IAR Investment Vehicles 3

Question 1

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

Accepted Answer

Accumulation units in separate account sub-accounts

Answer

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

Question 2

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

Accepted Answer

Revenue bond

Answer

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

Question 3

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

Accepted Answer

Provide stable cash flows within a defined prepayment band

Answer

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

Question 4

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

Accepted Answer

STRIPS are created by separating coupon payments from principal

Answer

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

Question 5

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

Accepted Answer

Private equity fund

Answer

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

IAR Practice Test

IAR Practice Test

IAR Investment Vehicles 3