Other Investment Types

Question 1

education after high scool is considered

Answer 1

post-secondary education

Question 2

two types of 529 plans

Answer 2

• prepaid tuition plans for state residents and,
• savings plans for residents and nonresidents

Question 3

prepaid plans

Answer 3

allow residents to lock in current tuition rates by paying now for future education costs

Question 4

allows donors to save money in a separate account for education expenses

Answer 4

the savings plan

Question 5

Contributions for prepaid plans are

Answer 5

Placed in an account managed by the educational institution

Question 6

contributions are placed with the investments selected by the donor

Answer 6

college savings plan

Question 7

True or False) Both savings plans allows for tax free growth.

Answer 7

True

Question 8

Prepaid plans are best used as a _ against rising tuition costs.

Answer 8

hedge

Question 9

institution guarantees a portion of tuition payment

Answer 9

prepaid tuition plans

Question 10

True or False) Each state typically sets its own contribution limit for 529 plans.

Answer 10

True: However these limits are very large.

Question 11

taxes and 10% penalty

Answer 11

applied to any withdrawals from account not used for education expenses

Question 12

federal tax on the transfer of money from one person to another set by IRS

Answer 12

annual gifting limit

Question 13

Donors can avoid gift tax by contributing

Answer 13

up to five times the annual gift limit at one time.

Question 14

• investment pools that provide a short-term investment vehicle for cities, counties, and state agencies
• usually formed as a trust
• sponsored by a state and considered a municipal security

Answer 14

local government investment pools (LGIPs)

Question 15

Who are the investors in LGIPs?

Answer 15

LGIP investor are other government entities, not retail investors.

Question 16

True or False) LGIPs are not required to register with the SEC and are not subject to the SEC’s regulatory requirements.

Answer 16

True: LGIPs are sponsored by a state and considered a municipal security.

Question 17

LGIPs maintain a _ NAV, similar to money markets, to facilitate liquidity and mitigate price volatility.

Answer 17

stable (fixed)

Question 18

tax advantage savings account for indivduals with disabilities and their families

Answer 18

Achieving a Better Life Experience (ABLE) accounts

Question 19

26 years old

Answer 19

Onset of disability must have occurred before age 26 to establish an able account.

Question 20

Contributions to _ accounts can be made by any person and are made using after-tax dollars.

Answer 20

ABLE

Question 21

Growth in an ABLE account is _.
Withdrawals from an ABLE account are _.

Answer 21

tax deferred, tax-free

Question 22

ABLE accounts were created by

Answer 22

the ABLE Act of 2014

Question 23

the account owner and the beneficiary must be disabled to open this account

Answer 23

Achieving a Better Life Experience account

Question 24

partnership

Answer 24

a type of business organization in which the partners manage the business and pay taxes on the business’ profits (if any) in relation to the size of a partner’s ownership

Question 25

- tax reporting but not tax paying - reports profits and how much went to which partner to the IRS

Answer 25

partnership

Question 26

All partners are

Answer 26

general partners (GPs)

Question 27

True or False) General partners have no liability protection.

Answer 27

**True:** Partners may be sued personally for actions taken by the partnership.

Question 28

provides details on ownership interest and specific duties of partners

Answer 28

partnership agreement

Question 29

has one or more general partners and one or more limited partners

Answer 29

limited partnerships (LP)

Question 30

have no management responsibilities and are protected from the liabilities of the partnership

Answer 30

limited partners

Question 31

manage the business and have no liability protection

Answer 31

general partners of limited partnership

Question 32

direct participation program (DPP)

Answer 32

another term for limited partnership

Question 33

All income received from the limited partnership by limited partners is called

Answer 33

passive income

Question 34

Under a _ partners share in the profits and liabilities of partnership.

Answer 34

general partnership (GP)

Question 35

A _ is only liable for their investment and may not participate in partnership management, however; they may share in profits and losses of partnership.

Answer 35

Limited Partner | limited partnership

Question 36

List the order of liquidation and account settlement for LPs

Answer 36

1. Secured lenders 2. Other creditors 3. Limited partners—first for their claims to shares of profits and then for their claims to a return of contributed capital 4. GPs

Question 37

**True or False**) LPs may be sold through private placement or public offerings.

Answer 37

**True**: If sold privately, investors receive a private placement memorandum for disclosure. In a public offering, LPs are sold by a prospectus

Question 38

Benefits of Limited Partnerships

Answer 38

* An investment managed by others (the GP) * Limited liability (can only lose the amount invested) * Flow through of income and certain expenses

Question 39

may be used to reduce a taxpayer's passive income but, are not applied to ordinary income

Answer 39

passive losses

Question 40

In addition to business risk, what are the two risks strongly associated with LPs?

Answer 40

- **liquidity risk**: transfer of interest in an LP requires permission of the GP - **audit/recapture of tax benefit**: IRS could disallow prior tax benefit; limited partners would be responsible for underreporting revenue

Question 41

- pool capital in a manner like that of an investment company but are not investment companies - organized as trusts in which investors buy shares or certificates, either on stock exchanges or in the over-the-counter (OTC) market - fall under the conduit tax theory (subchapter M), similar to mutual funds

Answer 41

real estate investment trust (REIT)

Question 42

- REIT not registered with SEC - not subject to the same disclosure requirements as public REITs - subject to greater risk

Answer 42

Nonregistered REIT (nonlisted) or private REITs

Question 43

**True or False**) Though REITs are not investment companies, shareholders may receive dividends from investment income or capital gains.

Answer 43

**True**: A REIT is a company that manages a portfolio of real estate, mortgages or both to earn profits for shareholders.

Question 44

owns physical properties like a strip mall or warehouse and generates an income stream from such properties

Answer 44

Equity REIT

Question 45

Mortgage REIT

Answer 45

focuses on financing property mortgages, earning interest from those mortgages to pay to shareholders

Question 46

combination of Equity and Mortgage REIT

Answer 46

hybrid REITs

Question 47

- considered an equity security - invest in a specific group, usually mimics an index - trades on the floor of an exchange and OTC - registered as either an open-end fund or as a UIT

Answer 47

exchange-traded fund (ETF)

Question 48

# advantages of ETFs Pricing and ease of trading

Answer 48

ETF shares are traded on exchanges, they can be bought or sold anytime during the trading day at the price they are currently trading at

Question 49

# advantages of ETFs margin

Answer 49

ETFs can be bought and sold short on margin like other exchange-traded products (ETPs). Mutual funds **cannot** be bought on margin nor sold short.

Question 50

# advantages of ETFs costs and expenses that are lower than most mutual funds

Answer 50

operating costs

Question 51

# advantages of ETFs Tax efficiency

Answer 51

Usually no further tax consequences with ETF shares until investors sell their shares because capital gains distributions are not likely.

Question 52

- unsecured debt security issued by bank or financial institution - track performance of particular index - DO NOT represent ownership - do not pay interest nor do they have principal protection

Answer 52

Exchange Traded Notes (ETNs)

Question 53

Investors of _ will receive a cash payment linked to the performance of the underlying index, minus management fees, at maturity.

Answer 53

ETNs

Question 54

Market risk, credit risk of issuer, and illiquidity are

Answer 54

primary risks associated with ETNs.

Question 55

Pricing for mutal funds is based on its NAV using forward pricing but, ETFs prices are dictated by

Answer 55

**supply and demand**. ETFs trade on an exchange like common stock issues. Prices can change throughout the day.

Question 56

Explain the tax advantages of ETFs over mutual funds.

Answer 56

ETFs have no required annual capital gains distributions; allowing investors to pay lower long-term capital gains when they sell their shares. Mutal fund dividends are taxed at a higher long-term capital gains rate.

Question 57

True or False) The purchase and sale of ETF shares is a commissionable transaction.

Answer 57

**True:** The commission paid can erode the low expense advantages. This would have the biggest impact on investors with smaller sums of money.

Question 58

Some of the disadvantages of private or unlisted REITS are

Answer 58

**transparency**, REITs not listed with SEC are not subject to same disclosure requirements as publically traded REITs which makes them **difficult to price**, **riskier**, with **less liquidity**.