Finance 307 Chapter 4

D. unit investment trust

1. Which one of the following invests in a portfolio that is fixed for the life of the fund? A. mutual fund B. money market fund C. managed investment company D. unit investment trust

D. I, II, and III

14. Which of the following result in a taxable event for investors? I. Short-term capital gain distributions from the fund II. Dividend distributions from the fund III. Long-term capital gain distributions from the fund A. I only B. II only C. I and II only D. I, II, and III

B. $9

22. Assume that you have just purchased some shares in an investment company reporting $500 million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the net asset value (NAV) of these shares? A. $12 B. $9 C. $10 D. $1

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

24. 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 __________. A. in proportion to the market value weight of the firm's equity in the S&P 500 B. in proportion to the price weight of the stock in the S&P 500 C. by purchasing an equal number of shares of each stock in the S&P 500 D. by purchasing an equal dollar amount of shares of each stock in the S&P 500

C. sell their shares on the open market

31. Investors who want to liquidate their holdings in a closed-end fund may ___________________. A. sell their shares back to the fund at a discount if they wish B. sell their shares back to the fund at net asset value C. sell their shares on the open market D. sell their shares at a premium to net asset value if they wish

A. A load

32. __________ fund is defined as one in which the fund charges a sales commission to either buy into or exit from the fund. A. A load B. A no-load C. An index D. A specialized-sector

A. They offer investors a guaranteed rate of return.

33. Which of the following is a false statement regarding open-end mutual funds? A. They offer investors a guaranteed rate of return. B. They offer investors a well-diversified portfolio. C. They redeem shares at their net asset value. D. They offer low-cost diversification.

D. guaranteed rates of return

4. Advantages of investment companies to investors include all but which one of the following? A. record keeping and administration B. low-cost diversification C. professional management D. guaranteed rates of return

B. front-end load; 12b-1 fee

49. You are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with a __________ rather than a __________, everything else equal. A. 12b-1 fee; front-end load B. front-end load; 12b-1 fee C. back-end load; front-end load D. 12b-1 fee; back-end load

A. I and II only

5. Which of the following typically employ significant amounts of leverage? I. Hedge funds II. REITs III. Money market funds IV. Equity mutual funds A. I and II only B. II and III only C. III and IV only D. I, II, and III only

C. 12b-1 charges

50. 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 ____________. A. direct operating expenses B. back-end loads C. 12b-1 charges D. front-end loads

B. 23.75%

54. Consider a no-load mutual fund with $200 million in assets and 10 million shares at the start of the year and with $250 million in assets and 11 million shares at the end of the year. During the year investors have received income distributions of $2 per share and capital gain distributions of $.25 per share. Assuming that the fund carries no debt, and that the total expense ratio is 1% of the year end value, what is the rate of return on the fund? A. 11.19% B. 23.75% C. 24.64% D. The answer cannot be determined from the information given.

A. the NAV calculated at the market close at 4 pm New York time

58. If you place an order to buy or sell a share of a mutual fund during the trading day, the order will be executed at _____. A. the NAV calculated at the market close at 4 pm New York time B. the real time NAV C. the NAV delayed 15 minutes D. the NAV calculated at the opening of the next day's trading

D. Spiders

63. Which of the following ETFs tracks the S&P 500 Index? A. Qubes B. Diamonds C. Vipers D. Spiders

D. ETF values can diverge from NAV.

69. Advantages of ETFs over mutual funds include all but which one of the following? A. ETFs trade continuously, so investors can trade throughout the day. B. ETFs can be sold short or purchased on margin, unlike fund shares. C. ETF providers do not have to sell holdings to fund redemptions. D. ETF values can diverge from NAV.

C. $17.55

74. An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is the offering price? A. $14.57 B. $15.95 C. $17.55 D. $16.49

A. 20%

89. Approximately what percentage of assets held in equity funds in 2014 was in index funds? A. 20% B. 33% C. 50% D. 60%

C. prices are only quoted once each day.

90. Disadvantages of ETFs include all of the following except A. investors incur a bid-ask spread when purchasing. B. investors must pay a broker fee when purchasing. C. prices are only quoted once each day. D. prices can depart from NAV at times.

C. Open-end

34. __________ funds stand ready to redeem or issue shares at their net asset value. A. Closed-end B. Index C. Open-end D. Hedge