Unit 3 Quiz

What is the minimum amount an open-end company must have for a public offering?

$100,000

A UIT...

- issues units in a FIXED portfolio that is not traded.

3 disadvantages of investing in managed investment companies:

1) High expenses 2) Unpredictability of tax consequences 3) Poor management performance

ETFs are...

1) Usually designed to track an index. 2) Usually have lower expense ratios than comparable mutual funds 3) Priced by supply & demand continuously trading during the day.

A mutual fund must redeem its tendered shares within how many days after receiving a request for their redemption?

7 days (a week).

Section 3(c)(7) Exemption

Allows a private equity fund to have more than 100 investors (must be qualified investors).

Open-end companies:

Can only issue one class of stock (not preferred stock) & can continuously offer new shares.

Which shares have a front-end sales load?

Class A

Asset-based sales charges will generally be lowest when holding

Class A Shares

Which sales have a back-end sales load?

Class B (have higher operating/administrative expenses).

Disadvantage of investing in ETFs?

Commission charges on buying/selling (price is determined by supply & demand).

CDSC

Contingent Deferred Sales Charge - charged at the time the investor redeems the mutual fund shares

Private Funds

Do not register with the SEC (example: hedge funds & private equity funds).

Difference between mutual funds and ETFs?

ETFs can be bought and sold the same day whereas mutual funds can't.

What are the 3 types of investment companies?

Face amount certificate company, unit investment trusts, & management investment companies.

One major difference in open and closed-end companies

Open-end companies do not trade in the secondary market!

If an investment company invests in a fixed portfolio of municipal or corporate bonds, it is classified as

UIT

"An investment company with a low expense ratio and a portfolio that doesn't change" is a description of

UIT.

The only investment company that can legally issue preferred stock is

a closed-end investment company.

Open-end investment companies can only issue

common stock.

Expense ratio equation

expenses/avg net assets

Hedge funds are issued by

limited partnerships (portfolio manager has an investment in the fund).

NAV equation

net assets/# of outstanding shares

Venture capital funds, hedge funds, & liquidity funds are all

private funds

ETFs are not...

redeemable securities.

A mutual fund is generally prohibited from

taking short stock positions.

Tenure

the number of years the portfolio manager has been managing the fund.

What is a custodian?

the services of a commercial bank to hold and safeguard the physical assets (cash) of the fund.

When would a mutual fund have net redemptions?

when the # of shares being liquidated by investors exceeds those being purchased.