Chapter 3: Investment Vehicles : Investment Companies (Pooled Investments)
The following net asset values of closed-end bond fund shares were reported by the individual companies as of Friday, June 14, 20XX. The table shows the closing listed market price or a dealer-to-dealer ask price of each fund's shares, with the percentage of difference. An investor paid approximately how much if he purchased 100 Pioneer Fund on June 14.
$17.78 + commission. Notice that these are quotes on Closed-End funds which trade just like a stock trades, therefore the customer would pay the closing stock price plus commission.
The characteristic that BEST describes a sector fund is:
A sector is a mutual fund concentrating in one industry. It is also called a specialized fund. It may contribute its investments in one country and/or specialize in "special situation" stock, but "A" is the BEST answer.
Redeemable shares are issued by which of the following types of investment companies?
All choices issue redeemable shares except for the closed-end investment companies. Closed-end company shares trade in the open market on supply and demand.
Of the following investment choices, which would be considered inappropriate for a retirement account that gives the holder special tax treatment/benefits?
All of the investments listed would be "inappropriate". Muni's and tax-qualified annuities because of the lower yield and the retirement account has its own tax benefits. Raw land and uncovered equity options due to the risk.
The net asset value of a mutual fund is affected by which of the following:
Appreciation of the fund's portfolio would cause the value of the NAV to rise.
Athens Fund has an ask price of $19.25, while the ask price of the Troy Fund is $18.50. The net asset value per share of the Athens Fund is $20.25, while the Troy Fund has a net asset value per share of $17.02. Which of the following is probably true?
Based on the above information, you can determine that the Athens fund is closed end because the NAV is greater than the Ask. Whenever the NAV is more than the ask, the fund has to be closed end. Troy is probably open end because the NAV is less than the Ask and because the difference between the two is less than 9% (maximum sales load under the Investment Company Act of 1940 is 9%)
Which two of the following are true about REITs (Real Estate Investment Trusts)?
Choices II and III are true of REITs. They could become subject to double taxation if they do not distribute at least 90% of its net earnings and most of them are publicly traded.
Which of the following is true of mutual fund dividend distributions that are reinvested by the investor?
Dividends, whether reinvested or not, are fully taxable to the investor each year at the investor's ordinary income tax rate, whereas dividends on stocks can be Qualified and taxed at 15%.
Patrick has invested for most of his life. He is reviewing his investments in his Individual Retirement Account. He decides that he would like to invest part of his IRA portfolio in an Equity Income Fund since he is familiar with the fund and is looking for additional income in his portfolio. Which of the following is true with regard to Patrick's decision?
Equity Income Funds would be an appropriate investment choice for an individual investing in an Individual Retirement Account, assuming that the client has the appropriate risk tolerance.
All of the following kinds of mutual funds will ordinarily provide a high dividend yield EXCEPT:
Gold Funds generally pay little or no dividends to its shareholders.
Which of the following are true concerning a Real Estate Investment Trust (REIT)?
In order to qualify as an REIT, it must pay out 90% to shareholders. The REIT makes its profit on the difference between the interest expenses and the interest it receives. It can make short-term real estate construction and development loans, and anyone considered a suitable investor can invest in an REIT.
Investments made in investment companies are generally done for which of the following?
Investors investing in investment companies own a small portion of the many different companies in the fund's portfolio, thus giving them diversification and professional management by the fund's investment manager.
Which of the following would be considered advantages to investors investing in REITs?
No minimum investment is required, and REITs have a low correlation to other financial assets since the assets of a REIT are real estate.
Which of the following statements regarding REIT's is incorrect?
REIT's are trust and are NOT limited partnerships.
Following are two FINRA mutual fund price reports published at the end of the day on June 19. In this table, the Slippery Fund appears as a
Slippery Fund appears to be no load because the NAV and Offer Price are the same.
When could one expect changes in the net asset value of a mutual fund?
The Net Asset Value of a fund is calculated by taking the closing market value of all securities in the portfolio plus other assets and cash, minus liabilities and dividing that number by the total number of shares outstanding, therefore the best answer offered would be "A".
The bid and ask on mutual fund shares which charge a sales load represents which two of the following:
The net asset value is the bid. The ask is the net asset value plus the maximum sales load.
For an open-end investment company (mutual fund), the redemption price is:
The redemption price on a mutual fund is equal to the net asset value of the fund shares
A client invests in a mutual fund and the investor can choose to have dividends and capital gains distributed to them or reinvest the dividends and capital gains. Which of the following is true if the client decides to reinvest their dividends and capital gains?
When a client who is invested in a mutual fund decides to reinvest their dividends and capital gains, they will be purchasing more shares. In doing so, the cost basis of shares owned by the client will be increased.
The breakpoint on a mutual fund purchase is:
Breakpoint is the point where the investor receives a reduced sales load on quantity purchases.
All of the following are characteristics of a Money Market Fund EXCEPT?
Money Market Funds have the characteristics' of low-risk, safety, liquidity, and the portfolio is made up of securities that have maturities of 12 months or less. Money Market Funds are NOT called Certificates of Deposit. A Certificate of Deposit or CD represents a time deposit made at a bank. CD's could be included in the portfolio of a Money Market Fund, since they are securities which have maturities of 12 months or less.
A Money Market fund will normally:
Money Market funds normally credit dividends to customers daily and pay them out to customer monthly.
Mortgage Real Estate Investment Trusts generally invest in which of the following?
Mortgage Real Estate Investment Trusts lend money to builders and developers and then pass the income on to shareholders.
An organization that owns and operates income producing property like shopping centers and apartment buildings and distributes most of its taxable income to its shareholders would be a:
REITs are companies that own and operate income-producing property such as apartment buildings, shopping centers, and office buildings. REITs also pay most of their taxable income to its shareholders.
The yield of a money market fund is most affected by:
Since the largest expense of a money market fund is the management or advisory fees, those fees would have the greatest impact on the yield of the fund.
Which of the following is NOT commonly associated with UITs (Unit Investment Trusts)?
UITs generally have a fixed portfolio of diverse municipal or corporate bonds. They do not typically have investment or portfolio managers. The securities in a UIT are supervised, but they are NOT managed.
Following are the prices of two mutual funds published at the end of the day on April 18. Investor A buys 300 shares of the Athens Fund at 10 a.m. April 18. He would pay a total of?
When purchasing fund shares, investors pay the next calculated Offer Price after the order is entered. * There is no commission on open end funds, but there may be a sales charge/load.
In a "no load" mutual fund, annual 12b-1 fees charged against shareholder assets may not exceed:
12b-1 fees are annual fees assessed by most mutual funds against shareholder assets for some of their marketing and distribution expenses, including broker compensation. The fees range from a low of .25% for no-load funds to .85% (formerly 1%) of assets for load funds, An additional .25% permitted as a shareholder "service fee". The 12b-1 fee is included in a mutual fund's expense ratio.
Gold Funds generally pay little or no dividends to its shareholders.
Unit Investment Trusts are not actively managed; therefore, they would charge little or no management fee.
Concerning open-end investment companies, it is correct to state that they:
Open-end investment companies always state their investment objectives in the prospectus. Open-end investment companies issue only redeemable (not publicly traded) shares. Therefore, must be "open" for the business of issuing and redeeming shares daily.
Which of the following investment companies issue only redeemable securities?
Open-end investment companies and unit investment trusts both issue redeemable securities. Closed-end investment companies issue shares which are publicly traded in the secondary market.
