Investments Ch. 4 and 5

Open-ended funds

A mutual fund that does not restrict how many shares will be bought.

NASDAQ

A nationwide electronic system that links dealers across the nation so that they can buy and sell securities electronically.

Seasoned Equity Offering (SEO)

A new equity issue of securities by a company that has previously issued securities to the public

NYSE member

Acts as dealers in particular stocks

Private equity funds will often use convertible preferred stock or bonds with attached call options. These types of securities are used because they

Allow upside potential associated with a successful venture

Which of the following statements typically does not characterize the structure of an investment company?

An investment company receives an annual management fee ranging from 3 to 5 percent of the total value of the fund

What is a securities market characterized by dealers who buy and sell securities for their own inventories called?

An over-the-counter market

The compensation constraint that requires private equity fund managers to "give back" performance fees when subsequent losses occur is a _______ provision.

Clawback

OTC dealer

Dealers buy and sell their own inventories

The compensation constraint that requires private equity fund managers to meet a particular return target before performance fees can be taken is a _______ provision.

High-water-mark

One of the main advantages to investing in a fund of funds (FOF) is that FOFs provide

Improved diversification of assets

Turnover

Lesser of sales or purchases / average daily assets

Private equity funds that concentrate in smaller, family-owned companies with established cash flows are typically referred to as

Middle market

Venture capital

Money that is invested in new or emerging companies that are perceived as having great profit potential

Which of the following activities are not conducted by DMMs on the NYSE?

Monitoring compliance with margin requirements

Which mutual fund type will most likely incur the smallest tax liability for its investors?

Municipal bond fund

SEC

Securities and Exchange Commission

Which mutual fund type will most likely incur the greatest overall risk levels for its investors?

Small-cap growth fund

Growth, value, large-cap, and small-cap investing are all examples of:

Style investment strategies

Which of the following indexes includes the largest number of actively traded stocks?

The Wilshire 5000 index

IPO (initial public offering)

The first time a company sells shares of its stock to the public.

NYSE (New York Stock Exchange)

The largest stock market based on market capitalization and is floor based.

Private equity funds that concentrate in early stage financing would likely be what type of fund?

Venture capital

Hedge funds

When you give someone money and they do whatever they want with it.

Closed-end Fund

a mutual fund whose shares are issued by an investment company only when the fund is organized

Limit order

a request to buy or sell a stock at a specified price

Market order

a request to buy or sell a stock at the current market value

Which of the following mutual fund fees is assessed on an annual basis? a. 12b-1fees b. Front-endload c. Back-endload d. Contingent deferred sales charge (CDSC)

a. 12b-1fees

Which of the following mutual fund fees will most likely be the biggest expense for a long-term fund investor? a. 12b-1fees b. Front-endload c. Back-endload d. Contingent deferred sales charge (CDSC)

a. 12b-1fees

An open-end mutual fund is owned by which of the following? a. An investment company b. An investment advisory firm c. A "family of funds" mutual fund company d. Its shareholders

d. Its shareholders

Which of the following is the least likely advantage of mutual fund investing? a. Diversiication b. Professionalmanagement c. Convenience d. Mutual fund returns are normally higher than market average returns

d. Mutual fund returns are normally higher than market average returns

Which of the following mutual fund fees and expenses is the most dificult for investors to assess? a. Sales charges or "loads" b. 12b-1fees c. Managementfees d. Trading costs

d. Trading costs

Primary market

market for selling financial assets that can only be redeemed by the original holder

Sector funds

mutual funds that focus on a specific industry or sector, such as technology stocks

Index funds

mutual funds that mirror the composition of a particular market or index

Secondary market

previously issued securities are traded among investors

Red Herring

something that draws attention away from the main issue

Bid price

the price a dealer is willing to pay for a security

Ask Price

the price at which a dealer or other trader will sell a security

Firm commitment underwriting

the underwriter buys the entire issue, assuming full financial responsibility for any unsold shares

Best Efforts Underwriting

the underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility

Net Asset Value

the value of the assets held by a mutual fund, divided by the number of shares

Stop order

trade is not to be executed unless stock hits a price limit

Closed-end funds and exchange-traded funds (ETFs) have which of the following characteristics in common? a. Shares of both closed-end funds and ETFs trade in the secondary market. b. Both closed-end funds and ETFs stand ready to redeem shares. c. The structures of closed-end funds and ETFs prevent shares from trading at a signiicant premium or discount to NAV. d. Neither ETF nor closed-end fund managers receive a management fee.

a. Shares of both closed-end funds and ETFs trade in the secondary market.

OTC market (over the counter)

an electronic marketplace for stocks and bonds

Mutual funds

an investment program funded by shareholders that trades in diversified holdings and is professionally managed.

Prospectus

an investment report to potential investors

Investment banking firm

an organization that assists corporations in raising funds, usually by helping to sell new issues of stocks, bonds, or other financial securities

Which of the following is not part of the expense statement? a. Shareholder transactions expenses b. Shareholder demographic proile c. Annual operating expenses d. A hypothetical example of expenses

b. Shareholder demographic profile