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Investment Vehicles Flashcards

7 cards from real IAR practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. Which characteristic distinguishes a closed-end fund from an open-end mutual fund?

    Answer: Closed-end funds issue a fixed number of shares traded on exchanges

    Closed-end funds issue a fixed number of shares at IPO and trade on exchanges at market prices that may differ from NAV.

  2. A real estate investment trust (REIT) must distribute at least what percentage of its taxable income to shareholders to maintain its tax status?

    Answer: 90%

    REITs must distribute at least 90% of their taxable income annually to shareholders to qualify for pass-through tax treatment.

  3. An investor holds a zero-coupon bond purchased at $600 that matures in 5 years at $1,000. How is the annual accreted interest treated for federal tax purposes?

    Answer: Taxed as ordinary income each year even though no cash is received

    Zero-coupon bond holders must recognize phantom income (OID) as ordinary income each year even though no cash coupon is paid.

  4. Which type of preferred stock allows unpaid dividends to accumulate and be paid before common stock dividends?

    Answer: Cumulative preferred

    Cumulative preferred stock requires that any missed dividends accumulate and must be paid in full before common shareholders receive any dividends.

  5. A structured note whose return is linked to the S&P 500 index with principal protection at maturity is best described as a:

    Answer: Principal-protected note

    A principal-protected note guarantees return of the invested principal at maturity while linking upside potential to an underlying index.

  6. Which of the following is a key difference between ETFs and traditional mutual funds regarding intraday trading?

    Answer: ETFs trade on exchanges throughout the day at market prices

    ETFs trade on stock exchanges throughout the trading day at market-determined prices, unlike mutual funds which price only once per day at NAV.

  7. A master limited partnership (MLP) is primarily used by companies in which sector because of favorable tax treatment on asset depreciation?

    Answer: Energy infrastructure (pipelines)

    MLPs are predominantly used in energy infrastructure because the sector's large depreciable assets generate deductions that shelter distribution income.