Question 1

If interest rates fall, a bond issuer may decide to pay off (or "retire") its debt and issue new bonds that pay a lower rate. When this happens, the fund may not be able to reinvest the proceeds in an investment with a high return or yield. This is an example of:

Accepted Answer

Prepayment risk occurs when a bond issuer pays off its debt early, often due to falling interest rates, which can lead to reinvestment at lower yields.

Question 2

One fund may invest on mostly established "blue chip" (Companies that pay regular dividends). Another fund may invest in newer technology companies that pay no dividends but that may have more potential for growth. These are the examples of:

Accepted Answer

The given examples are of stock funds that invest in different types of stocks based on their strategy. Mutual funds and index funds may also have similar strategies but they may invest in a wider range of assets like bonds, commodities, etc. Bond funds, on the other hand, invest only in fixed income securities. Therefore, based on the given examples, stock funds are the best choice.

Question 3

Some of the risks associated with bond funds are all of the following EXCEPT:

Accepted Answer

The answer of Some of the risks associated with bond...

Question 4

End users need to hedge the prices at which they can purchase these commodities for instance:

Accepted Answer

Both A and B are examples of end users who need to hedge the prices at which they can purchase commodities. The university wants to lock in the price of electricity for its air conditioning units in the upcoming summer months, while the airline wants to lock in the price of jet fuel to satisfy the peak demand for travel. Option C is also a valid example, but it is not the only other option as there are likely many other end users who need to hedge their exposure to changes in commodity prices.

Question 5

I- A gold producers wants to hedge his losses attributable to a fall in the price of gold for his current gold inventory. II- A cattle farmer wants to hedge his exposure to changes in the price of his livestock These are the examples of __________ who need to manage their exposure to fluctuations in the prices of their commodities.

Accepted Answer

The answer of I- A gold producers wants to hedge...

Question 6

Overall "market risk" poses the greatest potential danger for investors in ____________.

Accepted Answer

Market risk refers to the risk of an investment losing value due to broad changes in the market, such as economic downturns or geopolitical events. As stocks tend to be more closely correlated with overall market movements than bonds or hedge funds, investors in stock funds would be most vulnerable to market risk. Growth funds are a type of stock fund, so they also carry a high level of market risk.

Question 7

Mutual funds provide an attractive investment choice because they generally offer the following feature/s:

Accepted Answer

Mutual funds offer professional management, diversification, and affordability, making them an attractive choice for investors looking for a hands-off approach to their investments. Professional fund managers are hired by the mutual fund company to make investment decisions on behalf of the investors, which can lead to better investment returns. Diversification is achieved by investing in a broad range of securities, which helps to reduce overall risk. Finally, mutual funds typically have low minimum investment requirements, making them accessible to a wide range of investors.

Question 8

___________ have relatively low risks, compared to other mutual funds.

Accepted Answer

Money funds have relatively low risks compared to other mutual funds due to their focus on investing in high-quality, short-term debt securities such as government and corporate bonds. Hedge funds, on the other hand, are typically more complex and higher risk investment vehicles that cater to wealthy and sophisticated investors.

Question 9

Which of the following is not an audit objective of a commodity department?

Accepted Answer

Verify the accuracy and reporting (inventory reports, fail reports, again reports and profit and loss reports.) is not an audit objective of a commodity department.

Question 10

There are some investment companies, known as exchange-traded funds or ETFS, which are legally classified as open-end companies or UITs. EFTs differ from traditional open-end companies and UITs because:

Accepted Answer

ETFs differ from traditional open-end companies and UITs in all of the ways listed in options A, B, and C. They are legally classified as open-end companies or UITs but are traded on a secondary market like individual stocks, can be bought and sold throughout the trading day, and can only be redeemed in large blocks rather than individual shares.

Question 11

All of these are disadvantages of mutual funds EXCEPT:

Accepted Answer

Liquidity is actually an advantage of mutual funds, as investors can easily buy and sell shares on the open market. Cost despite negative returns, lack of control, and price uncertainty are all common disadvantages of mutual funds.

Question 12

Money market funds bond funds (also called "fixed income" funds), and stock funds (also called equity funds) are the categories of:

Accepted Answer

Money market funds, bond funds, and stock funds are all types of mutual funds, which are professionally managed portfolios of stocks, bonds, and other investments. Therefore, the best choice is A) Mutual funds.

Question 13

Close-end funds:

Accepted Answer

A) Close-end funds are not redeemable, meaning that investors cannot buy or sell shares of the fund directly with the fund manager. Instead, they must do so on a secondary market, such as a stock exchange, where the price may not always reflect the underlying value of the fund's assets.

B) The investment portfolios of close-end funds are generally managed by separate entities, such as investment companies or banks.

C) Close-end funds are permitted to invest in a greater amount of "illiquid" securities than mutual funds. This means that they can invest in assets that are not easily bought and sold in the market, such as real estate or private equity. However, this also means that close-end funds may be subject to more liquidity risk if investors attempt to sell their shares in large volumes.

Question 14

Close-end funds are traded on:

Accepted Answer

Close-end funds are traded on secondary markets, such as stock exchanges, just like stocks and other securities. They are not traded on a primary market as they are not initially issued to the public through an IPO, nor are they traded on a tertiary market as there is no such thing. They are traded on a secondary market where investors buy and sell shares amongst themselves, and the price of the shares is based on supply and demand.

Question 15

If a mutual fund has an NAV of $100 million, and investors own $10,000,000 of fund's shares, the funds per share value will be:

Accepted Answer

The NAV (Net Asset Value) represents the total value of the assets of the mutual fund divided by the total number of outstanding shares. Therefore, to calculate the per-share value, we divide the NAV by the number of outstanding shares: $100,000,000 / 10,000,000 shares = $10 per share.

Question 16

A UIT typically issues redeemable securities (or "units"), like a mutual fund, which means:

Accepted Answer

A UIT will, buy back an investor's request at their approximate net asset value

Question 17

The approximate per-share NAV plus any fees the fund imposes is the price:

Accepted Answer

The price that investors pay to purchase a mutual fund is typically the per-share NAV plus any applicable fees.

Question 18

Money market funds:

Accepted Answer

All of these statements are true about money market funds. They invest in high-quality short-term investments, aim to maintain a stable $1.00 per share net asset value, and pay out dividends based on short-term interest rates.

Question 19

I- With reference to the granting of customer credit lines a thorough analysis of the customer's overall financial position is performed prior to trading authorization. II-confirmations of each transaction are sent to customers indicating the quantity, delivery month and the contract price to ensure the integrity of transactions. III-Original margin deposits in cash or acceptable securities to guarantee performance of contracts are determined in accordance These all are adequate procedures and controls associated with:

Accepted Answer

The procedures and controls mentioned are associated with commodity transactions, specifically in the context of granting customer credit lines, confirming transactions, and requiring margin deposits.

Question 20

Investors typically cannot ascertain the exact makeup of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades. This is because of _______ in mutual funds.

Accepted Answer

Mutual funds are managed by fund managers, who have the discretion to buy and sell securities within the fund's portfolio. This means that investors do not have direct control over the fund's holdings and cannot influence the manager's decisions. Additionally, the exact makeup of the fund's portfolio may not be disclosed in real-time, creating a lack of transparency for investors. Price uncertainty and costs despite negative returns may also be factors in mutual fund investing, but they are not directly related to the issue of control and transparency.

Exam 2: Certified Trust and Financial Advisor