Investment Companies Quiz Flashcards
The average investor has limited assets but by pooling funds with other investors in an investment company the investor can receive the advantages of increased
Professional management and diversification
Which of the following investments returns are based on a market index?
ETNs
ETFs
Which of the following is a characteristic of a hybrid REIT?
Invests in real property
Provides potential appreciation
Invests in mortgages
All of the following are characteristics of Unit investment Trusts
Units are redeemable by the issuer
A fixed portfolio
No secondary market trading
Which of the following should be used when comparing mutual funds?
Risk factors
The funds investment policies
Quality of management
An investor is interested in a REIT that will provide immediate income. The investor would best be served by
Mortgage REIT
Which of the following is subject to higher maintenance requirements when purchased on margin?
Leveraged ETFs
All of the following are characteristics of an Exchange Traded Fund (ETF)
ETFs usually trade near their NAV
ETFs can be purchased on margin 30 days after the IPO
ETFs provide intraday liquidity
Which of the following would be in an equity REIT portfolio?
Shopping center
Office building
Vacant land
The Investment company concept allows the individual investor to
Achieve wide diversification with a small investment
Access professional portfolio management at minimal cost
Which type of investment companies charge a management fee?
Face amount certificates
Open end investment companies
Closed end investment companies
A broad market index ETN carries all of the following risk?
Loss of principal
Market Risk
Credit Risk
How often must performance statistics in a prospectus be updated?
Every 12 months
An emerging markets currencies ETN may be an appropriate investment for which of the following persons?
An experienced investor lookin for a simple way to gain exposure to a portfolio of emerging markets currencies
Which of the following accurately describes an ETN?
Principal at maturity is based on an index
Principal at maturity is uncertain
Which of the following is true regarding ETNs?
The investor may hold until maturity or trade on an exchange
Principal and interest are not guaranteed
An ETNs return is based on a market index
A hybrid REIT invests in
Mortgages
Real property
If you were purchasing a security on installments and the investment matured at a fixed dollar amount in the future you would own a
Face amount certificate
An equity REIT invest in
Real Estate
Which type of investment company issues certificates that can be redeemed for a fixed amount on a specified date?
Face amount certificate
Bill owns shares in a closed end investment company. He can dispose of his shares by
Sale on the open market
Face amount certificates issue debt certificates that offer predetermined interest rates. The certificates may be purchased by either periodic installments or with a lump sum payment. These certificates have a maturity of at least.
24 months
Which of the following is a privilege offered by a mutual fund family?
The ability to exchange shares of one mutual fund for shares in another mutual fund under the same family of funds with no additional sales charge
Which of the following accurately describes an ETN?
Principal at maturity is based on an index
Principal at maturity is uncertain
If you own securities that represent an undivided interest in a fixed portfolio with which type of investment company are you invested?
Unit investment trust
The average investor has limited assets but by pooling funds with other investors in an investment company the investor can receive the advantages of increased
Professional management and diversification
An investor purchased 100 shares of an investment company and paid the market price plus a commission. What did the investor purchase?
Closed end investment company shares
Due to drought conditions a high net worth experienced investor believes that the price of broad range of agricultural commodities will increase. Which of the following might be an appropriate investment for this investor?
Agriculture sector total return ETN
Which of the following is an investment company with the objective of achieving the same return as a particular market index?
Exchange traded fund
A sales breakpoint for a mutual fund sale is available to
An individual account holder
A custodian and his minor child
When making mutual fund recommendations a registered representative should
Compare standardized yields of similar funds
Explain the funds expense ratio
Consider the total return of the fund after sales charges and expenses
The method by which a mutual fund offering price will be determined is
Outline in the prospectus
A redeemable security is
A security with no secondary trading
All of the following are contained in a funds prospectus
Method of calculating the funds net asset value
The funds policy concerning loans
Methods of redemption
A prospectus can no longer be used if financial information is older than
16 months
A new investor recently opened s mutual fund account and is planning to make a monthly investments with the goal of accumulating a sizable retirement account in the next 20 years m. What mutual fund feature best helps him in accomplishing this goal?
Automatic reinvestment of dividends and capital gains at NAV
The shareholders of a mutual fund have certain rights associated with the ownership interests they hold in the company
Approval of investment advisory agreement
Voting rights/ proxy rights regarding company issues
Election of board
Regarding CDSCs which of the following is true
They represent alternate methods of recovering fund marketing costs For holding period const associated with each class will differ The different share class options should always be pointed out by the rep
An investment advisor receives a fee for his services. This fee is classified as
An operating expense of the fund
Registered investment companies are required to have directors on their board that are independent of the management company. What is the required minimum percentage of disinterested directors?
40%
Which type of investment company issues debt instruments that offer the investor a predetermined rate of interest?
Face amount certificate
A closed end management company has shares that
Are not redeemable
Mutual fund sales breakpoints are allowable only if the following conditions are met
Information concerning schedule breakpoints is given to shareholders and prospective investors
Breakpoints apply uniformly to all offerers
A customer owns 500 shares of XYZ mutual fund A shares. She can redeem her shares at
The NAV
Which of the following statements is correct with respect to closed end investment companies?
They are listed and traded on exchanges
There exists a fixed number of outstanding shares
The issuing company does not redeem its own shares
UITs have fixed portfolios which means that
The content of the portfolio is fixed for the life of the trust
A client with $1000 to invest a mutual fund for his IRA account is concerned about front end loads reducing the size of the already small investment. The client plans on holding the investment until retirement (20 years or more). Class B shares may be more appropriate for this client than Class A shares for all of the following reasons.
Class B shares CDSC declines over time
Class B shares have no front end load
After a specified holding period of time Class B shares convert to Class A shares
An investor purchasing a mutual fund will pay what price?
The next calculated public offering price after purchase
A mutual funds custodian
Safeguards fund cash and securities
What is the maximum front end sales charge for a mutual fund?
8 1/2 % of the public offering price
The total expenses divided by the average net assets is the formula used in determining the mutual funds
Expense ratio
ABC Equity Fund charges a 12b-1 fee. The funds Board of Directors must be made up at least
51% unaffiliated directors
Registered investment companies are required to have directors on their board that are independent of the management company. What is the required minimum percentage of disinterested directors?
40%
All of the following are duties of a transfer agent
Issuing new shares book entry
Canceling redeemed shares
Distributing capital gains to shareholders
The responsibilities of the investment adviser include all of the following
Providing research on market and economic trends
Making decisions on the diversification of the fund
Timing investment decisions to take advantage of market swings
Which of the following is true concerning exchange privileges within a family of funds?
It is a taxable event
There may be an exchange fee involved
A mutual fund that charges the maximum sales charge of 8 1/2% allowable by the investment company act of 1940 have to offer
Distribution reinvestment at NAV
Breakpoints
Rights of accumulation
Publications reporting total return data for an investment should use the recommended reporting period of
1 year 5 years and the lesser of 10 years or life of the investment
Which of the following statements regarding an LOI is true
Maximum time limit of letter is 13 months
The letter is not binding on the investor
Backdating of 90 days to include prior purchases is allowable
Mutual fund shareholders rights include
Election of directors
Voting by proxy
Approving changes in investment objectives and policies
A client makes an initial deposit of $10,000 into his mutual fund account and at the same time signs a letter of intent for $50,000. All of the following statements are correct concerning this situation
He has 13 months to fulfill the deposit requirement of the letter of intent
The fund will probably hold some of the initial shares in escrow
If he fails to deposit the additional money he will be required to send a check for the additional sales charges due
What’s are the tax consequences of changing from one fund to another within a family of funds?
Will have a taxable consequence because it is a purchase and sale
One of the significant advantages of investing in mutual funds is
Automatic reinvestment of dividends and capitals gains at NAV
The statistic that measures fund performance and includes reinvested distribution and share appreciation net of sales charges and expenses for the period is
Total return
The purpose of breakpoints is to
Give the investor a reduced sales charge
The NAV of a mutual fund is $15 per share and the sales charge is 8%. The POP
$16.30
Sales breakpoints are allowable if which of the following conditions are met?
Breakpoints uniformly apply to all offerees
The investment company advises existing shareholders of any schedule changes within 1 year
According to the investment company act of 1940 the maximum sales charge is
8 1/2%
The NAV will not change it
The portfolio sells securities and retains the cash
An investment company can perform certain activities only Be approval of majority of shareholders. Which of the following is a board of directors activity that is allowable without a shareholder vote?
Appointments of officers of the investment company
