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Unit Questions > Unit 10: Investment Company Products > Flashcards

Unit 10: Investment Company Products Flashcards

1
Q

Under which of the following circumstances will dollar cost averaging result in an average cost per share lower than the average price per share?

I. The price of the stock fluctuates over time
II. A fixed number of shares is purchased regularly.
III. A fixed dollar amount is invested regularly.
IV. A constant dollar plan is maintained

A

I. The price of the stock fluctuates over time
II. A fixed dollar amount is invested regularly.

Dollar cost averaging benefits the investor if the same amount is invested on a regular basis over a substantial period, during which the price of the stock fluctuates.

A constant dollar plan is one in which the investor maintains a constant dollar value of the securities in the investment portfolio.

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2
Q

_______ are priced by supply and demand throughout the trading day.

A

Exchange-traded funds

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3
Q

Many mutual fund distributions are taxed according to the ______ theory

A

conduit theory

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4
Q

Three types of Investment Companies:

A

1) Face-amount certificate companies (FAC)
2) Unit Investment Trusts (UITs)
3) Management Investment Companies

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5
Q

Under the Investment Company Act of 1940, an investment company qualifies as a ________ investment company if it meets the following 75-5-10 test

A

Diversified Investment Company

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6
Q

Diversified Investment Company: Within the75% must be invested in such a way that no more than ____% of the fund’s total assets are invested in the securities of any one issuer

A

5%

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7
Q

Diversified Investment Company: Within the 75%, the fund does not own more than ____% of the outstanding voting securities of any one issuer.

A

10%

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8
Q

Investment companies must register with the ____

A

SEC

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9
Q

Board members of investment companies must serve terms that are no less than one year but not longer than _____ years.

A

five

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10
Q

Because the investment adviser of a mutual fund is paid a fee for investment advice, the adviser must be ________ under the Investment Advisers Act of 1940. Max contract of 2 years.

A

registered

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11
Q

This fee tends to be a investment company fund portfolio’s single greatest expense.

A

investment adviser fee

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12
Q

A ______ is a bank or stock exchange member broker-dealer that keeps the investment company’s assets physically segregated and restricts access to certain officers and employees.

Holds the cash and securities and performs other clerical functions.

A

Custodian

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13
Q

The Act of 1940 requires shareholders of Investment Companies to receive financial reports at least__________.

A

semiannually

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14
Q

Which Class - Front-end load that can be reduced or eliminated by breakpoints (long term, large investments)

A

Class A

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15
Q

Which Class - Back-end load that declines over time combined with 12b-1 fees (smaller investments)

A

Class B

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16
Q

Which Class - 12b-1 fees charged quarterly with small back-end load in first year

A

Class C

17
Q

Which Class - level load plus a redemption fee

A

Class D

18
Q

Distributions from mutual funds are derived from two things:

A

1) Income rec’d from portfolio securities

2) Gains from the sale of portfolio securities

19
Q

Whether taken in cash or reinvested, distributions of mutual funds are _______

A

taxable

20
Q

The ex-dividend date for mutual funds is set by the______. Normally it is the day after the ______ date.

A

BOD;

record

21
Q

Index funds are different from mutual funds in the following ways:

1) ______ trading
2) ______ eligibility
3) _______ selling

A

1) Intraday trading – shares trade and are priced continuously throughout the day
2) Margin eligibility – index fund shares can be purchased on margin, subject to the same terms that apply to common stock
3) Short selling – index funds can be sold short at any time during trading hours

22
Q

For hedge funds, this provision provides that during a certain initial period, an investor may not make a withdrawal from the fund.

A

Hedge Fund Lock-Up Provisions

23
Q

Regarding Hedge Funds - A type of blind-pool, with one discernible difference – blank-check offerings do not identify any proposed investment intent.

A

Blank-Check Or Blind-Pool Hedge Fund

24
Q

Persons connected with the investment company only in their capacity as directors.

A

Noninterested

25
Q

Like breakpoints, allow an investor to qualify for reduced sales charges. The differences are that ______________:
• Are available for subsequent investments and do not apply to initial transactions

  • Allow the investor to use prior share appreciation to qualify for breakpoints
  • Do not impose time limits
A

rights of accumulation

26
Q

Includes gross investment income (dividend and interest income from securities held in the portfolio) minus operating expenses.

*Advertising and sales expenses are not included in a fund’s operating expenses when calculating net investment income.

A

Net Investment Income

27
Q

Allows a customer to deposit regular periodic investments on a voluntary basis.

A

Voluntary accumulation plan

28
Q

A person invests identical amounts at regular intervals. Allows the individual to purchase more shares when prices are low and fewer shares when prices are high. Over time, the average cost per share is lower than the average price of the shares.

A

Dollar Cost Averaging

29
Q

A plan in which only the dollar amount to be received each period is fixed.

A

Fixed-dollar plans

30
Q

A plan in which only the time is fixed, the amount of money the investor receives varies each period

A

Fixed-time plans

31
Q

These types of companies pool investors’ money and invests in securities on their behalf.

A

Investment company

32
Q

A contract between an investor and an issuer in which the issuer guarantees payment of a stated (or fixed) sum to the investor at some set date in the future.

A

Face-amount certificate/companies

33
Q

An investment company organized under a trust indenture and identified by several characteristics. They do NOT have BOD, employ investment advisors or actively manage their own portfolios (or trade securities).

A

Unit Investment Trusts (UITs)

34
Q

A ______ functions as a holding company for its investors. Trustees of both fixed and nonfixed _____s must stand ready to redeem the units, thus providing liquidity to shareholders.

A

UIT

35
Q

A type of UIT - typically purchases a portfolio of bonds and terminates when the bond in the portfolio matures.

A

Fixed UIT

36
Q

A type of UIT - purchases shares of an underlying mutual fund.

A

Nonfixed UIT

37
Q

Investment companies that are legally classified as open-end companies or UITs, but differ from traditional open-end companies and UITs.

A

Exchange-traded Funds (ETFs)

38
Q

_______ issue their shares in large blocks known as Creation Units, usually purchased by large institutional traders or investors.

A

ETFs

39
Q

Some mutual funds charge redemption fees. If redemption fees are charged, all fees and sales loads may not exceed a maximum of _____%.

A

8.5%

Unit Questions (18 decks)

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