Unit 17 - Alternative Investments and Other Assets

Which of the following ETFs would have a negative correlation with the underlying index? A) ABC Inverse ETF B) GHI Small-cap ETF C) DEF Large-cap ETF D) JKL World Equity ETF

A) ABC Inverse ETF

Being a limited partner in a direct participation program is analogous to being A) a holder of common stock in a corporation. B) a holder of secured corporate debt. C) a member of the board of directors of a corporation. D) an agent of a broker-dealer.

A) a holder of common stock in a corporation.

In order to achieve its goals, an inverse ETF uses A) derivatives and debt. B) arbitrage. C) short selling. D) preemptive rights.

A) derivatives and debt.

Which of the following must be considered in evaluating the suitability of a DPP investment for a customer? I. Risk tolerance II. Other holdings III. Financial situation IV. Age A) I and II B) I, II, III, and IV C) II and III D) I and IV

B) I, II, III, and IV

A number of different pooled investment vehicles are included in the term "alternative investment." One of them, a synthetic investment instrument that has been created to meet a specific need that cannot be met by a standardized financial instrument, is known as A) a z-tranche CMO B) a structured product C) an inverse fund D) an arbitrage

B) a structured product

In a life settlement, the seller receives more than the premiums paid into the policy but less than A) the future premiums payable. B) the face amount. C) the accumulated dividends. D) the cash value.

B) the face amount. The sale price of a life settlement is always more than the cash value and less than the face value.

The alternative asset investments class is least associated with which of the following characteristics? A) Illiquidity B) Nonnormal returns C) Efficient pricing D) Diversification

C) Efficient pricing

Which of the following categories of assets is most likely classified as an alternative asset? A) Cash B) Convertible bonds C) Real assets D) Preferred stocks

C) Real assets

If an investor was of the opinion that the market was going to have a bad day, to maximize that investor's gains, you might recommend A) an inverse ETF B) selling a call option on the S&P 500 Index C) an inverse leveraged ETF D) a leveraged ETF

C) an inverse leveraged ETF

It would not be considered passive real estate investing when buying A) ABC Home Builders common stock. B) mortgage REITs. C) homes and flipping them. D) hybrid REITs.

C) homes and flipping them.

Someone who wishes to invest in precious metals would consider any of the following EXCEPT A) platinum B) gold C) lead D) silver

C) lead

An agent must obtain written verification of an investor's net worth for which of the following investments? A) Real estate investment trusts B) Variable contracts C) Unit investment trusts D) Direct participation programs

D) Direct participation programs

A client with limited assets seeking additional income in retirement would probably find which of the following investment choices to be the least suitable? A) Insured bank CDs B) Treasury bonds C) ETFs D) ETNs

D) ETNs

Inverse ETFs are suitable primarily for investors A) who follow a passive investment strategy. B) who are bullish on the market's future. C) wishing to leverage their income. D) with a very short time horizon.

D) with a very short time horizon.

Commodities contracts are available on A) emeralds. B) platinum. C) pearls. D) diamonds.

B) platinum. You might like diamonds, pearls, emeralds, and rings with those stones mounted in a platinum setting. Only platinum is a precious metal with commodity contracts available.

With respect to liquidity and potential for diversification, in comparing alternative investments to exchange-traded stocks, the markets for alternative investments are generally: A) more liquid and provide more opportunity for diversification. B) less liquid and provide less opportunity for diversification. C) less liquid and provide more opportunity for diversification. D) more liquid and provide less opportunity for diversification.

C) less liquid and provide more opportunity for diversification.

A benefit of active investment in real estate that is not available to purchasers of REITs is A) dividends from active investments are generally qualified. B) the Section 1035 exchange privilege. C) the Section 1031 exchange privilege. D) greater liquidity.

C) the Section 1031 exchange privilege.

A REIT and a direct participation program are similar because they both A) are traded actively in the secondary market B) pass through losses to investors C) can be described as a limited partnership D) are operated by a centralized management

D) are operated by a centralized management

Which of the following statements regarding the general partner in a direct participation program (DPP) is NOT true? A) The general partner (GP) is the active investor in a limited partnership and assumes responsibility for all aspects of the partnership's operations. B) The GP, as the active manager of the partnership, does not maintain a financial interest in the partnership and only receives income distributions from profits on the business prior to the limited partners. C) The GP cannot borrow from the partnership, compete with the partnership, or commingle personal funds with partnership funds. D) A GP has a fiduciary relationship to the limited partners (LPs).

B) The GP, as the active manager of the partnership, does not maintain a financial interest in the partnership and only receives income distributions from profits on the business prior to the limited partners.

You have a 70-year-old client with a $500,000 whole life insurance policy purchased 25 years ago. The policy currently has a cash value of approximately $150,000. With all of the children on their own and successful, the client no longer feels the need for the insurance, and asks you if there is any option that might result in netting more than surrendering the policy for its cash value. You might recommend A) keeping the policy because the cash value will continue to grow B) using IRS Section 1035 to transfer the cash value into a deferred annuity C) engaging in a life settlement D) canceling the policy, but leaving the cash value with the insurance company with interest

C) engaging in a life settlement