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SIE > Unit 5 Other Investment Vehicles > Flashcards

Unit 5 Other Investment Vehicles Flashcards

1
Q

This is a specific type of education savings account available to investors. This allows money saved to be used for qualified expenses for K-12 and post secondary education.

A

529 plan

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2
Q

You can only contribution to a 529 plan up to _____ a year.

A

$10,000

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3
Q

A 529 plan is a ___ ____ security.

A

Municipal fund

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4
Q

Prepaid tuition plans are used for which type of residents?

A

State residents

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5
Q

Savings plans are used for which type of residents?

A

Residents and non residents

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6
Q

This type of plan allows resident donors to lock in current tuition rates by paying now for future education costs.

A

Prepaid plans

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7
Q

This type of plans allows donors to save money to be used later for education expenses.

A

Savings plan

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8
Q

Does he donor of a 529 plan need to be related to the student?

A

No

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9
Q

Can a donor contribute to her own 529 plan?

A

Yes

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10
Q

With a 529 plan, a donor can invest a ___ ___ or make ___ ____.

A

Lump sum or make periodic payments

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11
Q

What is included in qualified education expenses?

A

Tuition, room and board, books

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12
Q

Withdrawals for nonqualified expenses will be subject to ____ and a ___ ___ ____.

A

Taxes and a 10% penalty.

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13
Q

Contributions are considered to be what within 529 plans?

A

Gifts

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14
Q

Contributions are made with ___ ____ dollars, and earnings accumulate on a ___ ____ ____.

A
  1. After tax dollars

2. Tax deferred basis

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15
Q

Withdrawals from 529 plans are ____ _____ at the federal level.

A

Tax free

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16
Q

Most states permit tax free withdrawals as long as the donor has opened an ___ ___ plan.

A

In state plan

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17
Q

Is there tax consequences if a beneficiary does not need the funds and the donor changes the beneficiary?

A

No

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18
Q

True or False: If the donor changes the beneficiary of the plan, it must be to a family member of the original beneficiary.

A

True

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19
Q

Overall contribution levels within 529 plans can vary from ___ to ____.

A

State to state

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20
Q

Who’s control does the assets within a 529 plan belong to?

A

The donors

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21
Q

There are no ___ ____ on making contributions to a 529 plan.

A

Income limitations

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22
Q

A 529 plan allows for ____ payments if desired.

A

Monthly

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23
Q

Rollovers can occur for 529 plans how often?

A

Once every 12 months

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24
Q

List the following for a Savings Plan:

  1. Inflation Hedge
  2. Outpace Inflation
  3. School/System
A
  1. Maybe, depends on performance
  2. Maybe, depends on performance
  3. Any
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25
Q

List the following for a Prepaid Plan:

  1. Inflation Hedge
  2. Outpace Inflation
  3. School/System
A
  1. Yes
  2. No
  3. Specific
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26
Q

This provides other government entities, such as cities, counties, school districts, or other state agencies, with a short term investment vehicle to invest funds.

A

Local government investment pools (LGIP)

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27
Q

This is usually formed as a trust in which municipalities can purchase shares or units in the investment portfolio.

A

LGIP

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28
Q

LGIPs are not a ___ ___ fund.

A

Money Market

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29
Q

An LGIP may be permitted to maintain a fixed ____ ____.

A

$1 NAV

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30
Q

LGIPs are not required to registere with the ____

A

SEC

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31
Q

LGIPS fall within ____ ____.

A

Government exemption

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32
Q

Guidelines for LGIPs are vary from ___ to ____.

A

State to state

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33
Q

There is no ____ with LGIPs.

A

Prospectus

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34
Q

LGIPs do have ____ ____ which include statements, investment policy and operating procedures. Also, management fees.

A

Disclosure documents

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35
Q

These are tax deferred savings accounts for individuals with disabilities and their families.

A

ABLE accounts

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36
Q

Who is the account owner for an ABLE account?

A

The beneficiary

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37
Q

Income earned by an ABLE account is ___ ___.

A

Not taxed

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38
Q

The ABLE act limits eligibility to individuals with significant disabilities where the age of onset of the disability occurred before turning age __.

A

26

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39
Q

True or False: One does not need to be the age of 26 to be eligible to establish an ABLE account. One could be over the age of 26 as long as the onset occurred before the age of 26.

A

True.

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40
Q

If an individual meets the age requirement and is also receiving ___ or ____ they are automatically eligible for an ABLE account.

A

SSI or SSDI

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41
Q

True or False: A person can have 2 ABLE accounts.

A

False. One one ABLE account per person is allowed

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42
Q

Contributions to an ABLE account can be made by

A

Anyone

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43
Q

Contributions to ABLE accounts are made with ___ ___ dollars and is __ __ ___ for purposes of federal income taxes.

A
  1. After tax

2. Not tax deferred

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44
Q

Some states do allow ___ ___ ___ for ABLE accounts for contributions.

A

Income tax deductions

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45
Q

Contributions to ABLE accounts are ____ to a specific dollar amount per year, but can be adjusted.

A

Limited

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46
Q

This is an unincorporated association of two or more individuals.

A

Partnership

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47
Q

A partnership must complete a ___ ____ stating which of the partners can make transactions for the account.

A

Partnership agreement

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48
Q

An ___ ____ ___ must be obtained each year if any changes have been made.

A

Amended partnership agreement

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49
Q

In this partnership, all partners in the business have responsibility to manage the business. Ownership may be unequal, and specific responsibilities may be assigned to a specific partner.

A

General partnership

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50
Q

There is ___ ____ ____ in a partnership

A

No liability protection

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51
Q

A partnership is a __ ____ entity.

A

Tax reporting

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52
Q

A partnership is not a __ ___ entity.

A

Tax paying

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53
Q

Who pays taxes in partnerships?

A

The owners

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54
Q

These are unique forms of business that raise money to invest in real estate, oil and gas, equipment leasing, and other similar business ventures.

A

Direct participation programs (DPP)

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55
Q

DPPS are ___ ____ directly as a corporation.

A

Not taxed

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56
Q

____ are taxed from DPPS.

A

Owners/investors

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57
Q

There is ___ ____ ____ for an investor to divest interest in a DPP which makes DPPs highly illiquid.

A

No secondary market

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58
Q

The most common type of DPP is

A

Limited partnerships (LP)

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59
Q

This is an investment opportunity that permits the economic consequences of a business to flow or pass through to investors.

A

LP

60
Q

LP are ___ ___ ___ entities.

A

Not tax paying

61
Q

For LPs, the ____ would have the responsibility to report to IRS.

A

Investors

62
Q

LPs have a ___ ___ ___.

A

Lack of liquidity

63
Q

The ___ ____ for LP interests is extremely limited.

A

Secondary market

64
Q

Interest in LP is not ___ ____.

A

Freely transferrable

65
Q

An LP has which two types of partners?

A

General and limited

66
Q

Property in LPs are usually held in the form of a ___ ___ ____, which provides limited liability and no management responsibilities to the limited partners.

A

Tenants in common (TIC)

67
Q

These type of partners have unlimited liability. They can be held personally responsible for business losses and debts. Their role is to manage all aspects of the partnership and have a fiduciary responsibility to use the invested capital in the best interest of the investors.

A

General partners (GP)

68
Q

GPs make decisions that ___ ___ the _____.

A

Legally bind the partnership

69
Q

GPs ___ and ____ property for the partnership

A

Buy and sell

70
Q

GP are not allowed to ____ ____ with the business, ____ money from the partnership or ____ the partnership funds.

A
  1. Compete personally
  2. Borrow
  3. Comingle
71
Q

These types of partners have limited liability. They cant lose more than they invested. They have no business management responsibilities and they should participate in any day-to-day management of the business. They can lose their limited liability status and be considered a GP.

A

Limited partners

72
Q

Limited partners have the ___ ___ ____ on overall business objectives, receive cash distributions, capital gains and tax deductions generated by the business. Can inspect all books and record and can sue the GP.

A

Right to vote

73
Q

What are the advantages of Limited partners?

A
  1. An investment managed by others (GPs)
  2. Limited liability (can only lose invested amount)
  3. Flow through of income and certain expenses
74
Q

LPs may be sold through ____ ____ or ____ ____.

A

Private placement or public offerings

75
Q

If an LP is sold ____, investors receive a ___ ___ memorandum for disclosure.

A
  1. Privately

2. Private placement

76
Q

Private placements involve a ___ ___ of limited partners, each contributing a ____ ____ of money.

A
  1. Small group

2. Large sum

77
Q

In private placement, investors must be

A

Accredited with substantial investment experience

78
Q

In a ____ ____, LPs are sold by prospectus for disclosure.

A

Public offering

79
Q

In a public offering distribution, a _____ number of limited partner each make a relatively ___ capital contributions.

A
  1. Larger

2. Small

80
Q

___ ____ for LPs do not require the investors to be accredited.

A

Public offerings

81
Q

LPs are liquidated on a _____ date specified in the partnership agreement.

A

Predetermined

82
Q

Early shutdown of an LP may occur if the partnership ____ or ____ of its assets or if a decision is ____ on.

A
  1. Sells or disposes

2. Voted

83
Q

What is the order a GP must settle accounts when a dissolution occurs?

A
  1. Secured lenders
  2. Other creditors
  3. LPs
  4. GPs
84
Q

Real estate programs can invest in

A

Raw land, new construction or existing properties

85
Q

What are the benefit opportunities for real estate programs?

A
  1. Capital growth
  2. Cash flow (income)
  3. Tax deductions
  4. Tax credits
86
Q

Raw land programs would offer a chance for

A

Capital appreciation but would not provide current income

87
Q

Existing property would be suitable for an investor who desires

A

Current cash flow, but it likely offers less capital appreciation

88
Q

This program includes speculative or exploratory (wildcatting) programs to locate new oil deposits (Very high risk) and income programs that invest in producing wells (less risk)

A

Oil and gas programs

89
Q

What are the tax advantages of Oil and Gas programs?

A
  1. Intangible drilling costs (IDC) - Costs associated with drilling such as wages, supplies, fuel and insurance that have no salvage value when the program ends.
  2. Depletion allowances - tax deductions that compensate the program for the decreasing supply of oil or gas after it is taken out of the ground and sold
90
Q

____ ____ ___ are associated with items that have some salvage value at the end of the program, such as drilling equipment.

A

Tangible drilling costs

91
Q

Oil and gas programs would be suitable for an investor who desires

A

Capital appreciation but would not provide current income

92
Q

An income program would be suitable for an investor who desires

A

Current income and not capital appreciation

93
Q

These are created when DPPs purchase equipment leased to other businesses.

A

Equipment leasing program

94
Q

Investors receive ____ from lease payments, as well as a _____ ____ of write offs from operating expenses, interest expense and depreciation of the actual equipment owned by the program.

A
  1. Income

2. Proportional share

95
Q

What is the primary objective of an equipment leasing program?

A

Tax sheltered income

96
Q

What were LPs called previously?

A

Tax shelters

97
Q

The structure of an LP allows for

A

The investor to receive income that is sheltered from taxes

98
Q

DPPs use ____ ____ to reduce taxable income.

A

Depreciation and depletion

99
Q

Deductions from LPs are not ___ ___ ___. They reduce taxable income without affecting cash flow.

A

Actual cash costs

100
Q

Income from an LP is called ____ ____ and is added to ordinary income for tax purposes.

A

Passive income

101
Q

Losses from an LP are called _____ _____. They offset passive income only.

A

Passive losses

102
Q

____ ____ are not a type of income.

A

Tax credits

103
Q

____ ____ may be used to offset income taxes directly.

A

Tax credits

104
Q

What are the risks to limited partners?

A
  1. Liquidity - No secondary market. Needs permission to transfer from the GP.
  2. Audit/recapture of tax benefit - If IRS disallows a prior tax benefit, the consequences will fall to the limited partners.
105
Q

This is a company that manages a portfolio of real estate, mortgages or both to earn profits for shareholders.

A

REIT

106
Q

REITS are not ____ ____.

A

Investment companies, neither open nor closed end

107
Q

Shareholders of REITS receive ____

A

Dividends

108
Q

REITs normally

A
  1. Own commercial property (equity REITS)
  2. Own mortgages on commercial property (mortgage REITs)
  3. do both (hybrid REITs)
109
Q

REITS are organized as ____ in which investors buy shares or certificates of beneficial interest, either on stock exchanges or in the OTC market.

A

Trusts

110
Q

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 shareholders under what guidelines?

A

Subchapter M of the IRC

111
Q

Many REITs are registered with the ____ and are therefore subject to all disclosure requirements.

A

SEC

112
Q

These type of REITS are registered with the SEC.

A

Public REITs

113
Q

These type of REITs are not registered with the SEC.

A

Private REITs

114
Q

Many REITs are traded on a ___ ____.

A

Stock exchange

115
Q

REITs traded on a stock exchange are known as

A

Exchange traded or listed REITs

116
Q

Many unlisted REITS are ____ ___ ____ and have far less ____ versus a listed product.

A
  1. Difficult to price

2. Liquidity

117
Q

What are the 5 most important things to remember about REITs?

A
  1. Owner holds an undivided interest in a pool of real estate
  2. May or may not be registered
  3. May or may not be listed
  4. Not investment companies
  5. Offer dividends and gains to investors but do not pass through losses like LPs (Not considered DPPs)
118
Q

These are organized as LPs and are sold as private placements

A

Hedge funds

119
Q

Hedge funds are similar to mutual funds but differ in that the hedge fund has more ____ in the investment strategies employed.

A

Flexability

120
Q

What is hedging?

A

The practice of attempting to limit risk

121
Q

Most hedge funds specify

A

Generating high returns as their primary investment objective

122
Q

Hedge funds are ____ managed.

A

Aggessively

123
Q

Hedge funds construct portfolios of

A

High-risk investments

124
Q

What are the common strategies of Hedge Funds?

A
  1. Highly leverage portfolios
  2. The use of short positions
  3. The utilization of derivative products (options, futures)
  4. Currency speculation
  5. Commodity speculation
  6. The investment in politically unstable international markets
125
Q

Most hedge funds are organized as

A

Private investment partnerships which limits the number of investors or requires large initial or minimum investments.

126
Q

Some hedge funds require that investors maintain the investment for a _____ ___ of ____ and to that extent they can be considered ____.

A
  1. Minimum length of time

2. Illiquid

127
Q

Minimum holding requirements for hedge funds are called

A

Lockup Provisions

128
Q

This is considered an equity security that invests in a specific group of stocks and generally does so to mimic a particular index.

A

Exchange traded fund (ETF)

129
Q

ETFs ___ an ____.

A

Tracks an index

130
Q

ETFs are similar to a ___ ___ investment company.

A

Closed end

131
Q

ETFs are ____.

A

Registered

132
Q

ETFs use ____ pricing

A

Intraday pricing

133
Q

ETFs can be purchases on ___ and ___ ____.

A
  1. Margin

2. Sold short

134
Q

Expenses of ETFs tend to be ____ when compared to mutual funds.

A

Lower

135
Q

Management fees for ETFs are ____.

A

Low

136
Q

There is ___ ___ ___ required to keep a ETFs aligned with those in the index it is intended to track.

A

Little trading activity

137
Q

With an ETF, there is ___ ____ ___ for the investor.

A

Greater tax efficiency

138
Q

With ETFs, every time there is a trade, there is

A

Commission

139
Q

ETFs are often compared to

A

Mutual funds

140
Q

These are senior, unsecured debt securities issued by a bank or financial institution.

A

Exchange traded notes (ETN)

141
Q

ETNs are backed by

A

Only the good faith and credit of the issuer

142
Q

This tracks the performance of a particular market index, but does not represent ownership in a pool of securities the way share ownership of a fund does.

A

ETNs

143
Q

What are the advantages of ETFs?

A
  1. Intraday pricing
  2. Can be bought and sold short on margin
  3. Operating costs and expenses are lower
  4. Can sometimes distribute capital gains to shareholders, but its rare. Not taxed until shares are sold
144
Q

What are the disadvantages of ETFs?

A
  1. Commissions
  2. Overtrading
  3. Market fluctuation on price
145
Q

What are the risks of ETNs?

A
  1. Does not represent ownership
  2. Do not pay interest and offer no principal protection
  3. Market risk
  4. Limit to the size of an ETN
  5. Investors can be subject to losses depending on the value of the note at maturity.
146
Q

What is the primary risk associated with ETNs?

A

Default risk and liquidity risk is also common.

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