Chapter 2: General Concepts

Which of the following does NOT fall under the classification of an investment company according to the Investment Company Act of 1940?

• Management Companies

• Variable annuities

• Face amount certificates

• Unit investment trusts

The Investment Company Act of 1940 defined 3 classifications of investment companies. They are

• UITs, Management Investment Companies, and Face Amount Certificate Companies

• Open-end mutual funds, closed-end mutual funds, and UITs.

• Variable annuities, fixed annuities, and mutual funds.

• Annuities, UITs, and Face Amount Certificate Companies

The investment company concept allows the individual investor to I. Realize a greater return on an investment. II. Achieve wide diversification with a small investment. III. Defer taxes by reinvesting distributions in additional shares. IV. Access professional portfolio management at minimal cost.

• I and IV

• II and III

• II and IV

• III and IV

Which of the following is not considered an investment company?

• Management Company

• Face-amount certificate company

• Unit Investment Trust

• Real Estate Investment Trust

A redeemable security is

• A negotiable security.

• A marketable security.

• Traded on an exchange or OTC market.

• A security with no secondary trading

Which type of investment company issues discounted or premium shares that can be redeemed for a fixed amount on a specified date?

• Face amount certificate

• Unit investment trust

• Open-end management company

• Closed-end management company

All of the following are characteristics of Unit Investment Trusts EXCEPT

• A fixed portfolio.

• No secondary market trading.

• Actively managed portfolio.

• Units are redeemable by the issuer.

The average investor has limited assets, but by pooling his funds with other investors in an investment company, he can receive the advantages of increased

• Diversification, market timing, and risk reduction

• Professional management, diversification, and liquidity.

• Liquidity, cost reduction, and market timing.

• Risk reduction, liquidity, and diversification.

If you own securities that represent an undivided interest in a fixed portfolio, with which type of investment company are you invested?

• Face amount certificate

• Unit investment trust

• Open-end management company

• Closed-end management

Face amount certificates issue debt certificates that offer predetermined interest rates. The certificates may be purchased by either periodic installments or with a lump-sum payment. These certificates have a maturity of at least

• 6 months

• 12 months

• 18 months

• 24 months