Deck 19: Investment Companies

Question 1

Hedge funds are typically organized as limited partnerships with the fund manager as the general partner.

Answer 1

True

Question 2

No-load mutual funds are commonly sold by security brokers and dealers.

Answer 2

False

Question 3

Money market mutual funds are not subject to reserve requirements.

Answer 3

True

Question 4

Closed-end investment companies' securities often sell at a discount to their NAV.

Question 5

Unit investment trusts have a high security turnover rate, increasing their costs over equivalent mutual funds.

Question 6

The major investment of mutual funds is common stock.

Question 7

Arbitrage activities of hedge funds tend to increase capital market efficiency.

Question 8

Mutual funds offer diversification and professional investment management for the fees charged.

Question 9

When purchasing a load mutual fund, the NAV includes the load charge for purchasing the mutual funds.

Question 10

Money market mutual funds invest in commercial paper, large bank CDs, and short-term government securities.

Question 11

REIT activities are governed by the Investment Company Act of 1940.

Question 12

Load mutual fund shares may be sold back to the fund.

Question 13

Income funds are made up of portfolios of mortgage-backed securities only.

Question 14

Arbitrage by hedge funds is the simultaneous buying and selling of a security or derivative of the security to exploit market pricing differentials.

Question 15

Balanced funds generate higher proportion of income than growth and income funds and are less volatile.

Question 16

REITs are open-end investment companies that invest in real estate.

Question 17

There is more money invested in hedge funds than in exchange‐traded funds, closed‐end funds, and unit investment trusts combined

Question 18

Closed-end investment companies stand ready to redeem their shares at their NAV less a management fee.

Question 19

REITs are exempt from federal income tax provided that they derive at least three-fourths of their income from operations related to real estate and pass through more than 90 percent of their net income to shareholders.

Question 20

Hedge funds have been popular diversification investments for small investors.

Question 21

How is the marketing channel of distribution different for load mutual funds vs. no-load funds?

Question 22

Most hedge funds are not investment companies.

Question 23

Why are there so many different mutual funds offered for sale? Why have index funds become more popular?

Question 24

What are the benefits that investment companies and mutual funds provide to the public?

Question 25

Unlike mutual funds where their leverage is limited by regulation, hedge funds and REITs often have high leverage.

Question 26

Commodity ETFs are not investment companies.

Question 27

One of the benefits of investing in hedge funds is that some hedge funds are not subject to taxation on fund distributions nor to U.S. estate taxes.

Question 28

How do hedge funds take advantage of capital market inefficiencies and end up making the markets more efficient?

Question 29

Due to the ability to hedge, the investors of hedge funds experienced very minor losses in subprime mortgage crisis from 2007 to 2009.

Question 30

Compare and contrast an open-end (mutual fund) investment fund with a closed-end investment company.

Question 31

The National Securities Markets Improvement Act of 1996 assigned federal regulators sole jurisdiction over the structure and operations of mutual funds and mutual fund prospectuses.

Question 32

While closed end funds may trade at a discount, they never trade at a premium due to arbitrage.

Question 33

Closed end funds that trade at a value different than their NAV provide clear evidence of inefficient market pricing.

Question 34

Class A mutual fund shares are always a poorer choice than Class B shares for a long term investor.

Question 35

Why have exchange-traded funds become popular in the last few years? Name one and specify what it tracks.