Question 1

A fund's transfer agent is responsible for:
I. calculating and distributing the capital gain and dividend income of the fund.
II. mailing shareholder account statements.
III. paying fund expenses.

Accepted Answer

A fund's transfer agent is responsible for calculating and distributing the capital gain and dividend income of the fund and mailing shareholder account statements. The fund's custodian is responsible for paying fund expenses.

Question 2

The difference between a "redemption fee" and a "rear-end load" is that:

Accepted Answer

The difference between a "redemption fee" and a "rear-end load" is that a rear-end load is used to compensate a salesperson who has sold shares of the fund, while a redemption fee is charged to offset the expenses a fund incurs in processing share redemptions.

Question 3

The total return reported by a mutual fund:

Accepted Answer

The total return reported by a mutual fund includes both the dividend and interest income earned by the fund and any increase in the fund's net asset value. It includes both the return on dividends and interest income and the return due to the capital appreciation of the fund's value.

Question 4

Which of the following statements regarding a mutual fund's expenses are true?

Accepted Answer

The true statement regarding a mutual fund's expenses is that a mutual fund's record maintenance fees cannot exceed 0.25% of average net assets. Mutual funds are permitted to have both front-end loads and charge 12b-1 fees, and the expense ratio of a mutual fund can exceed 1.0% (although a common recommendation is to select a fund with an expense ratio ≤ 1.0%.) Mutual fund families have the option of charging an "exchange fee" when an investor switches between their funds.

Question 5

Annie Vestor owns shares of the URMoney Mutual Fund. Annie lives on the west coast in Seattle, Washington. URMoney reported a net asset value per share of $10.10 on October 9^th. On October 10^th, its reported net asset value per share was $10.20. Upon arriving home at 12 P.M. (her time) on October 9^th, Annie logged into the URMoney website and entered an order to redeem 500 shares of her holdings in the fund. This order will be transacted at:

Accepted Answer

If Annie, who lives on the west coast, enters an order to redeem 500 shares at 12 P.M. her time on October 9^th, the order will be executed at the net asset value calculated at the end of that trading day, which is $10.10. Orders received prior to 4 P.M. Eastern Standard Time (EST) are required to be processed at the net asset value of the fund determined at the end of that some trading day, and 12 P.M. in Seattle is 3 P.M. on the east coast.

Question 6

The URMoney Mutual fund, a no load fund, has 10 million shares outstanding. The market value of its assets is $620 million and its liabilities are $150. Based on this information, an investor who wants to buy shares of the fund will pay:

Accepted Answer

Based on the information provided, an investor who wants to buy shares of the URMoney Mutual Fund will pay $47 a share. Since the fund is a no load fund, the shares can be purchased at the net asset value per share of the fund. Net asset value per share (NAVPS) = (market value of fund's assets - fund liabilities) ÷ total number of share outstanding, so NAVPS = ($620 million - $150 million) ÷ 10 million shares = $47.

Question 7

Nancy invested $1,850 in the MidFee Mutual Fund, which has a 4% front-end load. The net asset value (NAV) per share of the fund at the time of her purchase was $22.20.How many shares of the fund was Nancy able to purchase?

Accepted Answer

If Nancy invested $1,850 in MidFee, which has a 4% front-end load, when the fund's net asset value was $22.50, she was able to purchase 80.00 shares. The offer price of the fund = NAV/(1 - % load) = $22.20/(1 - 0.085) = $23.125. An investment of $1,850 would, therefore, purchase $1,850/$23.125 = 80 shares.

Question 8

Which of the following is not a potential advantage associated with investing through a mutual fund?

Accepted Answer

Price discovery is not a potential advantage associated with investing through a mutual fund. The net asset value of the fund determines its price, not the interaction of buyers and sellers in the market. All the other choices are advantages of investing through a mutual fund.

Question 9

The MaxFee Mutual Fund has a front-end load of 8.5%. If its net asset value (NAV) per share is currently $32, for what price can an investor buy shares of the fund?(Round your answer to the nearest cent.)

Accepted Answer

If the MaxFee Mutual Fund has a front-end load of 8.5% and a net asset value per share of $32, an investor can buy shares of the fund at its offer price of $34.97. Offer price = NAV/(1 - % load) = $32/(1 - 0.085) ≈ $34.97.

Question 10

Steve Sharp sees a quote for a mutual fund that indicates the fund has a net asset value (NAV) of $26.60 and a public offering price (POP) of $28.00. Based on this, Mr. Sharp quickly ascertains that this fund must have:

Accepted Answer

A mutual fund that is reported to have a NAV of $26.60 and a POP of $28.00 must have a front-end load of 5.0%. Front-end load = (POP - NAV)/POP = ($28.00 - $26.60)/$28.00 = 5.0%.

Question 11

A table providing detailed information on the various fees and expenses charged by a mutual fund can be found in the fund's:

Accepted Answer

A table providing detailed information on the various fees and expenses charged by a mutual fund can be found in the fund's prospectus. The other choices provide a wealth of information regarding such items as investment strategies, fund holdings, and financial statements, however.

Question 12

Which of the following must be true for a fund to be called a "no load" fund?
I. The fund can have no front-end load.
II. The fund can have no contingent deferred sales charge.
III. The fund can charge no 12b-1 fees.
IV. The fund cannot charge investors an exchange fee.

Accepted Answer

Only Statements I and II must be true for a fund to be called a "no load" fund. The fund can have no front-end load, and it can have no contingent deferred sales charge. It can, however, charge 12b-1 fees, as long as the 12b-1 fees do not exceed 0.25% of the fund's average net assets, and it can charge investors an exchange fee when they elect to switch their monies from one fund to another.

Question 13

A load mutual fund offers reduced load charges when an investor invests over $25,000 in the fund. Which of the following can combine their funds in order to meet that breakpoint and get the reduced sales charge?
I. Mr. and Mrs. Smith
II. Mrs. Smith and her 8-year-old daughter, Susie
III. Mr. Smith and his brother, Darwin
IV. The Smithereen Investment Club, of which Mr. and Mrs. Smith are co-chairpersons

Accepted Answer

Only Mr. and Mrs. Smith and Mrs. Smith and her 8-year-old daughter, Susie, can combine their funds in order to meet the breakpoint and get the reduced sales charge. Investments made by a husband and a wife and by a parent on their own account and on a custodial account for a minor child can be combined toward the total needed to reach the breakpoint. (The child cannot be an adult, however.) Investments made by siblings and investment clubs cannot be combined to meet a breakpoint.

Question 14

Which of the following statements regarding a letter of intent is true?

Accepted Answer

The true statement is that a letter of intent may be backdated up to 90 days so that any purchases made during that prior time period will count toward making a breakpoint. An investor has 13 months in which to invest the amount stipulated in the letter. The invested funds must consist of new money; reinvested dividends and capital gain distributions don't count. If the amount stipulated in the letter of intent is not invested during the 13 months, the investor must only make up the difference between the sales charge he paid and what he should have paid, given that he didn't qualify for the breakpoint. No interest is charged on the difference.

Question 15

Which of the following statements regarding the "rights of accumulation" is true?

Accepted Answer

The true statement is that reinvested dividends and capital gain distributions count toward reaching a breakpoint under the rights of accumulation. The rights of accumulation is not something that all mutual funds with front-end loads must offer. There is no time limit on the accumulation period. The rights of accumulation and the letter of intent are two separate animals; neither has anything to do with the other.

Question 16

Which of the following share classes do not have front-end loads?

Accepted Answer

Neither Class B nor Class C shares have front-end loads. Class B and Class C shares typically have higher 12b-1 fees, however, with Class C having the highest 12b-1 fees of the three classes.

Question 17

When a mutual fund is valuing your pre-existing holdings to see if you qualify for a reduced sales charge under its rights of accumulation program, it must use:

Accepted Answer

When a mutual fund is valuing your pre-existing holdings to see if you qualify for a reduced sales charge under its rights of accumulation program, it is not required to use any specific one of the specified choices. It is allowed to choose from among them. Some funds even allow you to use the higher of either the current NAV or POP or the historical NAV or POP, since the historical value might be higher than the current value in a down market.

Question 18

A fund's 12b-1 fees may not be used to pay which of the following?

Accepted Answer

A fund's 12b-1 fees may not be used to pay the administrative expense of the fund's investment adviser. This would be part of the fund's management fees. SEC rule 12b-1 authorizes a fund to pay for distribution costs out of a fund's assets only if the fund has adopted a 12b-1 plan. The SEC defines these distribution costs to include the costs of marketing and selling the fund shares, including compensating brokers who help to sell the shares, and printing and mailing prospectuses and sales literature to existing and prospective customers.

Question 19

Which of the following statements regarding the purchase and redemption of mutual fund shares is false?

Accepted Answer

The false statement regarding the purchase and redemption of mutual fund share is that when an investor redeems his shares, the mutual fund must pay for the shares within 7 business days. The mutual fund must pay for the shares within 7 calendar days. All the other statements are true.

Question 20

B. Beard started making regular investments in a mutual fund with the goal of financing a five-year circumnavigation on his 40-foot sailboat, "Pirate's Lady." He is getting ready to depart and wants to set up an automatic withdrawal plan such that the money he has invested will see him through his circumnavigation, with nothing remaining in the account at the end. Which of the systematic withdrawal plans will best fit his needs?

Accepted Answer

Since Mr. Beard wants an automatic withdrawal plan such that the money will last through his circumnavigation, with nothing remaining at the end, he should elect to use the fixed-time plan. Under this plan, the fund determines how much it will redeem each period over the five years such that the account is depleted at the end of that time period. There is no way of knowing exactly how long Mr. Beard's money will last under the other three types of plans; it could be greater than or less than 5 years--or exactly 5 years for that matter.

Quiz 1: Investment and Bond Market

A fund's transfer agent is responsible for: I. calculating and distributing the capital gain and dividend income of the fund. II. mailing shareholder account statements. III. paying fund expenses.