Investment Vehicle Characteristics Flashcards
6 cards from real Series 65 – Uniform Investment Adviser Law Exam practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Investment Vehicle Characteristics flashcards as text
What is the main risk associated with a callable bond from an investor's perspective?
Answer: The issuer may call the bond when interest rates fall, forcing reinvestment at lower rates
Callable bonds expose investors to reinvestment risk because issuers typically call bonds when rates fall, forcing investors to reinvest proceeds at lower prevailing rates.
Which of the following is a characteristic of a money market fund?
Answer: Typically maintains a stable $1.00 net asset value and invests in short-term, high-quality instruments
Money market funds aim to maintain a constant $1.00 NAV by investing in short-term, highly liquid, high-quality instruments such as Treasury bills and commercial paper.
What is the difference between a growth stock and a value stock?
Answer: Growth stocks are expected to grow faster than the market; value stocks trade below their perceived intrinsic value
Growth stocks are shares in companies expected to grow earnings faster than the market average, while value stocks trade at prices considered below their fundamental worth.
What does it mean when a bond is trading at a premium?
Answer: The bond's market price is above its face (par) value
A bond trades at a premium when its market price exceeds its face value, typically because its coupon rate is higher than current market interest rates.
What is the primary purpose of a hedge fund?
Answer: To use diverse and often complex strategies to generate absolute returns regardless of market conditions
Hedge funds use a wide range of strategies including leverage, short selling, and derivatives to seek absolute returns that are not necessarily correlated with market performance.
Which of the following best describes a variable annuity?
Answer: An insurance product with an investment component where the value varies based on the performance of subaccounts
Variable annuities are insurance contracts where the value and payout depend on the performance of investment subaccounts chosen by the contract holder.