Deck 5: Asset Management Firms

Question 1

Which of the following are types of investment companies?

A) Open-end funds.
B) Closed-end funds.
C) Unit trusts.
D) a and b only.
E) All of the above.

Answer 1

All of the above.

Question 2

Investors in mutual funds incur:

A) Fund sales charges.
B) Annual operating expenses.
C) Interest.
D) a and b only.
E) All of the above.

Answer 2

a and b only.

Question 3

Shares selling below the net asset value (NAV) are said to be trading at:

A) A premium.
B) A discount.
C) Par.
D) Liability
E) Leverage.

Answer 3

A discount.

Question 4

The family of funds concept represents the strategy of the mutual fund industry to offer investors a choice of numerous funds with different investment objectives in the same fund family. Thus, investors may move their assets among:

A) Money market funds.
B) Global stock and bond funds.
C) Broadly diversified stock funds.
D) Stock funds devoted to particular sectors.
E) All of the above.

Question 5

Exchange-traded mutual funds have which of the following characteristics?

A) ETFs are traded like stocks on an exchange.
B) ETFs are similar to closed-end funds.
C) ETFs avoid realized capital gains and the taxation thereof due to their low portfolio turnover.
D) All of the above.
E) None of the above.

Question 6

When the asset manager customizes the investment selection to the objectives of the investor, this is referred to as:

A) A hedge fund.
B) A separately managed account.
C) A private fund.
D) An individual-traded fund.
E) None of the above.

Question 7

The term "hedge fund" was first used to describe:

A) The private investment fund of Alfred Winslow Jones.
B) The Quantum Group of Funds managed by George Soros.
C) The offshore investment corporation of the United Kingdom's Financial Services Authority.
D) The public fund overseen by the Board of Governors of the Federal Reserve
E) None of the above.

Question 8

The management fee structure for hedge funds is:

A) A flat fee per investor or investor group.
B) A fixed fee based on the market value of assets managed.
C) A performance-based incentive fee.
D) b and c only.
E) None of the above.

Question 9

A fund in which the asset manager retains some exposure to systematic risk is:

A) A market directional hedge fund.
B) A corporate restructuring hedge fund.
C) A convergence trading hedge fund.
D) A risk arbitrage hedge fund.
E) An opportunistic hedge fund.

Question 10

All of the following fall under the category of convergence trading hedge funds EXCEPT:

A) Fixed income arbitrage hedge funds.
B) Equity market neutral hedge funds.
C) Global macro hedge funds.
D) Convertible bond arbitrage hedge funds.
E) Relative value hedge funds.

Question 11

Which of the following are considered plan sponsors?

A) Private business entities for their employees.
B) Unions on behalf of their members.
C) Individuals for themselves.
D) a and c only.
E) All of the above.

Question 12

Pension funds are financed by contributions from:

A) The tax system.
B) The employer.
C) The employees.
D) a and b only.
E) b and c only.

Question 13

By far the fastest growing sector of the defined contribution plans is the:

A) 401(k) plan.
B) 403(b) plan.
C) 457 plan.
D) All of the above.
E) None of the above.

Question 14

In a defined contribution plan, the plan sponsor is responsible for making:

A) Specified contributions into the plan on behalf of qualifying participants.
B) Specified payments to the employee after retirement.
C) Variable payments linked to an index such as the CPI.
D) Both a and b.
E) Both b and c.

Question 15

Pension equity and floor-offset plans are examples of:

A) Defined contribution plans.
B) Defined benefit plans.
C) Cash balance plans.
D) Hybrid plans.
E) Exchange traded plans.

Question 16

Pension plans are regulated under which of the following acts?

A) Employee Retirement Income Security Act.
B) Pension Benefit Guaranty Act.
C) Pension Funding Equity Act.
D) Pension Protection Act.
E) Investment Company Act.

Question 17

When the value of the assets of a defined benefit plan is exceeded by the value of its liabilities, the plan is said to:

A) Have a surplus.
B) Have a deficit.
C) Be overfunded.
D) a and c only.
E) None of the above.

Question 18

The pension crisis being faced by corporate defined benefit plans is due to:

A) Poor management.
B) The accounting permitted by accountants with the aid rules of actuaries.
C) Declining contributions from plan participants.
D) a and b only.
E) All of the above.

Question 19

The NAV of a fund valued at $2 million with $500,000 in liabilities and 10,000 shares outstanding is $250.

Question 20

For a closed-end fund, the share price is always the NAV of the fund.

Question 21

An active fund tries to outperform an index and other funds by actively trading the fund portfolio.

Question 22

Unlike a mutual fund, a closed-end fund does not provide risk reduction via diversification.

Question 23

At the current time, hedge funds are not regulated by the SEC.

Question 24

Qualified pension funds are exempt from federal income taxes.

Question 25

An insured defined benefit plan is safer than a noninsured plan.

Question 26

Under ERISA, when an employee retires the plan sponsor may take the necessary retirement benefits out of current cash flow.

Question 27

A plan is said to be underfunded when its funding ratio falls below 100%.

Question 28

Discuss the similarities and differences between exchange traded funds and closed-end funds.

Question 29

Explain the economic functions provided by mutual funds.

Question 30

Discuss the management of pension funds.