Stock Broker Investment Products & Securities Types 2

Question 1

What is a Real Estate Investment Trust (REIT) and how must it distribute income to maintain its tax-advantaged status?

Accepted Answer

A publicly traded company that must distribute at least 90% of taxable income to shareholders

Answer

A REIT is a company that owns income-producing real estate and must distribute at least 90% of its taxable income to shareholders as dividends to maintain its special tax status.

Question 2

Which type of annuity provides a guaranteed fixed payment amount throughout the payout period?

Accepted Answer

Fixed annuity

Answer

A fixed annuity guarantees a set, predetermined payment amount during the distribution phase, providing predictable income regardless of market performance.

Question 3

What is a money market instrument, and which of the following is an example?

Accepted Answer

A short-term debt security; Treasury bills (T-bills)

Answer

Money market instruments are short-term debt securities with maturities under one year, and Treasury bills are the classic example, issued by the US government with maturities up to 52 weeks.

Question 4

An American Depositary Receipt (ADR) allows US investors to do which of the following?

Accepted Answer

Invest in foreign company shares traded on US exchanges in US dollars

Answer

ADRs are certificates issued by US banks representing shares in foreign companies, allowing US investors to buy foreign equities on US exchanges and in US dollars without dealing with foreign markets directly.

Question 5

Which type of option gives the holder the right, but not the obligation, to SELL shares at a specified strike price?

Accepted Answer

Put option

Answer

A put option gives the holder the right (not obligation) to sell the underlying security at the strike price before or at expiration, profiting when the underlying price falls.

Stock Broker Practice Test

Stock Broker Practice Test

Stock Broker Investment Products & Securities Types 2