Question 1

An investment company that pools money from many investors and invests those funds in a variety of assets is called a

Accepted Answer

A mutual fund is an investment company that pools money from many investors and invests those funds in a variety of assets.

Question 2

The net asset value of a mutual fund is calculated as the

Accepted Answer

The net asset value (NAV) of a mutual fund is calculated by taking the market value of the fund's assets, subtracting the market value of its liabilities, and then dividing by the number of shares outstanding.

Question 3

Assets minus liabilities, per share, is known as

Accepted Answer

Net asset value (NAV) is calculated as assets minus liabilities, per share, commonly used in the context of mutual funds and ETFs.

Question 4

ABC Fund has 9 million shares outstanding. The fund's portfolio is now valued at $300 million and the fund owes $18 million to the fund advisors and $5 million for rent and wages. What is the net asset value of the fund?

Accepted Answer

The net asset value (NAV) is calculated by subtracting liabilities from the total value of the portfolio and then dividing by the number of shares outstanding. NAV = ($300 million - $18 million - $5 million) / 9 million shares = $30.78.

Question 5

The net asset value of a mutual fund that is worth $100 million, has liabilities of $5 million, and has 5 million shares is

Accepted Answer

The net asset value (NAV) per share is calculated by subtracting liabilities from total assets and then dividing by the number of shares. Here, ($100 million - $5 million) / 5 million shares = $19 per share.

Question 6

The increase in ______________ have directly contributed to the growth in mutual funds over the last few decades.

Accepted Answer

Defined-contribution retirement plans and IRAs have become more popular, leading to increased investment in mutual funds as individuals manage their own retirement savings.

Question 7

What is the best explanation for the recent increase in assets held by mutual funds and other investment companies?

Accepted Answer

The recent increase in assets held by mutual funds and other investment companies is primarily due to the increased flow of funds into employer-sponsored plans and IRAs, as more individuals are investing in these retirement accounts.

Question 8

Since mutual funds are investment companies, federal regulations

Accepted Answer

Mutual funds, as investment companies, are subject to federal regulations that require them to provide similar levels of financial disclosure and reporting as regular corporations to ensure transparency and protect investors.

Question 9

The _________ of an open-end fund provides the only market for buying or selling the shares of the fund.

Accepted Answer

The issuing company of an open-end fund, typically a mutual fund, is responsible for issuing and redeeming shares directly to and from investors, making it the only market for these transactions.

Question 10

Which fund structure does not allow for the daily creation and redemption of shares by the issuer or its trustee?

Accepted Answer

Closed-end funds do not allow for the daily creation and redemption of shares; they issue a fixed number of shares that trade on the secondary market.

Question 11

A closed-end fund is an investment company that

Accepted Answer

A closed-end fund issues a fixed number of shares that are traded on a stock exchange or in the over-the-counter market, not bought back by the company.

Question 12

Closed-end funds trade primarily

Accepted Answer

Closed-end funds are traded on major stock exchanges, similar to stocks, after their initial public offering.

Question 13

Which of the following statements is false regarding closed-end funds?

Accepted Answer

Closed-end funds do not always trade at their net asset value; they can trade at a premium or discount to their NAV.

Question 14

There are more ________ funds today, than there are __________ funds.

Accepted Answer

Open-end funds, commonly known as mutual funds, are more numerous than closed-end funds.

Question 15

Which of the following is a characteristic of an exchange-traded fund (ETF)?

Accepted Answer

ETFs are traded on stock exchanges, similar to closed-end funds, allowing investors to buy and sell shares throughout the trading day at market prices.

Question 16

Which of the following statements is false regarding exchange-traded funds?

Accepted Answer

Exchange-traded funds (ETFs) are not closed-end funds; they are open-ended and can create or redeem shares based on demand.

Question 17

A unit investment trust (UIT) is an unmanaged pool of investments that is often composed of

Accepted Answer

UITs are often composed of fixed-income securities, such as bonds, and are unmanaged, meaning they do not have a portfolio manager actively buying and selling securities.

Question 18

Which of the following statements regarding unit investment trust is false?

Accepted Answer

Unit investment trusts (UITs) are not actively managed; they are fixed portfolios of securities that remain unchanged for the life of the trust.

Question 19

By law, a REIT must have a(n) __________ strategy and have at least _______ stockholders.

Accepted Answer

A REIT (Real Estate Investment Trust) must have a buy-and-hold strategy and have at least 100 stockholders to qualify for tax advantages.

Question 20

Which of the following statements regard REITs is false?

Accepted Answer

REITs do not have a limited life span; they are designed to operate indefinitely, unlike Unit Investment Trusts (UITs) which have a set termination date.

Quiz 13: Investing in Mutual Funds and Real Estate