Fin 4504 Exam 1 Chapter 4

Rank the following fund categories from most risky to least risky

1. Sector fund 2. Equity growth fund 3. Balanced fund 4. Money market fund

Under SEC rules, the managers of certain funds are allowed to deduct charges for advertising, brokerage commissions, and other sales expenses directly from the fund assets rather than billing investors. These fees are known as ______________

12b-1 charges

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

70%

Advantages of investment companies to investors includes:

> Record keeping and administration > Low-cost diversification > Professional management

_______ is an example of an exchange-traded fund.

An SPDR or spider

Which of the following typically employ significant amounts of leverage?

I. Hedge funds II. REITs

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

Open-end

___________ are often called mutual funds.

Open-end investment companies

Which of the following ETFs tracks the S&P 500 Index?

Spiders

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

They offer investors a guaranteed rate of return.

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

a global fund

_____________ are mutual funds that vary the proportions of funds invested in particular market sectors according to the fund manager's forecast of the performance of that market sector.

asset allocation funds

A contingent deferred sales charge is commonly called a __________

back-end load

Mutual funds that hold both equities and fixed-income securities in relatively stable proportions are called ______________

balanced funds

The difference between balanced funds and asset allocation funds is that .

balanced funds have relatively stable proportions of stocks and bonds while the proportions may vary dramatically for asset allocation funds

The greatest percentage of mutual fund assets are invested in _______

equity funds

A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.

hedge fund

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 ________.

in proportion to the market value weight of the firm's equity in the S&P 500

The two principal types of REITs are equity trusts, which ___________ , and mortgage trusts, which _____________

invest directly in real estate; invest in mortgage and construction loans

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

sell their shares on the open market

If a mutual fund has multiple-class shares, which class typically has a front-end load?

Class A

The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B shares with a 12b-1 fee of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses before the 12b-1 fee is applied.

Class B

_____________ have become the main way for investors to speculate in precious metals.

Exchange-traded funds

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

Growth equity funds

Advantages of investment companies to investors include all but which one of the following?

Guaranteed rates of return

Which type of investment fund is commonly known to invest in options and futures in large scale?

Hedge funds