Chap 4

Which of the following are common hedge fund types?

Merger Arbitrage Currency Speculation

Mutual funds account for about _____ of investment company assets.

88%

Mutual fund managers pass operating fees directly (i.e. a formal billing procedure) to mutual fund investors.

False Reason: Operating fees are passed to investors by deducting the cost of the fees from the value of the assets in the fund.

True or false: Active fund managers generally outperform passive fund managers (i.e. index funds).

False Reason: The research is conflicting on this topic, but a significant portion of the research suggests that active managers fail to outperform relative to their passive managed peers.

True or false: A mutual fund is the common name of a closed-end investment company.

False Reason: common name of an open-end investment company

Bond funds specialize in - - sector.

fixed income

Suppose an investment company's assets have a market value of $500 million but hold liabilities of $50 million. If there are 2.5 million shares outstanding, then the NAV equals

$180 (500-50)/2.5

If a mutual fund that manages a portfolio of securities is worth $150 million, and the fund owes $9 million to its investment advisers and owes another $1 million for rent, wages due and miscellaneous expenses, and has 5 million shares, what is the net asset value (or cost per share)?

$28 per share (150-9-1)/5

Which of the following components are necessary to determine the rate of return of holding a mutual fund?

Beginning Net Asset Value Capital Gains Distributions from the Fund Ending Net Asset Value Income Distributions from the Fund

Stocks funds are traditionally classified by their emphasis on capital appreciation versus current income. - funds tend to hold shares with high dividend yields. - funds focus on prospects for capital gains.

Blank 1: Income Blank 2: Growth

-cycle funds are balanced funds in which the asset mix can range from aggressive (early on) to conservative (during the later years)

Blank 1: Life

- expenses are the costs incurred by mutual fund administrators while managing the fund.

Blank 1: Operating or Operational

Asset allocation and flexible funds are similar to - mutual funds in that they hold both stocks and bonds.

Blank 1: balanced

Developing nations are considered part of the - market.

Blank 1: emerging

A(n) - - fund can be traded throughout a trading session, while a(n) - fund can only be traded at the end of the day.

Blank 1: exchange Blank 2: traded Blank 3: mutual

A -end load fee is paid when an investor purchases shares of a mutual fund.

Blank 1: front

A - fee is a sales commission associated with mutual fund investments.

Blank 1: load

An index fund matches the performance of a broad ______ index.

Blank 1: market

Asset allocation funds, actively managed, rely on - - as the asset mix may vary significantly according to the portfolio manager's forecast.

Blank 1: market Blank 2: timing

Exchange-traded funds are offshoots of - - that allow investors to trade index portfolios just as they do shares of stock. Listen to the complete question Need help? R

Blank 1: mutual or index Blank 2: funds or fund

The status of mutual fund taxation can best be described as - - status.

Blank 1: pass Blank 2: through

In a unit investment trust all income and payments of principal from the portfolio are paid out by the fund's - to the -

Blank 1: trustees Blank 2: shareholders

A partnership of investors that pool funds and are not formally organized as investment companies is called what type of fund?

Commingled fund Reason: Mutual funds are formally organized and highly regulated. Reason: Hedge funds are formally organized but not highly regulated.

Rate of return on mutual fund

Ending NAV minus beginning NAV plus any income and capital gains distributions all divided by beginning NAV

Which of the following statements is NOT true about Equity Funds.

Equity funds usually offer check-writing features and net asset value is fixed at $1 per share. true about Equity Funds: - Equity funds invest primarily in stock. - Equity funds commonly will hold about 5% of total assets in money market securities. Reason: The money market is not the focus of equity funds. Concentrate on the "focus" of the fund. - Equity funds are typically riskier than income funds.

Which of the following statements does NOT describe a hedge fund.

Hedge funds in the common name for an open-end investment company. Reason: that would be a mutual fund. Describes a hedge fund: - Hedge funds are typically open only to wealthy or institutional investors. - Hedge funds are vehicles that allow private investors to pool assets to be invested by a fund manager. - Hedge funds by design are empowered to invest in a wide range of investments.

Which of the following functions is NOT performed by Investment Companies.

Higher transaction costs (Reason: It Lowers) Performed by Investment Companies: Professional management Diversification and divisibility Record keeping and administration.

What is the net asset value equal to?

It equals assets minus liabilities expressed on a per-share basis.

Which of the following statements is NOT true about a money market fund.

Mutual funds commonly hold only about 5% of total assets in money market securities. True: - These funds invest in money market securities such as commercial paper, repurchase agreements or certificate of deposit. - The average maturity of mutual funds tend to be a bit more than one month. - Money market funds usually offer check-writing features and net asset value is fixed at $1 per share.

For investment companies, the value of each share is called - -

Net Asset Value

- of assets in an investment company allows small investors to obtain the benefits of large-scale investing

Pooling or Combining

Real Estate Investment Trusts (REITs) are best described as?

REITs are similar to a closed-end mutual funds, and invest in real estate or loans secured by real estate. Reason: REITs are traded on the secondary market; therefore, exiting is as simple as selling to another investor. REITs invest in real estate or loans secured by real estate

Which of the following does NOT describe an "open-end" fund.

Shares may not be redeemed, but are instead traded at prices that can differ from net asset value.

Which of the following are examples of balanced funds?

Targeted-Maturity Funds Life-Cycle Funds

Which of the following are common money market securities?

Treasury Bills Commercial Paper Repurchase Agreements

Bond funds focus on investing in which of the following securities:

Treasury Bonds Mortgage-backed securities Municipal Bonds Corporate Bonds

True or false: Brokers that have revenue sharing agreements with mutual fund managers have a potentially perverse incentive to favor the funds of those fund managers.

True Reason: The can and many times does cause a conflict of interest.

True or false: Money pooled from many investors that is invested in a fixed portfolio of securities for the life of the fund is called a unit investment trust.

True Reason: Securities are not actively traded.

Which country would be considered a part of a global fund but not an international fund?

U.S.A.

Which of the following does NOT describe a "closed-end" fund.

When investors wish to "cash-out" their shares, they sell them back to the fund at net asset value. Reason: This is the method for exiting an open-end, not a closed-end, fund.

12b-1 fees can be used on

advertising promotional literature commission to brokers who sell the fund to investors

What are some financial intermediaries that are not formally organized or regulated as investment companies but serve similar functions?

commingled funds hedge funds real estate investment trusts

With respect to taxes, mutual fund investors are treated as if they earned any income or gains _________.

directly

Mutual funds are marketed __________ by fund underwriters and ___________ by brokers.

directly, indirectly

Balanced funds of funds invest - in - and funds in proportions suited to their investment goals

equity debt

A - - -invests in shares of other mutual funds.

funds of funds

An index fund that busy shares of securities

in proportion to the security's representation in the market.

Investment companies are financial - that collect funds from individual investors and invest these funds in a potentially wide range of securities or other assets.

intermediaries

Because they trade large blocks of securities, investment companies can achieve

lower transaction costs

Mutual fund 12b-1 charges cover the costs of ________ the mutual fund.

marketing

Poorly performing mutual fund managers are _______ likely to repeat their performance the next year compared to fund managers that outperform repeating their performance.

more

Some intermediaries lack formal organization or regulation (i.e. unregulated) as investment companies but nevertheless serve similar functions. Which of the following is NOT an example of an unregulated intermediary?

mutual funds unregulated intermediary: commingled funds real estate investment trusts hedge funds

To form a unit investment trust, a brokerage firm buys a portfolio of securities which are deposited into a trust. The brokerage firm then sells to the public shares, or "units" in the trust, called -

redeemable trust certificates

Units sold from a unit investment trust are typically referred to as

redeemable trust certificates