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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. A fund of funds investing in multiple hedge funds primarily offers investors:

    Answer: Diversification across hedge fund strategies with additional fee layers

    Fund of funds provide diversification across multiple hedge fund managers and strategies but add an additional management fee layer on top of underlying fund fees.

  2. Which risk is MOST unique to mortgage-backed securities compared to traditional bonds?

    Answer: Prepayment risk

    Prepayment risk—the possibility that homeowners will refinance or pay off mortgages early when rates fall—is a distinctive risk of MBS not present in standard bonds.

  3. Under the Investment Company Act of 1940, a diversified management company must have at least what percentage of assets in no more than 5% of any one issuer?

    Answer: 75%

    A diversified fund must invest at least 75% of assets such that no more than 5% goes to any single issuer and it holds no more than 10% of any issuer's voting securities.

  4. Which feature of a variable life insurance policy distinguishes it from whole life insurance?

    Answer: The cash value is invested in separate account sub-accounts with variable returns

    Variable life insurance places cash value in separate account sub-accounts chosen by the policyholder, so both cash value and potentially the death benefit fluctuate with investment performance.

  5. A TIPS (Treasury Inflation-Protected Security) adjusts which component based on CPI changes?

    Answer: The principal value, with coupon calculated on the adjusted principal

    TIPS principal is adjusted upward with inflation (or downward with deflation) and the fixed coupon rate is applied to the inflation-adjusted principal.

  6. An investor seeking exposure to commodities without taking physical delivery would most likely use:

    Answer: Commodity futures or commodity ETFs

    Commodity futures contracts and commodity ETFs provide economic exposure to commodity price movements without requiring physical ownership or delivery of the commodity.

  7. Which type of annuity payout option guarantees income for the annuitant's lifetime but provides no death benefit to heirs?

    Answer: Straight life (life only) annuity

    A straight life annuity pays income for the annuitant's lifetime only; payments cease at death with no residual benefit to beneficiaries, resulting in the highest periodic payment.