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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. An investor in a variable annuity's accumulation phase owns which of the following?

    Answer: Accumulation units in separate account sub-accounts

    During the accumulation phase, variable annuity contributions purchase accumulation units whose value fluctuates with the performance of chosen sub-accounts.

  2. Which type of municipal bond is backed solely by the revenue generated from a specific project such as a toll road?

    Answer: Revenue bond

    Revenue bonds are repaid exclusively from income generated by the specific project financed, with no pledge of the issuer's taxing power.

  3. A collateralized mortgage obligation (CMO) tranche labeled 'PAC' (planned amortization class) is designed to:

    Answer: Provide stable cash flows within a defined prepayment band

    PAC tranches receive predictable cash flows within a specified prepayment range, with companion tranches absorbing excess prepayment or extension risk.

  4. When comparing Treasury STRIPS to regular Treasury bonds, which statement is accurate?

    Answer: STRIPS are created by separating coupon payments from principal

    STRIPS (Separate Trading of Registered Interest and Principal Securities) are created when broker-dealers separate individual coupon payments and the principal from Treasury bonds.

  5. Which investment vehicle pools investor capital to take controlling stakes in private companies with intent to restructure and eventually exit?

    Answer: Private equity fund

    Private equity funds acquire controlling interests in companies, implement operational improvements or financial restructuring, then exit through sale or IPO.

  6. A convertible bond's conversion premium is calculated as:

    Answer: (Convertible bond price − conversion value) / conversion value

    Conversion premium equals the excess of the convertible bond's market price over its conversion value, expressed as a percentage of conversion value.

  7. Which statement about American Depositary Receipts (ADRs) is correct?

    Answer: ADRs allow US investors to trade foreign company shares in US dollars on US exchanges

    ADRs are negotiable certificates issued by US depositary banks representing shares of foreign companies and traded in US dollars on US exchanges.