Chapter 04 - Mutual Funds and Other Investment Companies

Chapter 04 Mutual Funds and Other Investment Companies

1. Which one of the following invests in a portfolio that is fi ed for the life of the fund! ". Mutual fund #. Mone$ mar%et fund C. Managed investment compan$ &. 'nit investment trust

(. )))))) are partnerships of investors with portfolios that are larger than most individual investors *ut are still too small to warrant managing on a separate *asis. ". Commingled funds #. Closed-end funds C. +,I-s &. Mutual funds

.. " )))))))))) is a private investment pool open onl$ to wealth$ or institutional investors that is e empt from /,C regulation and can therefore pursue more speculative policies than mutual funds. ". commingled pool #. unit trust C. hedge fund &. mone$ mar%et fund

4. "dvantages of investment companies to investors include all *ut which one of the following! ". +ecord %eeping and administration #. 0ow cost diversification C. 1rofessional management &. 2uaranteed rates of return

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Chapter 04 - Mutual Funds and Other Investment Companies

3. Which of the following t$picall$ emplo$ significant amounts of leverage! I. 4edge funds II. +,I-s III. Mone$ mar%et funds I5. ,6uit$ mutual funds ". I and II onl$ #. II and III onl$ C. III and I5 onl$ &. I7 II and III onl$

8. -he 9"5 of which funds is fi ed at :1 per share! ". ,6uit$ funds #. Mone$ mar%et funds C. Fi ed income funds &. Commingled funds

;. -he two principal t$pes of +,I-s are e6uit$ trusts which ))))))))))))))) and mortgage trusts which ))))))))))))))). ". invest directl$ in real estate< invest in mortgage and construction loans #. invest in mortgage and construction loans< invest directl$ in real estate C. use e tensive leverage< distri*ute less than =3> of income to shareholders &. distri*ute less than =3> of income to shareholders< use e tensive leverage

?. " contingent deferred sales charge is commonl$ called a )))). ". front-end load #. *ac%-end load C. 1(*-1 charge &. top end sales commission

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Chapter 04 - Mutual Funds and Other Investment Companies

=. In the './. there are appro imatel$ ))))))) mutual funds offered *$ less than ))))))) fund families. ". 1(7000< 800 #. ;7000< 100 C. ?7000< 300 &. =7000< .00

10. In 1===7 the /,C esta*lished rules that should ma%e a mutual fund prospectus ))))))). ". easier to read and understand #. much more detailed C. disappear over the ne t 10 $ears &. irrelevant to investors

11. Mutual funds provide the following for their shareholders@ ". &iversification #. 1rofessional management C. +ecord %eeping and administration &. Mutual funds provide diversification7 professional management7 and record %eeping and administration

1(. -he average maturit$ of fund investments in a mone$ mar%et mutual fund is ))))))). ". slightl$ more than one month #. slightl$ more than one $ear C. a*out = months &. *etween ( and . $ears

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Chapter 04 - Mutual Funds and Other Investment Companies

1.. +an% the following fund categor$ from most ris%$ to least ris%$. I. ,6uit$ growth fund II. #alanced fund III. /ector fund I5. Mone$ mar%et fund ". I57 I7 III7 II #. III7 II7 I57 I C. I7 II7 III7 I5 &. III7 I7 II7 I5

14. Which of the following result in a ta a*le event for investors! I. /hort-term capital gains distri*utions from the fund II. &ividend distri*utions from the fund III. 0ong-term capital gains distri*utions from the fund ". I onl$ #. II onl$ C. I and II onl$ &. I7 II and III

13. -he t$pe of mutual fund that primaril$ engages in mar%et timing is called aAan ))))))). ". sector fund #. inde fund C. ,-F &. asset allocation fund

18. "s of (00?7 appro imatel$ ))))) of mutual fund assets were invested in e6uit$ funds. ". 3> #. 34> C. .0> &. 1(>

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Chapter 04 - Mutual Funds and Other Investment Companies

1;. "s of (00?7 appro imatel$ ))))) of mutual fund assets were invested in *ond funds. ". 14> #. 1=> C. .;> &. 4;>

1?. "s of (00?7 appro imatel$ ))))) of mutual fund assets were invested in mone$ mar%et funds. ". 3> #. (8> C. 44> &. 88>

1=. Management fees for open-end and closed-end funds7 t$picall$ range *etween ))))) and ))))). ". 0.(>< 1.3> #. 0.3>< 3> C. (>< 3> &. .>< ?>

(0. -he primar$ measurement unit used for assessing the value of oneBs sta%e in an investment compan$ is ))))))))))))))))))). ". 9et "sset 5alue #. "verage "sset 5alue C. 2ross "sset 5alue &. -otal "sset 5alue

(1. 9et "sset 5alue is defined as )))))))))))))))))))))))). ". *oo% value of assets divided *$ shares outstanding #. *oo% value of assets minus lia*ilities divided *$ shares outstanding C. mar%et value of assets divided *$ shares outstanding &. mar%et value of assets minus lia*ilities divided *$ shares outstanding

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Chapter 04 - Mutual Funds and Other Investment Companies

((. "ssume that $ou have Cust purchased some shares in an investment compan$ reporting :300 million in assets7 :30 million in lia*ilities7 and 30 million shares outstanding. What is the 9et "sset 5alue D9"5E of these shares! ". :1(.00 #. :=.00 C. :10.00 &. :1.00

(.. "ssume that $ou have recentl$ purchased 100 shares in an investment compan$. 'pon e amining the *alance sheet7 $ou note the firm is reporting :((3 million in assets7 :.0 million in lia*ilities7 and 10 million shares outstanding. What is the 9et "sset 5alue D9"5E of these shares! ". :(3.30 #. :((.30 C. :1=.30 &. :1.=3

(4. -he 5anguard 300 Inde Fund trac%s the performance of the /F1 300. -o do so the fund *u$s shares in each /F1 300 compan$ )))))))))). ". in proportion to the mar%et value weight of the firmBs e6uit$ in the /F1300 #. in proportion to the price weight of the stoc% in the /F1300 C. *$ purchasing an e6ual num*er of shares of each stoc% in the /F1 300 &. *$ purchasing an e6ual dollar amount of shares of each stoc% in the /F1300

(3. Which of the following is not a t$pe of managed investment compan$! ". 'nit investment trusts #. Closed-end funds C. Open-end funds &. 4edge funds

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Chapter 04 - Mutual Funds and Other Investment Companies

(8. Which of the following funds invest in stoc%s of fast growing companies! ". #alanced funds #. 2rowth e6uit$ funds C. +,I-s &. ,6uit$ income funds

(;. " fund that invests in securities worldwide7 including the 'nited /tates is called aAan )))))). ". international fund #. emerging mar%et fund C. glo*al fund &. regional fund

(?. -he greatest percentage of mutual fund assets are invested in )))))))). ". *ond funds #. e6uit$ funds C. h$*rid funds &. mone$ mar%et funds

(=. /ponsors of unit investment trusts earn a profit *$ ))))))))))))))))))). ". deducting management fees from fund assets #. deducting a percentage of an$ gains in asset value C. selling shares in the trust at a premium to the cost of ac6uiring the underl$ing assets &. charging portfolio turnover fees

.0. Investors who wish to li6uidate their holdings in a unit investment trust ma$ ))))))))))))))))))). ". sell their shares *ac% to the trustee at a discount #. sell their shares *ac% to the trustee at net asset value C. sell their shares on the open mar%et &. sell their shares at a premium to net asset value

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Chapter 04 - Mutual Funds and Other Investment Companies

.1. Investors who wish to li6uidate their holdings in a closed-end fund ma$ ))))))))))))))))))). ". sell their shares *ac% to the fund at a discount if the$ wish #. sell their shares *ac% to the fund at net asset value C. sell their shares on the open mar%et &. sell their shares at a premium to net asset value if the$ wish

.(. )))))))))) fund is defined as one where the fund charges a sales commission to either *u$ into or e it the fund. ". " load #. " no-load C. "n inde &. " specialiGed sector fund

... )))))))))) is a false statement regarding open-end mutual funds. ". -he$ offer investors a guaranteed rate of return #. -he$ offer investors a well diversified portfolio C. -he$ redeem shares at their net asset value &. -he$ offer low cost diversification

.4. )))))))))) funds stand read$ to redeem or issue shares at their net asset value. ". Closed-end #. Inde C. Open-end &. 4edge

.3. +evenue sharing with respect to mutual funds refers to ))))))))). ". fund companies pa$ing *ro%ers if the *ro%er recommends the fund to investors #. allowing certain classes of investors to engage in mar%et timing C. charging loads to new investors in a mutual fund &. directl$ mar%eting funds over the Internet

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Chapter 04 - Mutual Funds and Other Investment Companies

.8. 4igher portfolio turnover I. results in greater ta lia*ilit$ for investors II. results in greater trading costs for the fund7 which investors have to pa$ for III. is a characteristic of asset allocation funds ". I onl$ #. II onl$ C. I and II onl$ &. I7 II and III

.;. 0ow load mutual funds have front-end loads of no more than ))))). ". (> #. .> C. 4> &. 3>

.?. Most real estate investment trusts D+,I-sE have a de*t ratio of around ))))))))). ". 10 > #. .0 > C. 30 > &. ;0 >

.=. Measured *$ assets7 a*out ))))) of funds are mone$ mar%et funds. ". 13> #. (3> C. 40> &. 80>

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Chapter 04 - Mutual Funds and Other Investment Companies

40. Which of the following is not a t$pe of real estate investment trust! I. ,6uit$ trust II. &e*t trust III. Mortgage trust I5. 'nit trust ". I and II onl$ #. II onl$ C. II and I5 onl$ &. I7 II and III

41. )))))))))))))))))))))) are often called mutual funds. ". 'nit investment trusts #. Open-end investment companies C. Closed-end investment companies &. +,I-s

4(. Mutual funds account for roughl$ )))))) percent of investment compan$ assets. ". .0 #. 30 C. ;0 &. =0

4.. "n official description of a particular mutual fundBs planned investment polic$ can *e found in the fundBs ))))))))))))). ". prospectus #. indenture C. investment statement &. 1(*-1 forms

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Chapter 04 - Mutual Funds and Other Investment Companies

44. Mutual funds that hold *oth e6uities and fi ed-income securities in relativel$ sta*le proportions are called )))))))))))))))))))). ". income funds #. *alanced funds C. asset allocation funds &. inde funds

43. Mutual funds that var$ the proportions of funds invested in particular mar%et sectors according to the fund managerBs forecast of the performance of that mar%et sector7 are called )))))))))))))))))))). ". asset allocation funds #. *alanced funds C. inde funds &. income funds

48. /pecialiGed sector funds concentrate their investments in ))))))))))))))))). ". *onds of a particular maturit$ #. geographical segments of the real estate mar%et C. government securities &. securities issued *$ firms in a particular industr$

4;. If a mutual fund has multiple class shares7 which class t$picall$ has a front end load! ". Class " #. Class # C. Class C &. Class &

4?. -he commission7 or front-end load7 paid when $ou purchase shares in mutual funds7 ma$ not e ceed )))))))))). ". .> #. 8> C. ?.3> &. 10>

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Chapter 04 - Mutual Funds and Other Investment Companies

4=. Hou are considering investing in one of several mutual funds. "ll the funds under consideration have various com*inations of front-end and *ac%-end loads andAor 1(*-1 fees. -he longer $ou plan on remaining in the fund $ou choose7 the more li%el$ $ou will prefer a fund with a )))))))))) rather than a ))))))))))7 ever$thing else e6ual. ". 1(*-1 fee< front-end load #. front-end load< 1(*-1 fee C. *ac%-end load7 front-end load &. 1(*-1 fee< *ac%-end load

30. 'nder /,C rules7 the managers of certain funds are allowed to deduct charges for advertising7 *ro%erage commissions7 and other sales e penses7 directl$ from the fund assets rather than *illing investors. -hese fees are %nown as )))))))))))). ". direct operating e penses #. *ac%-end loads C. 1(*-1 charges &. front-end loads

31. In (0007 the /,C instituted new rules that re6uire funds to disclose ))))). ". 1(*-1 fees #. the ta impact of portfolio turnover C. front-end loads &. *ac%-end loads

3(. /,C rule 1(*-1 allows managers of certain funds to deduct )))))))))) e penses from fund assets7 however7 these e penses ma$ not e ceed )))))))))) of the fundBs average net assets per $ear. ". mar%eting< 1> #. mar%eting< 3> C. administrative< 0.3> &. administrative< (>

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Chapter 04 - Mutual Funds and Other Investment Companies

3.. Consider a mutual fund with :.00 million in assets at the start of the $ear7 and 1( million shares outstanding. If the gross return on assets is 1?> and the total e pense ratio is (> of the $ear end value7 what is the rate of return on the fund! ". 13.84> #. 18.00> C. 1;.(3> &. 1;.30>

34. Consider a no-load mutual fund with :(00 million in assets and 10 million shares at the start of the $ear7 and :(30 million in assets and 11 million shares at the end of the $ear. &uring the $ear investors have received income distri*utions of :( per share7 and capital gains distri*utions of :0.(3 per share. "ssuming that the fund carries no de*t7 and that the total e pense ratio is 1>7 what is the rate of return on the fund! ". .8.(3> #. (4.=0> C. (..?3> &. -here is not sufficient information to answer this 6uestion

33. Consider a no-load mutual fund with :400 million in assets7 30 million in de*t7 and 13 million shares at the start of the $ear< and :300 million in assets7 40 million in de*t7 and 1? million shares at the end of the $ear. &uring the $ear investors have received income distri*utions of :0.30 per share7 and capital gains distri*utions of :0..0 per share. "ssuming that the fund carries no de*t7 and that the total e pense ratio is 0.;3>7 what is the rate of return on the fund! ". 1(.0=> #. 1(.==> C. ?.(3> &. -here is not sufficient information to answer this 6uestion

38. Mutual fund returns ma$ *e granted pass-through status7 if ))))))))))))))))). ". at least =0 percent of all income is distri*uted to shareholders #. at least .0 percent of fund income is derived from sale of securities held for less than . months C. certain diversification criteria are met &. "ll of these must *e true for pass-through status to *e granted

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Chapter 04 - Mutual Funds and Other Investment Companies

3;. "Aan ))))) is an e ample of an e change-traded fund. ". /1&+ or spider #. samurai C. 5anguard &. open-end fund

3?. If $ou place an order to *u$ or sell a share of a mutual fund during the trading da$ the order will *e e ecuted at ". the 9"5 calculated at the mar%et close at 4@00 pm 9ew Hor% time. #. the real time 9"5. C. the 9"5 dela$ed 13 minutes. &. the 9"5 calculated at the open of the ne t da$Bs trading.

3=. With respect to mutual funds7 late trading refers to the practice of )))))))). ". trading after the close of './. mar%ets *ut *efore overseas mar%ets have closed #. trading after the close of overseas mar%ets7 *ut *efore './. mar%ets have closed C. accepting *u$ or sell orders after the mar%et closes and 9"5 has alread$ *een determined for the da$ &. pa$ing capital gains distri*utions to certain investors onl$ after pa$ing privileged investors first

80. In the 1=;0 stud$7 Mal%iel found that mutual funds that do well in one period7 have an appro imatel$ )))))))) chance of doing well in the su*se6uent ear period. ". ..> #. 3(> C. 83> &. ?3>

81. In a recent stud$7 Mal%iel finds that evidence of persistence in the performance of mutual funds7 )))))))))))))))) in the 1=?0s. ". grows stronger #. remains a*out the same C. *ecomes slightl$ wea%er &. virtuall$ disappears

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Chapter 04 - Mutual Funds and Other Investment Companies

8(. -he ratio of trading activit$ of a portfolio to the assets of the portfolio7 is called )))))))))))). ". the reinvestment ratio #. the trading rate C. the portfolio turnover &. the ta $ield

8.. Which of the following ,-Fs trac%s the /F1 300 inde ! ". Iu*es #. &iamonds C. 5ipers &. /piders

84. -he /tone 4ar*or Fund is a closed-end investment compan$ with a portfolio currentl$ worth :.00 million. It has lia*ilities of :3 million and = million shares outstanding. If the fund sells for :.0 a share7 what is its premium or discount as a percent of 9"5! ". =.(8> premium #. ?.4;> premium C. =.(8> discount &. ?.4;> discount

83. -he difference *etween *alanced funds and asset allocation funds is that ))))). ". *alanced funds invest in *onds while asset allocation funds do not #. asset allocation funds invest in *onds while *alanced funds do not C. *alanced funds have relativel$ sta*le proportions of stoc%s and *onds while the proportions ma$ var$ dramaticall$ for asset allocation funds &. *alanced funds ma%e no capital gains distri*utions and asset allocation funds ma%e *oth dividend and capital gains distri*utions

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Chapter 04 - Mutual Funds and Other Investment Companies

88. -he Wildwood Fund sells Class " shares with a front-end load of 3> and Class # /hares with a 1(*-1 fees of 1> annuall$. If $ou plan to sell the fund after 4 $ears7 are Class " or Class # shares the *etter choice! "ssume a 10> annual return net of e penses. ". Class " #. Class # C. -here is no difference. &. -here is insufficient information given.

8;. " mutual fund has total assets outstanding of :8= million. &uring the $ear the fund *ought and sold assets e6ual to :1;.(3 million. -his fundBs turnover rate was ))))). ". (3.00> #. (?.30> C. 1?.8.> &. ...40>

8?. Which t$pe of investment fund is commonl$ %nown to invest in options and futures in large scale! ". Commingled funds #. 4edge funds C. ,-Fs &. +,I-/

8=. "dvantages of ,-Fs over mutual funds include all *ut which one of the following! ". ,-Fs trade continuousl$ so investors can trade throughout the da$ #. ,-Fs can *e sold short or purchased on margin7 unli%e fund shares C. ,-F providers do not have to sell holdings to fund redemptions &. ,-F values can diverge from 9"5

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Chapter 04 - Mutual Funds and Other Investment Companies

;0. 4arold has Cust ta%en his compan$ pu*lic and owns a large 6uantit$ of restricted stoc%. For purposes of diversification7 what fund might he help create in order to diversif$ his holdings! ". Commingled funds #. 4edge funds C. ,-F &. +,I-s

;1. Which of the following funds is most li%el$ to have a de*t ratio of ;0> or higher! ". #ond fund #. Commingled fund C. Mortgage *ac%ed securities &. +,I-

;(. "*out ))))))))) of mutual fund assets are invested in no-load funds. ". ..> #. 40> C. 30> &. 83>

;.. From 1=;1 to (00; the average return on the Wilshire 3000 inde was ))))))))) the return of the average mutual fund. ". identical to #. 1> higher than C. 1> lower than &. .> lower than

;4. "n open-end fund has a 9"5 of :18.30 per share. -he fund charges a 8> load. What is the offering price! ". :14.3; #. :13.=3 C. :1;.33 &. :18.4=

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Chapter 04 - Mutual Funds and Other Investment Companies

;3. -he offer price of an open-end fund is :1?.00 and the fund is sold with a front-end load of 3>! What is the fundBs 9"5! ". :1?.;4 #. :1;.10 C. :13.40 &. :18.3;

;8. " mutual fund has :30 million in assets at the *eginning of the $ear and 1 million shares outstanding throughout the $ear. -hroughout the $ear assets grow at 1(>. -he fund imposes a 1(*-1 fee on all shares e6ual to 1>. -he fee is imposed on $ear end asset values. If there are no distri*utions what is the end of $ear 9"5 for the fund! ". :30.00 #. :33.44 C. :38.1( &. :34.33

;;. -he assets of a mutual fund are :(3 million. -he lia*ilities are :4 million. If the fund has ;007000 shares outstanding and pa$s a :. dividend7 what is the dividend $ield! ". 3> #. 10> C. 13> &. (0>

;?. Which of the following funds are usuall$ most ta efficient! ". ,6uit$ funds #. #ond Funds C. ,-Fs &. /pecialiGed sector funds

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Chapter 04 - Mutual Funds and Other Investment Companies

;=. Hou invest in a mutual fund that charges a .> front end load7 1> total annual fees7 and a (> *ac% end load7 which decreases 0.3> per $ear. 4ow much will $ou pa$ in fees on a :107000 investment that does not grow7 if $ou cash out after three $ears of no gain! ". 10. #. (1= C. 33. &. 8.3

?0. Hou invest in a mutual fund that charges a .> front end load7 1> total annual fees7 and a 0> *ac% end load on Class " shares. -he same fund charges 0> front end load7 1> total annual fees7 and a (> *ac% end load on Class # shares. What are the total fees in $ear one on a Class " investment of :(07000 with no growth in value! ". 83? #. ;=4 C. ??3 &. =0(

?1. Hou invest in a mutual fund that charges a .> front end load7 1> total annual fees7 and a 0> *ac% end load on Class " shares. -he same fund charges 0> front end load7 1> total annual fees7 and a (> *ac% end load on Class # shares. What are the total fees in $ear one on a Class # investment of :(07000 if $ou redeem shares with no growth in value! ". 3=8 #. ;=4 C. ??3 &. =0(

?(. Hou pa$ :(17800 to the 0aramie Fund which has a 9"5 of :1?.00 per share at the *eginning of the $ear. -he fund deducted a front-end load of 4>. -he securities in the fund increased in value *$ 10> during the $ear. -he fundBs e pense ratio is 1..> and is deducted from $ear end asset values. What is $our rate of return on the fund if $ou sell $our shares at the end of the $ear! ". 4..3> #. 4.(.> C. 8.43> &. 3.8.>

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Chapter 04 - Mutual Funds and Other Investment Companies

?.. Which one of the following statements a*out returns reported *$ mutual funds is not correct! ". +eported returns are net of management e penses #. +eported returns are net of 1(*-1 fees C. +eported returns are net of *ro%erage fees paid on the fundBs trading activit$ &. +eported returns are net of load charges

?4. -he top Morningstar mutual fund performance rating is )))))))). ". five stars #. four stars C. three stars &. two stars

?3. Hou are considering investing in a no load mutual fund with an annual e pense ratio of 0.8> and an annual 1(*-1 fee of 0.;3>. Hou could also invest in a *an% C& pa$ing 8.3> per $ear. What minimum annual rate of return must the fund earn to ma%e $ou *etter off in the fund than in the C&! ". ;.10> #. ;.43> C. ;.(3> &. ;.?3>

Chapter 04 Mutual Funds and Other Investment Companies "nswer Je$

Multiple Choice Questions

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Chapter 04 - Mutual Funds and Other Investment Companies

1. Which one of the following invests in a portfolio that is fi ed for the life of the fund! ". Mutual fund #. Mone$ mar%et fund C. Managed investment compan$ D. 'nit investment trust

Difficulty: Easy

(. )))))) are partnerships of investors with portfolios that are larger than most individual investors *ut are still too small to warrant managing on a separate *asis. A. Commingled funds #. Closed-end funds C. +,I-s &. Mutual funds

Difficulty: Easy

.. " )))))))))) is a private investment pool open onl$ to wealth$ or institutional investors that is e empt from /,C regulation and can therefore pursue more speculative policies than mutual funds. ". commingled pool #. unit trust C. hedge fund &. mone$ mar%et fund

Difficulty: Easy

4. "dvantages of investment companies to investors include all *ut which one of the following! ". +ecord %eeping and administration #. 0ow cost diversification C. 1rofessional management D. 2uaranteed rates of return

Difficulty: Easy

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Chapter 04 - Mutual Funds and Other Investment Companies

3. Which of the following t$picall$ emplo$ significant amounts of leverage! I. 4edge funds II. +,I-s III. Mone$ mar%et funds I5. ,6uit$ mutual funds A. I and II onl$ #. II and III onl$ C. III and I5 onl$ &. I7 II and III onl$

Difficulty: Medium

8. -he 9"5 of which funds is fi ed at :1 per share! ". ,6uit$ funds B. Mone$ mar%et funds C. Fi ed income funds &. Commingled funds

Difficulty: Easy

;. -he two principal t$pes of +,I-s are e6uit$ trusts which ))))))))))))))) and mortgage trusts which ))))))))))))))). A. invest directl$ in real estate< invest in mortgage and construction loans #. invest in mortgage and construction loans< invest directl$ in real estate C. use e tensive leverage< distri*ute less than =3> of income to shareholders &. distri*ute less than =3> of income to shareholders< use e tensive leverage

Difficulty: Medium

?. " contingent deferred sales charge is commonl$ called a )))). ". front-end load B. *ac%-end load C. 1(*-1 charge &. top end sales commission

Difficulty: Easy

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Chapter 04 - Mutual Funds and Other Investment Companies

=. In the './. there are appro imatel$ ))))))) mutual funds offered *$ less than ))))))) fund families. ". 1(7000< 800 #. ;7000< 100 C. ?7000< 300 &. =7000< .00

Difficulty: Medium

10. In 1===7 the /,C esta*lished rules that should ma%e a mutual fund prospectus ))))))). A. easier to read and understand #. much more detailed C. disappear over the ne t 10 $ears &. irrelevant to investors

Difficulty: Easy

11. Mutual funds provide the following for their shareholders@ ". &iversification #. 1rofessional management C. +ecord %eeping and administration D. Mutual funds provide diversification7 professional management7 and record %eeping and administration

Difficulty: Easy

1(. -he average maturit$ of fund investments in a mone$ mar%et mutual fund is ))))))). A. slightl$ more than one month #. slightl$ more than one $ear C. a*out = months &. *etween ( and . $ears

Difficulty: Easy

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Chapter 04 - Mutual Funds and Other Investment Companies

1.. +an% the following fund categor$ from most ris%$ to least ris%$. I. ,6uit$ growth fund II. #alanced fund III. /ector fund I5. Mone$ mar%et fund ". I57 I7 III7 II #. III7 II7 I57 I C. I7 II7 III7 I5 D. III7 I7 II7 I5

Difficulty: Medium

14. Which of the following result in a ta a*le event for investors! I. /hort-term capital gains distri*utions from the fund II. &ividend distri*utions from the fund III. 0ong-term capital gains distri*utions from the fund ". I onl$ #. II onl$ C. I and II onl$ D. I7 II and III

Difficulty: Easy

13. -he t$pe of mutual fund that primaril$ engages in mar%et timing is called aAan ))))))). ". sector fund #. inde fund C. ,-F D. asset allocation fund

Difficulty: Medium

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Chapter 04 - Mutual Funds and Other Investment Companies

18. "s of (00?7 appro imatel$ ))))) of mutual fund assets were invested in e6uit$ funds. ". 3> B. 34> C. .0> &. 1(>

Difficulty: Easy

1;. "s of (00?7 appro imatel$ ))))) of mutual fund assets were invested in *ond funds. A. 14> #. 1=> C. .;> &. 4;>

Difficulty: Easy

1?. "s of (00?7 appro imatel$ ))))) of mutual fund assets were invested in mone$ mar%et funds. ". 3> B. (8> C. 44> &. 88>

Difficulty: Easy

1=. Management fees for open-end and closed-end funds7 t$picall$ range *etween ))))) and ))))). A. 0.(>< 1.3> #. 0.3>< 3> C. (>< 3> &. .>< ?>

Difficulty: Easy

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Chapter 04 - Mutual Funds and Other Investment Companies

(0. -he primar$ measurement unit used for assessing the value of oneBs sta%e in an investment compan$ is ))))))))))))))))))). A. 9et "sset 5alue #. "verage "sset 5alue C. 2ross "sset 5alue &. -otal "sset 5alue

Difficulty: Easy

(1. 9et "sset 5alue is defined as )))))))))))))))))))))))). ". *oo% value of assets divided *$ shares outstanding #. *oo% value of assets minus lia*ilities divided *$ shares outstanding C. mar%et value of assets divided *$ shares outstanding D. mar%et value of assets minus lia*ilities divided *$ shares outstanding

Difficulty: Easy

((. "ssume that $ou have Cust purchased some shares in an investment compan$ reporting :300 million in assets7 :30 million in lia*ilities7 and 30 million shares outstanding. What is the 9et "sset 5alue D9"5E of these shares! ". :1(.00 B. :=.00 C. :10.00 &. :1.00

Difficulty: Easy

4-(8

Chapter 04 - Mutual Funds and Other Investment Companies

(.. "ssume that $ou have recentl$ purchased 100 shares in an investment compan$. 'pon e amining the *alance sheet7 $ou note the firm is reporting :((3 million in assets7 :.0 million in lia*ilities7 and 10 million shares outstanding. What is the 9et "sset 5alue D9"5E of these shares! ". :(3.30 #. :((.30 C. :1=.30 &. :1.=3

Difficulty: Easy

(4. -he 5anguard 300 Inde Fund trac%s the performance of the /F1 300. -o do so the fund *u$s shares in each /F1 300 compan$ )))))))))). A. in proportion to the mar%et value weight of the firmBs e6uit$ in the /F1300 #. in proportion to the price weight of the stoc% in the /F1300 C. *$ purchasing an e6ual num*er of shares of each stoc% in the /F1 300 &. *$ purchasing an e6ual dollar amount of shares of each stoc% in the /F1300

Difficulty: Easy

(3. Which of the following is not a t$pe of managed investment compan$! A. 'nit investment trusts #. Closed-end funds C. Open-end funds &. 4edge funds

Difficulty: Easy

4-(;

Chapter 04 - Mutual Funds and Other Investment Companies

(8. Which of the following funds invest in stoc%s of fast growing companies! ". #alanced funds B. 2rowth e6uit$ funds C. +,I-s &. ,6uit$ income funds

Difficulty: Easy

(;. " fund that invests in securities worldwide7 including the 'nited /tates is called aAan )))))). ". international fund #. emerging mar%et fund C. glo*al fund &. regional fund

Difficulty: Easy

(?. -he greatest percentage of mutual fund assets are invested in )))))))). ". *ond funds B. e6uit$ funds C. h$*rid funds &. mone$ mar%et funds

Difficulty: Easy

(=. /ponsors of unit investment trusts earn a profit *$ ))))))))))))))))))). ". deducting management fees from fund assets #. deducting a percentage of an$ gains in asset value C. selling shares in the trust at a premium to the cost of ac6uiring the underl$ing assets &. charging portfolio turnover fees

Difficulty: Easy

4-(?

Chapter 04 - Mutual Funds and Other Investment Companies

.0. Investors who wish to li6uidate their holdings in a unit investment trust ma$ ))))))))))))))))))). ". sell their shares *ac% to the trustee at a discount B. sell their shares *ac% to the trustee at net asset value C. sell their shares on the open mar%et &. sell their shares at a premium to net asset value

Difficulty: Easy

.1. Investors who wish to li6uidate their holdings in a closed-end fund ma$ ))))))))))))))))))). ". sell their shares *ac% to the fund at a discount if the$ wish #. sell their shares *ac% to the fund at net asset value C. sell their shares on the open mar%et &. sell their shares at a premium to net asset value if the$ wish

Difficulty: Easy

.(. )))))))))) fund is defined as one where the fund charges a sales commission to either *u$ into or e it the fund. A. " load #. " no-load C. "n inde &. " specialiGed sector fund

Difficulty: Easy

... )))))))))) is a false statement regarding open-end mutual funds. A. -he$ offer investors a guaranteed rate of return #. -he$ offer investors a well diversified portfolio C. -he$ redeem shares at their net asset value &. -he$ offer low cost diversification

Difficulty: Easy

4-(=

Chapter 04 - Mutual Funds and Other Investment Companies

.4. )))))))))) funds stand read$ to redeem or issue shares at their net asset value. ". Closed-end #. Inde C. Open-end &. 4edge

Difficulty: Easy

.3. +evenue sharing with respect to mutual funds refers to ))))))))). A. fund companies pa$ing *ro%ers if the *ro%er recommends the fund to investors #. allowing certain classes of investors to engage in mar%et timing C. charging loads to new investors in a mutual fund &. directl$ mar%eting funds over the Internet

Difficulty: Easy

.8. 4igher portfolio turnover I. results in greater ta lia*ilit$ for investors II. results in greater trading costs for the fund7 which investors have to pa$ for III. is a characteristic of asset allocation funds ". I onl$ #. II onl$ C. I and II onl$ D. I7 II and III

Difficulty: Medium

.;. 0ow load mutual funds have front-end loads of no more than ))))). ". (> B. .> C. 4> &. 3>

Difficulty: Easy

4-.0

Chapter 04 - Mutual Funds and Other Investment Companies

.?. Most real estate investment trusts D+,I-sE have a de*t ratio of around ))))))))). ". 10 > #. .0 > C. 30 > D. ;0 >

Difficulty: Easy

.=. Measured *$ assets7 a*out ))))) of funds are mone$ mar%et funds. ". 13> B. (3> C. 40> &. 80>

Difficulty: Easy

40. Which of the following is not a t$pe of real estate investment trust! I. ,6uit$ trust II. &e*t trust III. Mortgage trust I5. 'nit trust ". I and II onl$ #. II onl$ C. II and I5 onl$ &. I7 II and III

Difficulty: Easy

41. )))))))))))))))))))))) are often called mutual funds. ". 'nit investment trusts B. Open-end investment companies C. Closed-end investment companies &. +,I-s

Difficulty: Easy

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Chapter 04 - Mutual Funds and Other Investment Companies

4(. Mutual funds account for roughl$ )))))) percent of investment compan$ assets. ". .0 #. 30 C. ;0 D. =0

Difficulty: Easy

4.. "n official description of a particular mutual fundBs planned investment polic$ can *e found in the fundBs ))))))))))))). A. prospectus #. indenture C. investment statement &. 1(*-1 forms

Difficulty: Easy

44. Mutual funds that hold *oth e6uities and fi ed-income securities in relativel$ sta*le proportions are called )))))))))))))))))))). ". income funds B. *alanced funds C. asset allocation funds &. inde funds

Difficulty: Easy

43. Mutual funds that var$ the proportions of funds invested in particular mar%et sectors according to the fund managerBs forecast of the performance of that mar%et sector7 are called )))))))))))))))))))). A. asset allocation funds #. *alanced funds C. inde funds &. income funds

Difficulty: Easy

4-.(

Chapter 04 - Mutual Funds and Other Investment Companies

48. /pecialiGed sector funds concentrate their investments in ))))))))))))))))). ". *onds of a particular maturit$ #. geographical segments of the real estate mar%et C. government securities D. securities issued *$ firms in a particular industr$

Difficulty: Easy

4;. If a mutual fund has multiple class shares7 which class t$picall$ has a front end load! A. Class " #. Class # C. Class C &. Class &

Difficulty: Medium

4?. -he commission7 or front-end load7 paid when $ou purchase shares in mutual funds7 ma$ not e ceed )))))))))). ". .> #. 8> C. ?.3> &. 10>

Difficulty: Easy

4=. Hou are considering investing in one of several mutual funds. "ll the funds under consideration have various com*inations of front-end and *ac%-end loads andAor 1(*-1 fees. -he longer $ou plan on remaining in the fund $ou choose7 the more li%el$ $ou will prefer a fund with a )))))))))) rather than a ))))))))))7 ever$thing else e6ual. ". 1(*-1 fee< front-end load B. front-end load< 1(*-1 fee C. *ac%-end load7 front-end load &. 1(*-1 fee< *ac%-end load

Difficulty: Medium

4-..

Chapter 04 - Mutual Funds and Other Investment Companies

30. 'nder /,C rules7 the managers of certain funds are allowed to deduct charges for advertising7 *ro%erage commissions7 and other sales e penses7 directl$ from the fund assets rather than *illing investors. -hese fees are %nown as )))))))))))). ". direct operating e penses #. *ac%-end loads C. 1(*-1 charges &. front-end loads

Difficulty: Easy

31. In (0007 the /,C instituted new rules that re6uire funds to disclose ))))). ". 1(*-1 fees B. the ta impact of portfolio turnover C. front-end loads &. *ac%-end loads

Difficulty: Medium

3(. /,C rule 1(*-1 allows managers of certain funds to deduct )))))))))) e penses from fund assets7 however7 these e penses ma$ not e ceed )))))))))) of the fundBs average net assets per $ear. A. mar%eting< 1> #. mar%eting< 3> C. administrative< 0.3> &. administrative< (>

Difficulty: Easy

4-.4

Chapter 04 - Mutual Funds and Other Investment Companies

3.. Consider a mutual fund with :.00 million in assets at the start of the $ear7 and 1( million shares outstanding. If the gross return on assets is 1?> and the total e pense ratio is (> of the $ear end value7 what is the rate of return on the fund! A. 13.84> #. 18.00> C. 1;.(3> &. 1;.30>

Difficulty: Hard

34. Consider a no-load mutual fund with :(00 million in assets and 10 million shares at the start of the $ear7 and :(30 million in assets and 11 million shares at the end of the $ear. &uring the $ear investors have received income distri*utions of :( per share7 and capital gains distri*utions of :0.(3 per share. "ssuming that the fund carries no de*t7 and that the total e pense ratio is 1>7 what is the rate of return on the fund! ". .8.(3> B. (4.=0> C. (..?3> &. -here is not sufficient information to answer this 6uestion /ince this is a no-load fund7 all charges are alread$ em*edded in gross return. -hus7 gross return and net return are the same.

Difficulty: Medium

4-.3

Chapter 04 - Mutual Funds and Other Investment Companies

33. Consider a no-load mutual fund with :400 million in assets7 30 million in de*t7 and 13 million shares at the start of the $ear< and :300 million in assets7 40 million in de*t7 and 1? million shares at the end of the $ear. &uring the $ear investors have received income distri*utions of :0.30 per share7 and capital gains distri*utions of :0..0 per share. "ssuming that the fund carries no de*t7 and that the total e pense ratio is 0.;3>7 what is the rate of return on the fund! A. 1(.0=> #. 1(.==> C. ?.(3> &. -here is not sufficient information to answer this 6uestion /ince this is a no-load fund7 all charges are alread$ em*edded in gross return. -hus7 gross return and net return are the same.

Difficulty: Hard

38. Mutual fund returns ma$ *e granted pass-through status7 if ))))))))))))))))). ". at least =0 percent of all income is distri*uted to shareholders #. at least .0 percent of fund income is derived from sale of securities held for less than . months C. certain diversification criteria are met D. "ll of these must *e true for pass-through status to *e granted

Difficulty: Easy

4-.8

Chapter 04 - Mutual Funds and Other Investment Companies

3;. "Aan ))))) is an e ample of an e change-traded fund. A. /1&+ or spider #. samurai C. 5anguard &. open-end fund

Difficulty: Medium

3?. If $ou place an order to *u$ or sell a share of a mutual fund during the trading da$ the order will *e e ecuted at A. the 9"5 calculated at the mar%et close at 4@00 pm 9ew Hor% time. #. the real time 9"5. C. the 9"5 dela$ed 13 minutes. &. the 9"5 calculated at the open of the ne t da$Bs trading.

Difficulty: Medium

3=. With respect to mutual funds7 late trading refers to the practice of )))))))). ". trading after the close of './. mar%ets *ut *efore overseas mar%ets have closed #. trading after the close of overseas mar%ets7 *ut *efore './. mar%ets have closed C. accepting *u$ or sell orders after the mar%et closes and 9"5 has alread$ *een determined for the da$ &. pa$ing capital gains distri*utions to certain investors onl$ after pa$ing privileged investors first

Difficulty: Easy

80. In the 1=;0 stud$7 Mal%iel found that mutual funds that do well in one period7 have an appro imatel$ )))))))) chance of doing well in the su*se6uent ear period. ". ..> #. 3(> C. 83> &. ?3>

Difficulty: Medium

4-.;

Chapter 04 - Mutual Funds and Other Investment Companies

81. In a recent stud$7 Mal%iel finds that evidence of persistence in the performance of mutual funds7 )))))))))))))))) in the 1=?0s. ". grows stronger #. remains a*out the same C. *ecomes slightl$ wea%er D. virtuall$ disappears

Difficulty: Easy

8(. -he ratio of trading activit$ of a portfolio to the assets of the portfolio7 is called )))))))))))). ". the reinvestment ratio #. the trading rate C. the portfolio turnover &. the ta $ield

Difficulty: Easy

8.. Which of the following ,-Fs trac%s the /F1 300 inde ! ". Iu*es #. &iamonds C. 5ipers D. /piders

Difficulty: Medium

4-.?

Chapter 04 - Mutual Funds and Other Investment Companies

84. -he /tone 4ar*or Fund is a closed-end investment compan$ with a portfolio currentl$ worth :.00 million. It has lia*ilities of :3 million and = million shares outstanding. If the fund sells for :.0 a share7 what is its premium or discount as a percent of 9"5! ". =.(8> premium #. ?.4;> premium C. =.(8> discount D. ?.4;> discount 9"5 K D:.0070007000 - :370007000EA=70007000 K :.(.;? &iscount K :.(.;? - :.0 K :(.;?

Difficulty: Hard

83. -he difference *etween *alanced funds and asset allocation funds is that ))))). ". *alanced funds invest in *onds while asset allocation funds do not #. asset allocation funds invest in *onds while *alanced funds do not C. *alanced funds have relativel$ sta*le proportions of stoc%s and *onds while the proportions ma$ var$ dramaticall$ for asset allocation funds &. *alanced funds ma%e no capital gains distri*utions and asset allocation funds ma%e *oth dividend and capital gains distri*utions

Difficulty: Easy

4-.=

Chapter 04 - Mutual Funds and Other Investment Companies

88. -he Wildwood Fund sells Class " shares with a front-end load of 3> and Class # /hares with a 1(*-1 fees of 1> annuall$. If $ou plan to sell the fund after 4 $ears7 are Class " or Class # shares the *etter choice! "ssume a 10> annual return net of e penses. ". Class " B. Class # C. -here is no difference. &. -here is insufficient information given.

Difficulty: Medium

8;. " mutual fund has total assets outstanding of :8= million. &uring the $ear the fund *ought and sold assets e6ual to :1;.(3 million. -his fundBs turnover rate was ))))). A. (3.00> #. (?.30> C. 1?.8.> &. ...40> :1;.(3A:8= K (3.00>

Difficulty: Easy

4-40

Chapter 04 - Mutual Funds and Other Investment Companies

8?. Which t$pe of investment fund is commonl$ %nown to invest in options and futures in large scale! ". Commingled funds B. 4edge funds C. ,-Fs &. +,I-/

Difficulty: Easy

8=. "dvantages of ,-Fs over mutual funds include all *ut which one of the following! ". ,-Fs trade continuousl$ so investors can trade throughout the da$ #. ,-Fs can *e sold short or purchased on margin7 unli%e fund shares C. ,-F providers do not have to sell holdings to fund redemptions D. ,-F values can diverge from 9"5

Difficulty: Medium

;0. 4arold has Cust ta%en his compan$ pu*lic and owns a large 6uantit$ of restricted stoc%. For purposes of diversification7 what fund might he help create in order to diversif$ his holdings! A. Commingled funds #. 4edge funds C. ,-F &. +,I-s

Difficulty: Medium

;1. Which of the following funds is most li%el$ to have a de*t ratio of ;0> or higher! ". #ond fund #. Commingled fund C. Mortgage *ac%ed securities D. +,I-

Difficulty: Easy

4-41

Chapter 04 - Mutual Funds and Other Investment Companies

;(. "*out ))))))))) of mutual fund assets are invested in no-load funds. ". ..> #. 40> C. 30> D. 83>

Difficulty: Medium

;.. From 1=;1 to (00; the average return on the Wilshire 3000 inde was ))))))))) the return of the average mutual fund. ". identical to B. 1> higher than C. 1> lower than &. .> lower than

Difficulty: Hard

;4. "n open-end fund has a 9"5 of :18.30 per share. -he fund charges a 8> load. What is the offering price! ". :14.3; #. :13.=3 C. :1;.33 &. :18.4=

Difficulty: Medium

4-4(

Chapter 04 - Mutual Funds and Other Investment Companies

;3. -he offer price of an open-end fund is :1?.00 and the fund is sold with a front-end load of 3>! What is the fundBs 9"5! ". :1?.;4 B. :1;.10 C. :13.40 &. :18.3; D:1?.00ED1 - 0.03E K :1;.10

Difficulty: Medium

;8. " mutual fund has :30 million in assets at the *eginning of the $ear and 1 million shares outstanding throughout the $ear. -hroughout the $ear assets grow at 1(>. -he fund imposes a 1(*-1 fee on all shares e6ual to 1>. -he fee is imposed on $ear end asset values. If there are no distri*utions what is the end of $ear 9"5 for the fund! ". :30.00 B. :33.44 C. :38.1( &. :34.33

Difficulty: Hard

;;. -he assets of a mutual fund are :(3 million. -he lia*ilities are :4 million. If the fund has ;007000 shares outstanding and pa$s a :. dividend7 what is the dividend $ield! ". 3> B. 10> C. 13> &. (0> 1rice per share K D(3 million - 4 millionEA;007000 K .0 per share &ividend $ield K .A.0 K 10>

Difficulty: Medium

4-4.

Chapter 04 - Mutual Funds and Other Investment Companies

;?. Which of the following funds are usuall$ most ta efficient! ". ,6uit$ funds #. #ond Funds C. ,-Fs &. /pecialiGed sector funds

Difficulty: Medium

;=. Hou invest in a mutual fund that charges a .> front end load7 1> total annual fees7 and a (> *ac% end load7 which decreases 0.3> per $ear. 4ow much will $ou pa$ in fees on a :107000 investment that does not grow7 if $ou cash out after three $ears of no gain! ". 10. #. (1= C. 33. D. 8.3 total fees K 107000 - D107000 .=;E D.==E D.==E D.==E D.==3E K 8.3

Difficulty: Hard

?0. Hou invest in a mutual fund that charges a .> front end load7 1> total annual fees7 and a 0> *ac% end load on Class " shares. -he same fund charges 0> front end load7 1> total annual fees7 and a (> *ac% end load on Class # shares. What are the total fees in $ear one on a Class " investment of :(07000 with no growth in value! ". 83? B. ;=4 C. ??3 &. =0( First $ear fees K (07000 - D(07000 .=; .==E K ;=4

Difficulty: Medium

4-44

Chapter 04 - Mutual Funds and Other Investment Companies

?1. Hou invest in a mutual fund that charges a .> front end load7 1> total annual fees7 and a 0> *ac% end load on Class " shares. -he same fund charges 0> front end load7 1> total annual fees7 and a (> *ac% end load on Class # shares. What are the total fees in $ear one on a Class # investment of :(07000 if $ou redeem shares with no growth in value! A. 3=8 #. ;=4 C. ??3 &. =0( -otal fees after one $ear K (07000 - D(07000 0.=? 0.==E K 3=8

Difficulty: Medium

?(. Hou pa$ :(17800 to the 0aramie Fund which has a 9"5 of :1?.00 per share at the *eginning of the $ear. -he fund deducted a front-end load of 4>. -he securities in the fund increased in value *$ 10> during the $ear. -he fundBs e pense ratio is 1..> and is deducted from $ear end asset values. What is $our rate of return on the fund if $ou sell $our shares at the end of the $ear! ". 4..3> B. 4.(.> C. 8.43> &. 3.8.>

Difficulty: Hard

?.. Which one of the following statements a*out returns reported *$ mutual funds is not correct! ". +eported returns are net of management e penses #. +eported returns are net of 1(*-1 fees C. +eported returns are net of *ro%erage fees paid on the fundBs trading activit$ D. +eported returns are net of load charges

Difficulty: Medium

4-43

Chapter 04 - Mutual Funds and Other Investment Companies

?4. -he top Morningstar mutual fund performance rating is )))))))). A. five stars #. four stars C. three stars &. two stars

Difficulty: Easy

?3. Hou are considering investing in a no load mutual fund with an annual e pense ratio of 0.8> and an annual 1(*-1 fee of 0.;3>. Hou could also invest in a *an% C& pa$ing 8.3> per $ear. What minimum annual rate of return must the fund earn to ma%e $ou *etter off in the fund than in the C&! ". ;.10> #. ;.43> C. ;.(3> D. ;.?3> r L 8.3 M 0.08 M 0.0;3 K ;.?3>

Difficulty: Medium

4-48