Unit 17: Alternative Investments and Other Assets

Someone other than the investor is doing the management.

A feature common to all passive real estate investing is

Principal repayment on partnership debt

All of the following would flow through as a loss to limited partners except A) accelerated depreciation. B) depletion. C) interest payments on partnership debt. D) principal repayment on partnership debt.

the seller of the viatical policy was someone who was terminally ill

Although the terms are frequently used synonymously, historically, viatical settlements differed from life settlements in that

Alternative investments

Complex investments that are hard for most people to understand. Includes ETNs, Leveraged ETFs, and new financial derivatives.

Bullish

For a customer interested in buying an inverse exchange-traded fund (ETF) tracking the performance of the Standard & Poor's 500 Index, which of the following market views would make that purchase most inappropriate?

ETNs

If you overheard an analyst referring to an investment's indicative value, the discussion would most likely be about

The face amount

In a life settlement, the seller receives more than the premiums paid into the policy but less than

III, I, II

In discussing a direct participation program with your customer, rank the following items in order of importance from most to least. I. Tax write-offs II. Liquidity and marketability III. Potential for economic gain

Derivatives and debt

In order to achieve its goals, an inverse ETF uses

consumer durables

Investing in commodities could involve investing in any of these EXCEPT

there are circumstances under which losses from active real estate investing can be deducted against ordinary income

One way in which active and passive real estate investing differ is that

Illiquidity Risk of audit Depreciation recapture

What are some disadvantages of investing in a DPP?

Principal Risk Volatility Exposure to foreign markets High cost Lack of income

What are some disadvantages of investing in commodities?

ETNs are issued by financial institutions; therefore, I should be concerned about the credit worthiness of the issuer.

Your customer is asking if either exchange-traded funds (ETFs) or exchange-traded notes (ETNs) might be suitable investments for his portfolio. The customer makes several statements regarding his understanding of the products, but only one of them is accurate. Which is it?

ETNs

A client with limited assets seeking additional income in retirement would probably find which of the following investment choices to be the least suitable? a. ETNs b. ETFs c. Insured bank CDs d. Treasury bonds

$0

A high net worth client of yours invested $250,000 into an oil and gas limited partnership drilling program for which she received a 10% interest in the project. Unfortunately, after 2 years of drilling without success, the project was foreclosed with outstanding debt of $4 million. Your client is liable for

Others manage the investment Flow-through of income and certain expenses Limited liability

What are some advantages of investing in a DPP?

Hedge against inflation Diversification Potential returns

What are some advantages of investing in commodities?

Hedge against inflation Rental income - portion of which may be tax-advantaged High leverage Not generally correlated with stock market returns Offers Section 1031 tax-free exchanges

What are some advantages of investing in real estate?

Illiquidity Potential loss if not rented each month High leverage is disadvantage in down market May not have skills to manage property

What are some disadvantages of investing in real estate?

there are no unusual risks associated with these funds other than those one would incur with any index tracking fund

Your customer is interested in a leveraged fund and makes the following statements about leveraged funds to you. All of the statements regarding leveraged funds are true EXCEPT