Questions and Answers
All of the following are defined as investment companies under the Investment Company Act of 1940 EXCEPT:
What is the Net Asset Value per share of a mutual fund?
Which statements are TRUE when comparing types of management companies?
Management companies are subclassified as either:
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The term 'mutual fund' is the common name for a(n):
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An open-end management company:
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An open end fund has a Net Asset Value of $10 per share. The minimum price at which a share can be purchased is:
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The term 'publicly traded fund' is the common name for a(n):
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Which of the following terms apply to publicly traded fund shares?
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Publicly traded fund shares are:
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All of the following terms apply to publicly traded fund shares EXCEPT:
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The principal difference between an open end management company and a closed end management company is:
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A closed end fund has a Net Asset Value of $10 per share. The minimum price at which the shares can be purchased is:
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Fixed unit investment trusts are not managed; the portfolio is fixed and does not change. All of the following terms apply to fixed unit investment trusts EXCEPT:
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A variable annuity is a(n):
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Which of the following investment company securities are redeemable?
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Which of the following investment company securities is NOT redeemable?
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The term 'negotiable' describes all of the following EXCEPT:
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The purchase price of each of the following can be negotiated EXCEPT:
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Which of the following can be purchased on margin?
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Study Notes
Investment Companies Under the Investment Company Act of 1940
- An REIT (Real Estate Investment Trust) is not classified as an "investment company" under this Act because it primarily makes real estate investments rather than investing in securities.
- Types of recognized investment companies include face amount certificate companies, unit investment trusts, and management companies.
Net Asset Value Calculation
- Net Asset Value (NAV) per share is calculated as total assets minus total liabilities, divided by the number of outstanding shares.
- NAV is key for determining the price of mutual fund shares during purchases.
Management Companies Types
- Management companies are divided into open-end (mutual funds) and closed-end, with open-end funds continuously issuing and redeeming shares.
- Closed-end management companies are publicly traded and issue shares only once, trading on exchanges like other stocks.
Characteristics of Mutual Funds
- Mutual funds are a common name for open-end management companies, continuously issuing and redeeming shares.
- These funds have shares sold at the computed NAV and can involve a sales load if it is a "load" fund.
Closed-End Funds Operation
- Closed-end funds operate differently by issuing shares only once and then trading on the stock market.
- The market price for closed-end fund shares can differ from NAV, and buyers pay a commission for the trades.
Fund Share Characteristics
- Publicly traded fund shares reflect an undivided interest in securities, structured to achieve specific investment objectives.
- They involve a one-time issuance, cannot be redeemed directly from the fund, and are considered negotiable.
Investment Trusts and Annuities
- Fixed unit investment trusts are non-managed portfolios, typically of bonds, that require SEC registration.
- Variable annuities function as participating unit investment trusts, investing funds from contract holders in management companies.
Trading and Margin
- Closed-end fund shares are not redeemable with the fund and trade like stocks; the purchase involves market prices and possible commissions.
- New issues, including mutual funds and unit trusts, cannot be purchased on margin until they begin trading on an exchange.
Negotiability of Securities
- Negotiable securities include common stock, preferred stock, and other financial instruments that trade in the public markets.
- Non-negotiable securities must be purchased directly from the issuer and are redeemable only at that level, like mutual funds.
Pricing in Funds
- The purchase price for variable annuities and mutual fund shares is based on the public offering price, typically involving a sales charge.
- Unlike mutual funds, closed-end fund shares have variable pricing on the market, not linked directly to their NAV.
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Description
This quiz explores the definitions and characteristics of investment companies as outlined in the Investment Company Act of 1940. Focus is placed on understanding the differences between REITs and other types of investment companies. Test your knowledge on the classifications and regulations surrounding real estate investments.