Investment Products & Securities Types Flashcards

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

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

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.

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

Answer: Fixed annuity

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

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

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

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.

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

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

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.

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

Answer: Put option

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.

What is a municipal bond, and what is its primary tax advantage for investors?

Answer: A bond issued by state/local governments; interest is generally exempt from federal income tax

Municipal bonds are debt securities issued by state and local governments, and the interest income is generally exempt from federal income tax (and often state/local taxes if the investor resides in the issuing state).