Finance Part 5

Mid-Cap

— Refers to companies that (as of December 31, 2009) are worth from $1 billion to $8 billion.

Small Cap

— Refers to companies that are worth less than $1 billion.

Allocation

— Refers to funds that contain a mixture of stocks and bonds.

Value

— Refers to stocks that are deemed to be priced below the company's actual worth or which have been growing more slowly than others.

target date

— These are funds that contain both stocks and bonds. They are designed for investors who plan to leave their money invested until a specific date.

3. Net asset value refers to:

c. the value per share of a fund

Unit Investment Trust (UIT)

were created to solve a problem faced by the Act's other two types of funds: the absence of a maturity date.

1. If an investment company has assets of $1 million, of which $5,000 is yours, how much of the profits or losses would you receive? a. $200 b. $5,000 c. 5,000/1,000,000ths d. there is no way of knowing

5,000/1,000,000ths

5. How many investors believe that they pay no fees when investing in mutual funds?

65%

annuity description

An annual contract fee An annual mortality charge averaging 1.3% per year to compensate the insurer for the death benefit guarantee it provides; An annual living benefits charge The annual expense ratio and SAI charges

mutual funds and ETFs

Fund Expense #1: Commissions Fund Expense #2: Fixed Operating Expenses Fund Expense #3: Variable Operating Expenses

annuity taxation

In exchange for not taxing you each year, any withdrawals you make prior to age 591/2 are subject to a 10% IRS penalty.

investiment grade

Refers to bonds that are rated BBB or higher.

Blend

Refers to funds that have a combination of Value and Growth stocks.

Growth

Refers to stocks that are enjoying or expected to enjoy fast growth. Most companies in this category are in rapidly expanding industries.

fixed Annuities

Some people don't like the "variable-ness" of annuities, although the guarantees described above reduce much of this concern.

closed end fund

Unlike open-end funds, which offer an unlimited number of shares forever, They sell only a certain number of shares, like seats in a stadium.

varied Annuities

Variable annuities derive their name from the fact that the return you earn varies with the performance of the investments you hold.

9. Compared to mutual funds, ETFs: a. are cheaper b. are more tax efficient c. disclose their holdings daily d. all of the above

all of the above

annuity

annuity simply refers to a stream of income. Pensions and Social Security benefits, for example, are annuities.

8. A closed-end fund has the following attributes: I. only a limited number of shares are available II. shares trade on the New York Stock Exchange III. when selling shares of a closed-end fund, the price is equal to the net asset value IV. closed-end funds are sold commission-free

b. I and II

6. A mutual fund's Statement of Additional Information:

b. describes fees not disclosed in the prospectus

2. Which of the following is not true about ETFs?

c. ETFs are appropriate only for investors with small amounts to invest

7. The Investment Company Act of 1940 created: I. mutual funds II. unit investment trusts III. closed-end mutual funds IV. fixed annuities

c. I, II and III

4. Mutual funds can be categorized by: I. asset class II. quality III. size IV. style

c. I, II, III, and IV

10. With variable annuities, profits are:

c. tax-deferred

open end fund

most coupon type of investimrnt companies

Deferred Annuities

some annuities delay the start of generating income — sometimes for years or even decades.

Speculative grade

— Refers to bonds that are either not rated or are rated BB or below

intermediate term

— Refers to bonds that have durations of 3.5 to six years or maturities between four and 10 years.

Short term

— Refers to bonds that have durations of less than 3.5 years or maturities of between one and four years, making them largely unaffected by interest rate risk.

long term

— Refers to bonds that have durations of more than six years or maturities greater than 10 years. Such bonds are therefore highly sensitive to interest rate

Large Cap

— Refers to companies that are among the largest in the country (or world). "Cap" refers to capitalization, meaning the market value of the company.