UNIT 5 QBANK Flashcards
Which of the following is true for exchange-traded funds (ETFs)?
A) The Securities and Exchange Commission (SEC) has classified them as a type of open-end fund, and they have operating costs and expenses that are lower than most mutual funds.
B) The SEC has classified them as mutual funds, and they have operating costs and expenses that are higher than most mutual funds.
C) The SEC has classified them as a type of open-end fund, and they have operating costs and expenses that are higher than most mutual funds.
D) The SEC has classified them as mutual funds, and they have operating costs and expenses that are lower than most mutual funds.
A) The Securities and Exchange Commission (SEC) has classified them as a type of open-end fund, and they have operating costs and expenses that are lower than most mutual funds.
The SEC has classified ETFs as a type of open-end fund but not a mutual fund. ETFs traditionally have operating costs and expenses that are lower than most mutual funds because they do not have to purchase and sell holdings within the portfolio to accommodate investors purchasing shares or redeeming shares, as is the case with mutual funds.
A hedge fund portfolio has been characterized as being highly leveraged. This means that
A) there is substantial borrowing or purchasing on margin.
B) there are substantial investments in international markets.
C) commodities and currencies are included in the portfolio.
D) derivative products such as options are utilized.
A) there is substantial borrowing or purchasing on margin.
While hedge funds can employ all these investment types and strategies, being highly leveraged means borrowing to purchase. Borrowing to purchase securities is typically known as buying on margin.
Intraday price changes due to normal market forces would be found with
I. closed-end fund shares.
II. exchange-traded fund shares.
III. hedge fund shares.
IV. open-end (mutual) fund shares.
A) I and IV
B) III and IV
C) II and III
D) I and II
D) I and II
I. closed-end fund shares.
II. exchange-traded fund shares.
Both closed-end funds and ETFs trade in the open market and are priced by supply and demand. Open-end (mutual) funds use forward pricing and generally price only once per day (usually at the end of the trading day). Most hedge funds are organized as private investment partnerships and are considered illiquid. Some have minimum holding requirements known as lock-up provisions, and in that light, their interests do not reliably trade intraday.
How often may funds be rolled over from one state’s Section 529 plan to another’s?
A) As often as necessary
B) No more than twice per calendar year
C) Once every 12 months
D) Once per semester
C) Once every 12 months
A rollover involves actually withdrawing funds from one account for reinvestment in another. The investor thus has constructive receipt of the money and could be liable for taxes on any growth or earnings withdrawn if the rollover is not completed. The rollover procedure, when completed, protects from tax liability but may only be done once every 12 months.
Which of the following are municipal securities?
A) UTMA Saving Accounts
B) Coverdale Saving Plans
C) UGMA Saving Accounts
D) 529 Savings Plans
D) 529 Savings Plans
529 plans are established by each individual state—therefore they are municipal issues.
Which of the following oil and gas direct participation programs might be considered the riskiest?
A) Exploratory
B) Raw land
C) Income
D) Combined exploratory and income
A) Exploratory
Exploratory programs, also called wildcatting programs, are those that look for resources near existing producing wells in the hopes of finding more deposits. These are considered riskiest of the oil and gas programs—exploratory, income or a combination of the two. Raw land is a type of real estate program, not an oil and gas program.
An example of securities that are established by states to provide other government entities such as cities, towns, school districts or state agencies with a short-term investment vehicle to invest funds include
A) local government investment pools (LGIPS).
B) bond anticipation notes (BANs).
C) money market instruments.
D) tax anticipation notes (TANs).
A) local government investment pools (LGIPS).
LGIPs are established by states to provide other government entities within its borders such as cities, counties, school districts or other state agencies with a short-term investment vehicle to invest funds.
Which of the following is the best description of a limited partnership?
A) An investment that permits both gains and losses to pass through to the investors
B) An investment that allows only for income to flow through to the investors
C) An investment that exempts individual investors from reporting gains or losses
D) An investment that allows for losses only to pass through as write-offs to the investors
A) An investment that permits both gains and losses to pass through to the investors
Limited partnerships (LPs) are investment opportunities that permit the economic consequences of a business to flow or pass through to investors (limited partners). These would include the consequences of both income received and losses incurred.
In explaining hedge funds to an investor, a registered representative might correctly characterize them as utilizing
A) advanced and complicated strategies entailing high risk.
B) basic and conservative investment strategies entailing low risk.
C) advanced and complicated strategies for the purpose of mitigating risk.
D) basic investment strategies for the purpose of mitigating risk.
A) advanced and complicated strategies entailing high risk.
Hedge fund portfolios are aggressively managed in an attempt to achieve high returns. To do so they utilize advanced and complicated strategies generally associated with high risk.
Exchange-traded funds (ETFs) offer several attractive advantages over mutual funds. All of the following would be advantages that ETFs typically have over mutual funds except
A) intraday pricing for active traders.
B) the ability to buy on margin.
C) trading costs for active traders.
D) lower operating cost than many mutual funds.
C) trading costs for active traders.
Active traders may run up higher expenses because of being charged a commission to buy and then a commission to sell. The other options are all advantages of ETFs versus mutual funds.
All of the following regarding a trust set up for the purpose of holding commercial property, or mortgages on commercial property, are true except
A) these investments could not be considered open- or closed-end funds.
B) investors may never purchase shares in these trusts on an exchange or over-the-counter (OTC).
C) gains can pass through to the owners of these shares.
D) ownership of these shares may provide for the receipt of dividends.
B) investors may never purchase shares in these trusts on an exchange or over-the-counter (OTC).
This is a REIT. REIT shares can trade on exchanges or over the counter (OTC). Owners of these shares may receive dividend distributions and have capital gains pass through to them for tax purposes as well. REITS, organized as trusts, are not investment companies (open- or closed-end funds). Shares in REITs are equity securities.
For a real estate DPP, which of the following is true?
A) Income can be derived from rents received for the properties.
B) Income will come from appreciation of the portfolio properties.
C) Neither income nor capital growth would come from rents received.
D) Capital growth can be derived from rents received.
A) Income can be derived from rents received for the properties.
For real estate DPPs, both income and capital growth are possible. Income comes from the property rents received, and capital growth would come from the appreciation of the properties.
For real estate program partners, tax credits will
A) reduce tax liability dollar for dollar.
B) be applicable in all types of real estate programs.
C) add to the appreciation of the real estate properties.
D) reduce taxable income from rents received dollar for dollar.
A) reduce tax liability dollar for dollar.
Offered by the federal government for only certain types of real estate programs (not all), tax credits reduce tax liability dollar for dollar. In this light, credits are considered far greater benefits than deductions, which only reduce taxable income.
Each of the following is defined as an investment company except
A) Real estate investment trusts (REITs).
B) An open-end management company.
C) A closed-end management company.
D) Fixed and nonfixed unit investment trusts (UITs).
A) Real estate investment trusts (REITs).
Real estate investment trusts (REITs) are not investment companies such as UITs and management companies (both open and closed-end).
An allowable deduction to compensate for decreasing natural resources in an oil and gas DPP are known as
A) deductions for IDCs.
B) depreciation deductions.
C) tax credits.
D) depletion allowances.
D) depletion allowances.
Tax deductions that compensate an oil and gas program for the decreasing supply of the resource after it is taken out of the ground and sold are known as depletion allowances.
