Question 1

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

Accepted Answer

Low-load mutual funds have front-end loads of no more than 3%.

Question 2

Assume that you have recently purchased 100 shares in an investment company. Upon examining the balance sheet, you note that 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?

Accepted Answer

NAV = (225 - 30)/10 = 19.50

Question 3

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

Accepted Answer

Equity funds typically have the largest allocation of mutual fund assets. This is because they invest in stocks, which typically offer higher returns over the long term compared to bonds or money market funds. While there is more risk associated with equity funds, they can offer higher potential returns for investors who are willing to take on that risk. Bond funds and money market funds are also popular investments, but they typically have lower overall returns compared to equity funds. Hybrid funds, which invest in a mix of stocks and bonds, are also a popular option but they make up a smaller percentage of mutual fund assets overall.

Question 4

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

Accepted Answer

Growth equity funds invest specifically in stocks of fast-growing companies, seeking capital appreciation rather than income.

Question 5

Investors who want to liquidate their holdings in a unit investment trust may ________.

Accepted Answer

Investors who want to liquidate their holdings in a unit investment trust can sell their shares back to the trustee at net asset value, which is the value of the underlying securities held by the trust divided by the number of shares outstanding. This provides a fair and accurate price for the shares being sold back. Selling on the open market may result in a higher or lower price than the net asset value, while selling back to the trustee at a discount or premium to net asset value would not be a fair price for the shares.

Question 6

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?

Accepted Answer

NAV = ($500 - $50)/50 = $9

Question 7

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 ________.

Accepted Answer

The best choice is A, as the Vanguard 500 Index Fund is designed to track the performance of the S&P 500 by buying shares in each company in proportion to the market value weight of the firm's equity in the S&P 500. This means that the fund invests more in companies with higher market values and less in companies with lower market values, which reflects the overall composition and weighting of the S&P 500 index.

Question 8

Which of the following is a false statement regarding open-end mutual funds?

Accepted Answer

Open-end mutual funds do not offer a guaranteed rate of return. The return on investment is subject to market fluctuations and the performance of the underlying securities in the fund's portfolio.

Question 9

Investors who want to liquidate their holdings in a closed-end fund may ________.

Accepted Answer

Investors in closed-end funds can sell their shares on the open market, unlike open-end funds where shares are bought and sold back to the fund at the net asset value.

Question 10

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

Accepted Answer

The answer of Most real estate investment trusts (REITs) have...

Question 11

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

Accepted Answer

The answer of Higher portfolio turnover:
I. Results in greater tax...

Question 12

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

Accepted Answer

Open-end funds are designed to be bought and sold directly from the fund company, and they stand ready to redeem or issue shares at their net asset value (NAV).

Question 13

Net asset value is defined as ________.

Accepted Answer

Net asset value is calculated by subtracting the total liabilities from the total market value of all the assets and then dividing this figure by the number of shares outstanding. This gives investors a clear measure of the value per share of the fund or company.

Question 14

________ fund is defined as one in which the fund charges a sales commission to either buy into or exit from the fund.

Accepted Answer

A load fund is one in which the fund charges a sales commission, also known as a load fee or sales charge, to investors either to buy into or exit from the fund. This fee is charged on top of the fund's expense ratio and can be a significant cost for investors. Load funds are often sold through brokers or financial advisors who receive a portion of the load fee as compensation for their services. In contrast, no-load funds do not charge a sales commission and can be bought or sold directly by investors.

Question 15

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

Accepted Answer

The answer of Which of the following is not a...

Question 16

Sponsors of unit investment trusts earn a profit by ________.

Accepted Answer

Sponsors of unit investment trusts earn a profit by selling shares in the trust at a premium to the cost of acquiring the underlying assets. This premium is known as the sales load, and typically ranges from 1-5% of the investment amount. There are no ongoing management fees or portfolio turnover fees associated with unit investment trusts, and therefore, options A and D are incorrect. While option B is a characteristic of mutual funds, it does not apply to unit investment trusts.

Question 17

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

Accepted Answer

Equity trust, debt trust, and mortgage trust are all types of real estate investment trusts. However, unit trust is not a type of real estate investment trust. Unit trust is a type of investment trust that allows investors to buy units or shares in a trust that holds a diversified pool of assets, which can include real estate but is not limited to it.

Question 18

A fund that invests in securities worldwide, including the United States, is called ________.

Accepted Answer

A global fund invests in securities worldwide, including the United States, whereas an international fund may focus only on investments outside of the investor's home country or region. An emerging market fund would have a focus on securities in developing countries, while a regional fund would invest only in a specific geographic region, such as Europe or Asia.

Question 19

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

Accepted Answer

According to recent data from the Investment Company Institute, as of September 2021, money market funds accounted for approximately 17% of the total assets in mutual funds.

Question 20

Revenue sharing with respect to mutual funds refers to ________.

Accepted Answer

Revenue sharing in mutual funds generally involves fund companies paying brokers or financial advisors if they recommend the fund to investors. This creates potential conflicts of interest, as brokers may recommend funds based on the incentive payment rather than the best interests of the investor.

Quiz 4: Mutual Funds and Other Investment Companies