Unit 5
All of the following would be considered passive real estate investing except: owning shares of the common stock of Better Home Builders real estate limited partnerships (RELPs) investing in mortgage REITs buying homes & managing the rental of them
D. In passive, the work is done by others, not the investor. Examples are REITs and stock in real estate companies, such as those who build homes.
Which of the following is NOT registered with the SEC under the Investment Company Act of 1940: UITs ETFs Open-end Investment companies Exchange-traded notes
D. They're with 1933.
ETNS (Exchange-Traded Notes)
ETNs register with the Securities Act of 1933 and ETFs register under the Investment Company Act of 1940. ETNs are made as debt instruments, while ETFs are looked at as investment companies. -They're a type of exchange-traded debt security offering a true linked to a market index. -Issuers of ETNs issue & redeem notes as a means to keep the ETN's price in line with the calculated value, called the indicative value.
One type of alternative investment considered to be a pooled investment vehicular is the exchange-traded note. Exchange-traded notes (ETNs) are which of these? 1. Unsecured debt securities 2. Unsecured equity securities 3. Issued by financial institutions, such as banks 4. Insured by the FDIC
1 & 3
Benefits of investing in a DPP would include: 1. High liquidity 2. Flow-through of operating losses 3. Limited liability 4. Immunization against tax audit
2 & 3
In discussing a DPP with your customer, rank the following items in order of importance from most to least: Tax write-offs Liquidity & marketability Potential for economic gain
3, 1, 2
Although it's widely agreed that adding precious metals to a portfolio can potentially increase returns, doing so is not without risk. Risks that investors face with this asset class includes: All of the below Lack of income Storage cost Larger spreads when buying & selling than are found with most equities
A
Although there can be many benefits to investing in an oil & gas limited partnership drilling program, risks include: all of the below potential for a tax audit drilling a dry hole limited liability
A
Among the characteristics of leveraged ETFs is that: Leveraged ETFs may be purchased on margin They're generally suitable for investors with a long time horizon Leveraged ETFs generally obtain the leverage through bank borrowing They can only be sold to accredited investors
A
In a DPP, liability for the debts of the business falls uponL GPs LPs Shareholders Agent selling the program
A
One of your clients expresses interest in purchasing a unique piece of art in digital form. More than likely, the client is referring to: A nonfungible token a new way to decorate the home cryptocurrency a way to add liquidity to the portfolio
A
What is the maximum amount of bitcoin that'll ever be in circulation: 21 million coins 194,425 21 billion coins indefinite number of coins
A
Which of the following commodities is least likely to be affected by the weather? Silver orange juice wheat pork bellies
A
Which of the following is a motivation for creating structured products? Structured products improve market completeness Structured products are less expensive for investors to buy & trade Structured products improve profits for BDs Structured products reduce costs to issuers
A
With respect to liquidity and potential for diversification, in comparing alternative investments to exchange-traded stocks, the markets for alternative investments are generally: Less liquid and provide less opportunity for diversification more liquid and provide less opportunity for diversification more liquid and provide more opportunity for diversification less liquid and provide more opportunity for diversification
A
DPPs pros & cons:
Pros: manage by others, flow-through of income and certain expenses, limited liability- the most you can lose is the amount of their investment plus any funds committed for Cons: Liquidity risk, legislative risk, risk of audit, depreciation recapture.
A 3x leverage fund priced at $42 tracks an index that's up 2% one day and then down 3% on the next day. What should this fund be approximately priced at following these 2 volatile days? $40.50 $41.55 $45.86 $43.18
A. Day 1: Index up 2% The 3x leverage fund will go up by (3*2% = 6%). New price after Day 1: (42*1.06 = 44.52). Day 2: Index down 3% The 3x leverage fund will go down by (3*3% = 9%). New price after Day 2: (44.52*0.91 = 40.5092).
One of your clients is 10 years away from retirement and is trying to decide what would be a suitable investment for this year's IRA contribution. You would probably not recommend Leveraged ETFs Conservative growth mutual funds broad market ETFs target date mutual funds
A. Leveraged ETFs are designed for short-term trading and can be highly volatile, making them unsuitable for a retirement account where the focus is typically on long-term growth and stability.
Among the reasons for investors to consider investing in real estate would be all of the following except: a high correlation with stock market returns the ability to increase returns through leverage possible tax advantages potential appreciation
A. Real estate has an almost inverse relationship
All of the following are characteristics associated with equity-linked notes (ELNs) except: They're equity securities They're considered to be nonconventional structured investments They're considered an alternative pooled investment They have final payments at maturity linked to the return of an underlying stock or basket of stocks.
A. They're debt instruments, not equity instruments. They have a partial fixed return as well as a final payment linked to the performance of a single stock or equity index. Some are exchange traded, while others are OTC. They are nonconventional structured investments.
A DPP is a form of business entity. It may purchase real estate, drill for oil/gas, or engage in a # of other business activities. Which of the following statements is true? Mgmt of the enterprise is generally in the hands of a committee formed by the largest investors. Mgmt of the enterprise is always in the hands of the GPs. Mgmt of the enterprise is under the control of a committee consisting of limited & GPs. LPs may not participate in mgmt affairs until at least one year has passed since the offering is completed.
B
Which of the following terms best describes ETNS and leverage ETFs? Forms of hedge funds speculative investments alternative investments registered investment companies
B. Higher risk for higher returns
If you overheard an analyst referring to an investment's indicative value, the discussion would most likely be about: TIPS ETFs ETNs REITS
B. It's basically NAV
Inverse ETFs are least suitable for investors: wishing to take higher than normal risk. with a long time horizon. Who are bearish on the market's future who follow an active investment strategy
B. They're purchased for short-term cap gains.
Commodity contracts are available on may different types of commodities. One of those types is precious metals. Included in the definition of a precious metal would be all of the following except: silver gold diamonds Platinum
C
One of the ways that investing in a real estate limited partnership (RELP) differs from investing in a REIT is that: The DPP pays dividends, while the REIT does not. the REIT passes through at least 90% of its taxable income, while the DPP retains the income. the DPP is pass-through vehicle for both income and loss, while the REIT does not pass through losses. DPPs generally have < liquidity than REITs.
C
The term digital assets would include all of the following except: Stablecoins nonfungible tokens electronic communications such as email Cryptocurrency
C
Which of the following would be considered a precious metal? Tin Copper Platinum Lead
C
A REIT & a Direct Participation Program (DPP) are similar because they both: Pass through losses to investors are traded actively in the secondary market can be described as a limited partnership are operated by a centralized mgmt
C. REITs don't have pass through losses.
Many investors look at precious metals as a hedge against inflation. Those investors would be most likely to own: uranium lead platinum cadmium
C. Usually silver, gold, or platinum.
Your client, age 68, is in reasonably good health. After the sale of her business, the need for maintaining a $1 million whole life insurance policy is questionable. Which of the following would be a reasonable recommendation if the decision were made that the policy is no longer needed? engage in a viatical sale terminate the policy, take the cash value proceeds, and begin writing uncovered call options engage in a life settlement sale borrow the maximum cash value & invest it in an index ETF
C. Viaticals are for those with a terminal condition and a life expectancy of up to 24 months.
A client invests $100,000 in a commercial real estate venture taking a 10% interest as a limited partner. Unfortunately, the demand for new office space deteriorates and the partnership is unable to meet the mortgage payments. The end result is foreclosure with a net loss of $2 million. This would have the effect of: Requiring the client to pay his share of the loss to creditors giving the client a passive loss of $100,000 a potential claim against the agent who sold the client this program giving the client a passive loss of $200,000
D
A client who is interested in investing in commodities might look at any of the following except: Corn gold heating oil Debentures
D
Commodities contracts are available on: Pearls diamonds emeralds Platinum
D
When a client is interested in investing in commodities, you would expect to discuss: Oil-drilling programs investment-grade coins Museum-quality art Soybeans, wheat, and corn
D
Structured Products
They're built to meet specific needs. They involve structuring a debt issue to provide lower borrowing costs to the issuer while increasing potential returns to the lender. -The goal is to give investors more reasons to accept a lower interest rate on debt in exchange for certain features.
Structured Notes with Principal Protection
any structured product that combines a bond with a derivative component and that offers a full/partial return of principal at maturity.
Leveraged ETFs
attempt to deliver a multiple of the return of the benchmark index they are designated to track. A lot of volatility Most of these funds use derivative products such as options, futures, & swaps.
Inverse (Short or Bear Funds)
attempt to deliver returns that're the opposite of the benchmark index they're tracking. (Ex.- If the benchmark is down 2%, the fund's goal will be up 2%).
Are DPPs liquid?
illiquid because the majority are privately placed and investors must commit $ for a long period of time. Even those that are publicly traded do not have the liquidity of other investments, frequently requiring authorization from the GP in order to be able to sell your units.
GPs
makes decisions that bind the partnership, buys/sells property for the partnership, supervises all aspects of the business, & maintains a minimum of 1% financial interest in the partnership. Unlike LPs, who have limited liability, GPs assume unlimited liability and are therefore personally liable for all parternship business losses & debts.
DPPs (Direct Participation Programs)
one class of AIs. Many are LPs (LPs don't pay any dividends).
LPs
passive investors with no management or day-to-day decision-making responsibilities and they are not held responsible for the partnership's indebtedness.
