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Finance
Q:
Compare and contrast an open-end (mutual fund) investment fund with a closed-end investment company.
Q:
You have $15,000 to invest in a mutual fund. You choose a fund with a 3.5% front load, a 1.75% management fee and a 0.5% 12b-1 fee. Assume that the management and 12b-1 fees are charged on year end assets for simplicity. The gross annual return on the fund's shares was 12.50%. What was your net annual rate of return to the nearest basis point?a. 9.97%b. 8.25%c. 6.12%d. 5.42%e. 4.56%
Q:
You have $200,000 to invest in a mutual fund with a NAV = $70. This fund has a 4% of front load, a 1% of management fee and a 0.25% of 12b-1 fee. Assume that the management and 12b-1 fees are charged based on year-end asset value. The gross annual return on the fund's shares was 9%. What was your net annual rate of return to the nearest basis point?
a. 3.33%
b. 7.64%
c. 6.25%
d. 4.52%
e. 4.64%
Q:
An open end mutual fund owns 1500 share of Crispy Creme priced at $12. The fund also owns 1000 shares of Bem & Jarry's priced at $43, and 2000 shares of Pepsi priced at $50. The fund itself has 3500 of its own shares outstanding. What is the NAV of a fund's share?
a. $66
b. $56
c. $46
d. $36
e. $26
Q:
Money market mutual funds (MMMFs) became popular in the 1970s because
a. MMMF balances were insured by FDIC, unlike bank deposits
b. MMMF were allowed to pay market rates on their balances, while commercial banks faced interest rate ceilings.
c. MMMF balances were more liquid than any bank deposits.
d. All of the above
Q:
Which of the following can trade on national exchanges?
a. MMMF
b. open-end investment company
c. no-load mutual fund
d. Exchange-Traded Funds(ETF)
Q:
Which of the following is true about growth & income funds?
a. They seek a balance between capital gains and current income.
b. They mostly invest in highly rated companies' stock.
c. They are ideal for investors who are looking for some income, but would also want to invest in growth stocks.
d. All of the above is true.
Q:
Which one of the following is true about growth funds?
a. The objective of growth funds is to invest in industries and companies that are not mature and are still experiencing sizable growth.
b. Investors looking for a higher return and a moderate risk are attracted to such funds.
c. Focus is on capital appreciation rather than steady income, so investors' outlook needs to be long-term.
d. All of the above are true.
Q:
Which one of the following is not true about balanced funds?
a. Such funds are portfolios of mortgage securities and preferred stock.
b. The proportions of stocks and bonds determine the level of return for each fund.
c. They typically generate a higher proportion of income than growth and income funds and are less volatile.
d. Investors who have a few more years to retirement and are typically in their early 50s are attracted to such funds.
Q:
Which one of the following is true about bond income funds?
a. They invest in bonds that provide steady coupon cash flows and are quite varied in their risk level.
b. They could be made up of a portfolio of entirely corporate bonds (risky) or a portfolio of entirely Treasury issues (no default risk) or of mortgage-backed securities.
c. They may be exposed not only to default risk, but also to interest rate risk.
d. They are attractive to investors close to retirement age as the income stream of fund's instruments provides them with necessary income.
e. All of the above are true.
Q:
Closed-end funds can sell at a discount to their NAV for which of the following reasons?
a. poor management
b. tax considerations
c. market demand
d. both b and c
e. all of the above
Q:
Which of the following is not true of REITs?
a. REITs total assets started growing in 1974 and peaked in 1984.
b. FREITs have a fixed life.
c. A real estate recession caused many REIT failures.
d. REITs rebounded with low interest rates and real estate revival of 1984 and low interest rate periods.
Q:
Which one of the following is true about marketing expenses or "12b-1" fees?
a. are subtracted from funds assets each year.
b. can be a maximum of 1% of average net assets per year.
c. increase with higher portfolio turnover (commissions)
d. All of the above is true.
Q:
12b-1 fees help mutual funds pay for
a. marketing expenses
b. costs of trading securities
c. management salaries
d. account maintenance costs
Q:
Which of the following is not an advantage of exchange-traded funds?
a. tax advantage
b. high return; low risk
c. low expense ratio
d. ease of buying and selling
Q:
Hedge funds often seek to take advantage of market inefficiencies such as:
a. high transaction costs.
b. pricing differentials between derivative contracts and the underlying security.
c. technological developments aiding informational efficiencies.
d. similar prices in different geographic locations.
Q:
Unit investment trusts provide all of the following advantages to investors except:
a. diversification
b. professional organization and investment selection
c. regular income from securities in the trust
d. frequent portfolio rebalancing
Q:
Investment funds provide investors all of the following except:
a. diversification.
b. contractual rate of return.
c. professional advice.
d. small minimum investment.
Q:
The arbitrage activities of hedge funds seeks to:
a. estimate what stocks will appreciate in the near future.
b. capitalize on capital market inefficiencies.
c. estimate the future price of derivative securities.
d. make significant gains from underwriting securities.
Q:
If a hedge fund manager focused on short-selling of stocks, he/she would
a. invest in company stock for short-term profits.
b. invest in companies with high future growth prospects.
c. borrow money to invest in stocks.
d. select companies where the future supply of securities might exceed demand.
Q:
Which of the following is not the difference between hedge funds and mutual funds?
a. Mutual funds are registered with the SEC, while hedge funds are not.
b. Unlike mutual funds, hedge funds borrow significant amounts of their capital.
c. Unlike mutual funds, hedge funds concentrate their investment in very few areas.
d. Unlike mutual funds, hedge funds are managed by professional fund managers.
Q:
Hedge funds would provide investor portfolio diversification benefits if:
a. the correlation of returns from the hedge fund and the investor's portfolio is close to +1.
b. the hedge fund and the portfolio are investing in the same things.
c. the correlation of returns from the hedge fund and the investor's portfolio is negative.
d. the hedge fund portfolio includes none of the investments of the investor's portfolio.
Q:
Hedge funds are typically organized as:
a. limited partnerships
b. corporations
c. proprietorships
d. any of the above
Q:
Which of the following is best associated with hedge fund investors?
a. employees in a 401k pension plan.
b. commercial banks
c. high net worth individuals and institutions.
d. investors seeking to hedge their business price risk.
Q:
You consider investing $10,000 in a stock mutual fund and you are choosing between Fund A, which has a front-end load of 3%, and Fund B, which has a back-end load of 3%. Expected returns and fees of the two funds are identical. Which fund would you choose?
a. Fund A
b. Fund B
c. You are indifferent (total expected returns are the same after accounting for the loads)
d. More information is needed to make the choice.
Q:
An investment in a 3% front-end load mutual fund with a $20 NAV would cost the investor:
a. $20.00
b. $19.40
c. $20.60
d. $23.00
e. $17.00
Q:
The major regulatory body representing investors' interest is the
a. Securities and Exchange Commission
b. Security Investors Protection Commission
c. Federal Reserve System
d. Federal Trade Commission
Q:
A back-end load fund will likely have an initial cost of
a. the NAV less the load.
b. the NAV plus the 12b-1 fees.
c. the NAV plus the back-end load
d. the NAV.
Q:
Which of the following mutual fund types is likely to have the highest risk exposure?
a. growth and income funds
b. aggressive growth funds
c. balanced funds
d. income-equity funds
e. money market funds
Q:
Which of the following mutual fund types is likely to have the lowest expense ratios?
a. index funds
b. aggressive growth funds
c. growth and income funds
d. international and global equity funds
Q:
The largest investments of mutual funds are _______, followed by_______.
a. bonds; common stocks
b. common stocks; bonds
c. common stocks; preferred stocks
d. money market securities; common stocks
Q:
Which of the following is not associated with the growth of mutual funds in recent years?
a. an increasing number of retiring baby boomers
b. a widespread shift from defined contribution to defined benefit retirement plans
c. the increased variety of mutual funds offered
d. the attractive rates of return on common stock
e. All of the above are associated with the growth of mutual funds in recent years.
Q:
Mutual fund managers can keep their cash balances low by all but one of the following:
a. maintaining lines of credit at commercial banks
b. increasing redemption fees
c. working to maintain low NAV
d. redeeming shares with stock
Q:
Which of the following isassociated with money market mutual funds?
a. Short-term money market investments
b. Provide excellent liquidity for investors
c. High quality and relatively high yield when the yield curve is inverse
d. all of the above
Q:
Money market funds are included in definitions of the money supply because
a. they are invested in high quality assets.
b. they are invested in short-term assets.
c. they provide investors opportunities to access their MMMF accounts very quickly via wire transfers and debit cards.
d. of all of the above.
Q:
The rapid growth of real estate investment trusts seems to be associated with
a. low interest rates.
b. favorable tax sheltering.
c. an expanding economy.
d. all of the above
Q:
Real estate investment trusts are ________ investment companies that tend to prosper when
a. open-end; interest rates are low.
b. open-end; interest rates are high.
c. closed-end; interest rates are low.
d. closed-end; interest rates are high
Q:
The capital gains and earnings of mutual funds
a. are taxed at a lower rate than individuals', a major aspect of their popularity.
b. are taxed only on the interest income, not the capital gains, a major aspect of their popularity.
c. are not taxed as long as they distribute a very high proportion of earnings to shareholders who pay taxes on gains and income.
d. are not taxed only as long as they invest in tax-free municipal securities.
Q:
As interest rates _________, stock mutual funds tend to hold more _________ assets.
a. increase; liquid
b. increase; common stock
c. decrease; liquid
d. fluctuate; common stock
Q:
A mutual fund "load" refers to
a. the operating expenses charged against the assets.
b. the sales commissions.
c. the sum of the commissions paid for buying and selling the assets of the fund.
d. the fees for the investment manager.
Q:
The market value per share of closed-end investment companies
a. can exceed the net asset value per share.
b. is determined by the market.
c. can be less than the net asset value per share.
d. both b and c
e. all of the above
Q:
The price of a mutual fund share is
a. the total value of mutual fund shares divided by the number of corporate shares held.
b. the net asset value or the number of shares issued divided by the number of corporate shares owned.
c. the net asset value or the value of assets divided by shares issued.
d. the net asset value or the number of shares of corporate stock held divided into the total value of the stock portfolio.
Q:
Open-end investment companies are also called ________ and are called "open-end" because
a. high risk funds; they are able to assume high levels of risk.
b. venture capitalists; they invest in the stock of firms.
c. mutual funds; they can buy an unlimited number of corporate shares.
d. mutual funds; they can issue an unlimited number of shares to investors.
Q:
The majority of securities owned by open-end mutual funds are:
a. real, physical assets.
b. money market securities.
c. capital market securities.
d. safe, low-risk government securities.
Q:
Money market mutual funds do NOT invest in
a. commercial paper and banker's acceptances.
b. bank CDs.
c. U.S. Treasury bills.
d. repurchase agreements.
e. U.S. Treasury notes and bonds.
Q:
Money market mutual funds compete mostly with banks'
a. demand deposits.
b. time deposits.
c. MMDAs.
d. regular savings accounts.
Q:
Unit investment trusts are associated with
a. actively managed, short-life, liquidity provided by market.
b. not actively managed, long-life, liquidity provided by originator.
c. not actively managed, long-life, very little liquidity.
d. none of the above
Q:
No-load mutual funds compensate investment managers and salespeople by
a. charging a small fee for each purchase/sale.
b. charging a fee based on the performance of the fund.
c. charging a fee based on the value of the fund's assets.
d. charging brokers a fee to sell the shares.
Q:
One may find the shares of which of the following traded on the national exchanges?
a. money market mutual fund
b. open-end investment company.
c. no-load mutual fund.
d. closed-end investment company.
Q:
Mutual funds that do not charge a front-end load can still impose a _______ that must be paid by investors who redeem their shares.
a. back-end load
b. contingent deferred sales charge
c. redemption fee
d. all of the above
e. none of the above
Q:
Load mutual funds are sold at
a. the best price an underwriter can get.
b. their present asset value.
c. their present asset value less a discount.
d. none of the above
Q:
The commercial bankers' response to the growth of retirement-oriented mutual funds was to seek authority to
a. offer money market mutual funds.
b. market a complete variety of mutual funds.
c. enter investment banking.
d. sell insurance services.
Q:
Which type of an investment company allows shareholders to cash in their shares at their present asset value?
a. unit investment trusts
b. open-end investment companies
c. closed-end investment companies
d. real estate investment trusts
e. none of the above
Q:
Which one of the following services is not provided by closed-end investment companies?
a. transaction cost economies
b. risk diversification
c. maturity intermediation
d. shared costs of investment management
Q:
Mutual fund _______ promote asset gathering by providing a variety of mutual funds for their investing clients.
a. managers
b. families
c. salesmen
d. societies
Q:
Mutual fund management companies offering families of funds are attractive to pension-oriented investors because
a. they provide high return, low risk funds.
b. they provide an opportunity to alter the investment portfolio without the paperwork of rolling over the pension monies.
c. they provide significant "load" fees for customers.
d. they are not regulated like most mutual funds are.
Q:
The key advantage of a family of mutual funds is
a. the ability to diversify an investment portfolio.
b. the ability to add funds on a regular basis such as with a 401K retirement plan.
c. the ability to shift quickly from one type of mutual funds to another with little or no cost and without rolling over 401K monies.
d. the ability to shift from one mutual fund management company to another.
Q:
Mutual fund companies provide all but one of the following to their customers:
a. diversification
b. payment services
c. discount brokerage
d. insurance
Q:
Unlike mutual funds that their leverage is limited by regulation, hedge funds and REITs often have high leverages.
Q:
One of the benefits investing in hedging funds is some hedge funds are not subject to taxation on fund distributions nor to U.S. estate taxes.
Q:
Due to the ability to hedge, the investors of hedge funds experienced very minor losses in subprime mortgage crisis from 2007 to 2009.
Q:
Total assets of mutual funds exceed those of commercial banks.
Q:
REITs are open-end investment companies that invest in real estate.
Q:
Short-selling activities of hedge funds look for high growth companies.
Q:
Arbitrage activities of hedge funds tend to increase capital market efficiency.
Q:
Hedge funds have been popular diversification investments for small investors.
Q:
Hedge funds are typically organized as limited partnerships with the fund manager as the general partner.
Q:
The major investment of mutual funds is common stock.
Q:
Closed-end investment companies' securities often sell at a discount to their NAV.
Q:
Load mutual fund shares may be sold back to the fund.
Q:
No-load mutual funds are commonly sold by security brokers and dealers.
Q:
Closed-end investment companies provide shareholders with maturity intermediation.
Q:
Closed-end investment companies stand ready to redeem their shares at their NAV.
Q:
Mutual funds offer diversification and professional investment management for the fees charged.
Q:
Income funds are made up of portfolios of mortgage-backed securities only.
Q:
Unit investment trusts have a high security turnover rate, increasing their costs over equivalent mutual funds.
Q:
Money market mutual funds are not subject to reserve requirements.
Q:
Money market mutual funds invest in commercial paper, large bank CDs, and short-term government securities.
Q:
When purchasing load mutual fund, the NAV includes the load charge for purchasing the mutual funds.
Q:
Market arbitrage by hedge funds is the simultaneous buying and selling of a security or derivative of the security to exploit market pricing differentials.