Deck 8: Closed-End Investment Companies

Question 1

A loading fee charged by a mutual fund does not apply to a closed-end investment company.

Answer 1

True

Question 2

The discount paid for the shares of a closed-end investment company is fixed by the firm.

Answer 2

False

Question 3

The first exchange-traded funds were a type of index fund.

Answer 3

True

Question 4

ETFs issue new shares when an investor buys the stock.

Question 5

Compared to selecting individual stocks,ETFs ease the process of constructing a well-diversified portfolio.

Question 6

Asset allocation is important to help diversify a portfolio,but the allocation has little impact on the portfolio's return.

Question 7

As a result of arbitrage,ETFs tend to sell for their net asset value.

Question 8

The net asset value of the shares in a closed-end investment company depends on the difference between the fund's assets and liabilities and the number of shares outstanding.

Question 9

If a closed-end investment company specializes in the securities of one sector of the economy,systematic risk is reduced.

Question 10

A closed-end investment company has a variable capital structure.

Question 11

The shares of a closed-end investment company often sell for discount.

Question 12

An investor may not sell short the shares of an ETF.

Question 13

If an investor believes that financial markets are inefficient,this argues for the individual to pursue a more active portfolio strategy and purchase exchange-traded funds.

Question 14

Distributions from an investment company may include earnings and capital gains.

Question 15

If a closed-end investment company were liquidated,the investor should receive the net asset value minus the cost of the liquidation.

Question 16

A closed-end investment company is not a "mutual fund."

Question 17

Many unit trusts are self-liquidating.

Question 18

Distributions from a closed-end investment are subject to federal income taxation.

Question 19

The only costs of investing in a closed-end investment company are the commissions to buy and sell the shares.

Question 20

A unit trust is a passive investment that holds a fixed portfolio of securities such as federal government bonds.

Question 21

Exchange-traded funds

A) redeem their shares
B) only buy exchangeable securities
C) are bought and sold in secondary markets
D) cannot be sold short

Question 22

Asset allocation affects the investor's return by

A) altering the returns on individual assets
B) weighting the portfolio returns by the allocation
C) assuring diversification
D) increasing the investor's use of mutual funds

Question 23

Asset allocation determines the proportion of a portfolio that should be invested in various classes of assets.

Question 24

If an investor purchases shares in a no-load fund for $36,receives cash distributions of $1,and redeems the shares after one year for $42,what is the percentage return on the investment?

Question 25

If a closed-end investment company is selling for a discount

A) its price exceeds the net asset value
B) its price is less than the net asset value
C) dividend income exceeds capital gains
D) capital gains exceed dividend income

Question 26

Exchange-traded funds

A) consistently outperform other funds
B) mimic an index of securities
C) require investors to select individual stocks
D) are illustrations of load funds

Question 27

Closed-end investment companies
1)have a fixed capital structure
2)issue new stock whenever an individual buys shares
3)may sell for a premium over net asset value
4)must sell for their net asset value

A) 1 and 3
B) 1 and 4
C) 2 and 3
D) 2 and 4

Question 28

The net asset value of a closed-end investment company fund increases with

A) higher stock prices
B) lower stock prices
C) larger number of shares
D) increased liabilities

Question 29

The return a portfolio earns is affected by the allocation of the portfolio's assets.

Question 30

Closed-end investment companies with beta coefficients less than 1.0

A) have outperformed the market
B) have underperformed the market
C) have more systematic risk than the market
D) have less systematic risk than the market

Question 31

Asset allocation determines
1)the proportion of a portfolio that should be held in money market securities
2)the distribution of a portfolio between stocks and bonds
3)the allocation of a portfolio among classes of stock

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) all three

Question 32

Since closed-end investment companies acquire securities in efficient financial markets,they

A) cannot outperform the market consistently
B) should not outperform the market consistently
C) will underperform the market when security prices decline
D) primarily bear unsystematic risk

Question 33

Asset allocation policy
1)has little impact on a portfolio's return
2)assures portfolio diversification
3)increases the costs associated with investing

A) 1 and 2
B) 1 and 3
C) 2 and 3
D) none of the above

Question 34

The net asset value of shares in a closed-end investment company is $36.An investor buys the shares for $34 in the secondary market.The company distributes $1,and after one year,the net asset rises to $42.The investor sells the shares for $44 in the secondary market.
a.What is the discount?

b.What is the percentage return on the investment?

Question 35

Many exchange-traded funds limit their portfolios to

A) high-quality securities
B) stocks that respond to changes in the Consumer Price Index
C) stocks included in an aggregate measure of stock prices
D) stocks and bonds of companies in a particular industry