40 Questions
What type of income is generated when an investor sells a T-bill for a higher price than the original purchase cost?
Capital gain
If an investor sells a T-bill for a lower price than the original purchase cost, what type of income is generated?
Capital loss
What is the formula to calculate the quoted yield of a T-bill?
{[(Face value – Price) ÷ Price] x (365 ÷ Term to Maturity)} x 100
What is the term used to describe the profit made from selling an investment for a higher price than the original purchase cost?
Capital gain
If interest rates increase, what happens to the current market price of a T-bill?
Decreases
What is the calculation for the interest earned by Monica on her 6-month T-bill?
($10,000 - $9,850) x 3 months/6 months
What is the capital gain if Monica sells her T-bill for $9,950, having purchased it for $9,850?
$25
What is the quoted yield of Sue's 91-day T-bill, given that she purchased it for $990.13 and the face value is $1,000?
2.58%
What is the primary benefit of holding zero-coupon bonds in registered accounts?
To shelter interest income from taxes
What happens to the interest income generated by strip bonds?
It accrues annually and is taxed accordingly
Why do investors typically hold zero-coupon bonds in registered accounts?
To minimize taxes on accrued interest
What is the primary investment objective of zero-coupon bonds?
Income generation and principal stability
What happens to the interest income generated by strip bonds in non-registered accounts?
It is taxed annually
What is the face value of a zero-coupon bond at maturity?
Predetermined at issuance
What is the primary benefit of strip bonds for investors?
A single payment at maturity
Why do investors prefer zero-coupon bonds over other fixed-income securities?
They offer a stable principal value at maturity
What does Sam own and what does he think about the price?
ROBO common shares and thinks the price will fall
What is the purpose of buying a put option?
To protect against a price decrease
What is the cost of the put options that Sam purchases?
$2 per share
How does a futures contract differ from an option?
Futures contracts involve legal obligations to buy or sell
In a futures contract, what is set beforehand?
The delivery date
How can wheat farmers protect themselves against price fluctuations?
By entering into a futures contract to sell wheat
What could happen to Frank if he enters into a futures contract at $8 per bushel and the price rises to $10 per bushel?
He will incur a loss
Why is it important for a wheat farmer to enter a futures contract?
To lock in a price and protect against losses
What is the primary reason for a Dealing Representative to have in-depth knowledge about different types of investments?
To effectively match clients with suitable investments
Which lesson would be most relevant for learning about the structure of mutual funds?
Lesson 1: Building Blocks of Mutual Funds
What are mutual funds primarily composed of?
Different types of investments
Why is it important for Dealing Representatives to understand the different investment objectives of mutual funds?
To match clients with suitable investments
Based on the text, how does Lesson 5 contribute to a Dealing Representative's knowledge?
By discussing the use of derivatives
What is the approximate total duration needed to complete Unit 5: Types of Investments?
2 hours and 10 minutes
Which type of investments are used in mutual funds?
Different types of investments
What do mutual funds aim to achieve through their various holdings?
A number of different investment objectives
What is a key reason convertible bonds are considered higher risk compared to regular bonds?
Convertible bonds have a lower priority for assets in case of bankruptcy.
In what scenario does Cheryl have the option to convert her convertible bond into common shares?
When the common share price is $50 per share.
What is the primary appeal of convertible bonds to investors?
Ability to convert into common shares.
What feature do callable bonds have that allows the issuer to take a specific action?
Gives the issuer the right to buy back the bond at a specified price.
What happens if the common share price falls below the conversion price for Cheryl's convertible bond?
Cheryl can hold the bond and continue collecting coupon payments.
What is the advantage of owning a convertible bond for investors who are uncertain about a company's future performance?
Ability to convert the bond into common shares at a specified price.
Why do callable bonds offer the issuer flexibility in managing their liabilities?
Callable bonds allow the issuer to buy back the bonds.
What is a disadvantage of investing in convertible bonds compared to regular bonds?
Convertible bonds have a lower coupon rate.
Enhance your understanding of the various types of investments in the financial markets, including fixed income, money market instruments, equities, and derivatives. Explore how these investment types are utilized within mutual funds to best match clients with suitable investments.
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