Deck 21: Investment Companies

Question 1

The total amount of money invested in the mutual fund industry is closest to

A) $800 million.
B) $8 billion.
C) $800 billion.
D) $8 trillion.

Answer 1

$8 trillion.

Question 2

Another name for a mutual fund is

A) open-end investment company.
B) closed-end investment company.
C) commodity pool.
D) unit investment trust.

Answer 2

open-end investment company.

Question 3

The value of a mutual fund share is the

A) premium.
B) face value.
C) net asset value.
D) redemption value.

Answer 3

net asset value.

Question 4

Mutual fund shareholder options include all of the following except

A) automatic reinvestment.
B) automatic monthly investment.
C) telephone redemption.
D) non-forfeiture value.

Question 5

A collection of mutual funds managed by the same company is a

A) fund family.
B) whole fund.
C) balanced fund.
D) no-load fund.

Question 6

Regarding closed-end investment companies, all of the following are true except

A) They trade on a stock exchange.
B) They sell for their net asset value.
C) The number of shares in existence is essentially constant.
D) They are fewer in number than open-end funds.

Question 7

Most mutual funds are also

A) closed-end investment companies.
B) commodity pools.
C) regulated investment companies.
D) REITs.

Question 8

Mutual funds must register with the Securities and Exchange Commission because of the

A) Investment Company Act of 1940.
B) Mutual Fund Omnibus Resolution of 1966.
C) NASDAQ Commission on Investment Pools.
D) 1933 and 1934 Securities Acts.

Question 9

Laws governing the sale of mutual funds within a state are

A) blue moon laws.
B) blue ocean laws.
C) blue book laws.
D) blue sky laws.

Question 10

A no-load fund

A) generates tax-free returns.
B) has no sales commission.
C) has an expense ratio of zero.
D) has no management fee.

Question 11

The effective fee on a fund with a 6% front-end load is

A) 5.67%
B) 6.38%
C) 7.88%
D) 9.4%

Question 12

A back-end load is also called a

A) 12b-1 fee.
B) nominal expense charge.
C) superannuity.
D) contingent deferred sales charge.

Question 13

A management fee is paid to the

A) stockbroker
B) fund custodian.
C) investment advisor.
D) transfer agent.

Question 14

A 12b-1 fee

A) permits management to use fund assets for advertising expenses.
B) Is incentive compensation for good performance?
C) Is levied by state security and exchange commissions.
D) Only applies to international investments.

Question 15

With a load fund,

A) the ask price equals the net asset value.
B) the ask price is less than the net asset value.
C) the ask price is more than the net asset value.
D) the ask price equals the bid price.

Question 16

In calculating the holding period return for a mutual fund, the numerator equals

A) capital gains distributions plus income distributions.
B) Change in net asset value plus capital gains distributions plus income distributions.
C) Change in net asset value minus capital gains distributions plus income distributions.
D) Change in net asset value plus capital gains distributions minus income distributions.

Question 17

An important risk feature of bond mutual funds is

A) their short duration.
B) their lack of a maturity date.
C) their focus on junk bonds.
D) the fact that they are callable.

Question 18

The size of the expense ratio is especially important when selecting a _____ fund.

A) bond
B) stock
C) balanced
D) growth

Question 19

A fund invested 90% in stock and 10% in Treasury bills is best described as a

A) balanced fund.
B) income fund.
C) combination stock/money market fund.
D) growth fund.

Question 20

A disadvantage of a fund-of-funds is

A) it is unregulated.
B) it is typically poorly diversified.
C) it has a high expense ratio.
D) it has adverse income tax characteristics.

Question 21

The legal document describing a mutual fund is the

A) indenture.
B) debenture.
C) statement of additional information.
D) prospectus.

Question 22

From the beginning NAV at the beginning of a year, the total return to the mutual fund investor is:

A) the sum of capital gains distribution and income distribution divided by beginning NAV.
B) the sum of capital gains distribution and income distribution less the gain in NAV divided by beginning NAV.
C) the sum of capital gains distribution and income distribution plus the gain in NAV divided by beginning NAV.
D) the change in NAV divided by beginning NAV

Question 23

A balanced mutual fund is a mix of

A) money and capital market securities.
B) bonds and common stock.
C) varied bond maturities.
D) securities providing capital gain returns.

Question 24

All but one of the following is an expense associated with a mutual fund that reduces an investor's total return.

A) front-end load
B) management fees
C) 12b-1 expenses
D) SEC investment tax

Question 25

The primary difference between a mutual fund and a closed-end mutual fund is:

A) mutual fund investors pay loads; closed-end fund investors pay commissions
B) mutual funds share issuance is "open," closed-end funds is generally "closed."
C) the mutual fund usually sells at NAV; closed-end funds at a discount.
D) all of the above are differences between mutual funds and closed-end funds.

Question 26

Regulated investment companies distribute dividends and gains to share holders

A) monthly
B) quarterly
C) annually
D) never

Question 27

The return on mutual fund shares comes from all of the following except

A) change in the net asset value
B) capital gains distributions
C) income distributions
D) fees paid by fund managers

Question 28

The total dollar investment in mutual fund has remained relatively flat since the market crash in 1987.

Question 29

There are more mutual funds than there are stocks listed on the New York Stock Exchange.

Question 30

Both open- and closed-end investment companies are also called mutual funds.

Question 31

Closed-end fund shares trade like share of common stock, whereas open-end funds are not sold to other investors, they are redeemed with the fund manager.

Question 32

Ideally, the expense ratio for a mutual fund should exceed 5%.

Question 33

No-load funds, in general, have a lower expense ratio than load funds.

Question 34

Everything else being equal, a potential investor should look favorably upon the presence of a 12b-1 fee.

Question 35

With a load fund, the net asset value and the asked price are identical.

Question 36

By law, the minimum investment in a mutual fund is $100.

Question 37

A regulated investment company pays no federal income taxes.

Question 38

Money market funds are used primarily as a temporary cash haven.

Question 39

A bond fund, like the bonds it contains, has a fixed maturity date.

Question 40

The expense ratio of a "fund of funds"is lower than for the average mutual fund.

Question 41

A hedge fund probably makes sense for a conservative investor.

Question 42

A higher portfolio turnover rate means higher expenses.

Question 43

The Statement of Additional Information is an SEC required publication that is not available to the individual shareholder.

Question 44

Morningstar rates mutual funds on a one to ten star basis.

Question 45

Most mutual funds underperform the relevant market average.

Question 46

Blue sky laws are enforced by the Securities and Exchange Commission.

Question 47

A mutual fund is always well diversified.

Question 48

The Investment Company Act of 1970 legally defined the responsibilities of a fiduciary.

Question 49

The reinvestment of monthly income and capital gains is called an automatic monthly investment plan.

Question 50

Front-end loads provide added income to the fund's investment manager.

Question 51

There are three possible types of returns available for the mutual fund investor.

Question 52

The Statement of Additional Information, issued by the SEC, provides information beyond that in a fund prospectus.

Question 53

Mutual funds with the lowest expense ratios, according to a recent study, had the best performance.