Questions and Answers
Which of the following statements regarding the Government National Mortgage Association (GNMA) is true?
A customer has been following several investment company quotes. She notices that the GEM Fund has a net asset value (NAV) of $12 and a public offering price (POP) of $12.50, and that the ABC Fund has an NAV of $11.50 and a POP of $10.98. What should she conclude?
If a married couple with a long-term growth objective is considering a mutual fund, and they are concerned about the fund's annual expenses, which fund should they select?
When a mutual fund registers with the SEC under the Investment Company Act of 1940, it has the option to elect to be?
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In the event of an emergency, federal law would require redemption proceeds to be forwarded within how many days?
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An investor purchases $5,000 of the Quality Performance Balanced Fund at a POP of $10.00. Approximately how many shares did this investor acquire?
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The North American Perpetual Growth Fund's prospectus states that the fund meets the qualifications of a diversified management company. If the fund has net assets of $1 billion, what is the maximum amount that can be invested in the voting shares of any single issuer?
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Study Notes
Government National Mortgage Association (GNMA)
- GNMA does not originate loans but guarantees mortgage-backed securities sold by approved private lending institutions.
- Lending institutions do not apply to GNMA for funds; instead, they need GNMA's approval to sell certain mortgage securities.
- GNMA is focused on making residential mortgages available through guaranteed investment, rather than direct lending.
Mutual Fund Pricing and NAV
- NAV of a fund represents the per-share value based on its assets minus liabilities.
- Public Offering Price (POP) reflects the price at which shares are sold to investors and includes any sales charges.
- Open-end funds' prices are always above their NAV, contrasting with the case of closed-end funds.
Investment Fund Characteristics
- Common stock funds with lower portfolio turnover generally incur lower annual expenses, making them suitable for long-term growth investors.
- Balanced, diversified funds can be registered as either diversified or nondiversified under the Investment Company Act of 1940.
Redemption and Order Processing
- Federal law mandates that mutual fund redemptions must be processed within 7 days of the request.
- The forward pricing rule affects shares acquired based on the next determined NAV or POP after the transaction time.
Diversification Rules
- For a diversified management company fund with $1 billion in net assets, investments in any single issuer's voting shares are capped at $300 million to comply with regulations.
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Description
Test your knowledge on the Government National Mortgage Association (GNMA) with these flashcards. This quiz covers key concepts and statements related to GNMA, important for understanding mortgage-backed securities. Perfect for Series 7 exam preparation.