Question 1

A money market mutual fund's total assets increase from $100 to $105 when the fund has 100 shares outstanding. Which of the following will happen?

Accepted Answer

The answer of A money market mutual fund's total assets...

Question 2

An open-end mutual fund owns 1,500 shares of Krispy Kreme priced at $12. The fund also owns 1,000 shares of Ben & Jerry's priced at $43,and 2,000 shares of Pepsi priced at $50. The fund itself has 3,500 of its own shares outstanding. What is the NAV of a fund's share?

Accepted Answer

To calculate the NAV of the fund's share, we need to find the total value of the assets in the fund and divide by the number of outstanding shares. 
Total value of assets = (1,500 x $12) + (1,000 x $43) + (2,000 x $50) = $18,000 + $43,000 + $100,000 = $161,000 
Total number of shares outstanding = 3,500 
NAV = $161,000 / 3,500 = $46

Question 3

A fund has a NAV of $30 per share but the shares are currently selling for $32. This fund must be

Accepted Answer

A closed-end fund is the best choice because its shares are sold at a premium or discount to its NAV, unlike open-ended funds where shares are always bought or sold at the NAV. The higher selling price indicates that investors are willing to pay more for shares, suggesting a high demand for the fund's shares.

Question 4

ETFs have several advantages over index funds,including the ability to
I. trade throughout the day at continuously updated prices.
II. purchase ETF shares on margin.
II. sell ETF shares short.
IV. sell the shares back to the fund.

Accepted Answer

ETFs can be traded throughout the day at market prices (I), can be purchased on margin (II), and can be sold short (III). However, unlike mutual funds, ETF shares cannot be sold back to the fund (IV).

Question 5

The primary regulator of mutual funds is the

Accepted Answer

The Securities and Exchange Commission (SEC) is the primary regulator of mutual funds. The other choices are regulatory bodies in the financial industry, but not specifically for mutual funds.

Question 6

Money market mutual funds (MMMFs)have caused disintermediation at banks at times. This is because MMMFs

Accepted Answer

MMMFs sometimes pay higher interest rates than bank deposits, which attracts the attention of investors and causes them to withdraw their funds from banks and invest them in MMMFs instead. This results in disintermediation at banks, as they lose deposits and therefore have less money available to lend out.

Question 7

Rank the following in asset size from largest to smallest in 2013.
I. Mutual funds
II. Insurance companies
III. Depository institutions

Accepted Answer

In 2013, depository institutions had the largest asset size, followed by mutual funds, and then insurance companies.

Question 8

The market value of a mutual fund's assets divided by the number of fund shares outstanding is equal to the

Accepted Answer

The market value of a mutual fund's assets divided by the number of fund shares outstanding is known as the net asset value (NAV) per share. This is essentially the price per share of the mutual fund.

Question 9

By type of fund,there are more ______________ funds than any other.

Accepted Answer

Equity funds are the most common type of mutual fund, as they typically offer the potential for higher returns compared to other types like bond or money market funds, making them a popular choice among investors.

Question 10

You have $10,000 to invest and you are considering investing in a fund. The fund charges a front-end load of 5.75 percent and an annual expense fee of 1.25 percent of the average asset value over the year. You believe the fund's gross rate of return will be 11 percent per year. If you make the investment,what should your investment be worth in one year?

Accepted Answer

The initial investment will be reduced by the front-end load of 5.75%, leaving $9,425 ($10,000 x (1-0.0575)). The annual expense fee will be 1.25% of the average asset value, which is ($9,425 + $10,882)/2 = $10,153.50. Therefore, the annual expense fee will be $127.02 ($10,153.50 x 0.0125). The net rate of return will be 11% - 1.25% = 9.75%. The investment will be worth $10,337.46 at the end of the year ($9,425 x 1.0975 + $127.02).

Question 11

You have $16,000 to invest in a mutual fund with a NAV = $45. You choose a fund with a 4 percent front load,a 1 percent management fee,and a 0.25 percent 12b-1 fee. Assume that the management and 12b-1 fees are charged on year-end assets. The gross annual return on the fund's shares was 9 percent. What was your net annual rate of return to the nearest basis point?

Accepted Answer

The answer of You have $16,000 to invest in a...

Question 12

A fund that has a fixed number of shares outstanding and is traded on an exchange is called a(n)

Accepted Answer

A closed-end fund has a fixed number of shares outstanding and is traded on an exchange. Open-end mutual funds do not have a fixed number of shares and are bought and sold at the end of each trading day based on their net asset value. Hybrid funds, market timing funds and index funds may have a fixed number of shares but are not traded on an exchange in the same way as closed-end funds.

Question 13

Actively managed funds find it difficult to consistently earn higher risk-adjusted returns than a broad stock market index. The difference in return between actively managed funds and passively managed index funds can be explained by which of the following?
I. Lower expense ratios at index funds
II. Higher turnover ratios at index funds
III. Differences in returns in sectors of the market and the overall market return

Accepted Answer

Lower expense ratios at index funds (I) can help improve returns and differences in returns in sectors of the market and the overall market return (III) can explain some of the difference in returns between active and passive funds. However, higher turnover ratios at index funds (II) do not explain the difference in returns, as lower turnover ratios are generally associated with better long-term performance.

Question 14

You have $12,500 to invest and you are considering investing in Fund X. The fund charges a front-end load of 3 percent and an annual expense fee of 2.25 percent of the ending asset value over the year. You believe the fund's gross rate of return will be 8 percent per year. If you make the investment,what should your investment be worth in one year?

Accepted Answer

First, let's calculate the amount of the front-end load: 
Front-end load = 3% x $12,500 = $375

So, the initial investment will be: 
Initial investment = $12,500 - $375 = $12,125

Next, let's calculate the ending asset value after one year: 
Ending asset value = $12,125 x 1.08 = $13,095

Finally, let's calculate the annual expense fee: 
Annual expense fee = 2.25% x $13,095 = $294.64

Therefore, the investment should be worth $13,095 - $294.64 = $12,800.36 in one year.

Question 15

You have $15,000 to invest in a mutual fund. You choose a fund with a 3.5 percent front load,a 1.75 percent management fee,and a 0.5 percent 12b-1 fee. Assume,for simplicity,that the management and 12b-1 fees are charged on year-end assets. The gross annual return on the fund's shares was 12.50 percent. What was your net annual rate of return to the nearest basis point?

Accepted Answer

The answer of You have $15,000 to invest in a...

Question 16

Which one of the following fund types is likely to have the lowest annual expense ratio?

Accepted Answer

Index funds typically have lower expenses compared to actively managed funds, as they are designed to track a particular market index rather than having a team of investment professionals making investment decisions.

Question 17

The largest proportion of long-term mutual fund assets is held by ___________________.

Accepted Answer

As per data from the Investment Company Institute (ICI), the largest proportion of long-term mutual fund assets is held by the household sector. As of Q4 2020, the household sector held 44% of the total long-term mutual fund assets, while private pension funds held 20%, life insurance firms held 10%, nonfinancial corporate businesses held 10%, and bank trusts and estates held 5%.

Question 18

You wish to invest $17,445 in a mutual fund with a NAV of $26.03. The fund charges a front-end load of 4.50 percent. How many fund shares will you receive?

Accepted Answer

The answer of You wish to invest $17,445 in a...

Question 19

a(n.___________ fund must hold substantial cash reserves in order to meet fund redemptions from shareholders.

Accepted Answer

Open-end mutual funds allow investors to buy and sell shares at any time, and therefore need to maintain cash reserves to meet redemptions. Closed-end funds, REITs, ETFs, and unit trusts do not operate in the same manner and do not require the same level of cash reserves.

Question 20

Investors pay load charges to receive

Accepted Answer

The answer of Investors pay load charges to receive
...

Quiz 17: Investment Companies