Deck 12: Mutual Fundsother Pooling Arrangements: Simplifying, Maybe Improving Investment Performance

Question 1

A redemption charge is a

A)back-end load.
B)font-end load.
C)management fee.
D)carrying fee.

Answer 1

back-end load.

Question 2

A fund that attempts to match the overall market's performance is

A)a sector fund.
B)a maximum capital appreciation fund.
C)an index fund.
D)a matching fund.

Answer 2

an index fund.

Question 3

One difference between open-end and closed-end funds is that

A)open-end funds have no maturities,while closed-end funds are dissolved after a given number of years.
B)shares of an open-end fund are bought and sold directly from or to the fund,while closed-end shares are bought and sold like the shares of any corporation.
C)open-end shares can be purchased by the general public,while closed-end shares are available only to fund directors.
D)closed-end funds control and manage open-end funds.

Answer 3

shares of an open-end fund are bought and sold directly from or to the fund,while closed-end shares are bought and sold like the shares of any corporation.

Question 4

If you are seeking moderate growth and moderate current return,you should select

A)a money market fund.
B)an income fund.
C)a balanced fund.
D)a mixed fund.

Question 5

An important characteristic of money market mutual funds is that

A)their deposits are insured by FSLIC.
B)they differ from other mutual funds in return and their potential for default risk.
C)they have a high degree of interest-rate risk.
D)most are closed-end mutual funds.

Question 6

A sector fund invests in

A)one industry.
B)one kind of security stocks or bonds.
C)one foreign country,such as Spain.
D)one large company,such as Microsoft.

Question 7

A mutual fund's net asset value (NAV)reflects

A)the market value of all its holdings.
B)the amount distributed to shareholders each year.
C)its revenues minus its expenses.
D)its per-share value in a bankruptcy liquidation.

Question 8

Which service below is usually not provided by a mutual fund?

A)Fund switching within a family of funds
B)Transactions by telephone
C)Reinvestment plans
D)Insurance to protect against market losses

Question 9

A closed-end fund has a

A)fixed number of shares.
B)fixed number of investors.
C)front-end load.
D)back-end load.

Question 10

A fund's reinvestment plan allows investors to

A)make periodic deposits to the fund from their checking accounts.
B)make regular withdrawals from the fund.
C)reinvest all dividends and/or capital gains into the fund's shares.
D)reinvest profits from one fund into shares of another fund.

Question 11

The difference between a load fund and a no-load fund is that

A)load funds invest in a variety of securities while no-load funds limit their investments to common stocks.
B)load funds borrow money to increase their portfolio,while no-load funds do not.
C)you buy no-load funds at their net asset values,but you pay more than net asset value when you buy load funds.
D)no-load funds can be purchased anywhere,but load funds must be purchased through a stockbroker.

Question 12

Which of the following is not a characteristic of money market mutual funds?

A)No minimum on withdrawals
B)Shares values at $1
C)Check writing privileges
D)Daily interest

Question 13

A closed-end fund's appeal is enhanced if it

A)sells at a premium.
B)has a load.
C)does not have a load.
D)sells at a discount.

Question 14

In relation to no-load funds,load funds show

A)significantly better performance.
B)significantly poorer performance.
C)about the same performance.
D)poorer performance but lower operating costs.

Question 15

The Ajax Fund,which trades on the New York Stock Exchange,was quoted with a NAV of $10 and an offer price of $10.50.Thus,we know the fund is

A)open end with a load.
B)closed end with a load.
C)closed end with no load.
D)open end with no load.

Question 16

Which type of mutual fund can be purchased at a premium or discount?

A)Load fund
B)No-load fund
C)Open-end fund
D)Closed-end fund

Question 17

A mutual fund is an organization that

A)invests its funds in securities issued by corporations and governments.
B)is part of an insurance company that invests policyholders' premiums.
C)a partnership of corporate investors.
D)sets money aside to absorb potential stock market losses.

Question 18

The Druid Fund has a NAV of $9.00 and an offer price of $9.45.We know,then,that

A)Druid is a load fund.
B)Druid is about to be issued to the public as a no-load fund with a $0.45 offer cost.
C)shares can be purchased only through a stockbroker.
D)there is a $0.45 premium paid to investors to buy the shares.

Question 19

The Flash Fund owns 4,000 of GM and 8,000 shares of Microsoft.GM's price is $20 and Microsoft's is $25.If the fund has 5,000 shares outstanding,its NAV per share is

A)$90.00.
B)$93.33.
C)$66.00.
D)$56.00.

Question 20

The Jerry Fund,which trades on the New York Stock Exchange,has a NAV of $20 and a market price of $22.We know,then,the fund is

A)open end with a front-end load.
B)open end with a rear-end load.
C)closed end,selling at a discount.
D)closed end,selling at a premium.

Question 21

An equity trust is

A)a contractual agreement to buy common stock.
B)a REIT that specializes in mortgage lending.
C)a mutual fund that holds REIT shares.
D)a REIT that invests in real estate properties.

Question 22

A REIT's equity per share is

A)its market value per share.
B)the amount it has invested in property per share.
C)the initial amount of money per share invested in it.
D)a value measurement similar to the NAV of a mutual fund.

Question 23

A unit investment trust differs from a mutual fund in that

A)it offers a combination of debt and equity securities in the unit.
B)its originator guarantees a redemption price.
C)its original portfolio is generally unchanged until the trust is dissolved.
D)it requires considerably greater portfolio management.

Question 24

A real estate investment trust (REIT)invests

A)exclusively in property,such as buildings.
B)exclusively in raw land.
C)exclusively in both property and raw land.
D)in many kinds of properties and mortgages to property.

Question 25

Evaluating the performance of a mutual fund involves which of the following activities?
I.Determining its rate of return
II.Calculating its net asset value
III.Examining its turnover ratio
IV.Examining its administrative expenses

A)I and II
B)I,III,and IV
C)II,III,and IV
D)All four

Question 26

Which item below is not a characteristic of an exchange-traded fund?

A)Investors can use margin to buy them.
B)Their portfolios are changed frequently in response to market conditions.
C)They have very low expense ratios.
D)They may be more tax efficient than other types of funds.

Question 27

Which item below is usually not a characteristic of a limited partnership?

A)They have limited investment appeal.
B)Loss-limitation rules of the tax code do not apply to them.
C)Partnership interests may be difficult to sell.
D)They have poor liquidity.

Question 28

Which of the below publications does not provide periodic evaluations of mutual funds?

A)Time
B)Barron's
C)Forbes
D)Money

Question 29

When funds calculate their returns,they assume that all distributions

A)are withdrawn from the fund.
B)are reinvested in shares of the fund.
C)are reinvested in shares of a money market fund.
D)are reinvested in shares of a market index fund.

Question 30

The significant difference between HOLDRs and ETFs is that

A)the owner of the HOLDR has rights to the underlying stock.
B)HOLDRs are not traded in financial markets.
C)ETFs are not traded in financial markets.
D)owners of HOLDRs do not pay commissions on trades.

Question 31

Allen Fund had NAV values of $9,$10,and $12 at the beginning,middle,and end of last year,respectively.It made a $1.00 per share distribution at mid-year.The average annual total return of the fund for the year is

A)33.33%.
B)44.44%.
C)46.67%.
D)55.55%.

Question 32

The Mark IV Fund had a rate of return of 21% last year.If its beta weight was +1.5 and if the return on the overall market was 12%,its risk adjusted rate of return,RAROR,is

A)+19.5%.
B)- 3.0%.
C)+23.0%.
D)+ 2.0%.

Question 33

For a given return it is preferable to have

A)a high turnover rate and a high beta.
B)a high turnover rate and a low beta.
C)a low turnover rate and a low beta.
D)a low turnover rate and a high beta.

Question 34

The Lei Fund had a risk-adjusted rate of return (RAROR)last year of -3.0%.This means

A)the fund underperformed the overall market.
B)the fund outperformed the overall market.
C)the overall market performed poorly.
D)the fund had a negative beta.

Question 35

The Gale Market Index Fund advertises that it earned a 392% return.This is probably its

A)cumulative total return over some number of years.
B)average annual total return over some number of years.
C)total return for the previous year.
D)return in relation to the overall market.

Question 36

Which item below is not a broad market exchange-traded fund?

A)"HOLDR"
B)"diamond"
C)"spider"
D)"the Qs"

Question 37

A real estate investment trust (REIT)is

A)an agreement between a buyer and seller,contingent upon the availability of financing.
B)the loan document evidencing transfer of a property.
C)a limited partnership investing in real estate.
D)a type of closed-end investment company involved in real estate investment.

Question 38

The Mark Fund had a rate of return of 18% last year.If its beta weight was +1.5 and if the return on the overall market was 15%,its risk adjusted rate of return,RAROR,is

A)+19.5%.
B)- 3.0%.
C)+23.0%.
D)+ 2.0%.

Question 39

The Mark IV Fund had a rate of return of 21% last year.If its beta weight was +0.6 and if the return on the overall market was 12%,its risk adjusted rate of return,RAROR,is

A)+19.5%.
B)- 3.0%.
C)+23.0%.
D)+ 2.0%.

Question 40

In which of these funds does the portfolio of assets generally remain unchanged?

A)Closed-end funds and unit investment trusts
B)Exchanged traded funds and HOLDRs
C)Closed-end funds and open-end trusts
D)Exchange traded funds and unit investment trusts

Question 41

A load fund differs from a no-load fund in that the load fund often borrows to buy securities while a no-load does not.

Question 42

The best strategy for selecting mutual funds in the 401(k)plan is to

A)pick an index fund.
B)pick an aggressive growth fund,using last year's performance as a guide.
C)select a number of funds to achieve broad diversification.
D)pick a money market fund to avoid risk.

Question 43

An investment vehicle that shifts asset weights over time is

A)an asset allocation fund.
B)a market timing limited partnership.
C)cyclical stock.
D)a return-indexed insurance policy.

Question 44

A portfolio plan should

A)seek to maximize the portfolio's value,regardless of risk.
B)consider the investor's goals and risk-tolerance level.
C)try to make the most possible money in the shortest possible time.
D)specify general,rather than concrete,objectives.

Question 45

A constant ratio plan adjusts a portfolio by

A)investing a constant amount of money each period.
B)maintaining a constant dividend yield.
C)adjusting asset holdings to restore the initial target weights.
D)maintaining a constant ratio of assets to the owner's wealth.

Question 46

Consider the following assets: I.Treasury Strips,II.Coupon Treasury bonds,III.growth stocks,and IV.medium quality corporate bonds.An aggressive investor without high- priority future goals would prefer

A)I.
B)II.
C)III.
D)IV.

Question 47

Choosing not to participate in a 401(k)retirement plan in which the employer matches the employee contributions

A)is usually a good idea if you use your contributions to invest on your own.
B)means that you give up an opportunity to double your money immediately.
C)is a good idea if you are in a high tax bracket.
D)is a good idea because most employers provide retirement plans anyway.

Question 48

The net asset value (NAV)of a mutual fund is the total value of the securities it owns (minus any liabilities)divided by the number of shares issued by the fund.

Question 49

Which item below is not a characteristic of investment clubs?

A)Small monthly dues,in the $25 range
B)Reinvestment of dividends and capital gains
C)Reliance upon stockbrokers for research and advice
D)An opportunity for diversification

Question 50

The 1986 Tax Reform Act

A)increased the appeal of real estate limited partnerships.
B)required that all limited partnerships become public syndicates.
C)eliminated many tax advantages previously associated with limited partnerships.
D)made real estate limited partnerships illegal.

Question 51

The Redux Fund has issued 500,000 shares to its investors,and it holds 100,000 shares of various companies worth $3 million.Therefore,the fund's NAV is $30 a share.

Question 52

Consider the following assets: I.Treasury Strips,II.Coupon Treasury bonds,III.growth stocks,and IV.medium quality corporate bonds.An aggressive investor seeking high current income would prefer

A)I.
B)II.
C)III.
D)IV.

Question 53

Coordinating investments in a 401(k)plan with investments outside the plan usually

A)involves selecting high current-return assets in plan with growth assets outside.
B)involves selecting growth assets in plan with high current return assets outside.
C)dictates the same proportion of growth assets to high-income assets,both in and out of plan.
D)means having sufficient liquidity both in and out of plan.

Question 54

Consider the following assets: I.Treasury Strips,II.Coupon Treasury bonds,III.growth stocks,and IV.medium quality corporate bonds.A cautious investor with high-priority future goals,but who does not need current income,would prefer

A)I.
B)II.
C)III.
D)IV.

Question 55

Since there are no tax consequences arising from trades in a 401(k)plan,it makes sense

A)to trade often in an attempt to time the markets.
B)to ignore this feature and stick to a sound investment approach.
C)not to participate in the plan since you can't write off tax losses.
D)to trade aggressively if you are young and have a long investment horizon,but to be more conservative if you are nearing retirement.

Question 56

Load fund have generally not outperformed no-load funds.

Question 57

A variable ratio plan adjusts a portfolio by

A)holding asset weights constant.
B)increasing or decreasing all asset weights in response to income changes.
C)increasing the weight of assets that have performed well in the recent past.
D)increasing the weight of assets that have performed poorly in the recent past.

Question 58

Which statement below is false with respect to your investment style in a 401(k)plan?

A)Be ultra-conservative,select fixed-income annuities.
B)Be conservative,select money market funds.
C)Be somewhat aggressive,particularly if you are a young person with a long investment horizon.
D)Be ultra-aggressive,select risky investments and frequently time the markets.

Question 59

If you follow a variable ratio plan,it is assumed that you

A)cannot forecast future asset values.
B)are engaging in a form of market timing.
C)are planning for your future retirement.
D)are trying to offset capital gains with capital losses.

Question 60

An open-end fund differs from a closed-end fund in that the open-end fund does not limit the kinds of securities it buys.

Question 61

A sector fund invests in only one industry.

Question 62

Global and international funds invest in foreign securities.

Question 63

Money market mutual funds have the protection of FDIC insurance.

Question 64

The following returns were earned last year: Fund A,10%,Fund B,18%,the overall market,11%.Fund A's beta was 0.8 while Fund B's was 2.0.Therefore,the best investment was Fund A.

Question 65

Shares of an open-end fund are typically purchased through stockbrokers,while closed-end fund shares are typically purchased directly from the fund.

Question 66

The following returns were earned last year: Fund A,10%,Fund B,18%,the overall market,14%.Fund A's beta was 0.8 while Fund B's was 2.0.Therefore,the best investment was Fund A.

Question 67

You cannot buy an open-end fund at a premium or discount.

Question 68

"Fund switching" allows investors to switch in and out of IRAs.

Question 69

One performance measure of a mutual fund is to determine the growth of a given amount of investment,assuming all fund distributions are used to buy more shares of the fund.

Question 70

Many mutual funds operate without clearly-defined investment objectives.

Question 71

A disadvantage of mutual funds is that they cannot be used in IRAs.

Question 72

Fund switching allows you to transfer funds from one mutual fund family to another,as long as both families are approved by the SEC.

Question 73

You always sell shares of a no-load,open-end fund at their net asset values.

Question 74

A discount on a closed-end fund can increase its investment return.

Question 75

Open-end funds sometimes sell at a discount.

Question 76

The more narrowly-defined a mutual fund's objective,the greater its risk,all other things considered.

Question 77

If your investment goal is merely to match the overall market,you should invest in an index fund.

Question 78

A risk-adjusted rate of return for a mutual fund uses the fund's beta weight.

Question 79

A fund with a beta of 0.6 earned a return of 8%.During the same period of time the market return was 12%,which means the fund manager outperformed the market.

Question 80

A mutual fund's reinvestment plan allows you to buy additional shares in a fund from the fund's dividends.