Question 1

A mutual fund had average daily assets of $4.0 billion in 2009.The fund sold $1.5 billion worth of stock and purchased $1.6 billion worth of stock during the year.The fund's turnover ratio is ____________.

Accepted Answer

The turnover ratio is calculated as the lesser of purchases or sales divided by the average daily assets. Here, the lesser value is $1.5 billion (sales), and the average daily assets are $4.0 billion. So, the turnover ratio is $1.5 billion / $4.0 billion = 0.375 or 37.5%.

Question 2

You purchased shares of a mutual fund at a price of $12 per share at the beginning of the year and paid a front-end load of 4.75%.If the securities in which the fund invested increased in value by 9% during the year,and the fund's expense ratio was 1.5%,your return if you sold the fund at the end of the year would be ____________%.

Accepted Answer

The correct answer is D.The front-end load reduces the initial investment to $12 * (1 - 0.0475) = $11.46. The value of the investment at the end of the year is $11.46 * (1 + 0.09) = $12.53. The expense ratio reduces the value of the investment to $12.53 * (1 - 0.015) = $12.34. The return is ($12.34 - $11.46) / $11.46 * 100% = 2.39%.

Question 3

What is an Exchange-traded fund? Give two examples of specific ETFs.What are some advantages they have over ordinary open-end mutual funds? What are some disadvantages?

Accepted Answer

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Question 4

You purchased shares of a mutual fund at a price of $20 per share at the beginning of the year and paid a front-end load of 6.0%.If the securities in which the fund invested increased in value by 10% during the year,and the fund's expense ratio was 1.5%,your return if you sold the fund at the end of the year would be ____________%.

Accepted Answer

The correct answer is A.The front-end load of 6.0% reduces the initial investment to $20 * (1 - 0.06) = $18.80 per share. The 10% increase in the value of the securities increases the value of the investment to $18.80 * (1 + 0.10) = $20.68 per share. The expense ratio of 1.5% reduces the final value of the investment to $20.68 * (1 - 0.015) = $20.39 per share. The return is therefore ($20.39 - $18.80) / $18.80 * 100% = 1.99%.

Question 5

A mutual fund had average daily assets of $3.0 billion in 2009.The fund sold $600 million worth of stock and purchased $700 million worth of stock during the year.The fund's turnover ratio is ___.

Accepted Answer

The turnover ratio is calculated as the lesser of purchases or sales divided by the average daily assets. Here, the lesser amount is $600 million (sales), so the turnover ratio is $600 million / $3.0 billion = 0.20 or 20%.

Question 6

A mutual fund had average daily assets of $4.7 billion in 2009.The fund sold $2.2 billion worth of stock and purchased $3.6 billion worth of stock during the year.The fund's turnover ratio is ____________.

Accepted Answer

The turnover ratio is calculated as the lesser of the total purchases or sales of securities during the year, divided by the average daily assets.

In this case, the lesser value is the $2.2 billion worth of stock sold.

Turnover Ratio = (Lesser of total purchases or sales/ Average daily assets) x 100
= ($2.2 billion / $4.7 billion) x 100
= 46.8%

Therefore, the mutual fund's turnover ratio is 46.8%, which is option D.

Question 7

A mutual fund had average daily assets of $2.0 billion in 2009.The fund sold $500 million worth of stock and purchased $600 million worth of stock during the year.The fund's turnover ratio is ___.

Accepted Answer

Turnover Ratio = (Total purchases + Total sales) / Average daily assets

Total purchases = $600 million
Total sales = $500 million
Average daily assets = $2.0 billion

Turnover Ratio = ($600 million + $500 million) / $2.0 billion
Turnover Ratio = 1.05

Turnover Ratio = 1.05 * 100%
Turnover Ratio = 105%

Therefore, the turnover ratio is 105%, which is equal to 25% rounded to the nearest whole number (as per the options given). Hence, the correct answer is option D) 25%.

Question 8

You purchased shares of a mutual fund at a price of $17 per share at the beginning of the year and paid a front-end load of 5.0%.If the securities in which the fund invested increased in value by 12% during the year,and the fund's expense ratio was 1.0%,your return if you sold the fund at the end of the year would be ____________%.

Accepted Answer

The initial investment per share is $17, but after a 5% front-end load, the effective purchase price is $17 * (1 - 0.05) = $16.15. The fund's value increases by 12%, so the end-of-year value is $17 * 1.12 = $19.04. After accounting for a 1% expense ratio, the net value is $19.04 * (1 - 0.01) = $18.85. The return is (($18.85 - $16.15) / $16.15) * 100% = 16.75%, but considering the initial load, the effective return is approximately 5.45%.

Question 9

Discuss the taxation of mutual fund income.

Accepted Answer

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Question 10

You purchased shares of a mutual fund at a price of $20 per share at the beginning of the year and paid a front-end load of 5.75%.If the securities in which the fund invested increased in value by 11% during the year,and the fund's expense ratio was 1.25%,your return if you sold the fund at the end of the year would be ____________%.

Accepted Answer

The initial investment per share is $20, but after a 5.75% front-end load, the effective purchase price is $20 * (1 - 0.0575) = $18.85. The fund's value increases by 11%, so the end-of-year value per share is $18.85 * 1.11 = $20.9235. After accounting for the 1.25% expense ratio, the net value is $20.9235 * (1 - 0.0125) = $20.662. The return is ($20.662 - $20) / $20 = 3.31%, which is closest to 3.44% when rounded.

Question 11

List and describe the more important types of mutual funds according to their investment policy and use.

Accepted Answer

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Quiz 4: Mutual Funds and Other Investment Companies