Must Know Concepts for the Series 6 Exam

Annuity Purchase Options

An investor may purchase an annuity contract in one of three ways. They are:

  • Single payment deferred annuity
  • Single payment immediate annuity
  • Periodic payment deferred annuity

Single Payment Deferred Annuity

With a single payment deferred annuity, the investor funds the contract completely with one payment and defers receiving payments from the contract until some point in the future, usually after retirement. Money being invested in a single payment deferred annuity is used to purchase accumulation units.

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How to Value Mutual Fund Shares

Mutual funds must determine the net asset value of the fund’s shares at least once per business day. Most mutual funds will price their shares at the close of business of the NYSE (4 p.m. EST). The mutual fund prospectus will provide the best answer as to when the fund calculates the price of its shares. The calculation is required to determine both the redemption price (NAV) and the purchase price (POP) of the fund’s shares. The price that is received by an investor who is redeeming shares and the price that is paid by an investor who is purchasing shares will be based on the price that is next calculated after the fund has received the investor’s order. This is known as forward pricing. To calculate the fund’s NAV use the following formula:

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Annuities

An annuity is a contract between an individual and an insurance company. Once the contract is entered into, the individual becomes known as the annuitant. There are three basic types of annuities that are designed to meet different objectives. They are:

  • Fixed annuity
  • Variable annuity
  • Combination annuity

While all three types allow the investor’s money to grow tax deferred, the type of investments made and how the money is invested varies according to the type of annuity.

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What is the Investment Company Philosophy?

An investment company is organized as either a corporation or as a trust. Individual investors’ money is then pooled together in a single account and used to purchase securities that will have the greatest chance of helping the investment company reach its objectives. All investors jointly own the portfolio that is created through these pooled funds, and each investor has an undivided interest in the securities. No single shareholder has any right or claim that exceeds the rights or claims of any other shareholder regardless of the size of the investment. Investment companies offer individual investors the opportunity to have their money managed by professionals who may otherwise only offer their services to large institutions. Through diversification, the investor may participate in the future growth or income generated from a large number of different securities

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