Deck 4: Mutual Funds and Other Investment Companies

Question 1

Mutual funds provide the following for their shareholders:

A) Diversification
B) Professional management
C) Record keeping and administration
D) Mutual funds provide diversification, professional management, and record keeping and administration

Answer 1

D

Question 2

The type of mutual fund that primarily engages in market timing is called a/an _______.

A) sector fund
B) index fund
C) ETF
D) asset allocation fund

Answer 2

D

Question 3

As of 2008,approximately _____ of mutual fund assets were invested in money market funds.

A) 5%
B) 26%
C) 44%
D) 66%

Answer 3

B

Question 4

Which of the following typically employ significant amounts of leverage?
I)Hedge funds
II)REITs
III)Money market funds
IV)Equity mutual funds

A) I and II only
B) II and III only
C) III and IV only
D) I, II and III only

Question 5

The average maturity of fund investments in a money market mutual fund is _______.

A) slightly more than one month
B) slightly more than one year
C) about 9 months
D) between 2 and 3 years

Question 6

The primary measurement unit used for assessing the value of one's stake in an investment company is ___________________.

A) Net Asset Value
B) Average Asset Value
C) Gross Asset Value
D) Total Asset Value

Question 7

In the U.S.there are approximately _______ mutual funds offered by less than _______ fund families.

A) 12,000; 600
B) 7,000; 100
C) 8,000; 500
D) 9,000; 300

Question 8

Which one of the following invests in a portfolio that is fixed for the life of the fund?

A) Mutual fund
B) Money market fund
C) Managed investment company
D) Unit investment trust

Question 9

The NAV of which funds is fixed at $1 per share?

A) Equity funds
B) Money market funds
C) Fixed income funds
D) Commingled funds

Question 10

Which of the following result in a taxable event for investors?
I)Short-term capital gains distributions from the fund
II)Dividend distributions from the fund
III)Long-term capital gains distributions from the fund

A) I only
B) II only
C) I and II only
D) I, II and III

Question 11

As of 2008,approximately _____ of mutual fund assets were invested in equity funds.

A) 5%
B) 54%
C) 30%
D) 12%

Question 12

Rank the following fund category from most risky to least risky.
I)Equity growth fund
II)Balanced fund
III)Sector fund
IV)Money market fund

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

Question 13

As of 2008,approximately _____ of mutual fund assets were invested in bond funds.

A) 14%
B) 19%
C) 37%
D) 47%

Question 14

The two principal types of REITs are equity trusts which _______________ and mortgage trusts which _______________.

A) invest directly in real estate; invest in mortgage and construction loans
B) invest in mortgage and construction loans; invest directly in real estate
C) use extensive leverage; distribute less than 95% of income to shareholders
D) distribute less than 95% of income to shareholders; use extensive leverage

Question 15

______ are partnerships of investors with portfolios that are larger than most individual investors but are still too small to warrant managing on a separate basis.

A) Commingled funds
B) Closed-end funds
C) REITs
D) Mutual funds

Question 16

Advantages of investment companies to investors include all but which one of the following?

A) Record keeping and administration
B) Low cost diversification
C) Professional management
D) Guaranteed rates of return

Question 17

A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.

A) commingled pool
B) unit trust
C) hedge fund
D) money market fund

Question 18

Management fees for open-end and closed-end funds,typically range between _____ and _____.

A) 0.2%; 1.5%
B) 0.5%; 5%
C) 2%; 5%
D) 3%; 8%

Question 19

A contingent deferred sales charge is commonly called a ____.

A) front-end load
B) back-end load
C) 12b-1 charge
D) top end sales commission

Question 20

In 1999,the SEC established rules that should make a mutual fund prospectus _______.

A) easier to read and understand
B) much more detailed
C) disappear over the next 10 years
D) irrelevant to investors

Question 21

Revenue sharing with respect to mutual funds refers to _________.

A) fund companies paying brokers if the broker recommends the fund to investors
B) allowing certain classes of investors to engage in market timing
C) charging loads to new investors in a mutual fund
D) directly marketing funds over the Internet

Question 22

Which of the following funds invest in stocks of fast growing companies?

A) Balanced funds
B) Growth equity funds
C) REITs
D) Equity income funds

Question 23

Low load mutual funds have front-end loads of no more than _____.

A) 2%
B) 3%
C) 4%
D) 5%

Question 24

Assume that you have just purchased some shares in an investment company reporting $500 million in assets,$50 million in liabilities,and 50 million shares outstanding.What is the Net Asset Value (NAV)of these shares?

A) $12.00
B) $9.00
C) $10.00
D) $1.00

Question 25

Assume that you have recently purchased 100 shares in an investment company.Upon examining the balance sheet,you note the firm is reporting $225 million in assets,$30 million in liabilities,and 10 million shares outstanding.What is the Net Asset Value (NAV)of these shares?

A) $25.50
B) $22.50
C) $19.50
D) $1.95

Question 26

Investors who wish to liquidate their holdings in a closed-end fund may ___________________.

A) sell their shares back to the fund at a discount if they wish
B) sell their shares back to the fund at net asset value
C) sell their shares on the open market
D) sell their shares at a premium to net asset value if they wish

Question 27

Sponsors of unit investment trusts earn a profit by ___________________.

A) deducting management fees from fund assets
B) deducting a percentage of any gains in asset value
C) selling shares in the trust at a premium to the cost of acquiring the underlying assets
D) charging portfolio turnover fees

Question 28

The Vanguard 500 Index Fund tracks the performance of the S&P 500.To do so the fund buys shares in each S&P 500 company __________.

A) in proportion to the market value weight of the firm's equity in the S&P500
B) in proportion to the price weight of the stock in the S&P500
C) by purchasing an equal number of shares of each stock in the S&P 500
D) by purchasing an equal dollar amount of shares of each stock in the S&P500

Question 29

__________ is a false statement regarding open-end mutual funds.

A) They offer investors a guaranteed rate of return
B) They offer investors a well diversified portfolio
C) They redeem shares at their net asset value
D) They offer low cost diversification

Question 30

Most real estate investment trusts (REITs)have a debt ratio of around _________.

A) 10 %
B) 30 %
C) 50 %
D) 70 %

Question 31

Higher portfolio turnover
I)results in greater tax liability for investors
II)results in greater trading costs for the fund,which investors have to pay for
III)is a characteristic of asset allocation funds

A) I only
B) II only
C) I and II only
D) I, II and III

Question 32

The greatest percentage of mutual fund assets are invested in ________.

A) bond funds
B) equity funds
C) hybrid funds
D) money market funds

Question 33

Which of the following is not a type of managed investment company?

A) Unit investment trusts
B) Closed-end funds
C) Open-end funds
D) Hedge funds

Question 34

Investors who wish to liquidate their holdings in a unit investment trust may ___________________.

A) sell their shares back to the trustee at a discount
B) sell their shares back to the trustee at net asset value
C) sell their shares on the open market
D) sell their shares at a premium to net asset value

Question 35

Measured by assets,about _____ of funds are money market funds.

A) 15%
B) 25%
C) 40%
D) 60%

Question 36

__________ fund is defined as one where the fund charges a sales commission to either buy into or exit the fund.

A) A load
B) A no-load
C) An index
D) A specialized sector fund

Question 37

A fund that invests in securities worldwide,including the United States is called a/an ______.

A) international fund
B) emerging market fund
C) global fund
D) regional fund

Question 38

Net Asset Value is defined as ________________________.

A) book value of assets divided by shares outstanding
B) book value of assets minus liabilities divided by shares outstanding
C) market value of assets divided by shares outstanding
D) market value of assets minus liabilities divided by shares outstanding

Question 39

__________ funds stand ready to redeem or issue shares at their net asset value.

A) Closed-end
B) Index
C) Open-end
D) Hedge

Question 40

Which of the following is not a type of real estate investment trust?
I)Equity trust
II)Debt trust
III)Mortgage trust
IV)Unit trust

A) I and II only
B) II only
C) II and IV only
D) I, II and III

Question 41

An official description of a particular mutual fund's planned investment policy can be found in the fund's _____________.

A) prospectus
B) indenture
C) investment statement
D) 12b-1 forms

Question 42

Mutual funds account for roughly ______ percent of investment company assets.

A) 30
B) 50
C) 70
D) 90

Question 43

Specialized sector funds concentrate their investments in _________________.

A) bonds of a particular maturity
B) geographical segments of the real estate market
C) government securities
D) securities issued by firms in a particular industry

Question 44

You are considering investing in one of several mutual funds.All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees.The longer you plan on remaining in the fund you choose,the more likely you will prefer a fund with a __________ rather than a __________,everything else equal.

A) 12b-1 fee; front-end load
B) front-end load; 12b-1 fee
C) back-end load, front-end load
D) 12b-1 fee; back-end load

Question 45

______________________ are often called mutual funds.

A) Unit investment trusts
B) Open-end investment companies
C) Closed-end investment companies
D) REITs

Question 46

Mutual funds that hold both equities and fixed-income securities in relatively stable proportions are called ____________________.

A) income funds
B) balanced funds
C) asset allocation funds
D) index funds

Question 47

With respect to mutual funds,late trading refers to the practice of ________.

A) trading after the close of U.S. markets but before overseas markets have closed
B) trading after the close of overseas markets, but before U.S. markets have closed
C) accepting buy or sell orders after the market closes and NAV has already been determined for the day
D) paying capital gains distributions to certain investors only after paying privileged investors first

Question 48

Consider a no-load mutual fund with $200 million in assets and 10 million shares at the start of the year,and $250 million in assets and 11 million shares at the end of the year.During the year investors have received income distributions of $2 per share,and capital gains distributions of $0.25 per share.Assuming that the fund carries no debt,and that the total expense ratio is 1%,what is the rate of return on the fund?

A) 36.25%
B) 24.90%
C) 23.85%
D) There is not sufficient information to answer this question

Question 49

If a mutual fund has multiple class shares,which class typically has a front end load?

A) Class A
B) Class B
C) Class C
D) Class D

Question 50

A/an _____ is an example of an exchange-traded fund.

A) SPDR or spider
B) samurai
C) Vanguard
D) open-end fund

Question 51

Mutual fund returns may be granted pass-through status,if _________________.

A) at least 90 percent of all income is distributed to shareholders
B) at least 30 percent of fund income is derived from sale of securities held for less than 3 months
C) certain diversification criteria are met
D) All of these must be true for pass-through status to be granted

Question 52

Consider a no-load mutual fund with $400 million in assets,50 million in debt,and 15 million shares at the start of the year; and $500 million in assets,40 million in debt,and 18 million shares at the end of the year.During the year investors have received income distributions of $0.50 per share,and capital gains distributions of $0.30 per share.Assuming that the fund carries no debt,and that the total expense ratio is 0.75%,what is the rate of return on the fund?

A) 12.09%
B) 12.99%
C) 8.25%
D) There is not sufficient information to answer this question

Question 53

Consider a mutual fund with $300 million in assets at the start of the year,and 12 million shares outstanding.If the gross return on assets is 18% and the total expense ratio is 2% of the year end value,what is the rate of return on the fund?

A) 15.64%
B) 16.00%
C) 17.25%
D) 17.50%

Question 54

Mutual funds that vary the proportions of funds invested in particular market sectors according to the fund manager's forecast of the performance of that market sector,are called ____________________.

A) asset allocation funds
B) balanced funds
C) index funds
D) income funds

Question 55

The commission,or front-end load,paid when you purchase shares in mutual funds,may not exceed __________.

A) 3%
B) 6%
C) 8.5%
D) 10%

Question 56

Under SEC rules,the managers of certain funds are allowed to deduct charges for advertising,brokerage commissions,and other sales expenses,directly from the fund assets rather than billing investors.These fees are known as ____________.

A) direct operating expenses
B) back-end loads
C) 12b-1 charges
D) front-end loads

Question 57

If you place an order to buy or sell a share of a mutual fund during the trading day the order will be executed at

A) the NAV calculated at the market close at 4:00 pm New York time.
B) the real time NAV.
C) the NAV delayed 15 minutes.
D) the NAV calculated at the open of the next day's trading.

Question 58

In the 1970 study,Malkiel found that mutual funds that do well in one period,have an approximately ________ chance of doing well in the subsequent ear period.

A) 33%
B) 52%
C) 65%
D) 85%

Question 59

SEC rule 12b-1 allows managers of certain funds to deduct __________ expenses from fund assets,however,these expenses may not exceed __________ of the fund's average net assets per year.

A) marketing; 1%
B) marketing; 5%
C) administrative; 0.5%
D) administrative; 2%

Question 60

In 2000,the SEC instituted new rules that require funds to disclose _____.

A) 12b-1 fees
B) the tax impact of portfolio turnover
C) front-end loads
D) back-end loads

Question 61

In a recent study,Malkiel finds that evidence of persistence in the performance of mutual funds,________________ in the 1980s.

A) grows stronger
B) remains about the same
C) becomes slightly weaker
D) virtually disappears

Question 62

From 1971 to 2007 the average return on the Wilshire 5000 index was _________ the return of the average mutual fund.

A) identical to
B) 1% higher than
C) 1% lower than
D) 3% lower than

Question 63

An open-end fund has a NAV of $16.50 per share.The fund charges a 6% load.What is the offering price?

A) $14.57
B) $15.95
C) $17.55
D) $16.49

Question 64

The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B Shares with a 12b-1 fees of 1% annually.If you plan to sell the fund after 4 years,are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses.

A) Class A
B) Class B
C) There is no difference.
D) There is insufficient information given.

Question 65

The ratio of trading activity of a portfolio to the assets of the portfolio,is called ____________.

A) the reinvestment ratio
B) the trading rate
C) the portfolio turnover
D) the tax yield

Question 66

The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million.It has liabilities of $5 million and 9 million shares outstanding.If the fund sells for $30 a share,what is its premium or discount as a percent of NAV?

A) 9.26% premium
B) 8.47% premium
C) 9.26% discount
D) 8.47% discount

Question 67

A mutual fund has total assets outstanding of $69 million.During the year the fund bought and sold assets equal to $17.25 million.This fund's turnover rate was _____.

A) 25.00%
B) 28.50%
C) 18.63%
D) 33.40%

Question 68

The difference between balanced funds and asset allocation funds is that _____.

A) balanced funds invest in bonds while asset allocation funds do not
B) asset allocation funds invest in bonds while balanced funds do not
C) balanced funds have relatively stable proportions of stocks and bonds while the proportions may vary dramatically for asset allocation funds
D) balanced funds make no capital gains distributions and asset allocation funds make both dividend and capital gains distributions

Question 69

The assets of a mutual fund are $25 million.The liabilities are $4 million.If the fund has 700,000 shares outstanding and pays a $3 dividend,what is the dividend yield?

A) 5%
B) 10%
C) 15%
D) 20%

Question 70

Which type of investment fund is commonly known to invest in options and futures in large scale?

A) Commingled funds
B) Hedge funds
C) ETFs
D) REITS

Question 71

A mutual fund has $50 million in assets at the beginning of the year and 1 million shares outstanding throughout the year.Throughout the year assets grow at 12%.The fund imposes a 12b-1 fee on all shares equal to 1%.The fee is imposed on year end asset values.If there are no distributions what is the end of year NAV for the fund?

A) $50.00
B) $55.44
C) $56.12
D) $54.55

Question 72

Which of the following funds is most likely to have a debt ratio of 70% or higher?

A) Bond fund
B) Commingled fund
C) Mortgage backed securities
D) REIT

Question 73

You invest in a mutual fund that charges a 3% front end load,1% total annual fees,and a 0% back end load on Class A shares.The same fund charges 0% front end load,1% total annual fees,and a 2% back end load on Class B shares.What are the total fees in year one on a Class A investment of $20,000 with no growth in value?

A) 658
B) 794
C) 885
D) 902

Question 74

Which of the following ETFs tracks the S&P 500 index?

A) Qubes
B) Diamonds
C) Vipers
D) Spiders

Question 75

About _________ of mutual fund assets are invested in no-load funds.

A) 33%
B) 40%
C) 50%
D) 65%

Question 76

Which of the following funds are usually most tax efficient?

A) Equity funds
B) Bond Funds
C) ETFs
D) Specialized sector funds

Question 77

The offer price of an open-end fund is $18.00 and the fund is sold with a front-end load of 5%? What is the fund's NAV?

A) $18.74
B) $17.10
C) $15.40
D) $16.57

Question 78

Advantages of ETFs over mutual funds include all but which one of the following?

A) ETFs trade continuously so investors can trade throughout the day
B) ETFs can be sold short or purchased on margin, unlike fund shares
C) ETF providers do not have to sell holdings to fund redemptions
D) ETF values can diverge from NAV

Question 79

You invest in a mutual fund that charges a 3% front end load,1% total annual fees,and a 2% back end load,which decreases 0.5% per year.How much will you pay in fees on a $10,000 investment that does not grow,if you cash out after three years of no gain?

A) 103
B) 219
C) 553
D) 635

Question 80

Harold has just taken his company public and owns a large quantity of restricted stock.For purposes of diversification,what fund might he help create in order to diversify his holdings?

A) Commingled funds
B) Hedge funds
C) ETF
D) REITs