Question 1

Under the Investment Company Act of 1940, what are the three main types of investment companies?

Accepted Answer

The three main types are management companies (open-end and closed-end funds), unit investment trusts (UITs), and face-amount certificate companies.

Question 2

What distinguishes an open-end management company from a closed-end management company?

Accepted Answer

An open-end company (mutual fund) continuously issues and redeems shares at NAV, while a closed-end company issues a fixed number of shares that trade on the secondary market at market prices.

Question 3

How does a Unit Investment Trust (UIT) differ from a management company?

Accepted Answer

A UIT holds a fixed, unmanaged portfolio of securities and issues redeemable units; it does not have a board of directors or an investment adviser actively managing the portfolio.

Question 4

How are exchange-traded fund (ETF) shares bought and sold, and how does this differ from a mutual fund?

Accepted Answer

ETF shares trade on a stock exchange throughout the day at market prices, while mutual fund shares are purchased and redeemed directly with the fund only once per day at NAV.

Question 5

What is a face-amount certificate company?

Accepted Answer

It is a type of investment company that issues contracts obligating it to pay a fixed (face) amount to the investor at a future date in exchange for periodic installment payments.

Investment Companies – SIE Exam Flashcards

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