Question 1

You purchased 100 shares of Gibraltar Strength Fund for $12.75 per share.Its current NAV is 18.75 per share.There was a total of $0.25 in dividends and $0.75 in capital gains distributed.What is your total return?

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Question 2

Explain what the three 'classes' of a mutual fund shares are all about.

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Question 3

What does the following mathematical expression yield? (total market value of all securities - liabilities)divided by (total shares outstanding)=

Accepted Answer

This expression yields the net asset value (NAV) per share, which is calculated by subtracting the liabilities from the total market value of all securities and dividing the result by the total shares outstanding. Therefore, the correct answer is C, net asset value.

Question 4

What is the total return for a mutual fund with the following characteristics?
Beginning NAV = $55.82
Ending NAV = $70.52
Dividends distributed = $2.25
Capital gains distributed = $3.50

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Question 5

You purchased 500 shares in a mutual fund for $32 NAV.You elected the dividend reinvestment plan and had all dividend and capital gains distributions reinvested in additional shares.You just closed your account and sold 550 shares for $48 NAV.What was your total return on this investment?

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Question 6

You purchased 1,000 shares of fund ABC for $35.00 NAV per share.You elected the dividend reinvestment plan and had all dividend and capital gains distributions reinvested in additional shares.You just closed your account and sold 1,100 shares for $30 NAV.What was your total return on this investment?

Accepted Answer

The initial investment cost is 1,000 shares * $35.00 NAV per share = $35,000.
Assuming a 5% dividend and capital gains distribution each year over a holding period of, say, three years, the number of shares grows to:
Year 1: 1,000 + (1,000 * 5%) = 1,050 shares
Year 2: 1,050 + (1,050 * 5%) = 1,102.5 shares
Year 3: 1,102.5 + (1,102.5 * 5%) = 1,157.63 shares
The closing value of the investment is 1,100 shares * $30 NAV = $33,000.
The total return is ($33,000 - $35,000) / $35,000 = -0.0571 or -5.71%.
Therefore, the correct answer is B.

Question 7

Suppose that the current value of all of a mutual fund's holdings is determined to be $750 million.The fund's liabilities are $125 million and it grew at 20% from last year.It currently has 45 million shares outstanding.What is the fund's NAV?

Accepted Answer

To calculate the NAV, we need to subtract the liabilities from the current value of the holdings, which gives us $625 million.

Next, we need to divide this by the number of shares outstanding, which is 45 million:

NAV = $625 million / 45 million = $13.89 per share

Therefore, the correct answer is B, $13.89 per share.

Question 8

Total returns on mutual funds can be calculated by adding dividends distributed,capital gains distributed,and ________ and dividing this sum by the beginning NAV.

Accepted Answer

The calculation of total returns on mutual funds involves adding the dividends distributed, capital gains distributed, and any change in the NAV (net asset value) of the fund. Since the beginning NAV is used as a reference point, the change in NAV is represented by the difference between the ending and beginning NAV. Therefore, the correct formula for calculating total returns is: (dividends distributed + capital gains distributed + (ending NAV - beginning NAV)) / beginning NAV. Hence, option B is the correct choice as it represents the change in NAV that needs to be included in the calculation.

Question 9

You purchased 100 shares of a fund for $15.50 per share.Its current NAV is 20.75 per share.There were no distributions.What is your total return?

Accepted Answer

The total return is calculated by the formula: [(Current NAV - Purchase Price) / Purchase Price] * 100. Here, it is [(20.75 - 15.50) / 15.50] * 100 = (5.25 / 15.50) * 100 = 33.87%.

Question 10

The ________ is the value of the mutual fund's holdings,minus any debt,divided by the number of shares outstanding.

Accepted Answer

Net asset value (NAV) is the value of the mutual fund's holdings, minus any debt, divided by the number of shares outstanding. It represents the per-share value of the mutual fund and is calculated at the end of each trading day. Therefore, option D is the correct choice.

Question 11

Zippo Mutual Fund is one of your best performers.It just announced a year-end distribution of $2.50 per share in capital gains and $4.25 in dividends.Assuming the NAV increased from $31.50 to $43.75,calculate your total annual return.

Accepted Answer

The total annual return is calculated by adding the capital gains and dividends to the increase in NAV, then dividing by the initial NAV. The increase in NAV is $43.75 - $31.50 = $12.25. Adding the distribution, the total gain is $12.25 + $2.50 + $4.25 = $19.00. The total return percentage is ($19.00 / $31.50) * 100 = 60.32%.

Question 12

What are the tax liabilities concerning investing in a mutual fund?

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Question 13

Briefly describe the cost involved in mutual funds.

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Question 14

What provides a measure of the level of a mutual fund's trading activity?

Accepted Answer

Turnover ratio provides a measure of the level of a mutual fund's trading activity. It represents the percentage of a fund's holdings that have been bought and sold during a particular period of time, usually one year. A high turnover ratio can indicate that the fund manager is actively trading securities, which can increase costs and potentially result in capital gains taxes for investors. A low turnover ratio may indicate a more passive investment approach.

Question 15

Explain how a dividend reinvestment plan is similar to compounding and the time value of money.

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Question 16

You purchased 100 shares of Gibraltar Strength Fund for $20.50 per share.As a result of distribution reinvestment you currently own 120 shares with a NAV of $22.75 per share.What is your total return?

Accepted Answer

The initial investment was 100 shares at $20.50, totaling $2050. The current value is 120 shares at $22.75, totaling $2730. The total return is calculated as ((2730 - 2050) / 2050) * 100 = 33.17%.

Question 17

Which of the following will affect your capital gains liability?

Accepted Answer

Changes in net asset value and turnover ratio will affect your capital gains liability.

Question 18

Which of the following are passed on to fund share holders through 12b-1 fees?

Accepted Answer

Only advertising expenses and promotional fees are passed on to fund shareholders through 12b-1 fees. Commissions are paid to brokers or financial advisors and are not directly related to 12b-1 fees.

Question 19

Explain how sales loads and fund expenses can negatively impact your return on investment in a mutual fund.

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Question 20

Marketing expenses on mutual funds are covered by a

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Marketing expenses on mutual funds are covered by a 12b-1 fee, which is a fee charged annually by a mutual fund to cover marketing and distribution expenses. This fee is included in the fund's expense ratio, and can range from 0.25% to 1% of the fund's assets. No-load funds do not charge upfront sales commissions, but may still charge 12b-1 fees. The NAV (net asset value) represents the value of a mutual fund's holdings, and does not directly relate to marketing expenses.

Quiz 14: Mutual Funds: an Easy Way to Diversify