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Investments > Investment Exam > Flashcards

Investment Exam Flashcards

1
Q

mutual funds

A

a combined pool of funds of a large group of investors

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2
Q

financial intermediary

A

mutual funds, like commercial banks and life insurance companies, are a form o

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3
Q

What are the 3 advantages of mutual fund investing?

A
  1. diversification
  2. Professional Management
  3. Minimum Initial Investment
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4
Q

MOST mutual funds require a minimum initial purchase of $_____

A

$2500

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5
Q

mutual fund

A

a basket of securities

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6
Q

Diversification does not limit risk
T/F

A

True

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7
Q

Drawbacks of mutual funds

A
  1. Risk
  2. Costs
  3. Taxes
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8
Q

Unlike a bank deposit, mutual fund values can fall and be worth less than your initial investment
T/F

A

True

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9
Q

No government or private agency guarantees the value of a mutual fund
t/f

A

true

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10
Q

you will pay taxes on distributions ( dividends and capital gains ) as well as profits

A

true

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11
Q

a business that specializes in pooling funds from individual investors and making investments

A

investment company

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12
Q

An investment company with a fixed number of shares that are bought and sold only in the open stock market.

A

closed-end fund

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13
Q

an investment company that stands ready to buy and sell shares at any time

A

open-end fund

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14
Q

sometimes, if an open end fund gets too big, it will not take any more investors, but it will take more money from its current investors

A

true

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15
Q

long term funds have 3 types:

A
  1. stock funds
  2. bond funds
  3. blended funds
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16
Q

the net value of the assets held by a mutual fund, divided by the number of shares

A

Net Asset Value (NAV)

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17
Q

mutual funds are owned by

A

shareholders

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18
Q

shareholders elect

A

board of directors

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19
Q

A ______ does not have to pay taxes on its investment income

A

regulated investment company

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20
Q

3 conditions for a company to meet in order to qualify to not have to pay taxes

A
  1. Hold all its investments in stocks, bonds, and other securities
  2. Use no more than 5% of its assets…..
  3. pass through all realized investment income….
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21
Q

mutual funds are required by law to supply _____ to any investor who wishes to purchase shares

A

Prospectus

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22
Q

mutual funds must provide a ______ every year to their shareholders

A

annual report

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23
Q

sales charges

A

loads

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24
Q

front-end loads

A

charges levied on purchases

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25
Q

charges levied on redemptions

A

back-end loads

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26
Q

annual fees charged by a mutual fund to pay for marketing and distribution costs

A

12b-1 fees

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27
Q

usually range from .1-1.5% of a mutual funds total assets each year

A

Management fee

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28
Q

-Not reported directly
-Funds must report “turnover,” which is related to the amount of trading.
-The higher the turnover, the more trading has occurred in the fund.
-The more trading, the higher the ___ costs.

A

trading costs

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29
Q

loads and deferred sales charges

A

Shareholder transaction expenses

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30
Q

management and 12b-1 fees, legal, accounting, and reporting costs, director fees.

A

Fund operating expenses

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31
Q

funds report a hypothetical example showing total expenses paid by investors per $_______ invested

A

$10,000

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32
Q

a table placed near the front of a mutual funds prospectus, disclosing and illustrating the expenses and fees a shareholder will incur

A

fee table

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33
Q

loads and fees for specialized funds tend to be higher, b/c there is ________ among them

A

little competition

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34
Q

Performance fees in mutual funds are very ___

A

Rare

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35
Q

-mutual funds specializing in money market instruments
- short term funds collectively known as _____

A

money market mutual fund (MMMF)

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36
Q

MMMFs can be either taxable or tax-exempt

A

true

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37
Q

much like a MMMF but offered by banks and have FDIC protection
-secure, transparent, low risk

A

money market deposit accounts (MMDAs)

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38
Q

some stock funds trade off ____ & ____

A

capital appreciation and dividend income

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39
Q

some stock funds focus on companies in a particular ___

A

particular size range

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40
Q

Funds that focus on a small piece of the market and focus their attention there. Narrow investments to specific areas (i.e. technology, internet, energy). These funds can be very volatile.

A

sector funds

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41
Q

other types of funds include:

A
  1. index funds
  2. social conscience runds
  3. sin funds
  4. tax-managed funds
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42
Q

social conscience funds are also known as ____

A

green funds

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43
Q

include tobacco, liquor, gaming, etc.
- have huge returns

A

sin funds

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44
Q

bond funds may be distinguished by their:

A

maturity range
2. credit quality
3. taxability
4. bond type
5. issuing country

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45
Q

funds that do not invest exclusively in either stocks or bonds are called

A

blended OR hybrid funds

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46
Q

the asset allocation chosen by _____________ is based on the anticipated retirement date of the investors holding the fund

A

target date funds (life cycle funds)

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47
Q

if a company offers a target date 2040 fund, the fund is for people planning to retire in about 2040.
This fund would have a

A

2019- large equity exposure
2039 - large bond exposure

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48
Q

value stocks are those that look to be relatively

A

undervalued

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49
Q

stocks that are considered more likely to grow their businesses

A

growth stocks

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50
Q

visually represents a fund’s investment focus by placing the fund into one of 9 boxes

A

“style” box

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51
Q

the number of shares in a closed fund can still fluctuate as existing owners buy and sell
T/F

A

true

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52
Q

fund that has a fixed number of shares

A

Closed-end fund

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53
Q

an exchange traded fund (ETF) is basically an
- trades like a closed-end fund W/O the discount phenomenon

A

index fund

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54
Q
  • a well-known ETF
  • commonly called the spider
A

Standard and Poor’s Depository Receipt (SPDR)

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55
Q

the fund managers of a ______ create a portfolio designed to provide a return that tracks the underlying index

A

leveraged ETF

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56
Q

the fund manager of a leveraged ETF can use derivatives to generate ____ returns of the index return

A

opposite OR inverse

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57
Q

the longer the holding period and/or the more volatile the underlying index, the less accurate a leveraged fund will be in tracking its state objective

A

true

58
Q
  • look like ETFs to investors
  • introduced in 2006 by Barclays Bank
    -unsecured debt
  • can provide investors with exposure to commodities but w/o the leveraged risk of future contracts
A

Exchange Traded Notes (ETNs)

59
Q

hedge funds are not required to maintain any particular degree of diversification or ___

A

liquidity

60
Q

hedge fund managers have more ___

A

freedom

61
Q

to be considered a qualified investor you must either (2):

A
  1. net worth of about $1 Million
  2. recurring annual income of over $200,000
62
Q

hedge funds accept only qualified investors

A

true

63
Q

common fee structure for hedge funds

A

2/20

64
Q

when a hedge fund fee structure includes a _____, the manager will receive performance fees only on the portion of the fund value that is higher than its previous highest value

A

high-water mark

65
Q

goal: offset risk w/ opposite positions in pairs of securities
- also called long-short funds

A

Market Neutral Hedge fund

66
Q

goal: identify a mispricing in relationships between securities that theoretically should not exist

A

arbirage hedge funds

67
Q

Goal: buy securities that are being offered at deep discounts resulting from company-specific or sector-wide distress

A

distressed securities hedge funds

68
Q

goal: these hedge fund managers attempt to profit from changes in global economies brought about by governmental policies that affect interest rates, currencies, or commodity prices

A

Macro hedge funds

69
Q

goal: managers of pure short hedge funds only short sell

A

short selling hedge funds

70
Q

goal: managers of these hedge funds attempt to identify trends in particular sectors of overall global markets

A

market timing hedge funds

71
Q

investment companies that invest in hedge funds

A

funds for funds

72
Q

interest-bearing assets include: (2)

A
  1. money market instruments
  2. fixed-income securities
73
Q

types of equities

A
  1. common stock
  2. preferred stock
74
Q

types of derivatives

A
  1. futures
  2. options
75
Q

short term debt obligations of large corporations and governments
- less than one year

A

Money Market Instruments

76
Q

Longer-term debt obligations, often of corporations and governments, that promise to make fixed payments according to a preset schedule.
- exceed one year

A

fixed income securities

77
Q

usually, the instruments are sold on a ______ and only the interest rates are quoted

A

discount basis

78
Q

illiquid

A

if you cannot sell securities for their current market value, they are ____

79
Q

represents ownership in a corporation
- a part owner receives a pro rated share of whatever is left over after all obligations have been met in the event of liquidation

A

common stock

80
Q

the dividend is usually fixed and must be paid before any divdidens for the common shareholders

A

preferred stock

81
Q

Security originally sold by a business or gov’t to raise money.

A

primary asset

82
Q

A financial asset that is derived from an existing traded asset, rather than issued by a business or government to raise capital. More generally, any financial asset that is not a primary asset.

A

derivative asset

83
Q

An agreement made today regarding the terms of a trade that will take place later.

A

futures contract

84
Q

An agreement that gives the owner the right, but not the obligation, to buy or sell a specific asset at a specified price for a set period of time.

A

option contract

85
Q

in a futures contract, you gain if your contracted price is better than the market price

A

true

86
Q

to buy

A

call

87
Q

to sell

A

put

88
Q

the price you pay to buy an option

A

option premium

89
Q

the specified price at which the underlying asset can be bought or sold

A

strike price OR exercise price

90
Q

can be exercised on or before its expiration

A

American Option

91
Q

can be exercised only on the expiration date

A

European Option

92
Q

A written document that specifically identifies an investor’s investment goals.
- Discusses any constraints

A

Investment Policy Statement

93
Q

Your risk tolerance is affected by (2) :

A
  1. ability to take risk
  2. willingness to take risk
94
Q

how high is the possibility that you need to sell the asset quickly

A

liquidity

95
Q

allocation of an investment portfolio across broad asset classes

A

asset allocation

96
Q

selection of specific securities within a particular class

A

security selection

97
Q

Should you manage your investments yourself?

A

Investment Management

98
Q

Should you try to buy and sell in anticipation of the future direction of the market?

A

market timing

99
Q

you can get you money out of a ___ fund whenever you want it

A

mutual funds

100
Q

you cannot get your money out of a ____ at any random time

A

hedge fund

101
Q

asset allocation makes up what percent of portfolio performance

A

90%

102
Q

security selection makes up for what percent of portfolio performance

A

10%

103
Q

most people think ___ is the more important element for successful investing

A

security selection

104
Q

types of brokers (3)

A
  1. full-service brokers
  2. discount brokers
  3. deep-discount brokers
105
Q

Insurance fund covering investors’ brokerage accounts when member firms go bankrupt or experience financial difficulties

A

Securities Investor Protection Corporation (SIPC)

106
Q

the SIPC does not guarantee the value of any security (unlike FDIC)

A

true

107
Q

brokerage account in which securities are paid for in full

A

cash account

108
Q

a brokerage account in which, subject to limits, securities can be bought and sold on credit

A

Margin Account

109
Q

in a margin purchase, the portion of the value of an investment that is NOT BORROWED is called the ___

A

Margin

110
Q

The interest rate that buyers pay for their margin loan.

A

call money rate

111
Q

the minimum margin that must be supplied

A

initial margin

112
Q

the minimum margin that must be present at all times in a margin account

A

maintenance margin

113
Q

When the margin drops below the maintenance margin, the broker can demand more funds through a _____

A

margin call

114
Q

the act of pledging securities as a collateral against a loan

A

hypothecation

115
Q

an arrangement under which a broker is the registered owner of a security
- and the account holder is the “beneficial owner”

A

street name registration

116
Q

limits your total contribution

A

Internal Revenue Service (IRS)

117
Q

for people who do not have access to a company-sponsored retirement plan

A

individual retirement accounts (IRAs)

118
Q

private retirement plan that taxes income before it is saved, but which does not tax interest on that income when funds are used upon retirement

A

Roth IRA

119
Q

original IRA
- pay taxes when money is reoved

A

tax deferred IRA

120
Q

a sale in which the seller does not actually own the security that is sold

A

short sale

121
Q

an investor with a ____ benefits from price increases

A

long position

122
Q

an investor with a ___ benefits from price decreases

A

short position

123
Q

the amount of common stock held in short positions

A

short interest

124
Q

short sellers face constraints from government intervention

A

true

125
Q

the return on an investment measured in dollars that accounts for all cash flows and capital gains or losses

A

Total Dollar Return

126
Q

the return on an investment measured as a percentage of the original investment

A

total percent return

127
Q

the return on an investment expressed on an annualized basis

A

Effective Annual Rate (EAR)

128
Q

t- bills do NOT have negative returns

A

true

129
Q

U.S. is the largest in world stock market capitalization

A

true

130
Q

the rate of return on a riskless investment

A

risk free rate

131
Q

the extra return on a risky asset over the risk-free rate

A

risk premium

132
Q

the greater the potential reward, the greater the risk

A

SECOND LESSON

133
Q

There is a reward, on average, for bearing risk

A

FIRST LESSON

134
Q

a common measure of return dispersion
- sometimes return dispersal is also called variability

A

variance

135
Q

standard deviation

A

the square root of the variance

136
Q

a bell-shaped curve, describing the spread of a characteristic throughout a population

A

normal distribution

137
Q

“What was your average compound return per year over a particular period?”

A

geometric average return

138
Q

higher the volatility, higher the drag

A

true

139
Q

the arithmetic average is probably

A

too high for long forecasts

140
Q

too low for short forecasts

A

the geometric average

141
Q

the risk-free rate is often called the

A

time value of money

Investments (2 decks)

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