Unit 4: Packaged Investments Flashcards
Face-amount certificates (FACs)
contract between investor and issuer in which issuer guarantees payment of a stated sum to investor after a period of time. In return, the investor pays the issuer a set amount up front or during life of the contract
Unit investment trusts (UITs)
> investment company under a trust
create a fixed portfolio of securities and sell redeemable shares
not managed
Managed investment company
investment company that manages a portfolio to achieve an investment objective
Closed-end investment company
> sells limited number of shares to public
common and preferred or debt
can be traded on secondary market
shares aren’t redeemable
Open-end investment company
> mutual fund, continuously sells shares to public
common shares only, no debt
cannot be traded on secondary market
shares are redeemable
Annuity
insurance contract meant to provide retirement income
Annuitization
One-time/irreversible choice to give up assets owned by annuity in return for lifetime guaranteed income by insurance agency
Mutual fund
pool of investors’ money invested in various securities, redeemable
Net asset value (NAV)
> NAV of fund = total assets - total liabilities
NAV of shares = NAV fund / total # outstanding shares
NAV of shares is calculated once per day for shares in open-end companies
Class A shares (front-end loads)
> shares that have a sales charge due when the investment is made
% taken from total amount invested
good for large investors w/ long time frame
Class B shares (back-end loads)
> shares that have a sales charge due when shares are redeemed
% taken from amount sold, decreases over time
good for mid investors w/ long time frame
Class C shares (level-load)
> shares that have an annual sales charge of 1%
>good for investors w/ short time frame (1-5 years)
Breakpoint
quantity sales charge discounts on open-end management company shares
Letter of intent (LOI)
contract allowing investor to invest additional funds needed to meet breakpoint within 13 months
Rights of accumulation
investor can combine previously invested funds w/ future investment amount to hit breakpoint
