Investments Final Chapter 4
68. The Blue Star Fund has assets with a market value of $10.6 million and liabilities of $607,000. What is the net asset value if there are 185,000 shares outstanding? A. $54.02 B. $55.00 C. $56.67 D. $57.18 E. $58.25 NAV = ($10,600,000 - $607,000)/185,000 = $54.02
A. $54.02
12. Which one of the following statements is correct concerning mutual funds? A. Mutual funds generally pay no taxes. B. Mutual funds are risk-free. C. Profits on the sale of mutual fund shares are tax-free. D. All mutual funds are diversified. E. Investments in mutual funds are guaranteed from loss by a private agency of the federal government. See Section 4.1.
A. Mutual funds generally pay no taxes.
37. The primary difference between an international fund and a global fund is the fact that: A. a global fund invests in U.S. stocks while an international fund does not. B. an international fund invests in U.S. stocks while a global fund does not. C. all international funds are country specific while global funds are not. D. global funds may opt to be country or region specific while international funds may not. E. international funds tend to be more geographically diversified than global funds. See Section 4.6.
A. a global fund invests in U.S. stocks while an international fund does not.
58. An ETF is best described as: A. an index fund that trades like a closed-end fund. B. a closed-end fund that trades like a stock. C. a sector fund that trades like a bond. D. an index fund that trades only at the end of each day. E. an international fund that trades like a domestic stock. See Section 4.8.
A. an index fund that trades like a closed-end fund.
54. You recently purchased a fund at a price of $39.97 per share. The NAV at the time of purchase was $40.67. You must have purchased a(n) _____ fund. A. closed-end B. global C. bond D. index E. asset allocation See Section 4.8.
A. closed-end
49. Which one of the following types of funds is most apt to invest in preferred stocks? A. income B. balanced C. world D. insured E. index See Section 4.6.
A. income
69. The Latest Trend Fund has $2,648,900 in assets, and $1,878,400 in liabilities. How many shares are outstanding if the NAV is $10.07? A. 75,481 B. 76,514 C. 77,089 D. 79,142 E. 79,638 NAV = ($2,648,900 - $1,878,400)/$10.07 = 76,514
B. 76,514
25. Assume a mutual fund is a pure no-load fund. Which of the following costs should an investor still expect to incur? I. contingent deferred sales charge II. management fee III. trading costs IV. redemption fee A. I, II, and III only B. II and III only C. II, III, and IV only D. I, II, III, and IV E. none of the costs listed See Section 4.4.
B. II and III only
22. Today, you are selling shares of an open-end mutual fund and will be charged a CDSC of 3 percent. The price you will receive per share is equal to: A. 103 percent of the opening NAV. B. 97 percent of the opening offering price. C. 97 percent of the closing NAV. D. 103 percent of the closing offering price. E. the closing offering price. See Section 4.4.
C. 97 percent of the closing NAV.
19. Investment advisory firms generally provide which of the following services to a mutual fund? I. marketing II. record keeping III. investment research IV. tax payment A. I only B. II and III only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV See Section 4.3.
C. I, II, and III only
57. Which one of the following trading symbols is associated with the ETF on the S&P 500 index? A. DIA B. QQQQ C. SPY D. SPX E. DIAX See Section 4.8.
C. SPY
52. Trading symbols for mutual funds end in which letter? A. M B. F C. X D. Z E. Q See Section 4.7.
C. X
35. Which type of stock fund focuses primarily on current income? A. growth and income B. small-company C. equity income D. capital appreciation E. growth See Section 4.6.
C. equity income
9. A fund that is basically an index fund that trades like a closed-end fund is called a(n): A. open-end fund. B. money market fund. C. exchange-traded fund. D. mutual fund. E. depository receipt. See Section 4.8.
C. exchange-traded fund.
48. Which one of the following types of funds invests in both stocks and bonds and actively attempts to time the market? A. income B. convertible C. flexible portfolio D. balanced E. insured See Section 4.6.
C. flexible portfolio
63. Which one of the following correctly applies to hedge funds? A. highly liquid B. must be highly diversified C. available to the general public D. vast array of investment objectives E. limited investment options See Section 4.8.
D. vast array of investment objectives
65. A hedge fund may charge a special performance fee which commonly ranges from: A. 10 to 15 percent of NAV. B. 15 to 20 percent of the fund's profits. C. 20 to 30 percent of NAV. D. 20 to 40 percent of the market price. E. 20 to 40 percent of the fund's profits. See Section 4.8.
E. 20 to 40 percent of the fund's profits.
31. The net asset value of a money market mutual fund: A. is dependent upon the value of the fund's assets. B. is guaranteed to be $1 a share. C. fluctuates as new shares are issued and old shares are redeemed. D. varies inversely with market interest rates. E. is insured by the sponsoring investment advisory firm. See Section 4.5.
A. is dependent upon the value of the fund's assets.
16. A mutual fund is owned by: A. its shareholders. B. a management company. C. a financial institution. D. the fund's board of directors. E. a mutual fund family. See Section 4.3.
A. its shareholders.
43. Which one of the following is a general characteristic of a tax-managed fund? A. low turnover rate B. concentration on income-producing securities C. high level of realized capital gains D. higher trading costs than average funds E. matching of dividend income to capital gains See Section 4.6.
A. low turnover rate
67. A hedge fund: A. may charge relatively high fees. B. must be registered if there are ten or more investors. C. is generally structured as a corporation. D. is limited to $1 million in assets. E. is fairly complicated to legally establish. See Section 4.8.
A. may charge relatively high fees.
4. The value of a load mutual fund's assets less its liabilities, divided by the number of shares outstanding is referred to as the fund's: A. net asset value. B. offering price. C. open-end value. D. closed-end value. E. prime value. See Section 4.2.
A. net asset value.
20. An investment company will be treated as a "regulated investment company" by the Internal Revenue Service provided that it: I. invests almost all of its assets in bonds, stocks, and other securities. II. invests solely in U.S. securities. III. does not invest more than two percent of its assets in any one security. IV. passes all its realized investment income through to its shareholders. A. I and III only B. I and IV only C. II and III only D. I, II, and IV only E. I, III, and IV only See Section 4.3.
B. I and IV only
60. Exchange traded notes were first created to mimic _____ index. A. the S&P 500 B. a commodity C. the dollar D. the Indian stock market E. the DJIA See Section 4.8.
B. a commodity
7. The turnover for a mutual fund refers to: A. the length of time an average investor holds fund shares. B. a measure of trading activity. C. replacing the fund's investment manager. D. the annual change in the number of shares outstanding. E. the percentage change in the ownership of fund shares. See Section 4.4.
B. a measure of trading activity.
66. Currently, the term "hedge fund" refers to: A. any registered fund with a stated investment objective. B. any unregistered fund pursuing any type of investment style. C. any fund that equally invests in long and short positions. D. any fund that adheres to a "market-neutral" investment strategy. E. any private fund that has a minimum investment requirement of $1 million or more. See Section 4.8.
B. any unregistered fund pursuing any type of investment style.
3. An investment company that issues a fixed number of shares which can only be resold in the open stock market is called a(n) _____ fund. A. hedge B. closed-end C. open-end D. public E. market See Section 4.2.
B. closed-end
38. Which type of fund should you purchase if you are interested in investing primarily in countries that have relatively new stock markets? A. international fund B. emerging markets fund C. social conscience fund D. global fund E. sector fund See Section 4.6.
B. emerging markets fund
44. Which one of the following is the distinguishing characteristic of a municipal bond fund? A. high-yield B. federally tax-free income C. mortgage backed D. short-term E. low quality See Section 4.6.
B. federally tax-free income
36. Small-cap funds: A. generally focus on dividend-paying stocks. B. focus more on capital appreciation than on current income. C. are defined as the smallest 20 percent of all funds based on total asset value. D. are defined as the 20 percent of funds with the smallest NAVs. E. are generally also classified as equity income funds. See Section 4.6.
B. focus more on capital appreciation than on current income.
24. When the offering price and the NAV are the same, you know that a mutual fund is not charging which one of the following fees? A. 12b-1 fee B. front-end load C. management fee D. contingent deferred sales charge E. trading costs See Section 4.4.
B. front-end load
18. Mutual funds are generally created to: A. provide tax shelters for investors. B. generate fees for an advisory firm. C. eliminate investment risk. D. avoid taxes. E. avoid regulation. See Section 4.3.
B. generate fees for an advisory firm.
51. Letter grades are most frequently assigned to mutual funds based on the fund's: A. projected future returns. B. historical rates of return. C. management style. D. portfolio size. E. investment objective. See Section 4.7.
B. historical rates of return.
56. If you purchase shares in a closed-end fund at the initial offer price, you should expect to: A. earn an abnormally high rate of return the first year. B. immediately see a decrease in the value of your investment. C. receive offers to purchase your shares at a premium prior to the official first day of trading. D. earn tax-advantaged income. E. realize a capital gain if you sell your shares as soon as trading in the shares commences. See Section 4.8.
B. immediately see a decrease in the value of your investment.
30. Money market mutual funds do which one of the following? A. offer a guaranteed rate of return B. invest in securities that mature in 90 days or less C. provide a risk-free means of investing D. invest only in government bonds E. trade for $10 a share See Section 4.5.
B. invest in securities that mature in 90 days or less
11. Which of the following are three key advantages of mutual funds? A. diversification, taxes, high initial investments B. low initial investments, professional management, diversification C. liquidity, high initial investments, diversification D. professional management, high initial investments, taxes E. costs, diversification, liquidity See Section 4.1.
B. low initial investments, professional management, diversification
29. What are the two best reasons for considering a load fund? A. lack of good no-load funds and superior market performance B. preference for a particular fund manager or a specialized type of fund C. superior market performance and preferential tax treatment D. tax-free income and superior fund managers E. no management fees and a particular fund manager See Section 4.4.
B. preference for a particular fund manager or a specialized type of fund
28. Which one of the following is NOT included in the fee table found in a mutual fund prospectus? A. 12b-1 fee B. turnover rate C. redemption fee percentage D. management fee E. front-end load See Section 4.4.
B. turnover rate
15. Shares in closed-end funds: A. can be resold to the fund at any time. B. are more popular than shares in open-end funds. C. may sell for more or less than the NAV. D. are referred to as mutual fund shares. E. cannot be resold. See Section 4.2.
C. may sell for more or less than the NAV.
8. An open-end fund which invests solely in short-term debt obligations is called a(n) _____ mutual fund. A. growth B. stock C. money market D. asset allocation E. balanced See Section 4.5.
C. money market
2. An investment company that will repurchase shares at any time is called a(n) _____ fund. A. hedge B. closed-end C. open-end D. public E. exchange traded See Section 4.2.
C. open-end
41. Which one of the following characteristics best fits an index fund? A. market outperformer B. high expenses C. passively managed D. dividend oriented E. high turnover rate See Section 4.6.
C. passively managed
1. An investment company: A. specializes in investing funds on behalf of a financial institution. B. is a closed-end fund that invests in real estate. C. pools funds from individual investors. D. is a specific type of a bank. E. is a specialized form of a joint stock company. See Section 4.2.
C. pools funds from individual investors.
33. To determine the actual objective of a fund, you should primarily refer to the: A. fund's objective statement. B. fund's prospectus. C. portfolio holdings. D. sales literature. E. portfolio manager's comments in the annual report. See Section 4.6.
C. portfolio holdings.
46. Rose wants to invest in a bond fund. She is a very conservative investor with a high marginal tax rate. Which one of the following types of bond funds might be most suited for her situation? A. high-yield corporate B. long-term world C. short-term municipal D. single-state corporate E. mortgage See Section 4.6.
C. short-term municipal
50. Besides size, how else does a mutual fund style box classify equity funds? A. cost and fees as a percent of NAV B. taxability at federal, state, and local levels C. value versus growth characteristics D. age of the fund E. short and long-term rates of return See Section 4.6.
C. value versus growth characteristics
61. Which one of the following statements is true? A. An ETN shareholder owns a fractional ownership of the trust shares. B. You can establish long, but not short, positions in ETNs. C. ETNs invest only in commodities. D. An ETN is an unsecured debt. E. ETN is just another name for an ETF. See Section 4.8.
D. An ETN is an unsecured debt.
59. Which of the following can you do with an ETF that you cannot do with an open-end fund? I. sell at mid-day prices II. short sell III. buy options on them IV. resell A. I and III only B. II and III only C. III and IV only D. I, II, and III only E. I, II, III, and IV See Section 4.8.
D. I, II, and III only
32. Money market mutual funds: A. must be valued at $1 a share or more. B. invest only in certificates of deposit. C. produce income that is always tax-exempt. D. can provide "triple-tax-free" income. E. are insured by the FDIC. See Section 4.5.
D. can provide "triple-tax-free" income.
34. Which type of stock fund focuses on maximizing share price appreciation? A. growth and income B. large-company C. equity income D. capital appreciation E. growth See Section 4.6.
D. capital appreciation
39. A sector fund: A. tends to perform consistently from one year to the next. B. is usually highly diversified. C. rarely outperforms other types of funds. D. concentrates on investing in one industry or one commodity. E. is best evaluated by its past performance. See Section 4.6.
D. concentrates on investing in one industry or one commodity.
23. Which one of the following costs can a mutual fund shareholder avoid by holding shares for an extended period of time? A. 12b-1 fee B. front-end load C. management fee D. contingent deferred sales charge E. trading costs See Section 4.4.
D. contingent deferred sales charge
55. Which one of the following is a common characteristic of a closed-end fund but not of an open-end fund? A. professional management B. annual fees C. stated objective D. discounted price E. taxable distributions See Section 4.8.
D. discounted price
5. A fee that is charged at the time mutual fund shares are purchased by an investor is called a: A. contingent deferred sales charge. B. 12b-1 fee. C. back-end load. D. front-end load. E. issuance charge. See Section 4.4.
D. front-end load.
45. Which one of the following types of bond funds tends to have the highest level of risk? A. short-term government B. intermediate-term corporate C. treasury D. high-yield E. single-state municipal See Section 4.6.
D. high-yield
27. Mutual fund trading costs: A. are computed as a percentage of a fund's assets. B. are generally set at a flat amount per year. C. generally include a bonus fee for outperforming an index. D. increase in direct relation to the turnover rate. E. are the costs paid to brokers in the form of sales commissions. See Section 4.4.
D. increase in direct relation to the turnover rate.
40. A fund which tracks the S&P 500 would best be classified as which type of fund? A. sector B. global C. equity income D. index E. growth See Section 4.6.
D. index
17. A mutual fund is created by which one of the following parties? A. fund shareholders B. fund's board of directors C. SEC D. investment advisory firm E. discount broker See Section 4.3.
D. investment advisory firm
64. Which of the following will exempt a hedge fund from registering with the SEC? A. offering shares to the general public B. being in existence for more than two years C. limiting sales to individual investors D. locking up investor's money for at least two years E. exceeding $25 million in assets See Section 4.8.
D. locking up investor's money for at least two years
53. While reviewing mutual fund reports, Alex noticed that a fund was reported as "closed". What is the primary reason for closing a fund? A. all issued shares have been sold B. the fund is suffering a loss C. the NAV has declined noticeably D. the fund has grown too large in size E. the fund is underperforming its peers See Section 4.7.
D. the fund has grown too large in size
13. Which one of the following statements is correct concerning an open-end mutual fund which charges a front-end load? A. The number of shares outstanding was fixed at the time the fund was created. B. If an investor wishes to sell her shares, she must do so by selling to another investor. C. The NAV exceeds the offering price. D. The load is expressed as a percentage of the NAV. E. Investors receive the NAV when shares are sold. See Section 4.2.
E. Investors receive the NAV when shares are sold.
14. Which one of the following statements correctly relates to closed-end funds? A. Closed-end funds must sell at the NAV or above. B. The number of shares outstanding changes on a daily basis as shares are sold and repurchased. C. Shares in closed-end funds must be held until the funds mature. D. Once a fund closes, a new investor is unable to purchase shares in that fund. E. Shares of closed-end funds trade just like stocks. See Section 4.2.
E. Shares of closed-end funds trade just like stocks.
47. Jim has managed to save $1,000 and wants to start investing. The financial markets make him nervous as he has very limited financial resources. Which one of the following types of funds is probably best for Jim at this time? A. sector B. aggressive growth C. social conscience D. high yield E. balanced See Section 4.6.
E. balanced
26. Contingent deferred sales charges: A. are applied at the time fund shares are purchased. B. are applied only to front-end load funds. C. are charged on an annual basis to cover distribution and marketing costs. D. are no longer permissible. E. can be avoided. See Section 4.4.
E. can be avoided.
62. ETFs are: A. limited to diversified index funds. B. generally held until they mature. C. sponsored primarily by large investment banks. D. based on market-cap-weighted indexes only. E. claims on shares held in a trust. See Section 4.8.
E. claims on shares held in a trust.
10. Which one of the following describes an investment company that generally has an unrestricted investment strategy and is not accessible to the general public? A. mutual fund B. open-end fund C. closed-end fund D. exchange-traded fund E. hedge fund See Section 4.8.
E. hedge fund
42. You want to purchase shares in a fund and also ensure that your money does not support firms that harm the environment. Which type of fund should you purchase? A. international fund B. income fund C. tax-managed fund D. index fund E. social conscience fund See Section 4.6.
E. social conscience fund
21. The income earned by a regulated investment company is: A. exempt from all taxation. B. taxed only at the state and local level. C. taxed only at the federal level. D. taxable income for the fund. E. taxable income for the fund's shareholders. See Section 4.3.
E. taxable income for the fund's shareholders.
6. A 12b-1 fee is a fee charged by a mutual fund: A. at the time shares are issued. B. if shares are sold within a stated period of time. C. to cover trading costs. D. to pay the fund's managers. E. to cover marketing costs. See Section 4.4.
E. to cover marketing costs.
