SIE Ch. 5

What is an advantage of investing in hedge funds? A They seek to achieve aggressive returns, offering high potential rewards B They are not registered with the SEC, so there are no rules to follow C Hedge funds have high risk D They are only open to accredited investors, making them highly exclusive are desirable

A They seek to achieve aggressive returns, offering high potential rewards

All of the following are characteristics of REITs, except: A REITs that are registered may be listed or unlisted B A REIT is set up as a corporation C Investments include property, mortgages, and shares of other REITs D They sell shares of beneficial interest

B A REIT is set up as a corporation

All of the following are characteristics of Funds of Hedge Funds, except: A They are regulated under the Investment Company Act of 1940 B They are considered an inexpensive, liquid, aggressive type of an investment C They are available to non-accredited investors D They are SEC registered

B They are considered an inexpensive, liquid, aggressive type of an investment

Which securities offer the best protection of purchasing power? A Fixed annuities B Variable annuities C Series EE bonds D Municipal bonds

B Variable annuities Of the given choices, variable annuities have the greatest appreciation potential; they provide the greatest protection of purchasing power.

A _____________ is used with the sale of municipal fund securities. A Summary prospectus B SAI C Program disclosure document D 529 Plan

C Program disclosure document

Who is the sponsor of 529 plans? A Mutual fund companies B Employers C States D IRC

C States

Annuitization of a variable annuity occurs when an investor: A Transfers ownership of the annuity to a spouse B Receives a lump sum payment at retirement C Invests and purchases accumulation units D Begins receiving a monthly income stream, usually as a lifetime benefit

D Begins receiving a monthly income stream, usually as a lifetime benefit

Which of the following activities would typically occur on either NASDAQ or a traditional stock exchange? I ETF transactions II Closed-End fund transactions III Variable annuity purchases IV Viatical sales A I, II, III, and IV B III and IV C I, II, and III D I and II

D I and II

What type of investment is an exchange traded note? A An unsecured debt obligation issued by a third-party B An option C A secured debt obligation D An equity

A An unsecured debt obligation issued by a third-party An exchange traded note is issued by a third-party such as an investment bank. This third-party is solely responsible for payment at the maturity date. There are on-going costs that the issuer charges. There are no interest payments to the investor during the holding period.

Hedge funds are: A Not registered with the SEC and not regulated under the Investment Company Act of 1940 B Registered with the SEC but not regulated under the Investment Company Act of 1940 C Not registered with the SEC but are regulated under the Investment Company Act of 1940 D Registered with the SEC and regulated under the Investment Company Act of 1940

A Not registered with the SEC and not regulated under the Investment Company Act of 1940

In a variable annuity, the investment management fee is deducted from the: A Subaccount B Monthly payment upon annuitization C Sales charge D Premium

A Subaccount The investment management fees are separately charged in each of the subaccounts and are the same as an investment adviser's fee in a mutual fund.

Hedge funds are: A Unregulated, typically unregistered, and not publicly traded B Exempt from the antifraud provisions if not registered with the SEC C Highly liquid D Available to a maximum of 99 non-accredited investors

A Unregulated, typically unregistered, and not publicly traded Hedge funds are only available to a maximum of 35 non-accredited investors, they are not exempt from the anti-fraud provisions, and can only be liquidated on specific dates

Annuities are funded with systematic contributions being made on either a ____ or a ____ basis. A Permanent, temporary B Fixed, flexible C Guaranteed, discretionary D Life, periodic

B Fixed, flexible Contributions made during the accumulation period, are made on either a fixed or a flexible basis. This relates to both amount and timing.

Special tax treatment is allowed for qualified REITs, provided they meet which of the following requirements? I. 75% or more of its assets must be invested in real estate, cash or treasuries II. At least 75% of its gross income must come from real estate activities III. At least 90% of its ordinary income must be distributed to its holders A II and III B I, II and III C I and II D I and III

B I, II and III

DPPs provide: A Limited partnership agreements only B Pass-through income C Participation in REITs D Liquidity

B Pass-through income DPPs are highly illiquid, allow participation in RELPs, not REITs, and offer limited and general partnership agreements.

Which of the following statements regarding separate accounts is false? A Separate accounts are only issued by insurance companies B The insurance company bears the investment risk in the separate account C The securities in a separate account are kept separate from the insurance company's general account D Separate accounts must be registered under the Investment Company Act of 1940

B The insurance company bears the investment risk in the separate account The policy holder, not the insurance company, bears the investment risk in the separate account. A separate account is a professionally managed portfolio of securities and as such must be registered as an investment company.

Why would an investor purchase a fund of hedge funds? A For guaranteed lifetime income B For guaranteed yearly returns C For diversification purposes D For short-term cash flow management

C For diversification purposes A fund of hedge funds is still considered very aggressive investments since the underlying investments are hedge funds. They are also more expensive than traditional investment company securities since they have two sets of fees. One for the hedge fund managers and one for the investment manager of the fund. The composition of hedge funds also makes them more illiquid than traditional funds and cannot be redeemed any time. They usually have specific time frames where investors can liquidate all or a portion of their holdings.

If an investor thinks the U.S. equity market is going to crash in the short-term and wants to make the most money, which one of the following should they consider investing in? A S&P 500 ETF B S&P 500 Leveraged ETF C S&P 500 Inverse Leveraged ETF D S&P Inverse ETF

C S&P 500 Inverse Leveraged ETF Inverse Leveraged ETFs use a combination of leverage and the inverse fund concept. These are often called "ultra short" funds since they are trying to obtain a return that is a multiple of the Inverse ETF.

All of the following are characteristics of ETFs, except: A Investors are charged commission on sales B ETFs are listed and trade on an exchange C The are actively managed and have high management fees D They provide diversification that mirrors a specific index

C The are actively managed and have high management fees

Why would an investor choose a leveraged ETF? A To reduce investment risk B To increase returns over a long time period C To increase returns on a short-term basis D To reduce the overall cost of investing

C To increase returns on a short-term basis

A variable contract must be sold by: A An illustration B A person in the business at least 5 years C Direct mail D A prospectus

D A prospectus The securities held in the separate account must be registered with the SEC and each offering is considered a new issue, requiring a sale by prospectus only.

An heir inherits a substantial sum of money and wants to have the money distributed to her over the rest of her life. Which product offered by the life insurance industry will allow her to accomplish her objective? A Flexible pay out arrangement B Deferred distribution arrangement C Systematic installment D An immediate annuity

D An immediate annuity

When you own a Single Premium Immediate Annuity, this means you begin receiving payments: A Within 60 days once proper paperwork is completed B Within 1 month C At a specified date next year D Within 1 year

D Within 1 year

Hedge funds all have the following characteristics:

◾Unregistered ◾Illiquid ◾High investment minimum and fees