SIE STC Ch. 9
Which of the following often provides capital to start-up businesses?
Private Equity Funds
Which of the following descriptions characterizes leveraged exchange-traded funds (ETFs)?
They are designed to deliver a multiple of the performance of an index or other benchmark
An equity inverse exchange-traded fund (ETF) is most similar to: AA real estate investment trust (REIT) BBuying on margin CAn equity mutual fund DSelling stock short
D) Selling Stock Short
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
An investor with an investment objective of speculation wants to purchase a security that will increase by the same percentage as a decline in the S&P 500 Index. Which of the following securities should be recommended? AAn inverse exchange-traded fund (ETF) BA leveraged exchange-traded fund (ETF) CA leveraged inverse exchange-traded fund (ETF) DAn exchange-traded fund (ETF)
An inverse ETF is designed to deliver the opposite of the performance of an index or other benchmark. An inverse ETF based on the S&P 500 Index seeks to deliver the opposite performance of that index. For example, if the S&P 500 rises by 1%, an inverse ETF would decrease by 1%, and if the S&P 500 falls by 1%, the inverse ETF would increase by 1%.
Which of the following statements concerning ETFs is TRUE? AThese funds are priced once per day. BThese funds' values may fluctuate throughout the trading day. CManagers of these funds tend to trade individual portfolio positions frequently. DThese funds tend to have very high portfolio turnover.
B) These funds' values may fluctuate throughout the trading day.
If a REIT generates at least 75% of its income from rents or mortgage interest, and pays out at least 90% of its income to the shareholders, for tax purposes the income distributed by the REIT will be taxable to: AThe REIT and not the shareholders BThe shareholders and not the REIT CBoth the shareholders and the REIT DNeither the shareholders nor the REIT
B) To qualify as a REIT, it must receive no more than 25% of its revenue from subsidiary (non-real estate) activities and must be structured and established as a trust. Also, the REIT must distribute a minimum of 90% of its income. Shareholders are responsible for paying taxes on the income distributed by the REIT. This income is treated as a nonqualifying dividend for tax purposes.
Which of the following is NOT a type of direct participation program (DPP)? AS Corporation BC Corporation CGeneral partnership DLimited partnership
B). Direct participation programs come in many different forms, including S Corporations, general partnerships, and limited partnerships. However, C Corporations do not offer flow through taxation.
In a direct participation program, which party is the last to be paid in a liquidation? ASecured creditor BGeneral creditor CGeneral partner DLimited partner
C). For the dissolution of a direct participation program or limited partnership, the priority of claims on assets is secured creditors, then general creditors, then limited partners, and finally general partners.
Regarding ETFs, which of the following statements is TRUE? AETFs are considered hedge funds by the SEC. BETFs may only hold equity positions. CETFs grow tax-deferred. DTypically, ETFs may be sold short.
D) Typically, ETF's may be sold short
Which of the following securities are based on the credit rating of the issuer? AAn exchange-traded fund (ETF) BA mutual fund that contains only non-investment-grade securities CA closed-end bond fund DAn exchange-traded note (ETN)
Exchange-traded notes (ETNs) are a type of unsecured debt security. ETNs carry issuer risk that is tied to the creditworthiness of the financial institution backing the note.
Which of the following descriptions characterizes inverse exchange-traded funds (ETFs)? AThey are designed to deliver the same performance as an index or other benchmark BThey are designed to deliver a multiple of the performance of an index or other benchmark CThey are designed to deliver the opposite of the performance of an index or other benchmark DThey are designed to deliver a multiple of the opposite performance of an index or other benchmark
An inverse ETF is designed to deliver the opposite of the performance of an index or other benchmark. For example, an inverse ETF based on the DJIA seeks to deliver opposite performance of that index. So, if the DJIA rises by 1%, an inverse ETF would decrease by 1%, and if the DJIA falls by 1%, the inverse ETF would increase by 1% before fees and expenses. A regular ETF is designed to deliver the same performance as an index or other benchmark. A leveraged ETF is designed to deliver a multiple of the performance of an index or other benchmark. A leveraged inverse ETF is designed to deliver a multiple of the opposite performance of an index or other benchmark.
The person who distributes interest in a DPP is referred to as the: ADistributor BSyndicator CManaging partner DLimited partner
A syndicator (underwriter) is the person that distributes interests in a direct participation program (DPP).
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: ALiquidation of a stock on the NYSE BMaturity of a DPP CLiquidation of a hedge fund DLiquidation of a private placement
A) Liquidation of a stock on the NYSE
Which of the following statements is TRUE concerning exchange-traded funds (ETFs)? AThe securities may be used by individuals to pursue a market timing strategy BThe purchase price is based on a net asset value, plus any applicable sales charges CThe securities are priced once a day based on the close of trading DTransactions in these securities must be executed in a cash account
A). The securities may be used by individuals to pursue a market timing strategy
Which of the following requires a limited partner to deposit additional funds? A) A tax credit B) An assessment C) Depreciation D) A passive loss
An assessment
Which of the following limited partnerships is the least likely to generate income? AAn existing property limited partnership BA raw land limited partnership CA government-assisted housing limited partnership DA currently producing oil and gas drilling limited partnership
B) A limited partnership that invests in raw land is not designed to generate income. Instead, raw land investments are suitable for investors who are seeking appreciation in the value of the property.
All of the following statements concerning hedge funds are TRUE, EXCEPT the funds: AMay engage in short selling BMust register under the Investment Company Act of 1940 if offered to U.S. residents CMay borrow funds in an attempt to boost returns DMay concentrate assets in a few positions
B) Must register under the Investment Company Act of 1940 if offered to U.S. residents
Which of the following may be subject to a capital call? A) Mutual funds B) ETFs C) DPPs D) ETNs
C) DPP's
Which of the following statements concerning hedge funds is TRUE? AThese investments are highly liquid. BThese investments must be registered with the SEC. CThese investments are typically sold to accredited investors. DThese investments may charge a maximum load of 8 1/2 %.
C) Hedge funds are typically sold to accredited investors. As a product, hedge funds can be extremely risky and illiquid.
A customer who has consistently invested in mutual funds is considering a first-time investment in a hedge fund. When comparing mutual funds to hedge funds, which of the following statements is NOT TRUE? AMutual funds are subject to more regulatory oversight than hedge funds. BHedge funds often use a higher degree of leverage than mutual funds. CMutual funds pool investors' money and manage the portfolio, whereas hedge funds manage each investor's assets separately. DMutual funds may be suitable for many customers, whereas hedge funds are generally suitable for sophisticated, wealthy investors only.
C). Mutual funds pool investors' money and manage the portfolio, whereas hedge funds manage each investor's assets separately.
A registered representative is NOT permitted to exercise discretion as it relates to which of the following investments?
DPP's
Which of the following investments generally distributes dividends and capital gains, mirrors a securities index, and can be purchased on margin? AETF BMutual fund CETN DADR
ETFs have a portfolio that generally mirrors a securities index and will distribute the dividends and capital gains that are generated in the portfolio.
Which of the following statements BEST describes exchange-traded notes (ETNs)?
ETNs are debt instruments linked to the performance of a commodity, currency, or index
Which of the following are short-term trading vehicles?
Leveraged ETF's
Which of the following is NOT a benefit of investing in a real estate investment trust (REIT)?
Passive Losses
SPDR is considered a type of: AIndex option BExchange-traded fund CMutual fund DWorld currency option
Standard & Poor's Depositary Receipt (SPDR) is a type of exchange-traded fund (ETF). It can be used to refer to a specific exchange-traded fund that tracks the S&P 500 or a group of ETFs.
In a direct participation program, which of the following parties is subject to the MOST risk in a limited partnership? AThe general partner BThe limited partner CThe Internal Revenue Service DThe attorney who acts as a legal consultant to the limited partnership
The general partner has the most risk in a limited partnership.
Which type of DPP often receives tax credits? AOil and gas BRaw land CGovernment-assisted housing DNew construction
To encourage participation, investments in government-assisted housing programs often qualify for tax credits.
