Investment Company

Question 1

What is an investment company

Answer 1

A financial institution investing in securities

Question 2

What is the most appealing aspect of a investment company

Answer 2

Diversification, liquidity, and professional management with managed funds

Question 3

What are 3 classifications of investment companies

Answer 3

1. Face amount certificates companies
2. Unit Investment Trust (UITs)
3. Management Companies:.

Question 4

What are face amount certificates

Answer 4

Debt certificates at a discount that pay a stated “face value” amount at maturity

Question 5

What is a Unit Investment Trust (UIT)

Answer 5

1. Fixed portfolio of corporate or municipal bonds
2. Is not managed
3. Charge little or no management fee
4. Pay interest not dividends

Question 6

Management companies

Answer 6

1. Open-end
2. Closed- end
3. Diversified
4. Non-diversified

Question 7

Open end investment company

Answer 7

Mutual funds

Question 8

Mutual funds

Answer 8

1. All shareholders share in the fund’s gains, losses and income
2. Are not back by the FDIC
3. Issue only redeemable shares
4. Forward pricing

Question 9

Net Asset Value (nav)

Answer 9

Total assets of the fund less the total liabilities divided by the total number of shares outstanding

Question 10

Forward pricing

Answer 10

The next calculated bid or ask price after the order is entered

Question 11

Max sales load under the investment company act of 1940

Answer 11

Is 9% and 8% under FINRA rules

Question 12

Closed end investment company

Answer 12

1. Does not issue redeemable shares
2. No sales load - commission is charged
3. Fixed capitalization - a fixed number of shares are issued
4. May issue common stock, preferred stock and bonds

Question 13

Business Development Company (BDC)

Answer 13

1. A closed end investment company
2. Provides debt capital to small and medium sized companies
3. BDCs are required to distribute at least 90% of their income as dividends

Question 14

Both open-end and closed-end companies are subject to

Answer 14

Market risk

Question 15

The major difference between closed-end and open-end funds is

Answer 15

Capitalization

Question 16

Open-end investment companies (mutual funds)

Answer 16

1. Issue redeemable shares
2. Uses forward pricing
3. NAV relates to Bid/Ask
4. Capitalization is constantly changing
5. Only issue voting common shares
6. Charge a sales load
7. Deals with the public
8. Subject to market risk

Question 17

Closed-end investment companies ( publicly traded investment company)

Answer 17

1. Trade in the secondary market (OTC) based on Supply and Demand
2. Fixed capitalization
3. Issue voting for common stock, preferred stock and bonds
4. Charge commission
5. Does not deal with the public on daily basis
6. Subject to market risk

Question 18

Diversified common stock fund

Answer 18

Invests in common stock of many different companies in many different industries and fluctuates with the changing value of the common shares

Question 19

Specialized / special situation/ Sector fund

Answer 19

1. Invest in stocks of companies in one industry or one specific geographical area
2. Riskiest type of fund
3. Susceptible to market risks

Question 20

Balanced fund

Answer 20

1. Is most conservative and least volatile
2. Requires funds to be invested in a diversified mix of bonds, preferred stock, and common stocks

Question 21

Income fund

Answer 21

Goal is to maximize income
1. Income funds buy dividend-paying stocks and bonds with high yields
2. Combine income and capital appreciation

Question 22

Growth fund

Answer 22

Goal is to appreciate capital

1. Do not pay dividends and have lower yields
2. Reinvest dividends and capital gains for additional growth
3. Invest in small-cap common stock
4. More volatile than other funds

Question 23

International fund

Answer 23

Invests in stocks and bonds issued by foreign companies and governments

Question 24

Global fund

Answer 24

Invests in stocks and bonds issued by U.S. and foreign companies

Question 25

Index funds

Answer 25

Attempt to mirror the portfolio of a particular index and do not have active portfolio managers

Question 26

Bond funds

Answer 26

Invest in portfolio that consists of bonds a. When investing in a bond fund it will fluctuate in interest rates Remember that prices fall when interest rates rise

Question 27

Municipal bond fund

Answer 27

Invests in municipal bonds only a. Dividend distributions, which represent interest received on bonds in the portfolio are exempt from federal income tax b. Capital gains are subject to federal income tax

Question 28

Money market funds

Answer 28

Invest in low risk debt securities with short- term maturities of 12 months or less.

Question 29

Characteristics of money market funds

Answer 29

1. Largest operating expense is management and advisory fees 2. Most liquid mutual fund 3. Credit dividends to customers accounts daily and pay them monthly 4. Dividend income is fully taxable

Question 30

Money market funds must

Answer 30

1. Have an average weighted maturity of 90 days or less 2. Offer minimal credit risk 3. Have at least 95% of the funds total assets invested in securities

Question 31

Money market funds offer

Answer 31

1. No sales load 2. Minimum withdrawals are set to $500

Question 32

Money market funds invest in

Answer 32

Securities such as T-Bills, CD’s, commercial paper, bankers’ acceptances, and Eurodollars