IAR Investment Vehicles 4

Question 1

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

Accepted Answer

Diversification across hedge fund strategies with additional fee layers

Answer

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.

Question 2

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

Accepted Answer

Prepayment risk

Answer

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.

Question 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?

Accepted Answer

75%

Answer

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.

Question 4

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

Accepted Answer

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

Answer

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.

Question 5

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

Accepted Answer

The principal value, with coupon calculated on the adjusted principal

Answer

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

IAR Practice Test

IAR Practice Test

IAR Investment Vehicles 4