Chapter 11 Mastery Progress Exam

In a limited partnership, a general partner's minimum participation in profits and losses is:

1%

The maximum underwriting compensation for selling limited partnerships in public offerings is:

10%

Which of the following investments will permit a customer to purchase publicly traded shares of a company that is MOST similar to a private equity fund?

A business development company

An investment in which of the following securities requires a customer to sign a statement attesting to her annual income and net worth?

A direct participation program

Which of the following statements is TRUE concerning a fund of hedge funds?

A fund of hedge funds may charge a fee in addition to the fees charged by the hedge fund managers

A hedge fund is:

A private investment fund designed for wealthy, sophisticated investors

Cash dividends received from which of the following securities will be taxed as ordinary income?

A real estate investment trust

Which of the following entities does not pass through both income and losses?

A real estate investment trust (REIT)

Which of the following direct participation programs has the highest profit potential?

A wildcatting program

The rights and obligations of limited and general partners are found in the:

Agreement of Limited Partnership

A REIT is NOT used for a tax shelter because it does NOT:

Allow flow-through of losses

An investor in an equipment leasing DPP would NOT expect:

Appreciation

All of the following characteristics are TRUE of REITs, EXCEPT that they:

Are always exchange traded

A limited partner would be in jeopardy of losing her limited liability if the partner:

Assisted in the decision of which properties to acquire

A real estate limited partnership that does not specify the actual properties to be purchased is known as a:

Blind pool

A registered representative, when selling a limited partnership, is NOT required to:

Certify that the customer is an institutional investor as defined by SRO rules

Which of the following choices would be the MOST advantageous tax benefit that an investor will receive from an oil and gas direct participation income program?

Depletion

A registered representative (RR) has discretionary authority over a customer's account and has determined a limited partnership investment is suitable for the customer. In order to invest in the partnership, the RR may:

Do so with the written approval from the customer

In a direct participation program, which party is the last to be paid in a liquidation?

General partner

A limited partner is considered accepted into a limited partnership when the:

General partner signs and approves the subscription agreement

A business that is traded on an exchange, owns properties in its portfolio, and makes mortgage loans to developers is an example of a(n):

Hybrid REIT

Which TWO of the following are suitable for an aggressive investor who wants a non-traditional investment as well as access to his capital? I. A business development company II. A hedge fund III. A liquid alternative investment IV. A private equity fund

I and III

Which TWO of the following statements are TRUE about real estate investment trusts (REITs)? I. They must distribute 90% of their earnings to shareholders II. They may invest only in short-term construction loans III. They must invest in mortgages and securities IV. Their profits are derived from the difference between the payments made on outstanding mortgages and the amount received in rental income

I and IV

A registered representative is required to certify which TWO of the following choices when a customer is purchasing a limited partnership? I. That the customer has been advised by an accountant II. That the customer is in a financial position to be investing in this type of product III. That the customer has a sufficient net worth to lose his entire investment IV. That the customer will not be investing in this type of product for a retirement account

II and III

List from last to first the order of payments if a limited partnership declares bankruptcy. I. Secured creditors II. General partners III. Limited partners IV. General creditors

II, III, IV, I

The major disadvantage to a limited partner in a direct participation program (DPP) is:

Lack of liquidity

All of the following actions create a conflict of interest for a general partner, EXCEPT if the general partner is:

Lending money to the partnership at prevailing interest rates

An investor is interested in selling 500 shares of her listed REIT. The sale will be handled in a manner that's similar to the:

Liquidation of a stock on the NYSE

Concerning hedge funds, all of the following statements are TRUE, EXCEPT that the funds:

Must register under the '40 Act if they are offered to U.S. residents

All of the following statements concerning hedge funds are TRUE, EXCEPT the funds:

Must register under the Investment Company Act of 1940 if offered to U.S. residents

The subscription agreement for a limited partnership does NOT specify:

Priority provisions upon liquidation

As a group, limited partners may NOT:

Sell assets to pay creditors

The individual who distributes interest in a DPP is known as the:

Syndicator

A limited partner has contributed capital to a direct participation program. Two years later, he extends a loan. Which of the following statements is TRUE if the DPP declares bankruptcy?

The LP is considered a limited partner for the capital contribution and a creditor for the loa

The main difference between a registered exchange-traded REIT and a registered nontraded REIT is:

The amount of liquidity each of the securities has

All of the following choices are disadvantages for a limited partner, EXCEPT:

The conduit (flow-through) treatment for income and loss

When determining whether a customer is suitable to invest in a direct participation program, which of the following is NOT required?

The customer is or will be in an appropriate financial position that will enable him to benefit from passive losses which are significant aspect of the program.

In a direct participation program, which of the following parties is subject to the MOST risk in a limited partnership?

The general partner

An investment banking representative would require an authorized person of an institutional investor to sign which of the following documents to attest to, or determine, whether the institution has the status of an accredited investor?

The subscription agreement

Which of the following statements concerning a fund of funds is TRUE?

These products are designed to increase diversification.

Your client is considering purchasing a fund of hedge funds. Which of the following statements concerning this investment is TRUE?

These securities are not liquid investments.

Which of the following statements is TRUE concerning registered nontraded real estate investment trusts (REITs)?

They are required to distribute the same percentage of taxable income as exchange-traded REITs

Real estate investment trusts (REITs) invest in all of the following, EXCEPT:

Undeveloped land