Unit 5 (Quiz 1)

When speaking to a customer about exchange-traded (ETFs), a registered representative could make which of the following correct statements? A. ETFs can be purchased only by paying a sales charge added to the NAV. B. ETFs cannot be purchased using traditional limit or stop orders C. ETFs cannot be bought on margin D. ETFs have different potential tax consequences than mutual funds

D. ETFs have different potential tax consequences than mutual funds The potential tax consequences of owning an ETF can be different than those experienced when owning mutual funds.

A limited partnership (LP) A. has two types of partners B. is run by investors who are the limited partners C. has one type of partner D. is limited and can have only investors and no partners

A. has two types of partners LPs have two type of partner: general and limited. There must be at least one of each. It is the general partner who is responsible for running the partnership entity.

Each of the following is defines as an investment company except A. An open-end management company B. A closed-end management company C. Real estate investment (REITs) D. Fixed and nonfixed unit investment trusts (UITs)

C. Real estate investment trust (REITs)

Limited partnerships A. must exist in perpetuity B. must end on a predetermined vote with no exceptions C. must be end on a predetermined date or can be dissolve earlier by vote D. can either exist in perpetuity or be designated to end a specific date

C. must end on a predetermined date or can be dissolved earlier by vote Unlike with a corporate charter, which has corporate entities existing in perpetuity, limited partnerships are scheduled to end on a predetermined date. The exception to ending on that predetermined date would be when all partnerships assets are sold earlier than anticipated and a vote to dissolve the partnership occurs.

Which of the following is not a characteristic associated with hedge funds? A. They are regulated under the Investment Company Act of 1940 B. They might speculate in commodities and currencies C. They can invest in derivative products D. They can have highly leveraged portfolios

A. They are regulated under the Investment Company Act of 1940 Hedge funds are considered unregulated (not highly regulated). They employ strategies and invest in such a way that they are not considered suitable for anyone but accredited investors. These strategies might include utilizing derivative products, commodities, and currencies, margin (borrowing) trading, and selling short.

Hedge funds attempt to A. achieve high returns and are, therefore, associated with high-risk investments B. mitigate all risk using hedging as an investment strategy C. achieve modest returns and are, therefore, associated with being low-risk investments D. mitigate all risks making them suitable for most investors

A. achieve high returns and are, therefore, associated with high-risk investments While hedging is the practice of attempting to limit or mitigate risk, most hedge funds specify generating high returns as their primary investment objective. In attempting to achieve these returns, they tend to entail a substantial amount of risk for those who own shares.

All of the following are true of REITs except A. they are registered as investment companies B. they can be registered under subchapter M C. they can pass through gains but not losses D. listed REITS are liquid investments

A. they are registered as investment companies REITs have many similarities to investment companies but are not classified as an Investment Company Act of 1940

An investor makes several statement regarding what they know about exchange-trade funds (ETFs). All of them are correct except A. I'll be able to buy or sell them throughout the trading day like stocks trading on an exchange B. I can't buy them on margin because they represent an entire basket of stocks like mutual funds do C. I can expect them to have lower expenses and operating costs than mutual funds D. I won't have to pay any sales charges as I do with mutual funds, but I will have to pay commissions.

B. I can't buy them on margin because they represent an entire basket of stocks like mutual funds do. Though mutual funds cannot be purchased on margin, ETFs can be. They can be traded throughout the trading day with purchases and sales commissionable transaction. They tend to have low expense ratios.

For hedge funds organized as private investment partnerships, which of the following is true? A. They will allow unlimited numbers of investors and require large or minimum initial investments B. They can limit the number of investors and require large or minimum initial investments C. They will allow unlimited numbers of investors and allow small initial investments D. They can limit the number of investors and typically have no minimum initial investment requirement

B. They can limit the number of investors and require large or minimum initial investments. Hedge funds organized as private investment partnerships typically limit the number of investors and require large minimum initial investments. This would be the opposite of a regulated investment company, such as an open-or closed-end fund company.

Limited partnerships sold publicly via prospectus offering would be expected to have A. a small group of investors, each contributing a small sum B. a large group of investors, each contributing a small sum C. a small group of investors, each contributing a large sum D. a large group of investors, each contributing a large sum

B. a large group of investor, each contributing a small sum Unlike partnership sold as private placements, those limited partnerships sold through a public offering via a prospectus would consist of a large group of investors (partners), each contributing a small investment sum to the partnership

Hedge funds A. are nonregulated but still require SEC registration B. are regulated under the Investment Company Act of 1940 with no SEC registration required C. are not regulated under the Investment Company Act and no Securities and Exchange Commission (SEC) registered is required D. are highly regulated, starting with the requirement to be registered with the SEC

C. are not regulated under the Investment Company Act and no Securities and Exchange Commission (SEC) registered is required. Hedge funds normally do not require registered with the SEC as they are often sold under Reg D. Furthermore, they do not come under the Investment Company Act of 1940.

Exchange-traded funds (ETFs) A. pass on capital gains to investor annually but have low expense ratios B. can be bought and sold throughout the trading day and have high expense ratios C. can be bought and sold throughout the trading day and have low expense ratios D. pass on capital gains to investors annually and have high expense ratios

C. can be bought and sold throughout the trading day and have low expense ratios Advantages of Exchange-traded funds (ETFs) are that they have low operating costs and expense ratios and can be bought and sold throughout the trading day. While they can pass on capital gains to investor like mutual funds, they rarely do.

Obtaining the financial status of the customer, and whether or not they meet income and net worth criteria, could be required for all of the following except A. equipment leasing limited partnerships B. real estate limited partnerships C. real estate investment trusts (REITs) D. oil and gas limited prices

C. real estate investment trusts (REITs) Real estate investment trusts (REITs) do not require proof of financial status for investment. Limited partnerships and other DPPs can, particularly those that are offered privately (as private placements) as opposed to those that are offered publicly (by public offering)

A REIT can avoid being taxed as a corporation would buy A. receiving less than 50% of its income from real estate and distributing 50% or more of its net investment income to its shareholders B. receiving less than 75% of its income from real estate and distributing 100% of its net investment income to its shareholder C. receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders D. receiving 100% of its income from real estate and distributing 90% or more its net investment income to its shareholders.

C. receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders Under the guidelines set by the Internal Revenue Code, a REIT can avoid being taxed as a corporation by receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholder.

All of the following are rights of limited partners in a DPP except A. to inspect all books and records B. to sue the general partners C. to vote on business objectives D. to make day-to-day business decision

D. to make day-to-day business decision Limited partners (LPs) have a number of rights, among them, to vote on business objectives, to inspect all books and records, and if the GPs are not acting in their best interest, to sue them. Making day-to-day business decisions is the responsibility of the GPs, and if an LP were to do so, they could lose their standing as an LP.