unit 3/4

Question 1

t-receipts

Answer 1

backed by broker-dealers and banks
zero coupons (ex: say you buy the bond at 600, it matures at 1000 and you would get paid 400)

Question 2

t-strips

Answer 2

backed by US treasury
zero coupon (ex: say you buy the bond at 600, it matures at 1000 and you would get paid 400)

Question 3

TIPS

Answer 3

issued with maturities of 5, 10 or 20 years
have a fixed coupon rate and pay interest every 6 months
treasury inflation protected securities (adj for inflation)
receive interest semi-annually

Question 4

GNMAs (Ginnie Mae0

Answer 4

only one that is backed by the US gov’t
fully taxable across the board, federal state and local tax
principal on monthly interest basis
typically backed by mortgages

Question 5

jumbo CDs

Answer 5

a money market security with fixed interest rates and minimum face values of half a million - $1 million

Question 6

trick question: 30 year treasury bond and maturing in 6 months. can it be held as a money market security bond?

Answer 6

yes bc it matures in < a year

Question 7

money market securities

Answer 7

not a lot of risk, but not a lot of reqard. if you need something quickly and that’s highly liquid, this is the way to go.
1 year or less to maturity

Question 8

CMO (collateralized mortgage obligations)

Answer 8

asset backed security
pool a large number of mortgages, usually on single faimly residences.
pool of maturity is structured into maturity classes called tranches
rated high

Question 9

CDO (collateralized debt obligations)

Answer 9

set up by investment bankers and BDs
can be a pool of auto loans, bonds, or other asset classes, but still a pool

Question 10

breakpoint

Answer 10

quantity discounts on open-end management company shares

Question 11

letter of intent

Answer 11

person who plans to invest more money with the same mutual fund company
one-sided contract binding on the fund only
customer must complete the investment to qualify for the reduced sales charge
if a customer has not completed the investment within 13 months they will be given a choice of either sending in a check for the difference in dsales charges or cashing in escrowed shares to pay the difference

Question 12

sales charge

Answer 12

cost to get into the fund

Question 13

12B1

Answer 13

cost to stay in

Question 14

combination privilege

Answer 14

can use a combination of toher points to make a breakpoint

Question 15

NAV

Answer 15

calculates fund share
total assets - liabilities = net assets of fund –> net assets of fund / number of shares outstanding = NAV

Question 16

annuitize

Answer 16

an investor who reaches retirement may choose to annuitize her contract
one time irreversible election to give up ownership of the assets of the annuity in return for a lifetime income guaranteed by the insurance company

Question 17

when are variable contract considered most attractive?

Answer 17

for someone who can fund the contract with cash
when cashing out a life insurance p9olicy or existing annuity is considered abusive and is not a suitable recommendation
NOT suitable for anyone who might need the lump sum of cash invested in the variable annuity at a later time for any reason

Question 18

variable annuity

Answer 18

meant to be supplemental income at a time in one’s life when the income is needed
would be most likely when anticipating buying a home, needing cash for your children’s college education, any other upcoming expense would need to be considered

Question 19

FAC and UITs

Answer 19

FAC: they are investsment companies as defined under the investment company act of 1940
UIT: organized under a trust indenture. they don’t have board members but trustees, they sell redeemable interests (aka units)