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Personal Finance > Chapter 13: Investing in Mutual Funds, ETFs, and Real Estate > Flashcards

Chapter 13: Investing in Mutual Funds, ETFs, and Real Estate Flashcards

1
Q

financial service organization that receives money from its shareholders and invests those funds on their behalf in a diversified portfolio of securities.

A

mutual fund

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2
Q

who manages security selection and the portfolio under a mutual fund?

A

professional money managers

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3
Q

investment company whose shares trade on stock exchanges.

A

exchange traded fund (ETF)

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4
Q

when individuals pool resources for collective benefits of all contributors, this is referred to as…

A

pooled diversification.

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5
Q
  1. diversification
  2. professional management
  3. financial returns
  4. convenience

These are objectives of what type of investment?

A

mutual funds

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6
Q
  1. management company
  2. investment advisor
  3. distributor
  4. custodian
  5. transfer agent

These are the 5 different roles needed for m…

A

utual funds.

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7
Q

is an open-end or closed-end investment company:

  1. sell unlimited number of shares
  2. investors buy and sell shares from same mutual fund
  3. price fund at current value of all securities in portfolio
A

open-end investment company

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8
Q

(total market value of all securities in fund - liabilities) / shares outstanding =

A

net asset value (NAV)

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9
Q

is an open-end or closed-end investment company:

  1. operate w/ fixed number of shares outstanding and rarely issues new shares.
  2. trading is done in an open market
  3. no stock redemptions
  4. trades occur at a discount or premium to their NAV
  5. more pressure on managers
A

closed-end investment company

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10
Q

fund set up to match performance of a certain market segment.

A

index fund

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11
Q

ETFs are traded on listed exchanges, provide shares on an investor demand basis, sales occur at the end of the day, low costs/ portfolio turnover/taxes, and it’s best for narrow, targeted investing.

A

true

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12
Q

commission when shares of open-end mutual funds are purchased.

A

load funds

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13
Q

low-load mutual funds have 2-3% commission.

A

true

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14
Q

load fund that charges as much as 7 1/4% of value of shares sold.

A

back-end load mutual funds

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15
Q

no charge to buy funds.

A

no-load funds

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16
Q

help no-load funds cover distribution/marketing expenses

A

12b-1 fees (hidden loads)

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17
Q

cost incurred to hire professional money managers to run the fund’s portfolio of investments.

A

management fees

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18
Q

redemption fees and back-end loads are indicated by…

A

“r”

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19
Q

12b-1 fees are indicated by…

A

“p”

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20
Q

redemption and 12b-1 fees are indicated by..

A

“t”

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21
Q
  1. shareholder transaction costs
  2. annual operating expenses
  3. total cost over time

These are included in the what for mutual funds?

A

fee tables

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22
Q

invests in common stock w/ above-average growth potential

A

growth funds

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23
Q

higly speculative investments that seeks large profits from capital gains.

A

aggressive growth funds

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24
Q

invest in stocks that are undervalued by the market.

A

value funds

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25
Q

emphasize current income and invest in high-yielding common stock; low risk.

A

equity-income funds

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26
Q

balanced portfolio of stocks and bonds to generate well-balanced income and capital gains; 30-40% bonds.

A

balanced funds

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27
Q

balanced funds that automatically change asset allocation from more to less equity exposure as investor ages.

A

life-cycle (target-date) funds

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28
Q

seeks balanced return made of current income and long-0term gains, but more emphasis on capital gains.

A

growth-and-income funds

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29
Q

invest in various kinds of fixed-income securities; income = main focus.

A

bond funds

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30
Q

portfolio of short-term money market instruments.

A

money market mutual funds

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31
Q

portfolio of stocks/bonds equivalent to those in a market index.

A

index funds

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32
Q

restricts investments to a particular sector of the market; capital gains = goal.

A

sector funds

33
Q

includes only socially responsible companies in portfolio.

A

socially responsible funds (SRFs)

34
Q

invests exclusively in foreign securities.

A

international funds

35
Q

spreads investors’ money across different types of markets.

A

asset allocation funds

36
Q

allows fund shareholders to funnel fixed amounts from paycheck or bank account into mutual funds.

A

automatic investment plans

37
Q

deals w/ dividends and other distributions that funds pay to shareholders.

A

automatic reinvestment plans

38
Q

automatically receive fixed amount monthly or quarterly.

A

systematic withdrawal plan

39
Q

change from one fund to another.

A

conversion privileges

40
Q

funds offered by same company.

A

fund families

41
Q

funds set up plans and handle all administrative details so shareholders can take full advantage of available tax savings.

A

retirement planning

42
Q

you must determine your investment objectives for using funds.

A

true

43
Q
  1. attractive returns
  2. tolerable risk exposure
  3. acccumulate capital
  4. speculate with your money
  5. conserve capital

These are objectives of…

A

funds

44
Q

ideal funds offer max capital growth when price rises, complete protection against capital loss when price falls, and high levels of current income always. Does a fund like this exist?

A

no

45
Q

each fund has its own objective, style of operation, and range of services.

A

true

46
Q

contains information on objectives, portfolio composition, management, and past performance.

A

profile (prospectus)

47
Q

what process helps to dwindle down fund options to 2-3 types of investments based on their objectives, risk tolerance, storehouse of value, management fees, and other fees/costs?

A

elimination process

48
Q

to further the elimination process, your should assess the fund’s performance over the last 5-7 yrs, type of return, dividends, capital gains, and level of stability.

A

true

49
Q

if you stick to no-load or low-load mutual funds, you will yield….

A

greater returns.

50
Q

what are the 3 types of returns from mutual funds (and investments in general)?

A
  1. dividend income
  2. capital gains
  3. change in share price
51
Q

show variability in EFTs total returns based on the underlying index.

A

R^2 statistical measure

52
Q

to estimate future performance of a ETF or mutual fund, look at past performance and consider the future direction of the whole market.

A

true

53
Q

what is the formula for when you buy a funds?

A

investment policy + management team

54
Q

homes, raw land, and any type of income-producing property.

A

real estate

55
Q

what is formula for the cash flows from real estate?

A

rent + depreciation + taxes + future sales price

56
Q

what is the key determinant of returns on estate investments?

A

financial leverage (borrowing)

57
Q

speculating in raw land is risky, but if you do it you should invest in areas of potential population growth or real estate demand.

A

true

58
Q

gross rental income - all operating expenses =

A

annual net operating income (NOI)

59
Q

expected annual rate of return on property.

A

cap rate

60
Q

office buildings, industrial space, warehouses, retail space, and hotels constitute…

A

commercial properties

61
Q

homes, apartments, and multifamily buildings constitute…

A

residential properties

62
Q

the percentage of available space rented over the year is referred to as the…

A

occupancy rates.

63
Q

closed-end investment company that invests in real estate and RE mortgages.

A

real estate investment turst (REIT)

64
Q

what are the 3 types of REITs?

A
  1. equity
  2. mortgage
  3. hybird
65
Q

special-purpose syndicates organized to invest in RE.

A

real estate limited partnerships (LPs) OR LLCs

66
Q

mike has decided to purchase a real estate property that is expected to generate a new operating income of $63,000/yr. with a 9% cap rate, what is the property’s estimate value?

A

$700,000

67
Q

the most attrative REITs to income-oriented investors are…

A

mortgage REITs.

68
Q

a fund that’s structured to match the performance of a certain market segment is known as an index fund.

A

true

69
Q

do all mutual funds always charge a management fee?

A

yes

70
Q

the current market value of all securities offered by a mutual fund, less any liabilities, on a per-share basis is known as the fund’s…

A

net asset value

71
Q

what funds invest in tax-exempt securities?

A

municipal bond funds

72
Q

service offered by mutual funds that help an investor earn compound interest on their investments. this is called?

A

automatic reinvestment plan

73
Q

having money taken at regular intervales form your paycheck and put into a mutual fund is an example of an automatic investment plan.

A

true

74
Q

what fund combines some of the operating characteristics of an open-end fund with some of the trading characteristics of a closed-end fund?

A

ETFs

75
Q

carlos holds a portfolio of stocks and bonds. he is planning to buy a real estate property worth $150,000. he can use financial leverage to make this purchase by taking a personal loan worth $100,000 and selling bonds worth $50,000 form his portfolio.

A

true

76
Q

adding real estate to your investment portfolio increases…

A

investment diversity.

77
Q

deprecaition gives the property owner an allowance for the decline the physical condition of the real estate over time.

A

true

78
Q
A

Personal Finance (9 decks)

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