Investments Flashcards
(28 cards)
What are the three main focus areas of Section II.A in CIMA?
1) Features of investment vehicles, 2) Evaluation concepts, 3) Trends in usage.
Name three core texts for Investment Vehicles in CIMA.
Investment Advisor Body of Knowledge (Dobbs), Investment Planning Answer Book (Jay Shein), Investments (Bodie, Kane, Marcus).
What is an Exchange Traded Product (ETP)?
A derivative security that trades on a national exchange and tracks assets like commodities, currencies, or equity indices.
What are the types of ETPs?
Exchange-Traded Funds (ETFs), Exchange-Traded Notes (ETNs), Exchange-Traded Commodities (ETCs).
List two benefits and two drawbacks of ETPs.
Benefits: Diversification, Low Cost. Drawbacks: Tracking error, Limited control.
What are the advantages of ETFs?
Continuous trading, margin capability, lower cost, tax efficiency.
How are ETFs typically taxed?
Tax efficient, shareholders taxed on capital gains at sale, dividends taxed as income or capital gains depending on holding period.
What is an Exchange-Traded Note (ETN)?
An unsecured debt security issued by a bank; no coupon, trades on exchanges.
What is the NAV formula?
NAV = (Market Value of Assets - Liabilities) / Shares Outstanding.
What are key characteristics of open-ended mutual funds?
Continuous availability, professional management, diversification, daily NAV.
What are benefits of open-ended mutual funds?
Diversification, professional management, affordability, liquidity, transparency.
What is a drawback of mutual fund taxation?
Shareholders pay taxes on internal gains even if shares are not sold.
How do closed-end funds differ from open-end funds?
CEFs raise fixed capital via IPO and trade on exchanges; may trade at discount or premium to NAV.
What are advantages of closed-end funds?
Higher yield (with leverage), discount buying opportunities.
What is a Separately Managed Account (SMA)?
A customized, professionally managed investment portfolio with direct security ownership.
What are benefits of SMAs?
Customization, direct ownership, active management.
What is a drawback of SMAs?
Higher fees and minimums, performance depends on manager.
What is a fixed annuity?
Insurance product offering guaranteed income and principal protection.
What is a variable annuity?
An annuity where returns depend on underlying investment subaccounts.
How are gains from variable annuities taxed?
Gains taxed as ordinary income; early withdrawals incur penalties.
What is a Limited Partnership (LP)?
Structure with general partners managing and limited partners investing with limited liability.
What are advantages and drawbacks of LPs?
Advantages: Limited liability, tax pass-through. Drawbacks: Less control, illiquidity, fees.
What is a Master Limited Partnership (MLP)?
Publicly traded LP that distributes 90%+ of cash flow; offers liquidity.
