Packaged Products

Question 1

Investment Company

Answer 1

is a financial institution investing in securities

Question 2

The most appealing aspects of investment companies

Answer 2

-diversification
-liquidity
-professional management

Question 2

Investment companies are designed

Answer 2

for long-term investing

Question 3

3 classifications of investment companies are

Answer 3

1. Face amount certificates companies
2. Unit Investment Trusts (UITs)
3. Management companies

Question 4

Face amount certificates companies

Answer 4

debt certificates at a discount that pay purchasers a face value amount at maturity

Question 5

Unit Investment Trusts features

Answer 5

-issue only redeemable units
-do not have an investment or portfolio manager
-are supervised but not managed
-pay investors “interest” not dividends

Question 6

Open-end

Answer 6

issue and redeem shares every day

Question 6

Management companies features

Answer 6

-open-end
-closed-end
-diversified
-non diversified

Question 7

closed-end

Answer 7

issue shares once, which are then publicly traded

Question 8

diversified

Answer 8

has at least 75% of assets regulated

Question 9

Open End investment company

Answer 9

-mutual fund
-shareholders share part of the fund’s gains, losses, and income
-issue only redeemable shares

Question 10

Net asset value (NAV)

Answer 10

equals the total assets of the fund less the total liabilities divided by the total number of shares
Assets - liabilities divided by # shares = NAV

Question 11

ASK

Answer 11

NAV + max sales load = offering price

Question 12

Forward pricing

Answer 12

investors get the next calculated bid or ask price after the order is entered

Question 13

Max sales load

Answer 13

under act 1940 9%
under FINRA 8.5%

Question 14

Closed end investment company characteristics

Answer 14

-does not issue redeemable shares
-prices are determined by supply and demand
-NAV per share is greater than the ASK, the fund is a closed end fund
-charge a commission fee
-

Question 15

Business Development Company (BDC) characteristics

Answer 15

-a type of closed-end fund
-provides debt capital to small and medium sized companies
-target investors are retail clients with high risk tolerance
-BDC are required to distribute at least 90% of their income as dividends
-have high yields

Question 16

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

Answer 16

market risk

Question 17

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

Answer 17

Capitalization

Question 18

investment companies vote to

Answer 18

-elect the board of directors
-change investment objectives
-change the investment advisory firm used

Question 19

diversified common stock fund

Answer 19

invests in common stocks, in different industries and fluctuate with the changing value

Question 20

Specialized/sector fund

Answer 20

invests in one industry or one specific area
(riskiest type of fund)

Question 21

Growth Fund

Answer 21

appreciation of capital
-do not pay dividends and have lower yields
-invests in small-cap common stocks

Question 22

Balanced funds

Answer 22

invests in a diversified mix of bonds, preferred stocks and common stocks
(least amount of volatility and appreciation)

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 US and foreign companies

Question 25

Municipal bond fund

Answer 25

invests in a portfolio that consists of municipal bonds only
-dividend are exempt from federal income tax
-capital gains are subject to federal income tax

Question 25

Index funds

Answer 25

mirror the portfolio of a particular index, do not have active managers.

Question 26

Money market funds

Answer 26

invests in low risk debt securities with short-term maturities (12 months or less)

Question 27

Largest operating expense in money market

Answer 27

management and advisory fees

Question 28

money market are considered

Answer 28

most liquid mutual fund

Question 29

money market pay

Answer 29

monthly

Question 30

dividends on a mutual market fund

Answer 30

is fully taxable
(federal, state, and local)

Question 31

money market funds must have

Answer 31

-average weighted maturity of 90 days or less
-offer minimal credit risk
-have 95% of the fund invested in securities

Question 32

money market invest in securities as

Answer 32

T-bills, CD’s, commercial paper, bankers acceptances and Eurodollars

Question 33

Money market minimum withdrawal

Answer 33

$500

Question 34

Exchange traded funds (EFTs)

Answer 34

are funds that are similar to normal index mutual funds or industry sector basket of securities

Question 35

What’s the difference between ETF and index fund

Answer 35

ETFs have shares that trade like common stock

Question 36

Exchange traded notes (ETN)

Answer 36

are debts instruments issued by banks that are linked to a specific index

Question 37

ETNs are issued on four basic sectors

Answer 37

a. commodities
b. currencies
c. emerging markets
d. strategy/index (like s & p 500)

Question 38

Class A shares

Answer 38

charge investors an upfront sales charge which cannot exceed 8.5%

Question 39

Class B shares

Answer 39

are back-end loaded funds, expense charges are higher than class A shares.

Question 40

Mutual fund 12b-1 fee

Answer 40

an annual charge against the fund’s assets

Question 41

letter of intent (LOI)

Answer 41

allows an investor a 13-month period
-can be backdated 90 days