

34
Q

what does ADR stand for?

A

American Depository Receipt

35
Q

what is an ADR?

A

represent foregin stock held in domestic banks’ foreign branch

trade on US exchanges, denominated in USD, trade in USD, dividends paid in USD

do NOT eliminate exchange rate risk