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Section 2 > Investment Company > Flashcards

Investment Company Flashcards

1
Q

What is an investment company

A

A financial institution investing in securities

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2
Q

What is the most appealing aspect of a investment company

A

Diversification, liquidity, and professional management with managed funds

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3
Q

What are 3 classifications of investment companies

A
  1. Face amount certificates companies
  2. Unit Investment Trust (UITs)
  3. Management Companies:.
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4
Q

What are face amount certificates

A

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

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5
Q

What is a Unit Investment Trust (UIT)

A
  1. Fixed portfolio of corporate or municipal bonds
  2. Is not managed
  3. Charge little or no management fee
  4. Pay interest not dividends
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6
Q

Management companies

A
  1. Open-end
  2. Closed- end
  3. Diversified
  4. Non-diversified
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7
Q

Open end investment company

A

Mutual funds

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8
Q

Mutual funds

A
  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
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9
Q

Net Asset Value (nav)

A

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

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10
Q

Forward pricing

A

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

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11
Q

Max sales load under the investment company act of 1940

A

Is 9% and 8% under FINRA rules

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12
Q

Closed end investment company

A
  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
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13
Q

Business Development Company (BDC)

A
  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
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14
Q

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

A

Market risk

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15
Q

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

A

Capitalization

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16
Q

Open-end investment companies (mutual funds)

A
  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
17
Q

Closed-end investment companies ( publicly traded investment company)

A
  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
18
Q

Diversified common stock fund

A

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

19
Q

Specialized / special situation/ Sector fund

A
  1. Invest in stocks of companies in one industry or one specific geographical area
  2. Riskiest type of fund
  3. Susceptible to market risks
20
Q

Balanced fund

A
  1. Is most conservative and least volatile
  2. Requires funds to be invested in a diversified mix of bonds, preferred stock, and common stocks
21
Q

Income fund

A

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

22
Q

Growth fund

A

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
23
Q

International fund

A

Invests in stocks and bonds issued by foreign companies and governments

24
Q

Global fund

A

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

25
Q

Index funds

A

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

26
Q

Bond funds

A

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

27
Q

Municipal bond fund

A

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

28
Q

Money market funds

A

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

29
Q

Characteristics of money market funds

A
  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
30
Q

Money market funds must

A
  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
31
Q

Money market funds offer

A
  1. No sales load
  2. Minimum withdrawals are set to $500
32
Q

Money market funds invest in

A

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

Section 2 (11 decks)

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