Series 7 Unit 8 Flashcards

Questions and Answers

Which of the following statements regarding the Government National Mortgage Association (GNMA) is true?

GNMA originates loans to home buyers and sells the mortgage-backed securities to private lending institutions.

Lending institutions apply to GNMA for funds to lend to residential home buyers.

Private lending institutions approved by GNMA originate eligible loans and sell the mortgage-backed securities to investors. (correct)

GNMA approves residential mortgages for home buyers.

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?

ABC is an open-end fund and GEM is a closed-end fund.

GEM may be an open- or closed-end fund, and ABC is a closed-end fund. (correct)

ABC and GEM are both unit investment trusts.

Both are open-end funds.

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?

A long-term corporate bond fund.

A preferred stock fund.

A common stock fund with a high portfolio turnover.

A common stock fund with a low portfolio turnover. (correct)

When a mutual fund registers with the SEC under the Investment Company Act of 1940, it has the option to elect to be?

Diversified or nondiversified. Signup and view all the answers

In the event of an emergency, federal law would require redemption proceeds to be forwarded within how many days?

7 days. Signup and view all the answers

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?

487.805 Signup and view all the answers

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?

No more than $300 million can be invested in the voting shares of any single issuer. Signup and view all the answers

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.

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.