Chapter 4 420

Mutual fund returns may be granted pass-through status if _________________. Multiple Choice virtually all income is distributed to shareholders the fund qualifies for pass-through status according to the U.S. tax code the fund is sufficiently diversified All of these options (All of the answers must be true for pass-through status to be granted.)

All of these options (All of the answers must be true for pass-through status to be granted.)

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

$17.55

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? Multiple Choice $12 $9Correct $10 $1

$9

The assets of a mutual fund are $25 million. The liabilities are $4 million. If the fund has 700,000 shares outstanding and pays a $3 dividend, what is the dividend yield? Multiple Choice 5% 10% 15% 20%

10%

Consider a no-load mutual fund with $400 million in assets, 50 million in debt, and 15 million shares at the start of the year and with $500 million in assets, 40 million in debt, and 18 million shares at the end of the year. During the year investors have received income distributions of $.50 per share and capital gain distributions of $.30 per share. If the total expense ratio is .75%, what is the rate of return on the fund? Multiple Choice 12.09% 12.99% 8.25% The answer cannot be determined from the information given.

12.09%

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%, what is the rate of return on the fund? Multiple Choice 11.19% 23.75% 24.64% The answer cannot be determined from the information given.

23.75%

You pay $21,600 to the Laramie Fund, which has a NAV of $18 per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is 1.3% and is deducted from year-end asset values. What is your rate of return on the fund if you sell your shares at the end of the year? Multiple Choice 4.35% 4.23% 6.45% 5.63%

4.23%

The commission, or front-end load, paid when you purchase shares in mutual funds may not exceed __________. Multiple Choice 3.5% 6% 8.5% 10%

8.5%

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

A load

The NAV of which funds is fixed at $1 per share? Multiple Choice equity funds money market funds fixed-income funds commingled funds

Money Market Funds

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

They offer investors a guaranteed rate of return.

The type of mutual fund that primarily engages in market timing is called _______. Multiple Choice a sector fund an index fund an ETF an asset allocation fund

an asset allocation fund

Mutual funds that hold both equities and fixed-income securities in relatively stable proportions are called ____________________. Multiple Choice income funds balanced funds asset allocation funds index funds

balanced funds

An official description of a particular mutual fund's planned investment policy can be found in the fund's _____________. Multiple Choice prospectus indenture investment statement 12b-1 forms

prospectus

Specialized-sector funds concentrate their investments in _________________. Multiple Choice bonds of a particular maturity geographic segments of the real estate market government securities securities issued by firms in a particular industry

securities issued by firms in a particular industry

Which of the following funds are usually most tax-efficient? Multiple Choice equity funds bond Funds ETFs specialized-sector funds

ETFs

Which type of investment fund is commonly known to invest in options and futures in large scale? Multiple Choice commingled funds hedge funds ETFs REITs

Hedge funds

Which of the following typically employ significant amounts of leverage? I. Hedge funds II. REITs III. Money market funds IV. Equity mutual funds Multiple Choice I and II only II and III only III and IV only I, II, and III only

I and II only

Rank the following fund categories from most risky to least risky: I. Equity growth fund II. Balanced fund III. Sector fund IV. Money market fund Multiple Choice IV, I, III, II III, II, IV, I I, II, III, IV III, I, II, IV

III, I, II, IV

Which of the following funds invest specifically in stocks of fast-growing companies? Multiple Choice balanced funds growth equity funds REITs equity income funds

growth equity funds

Advantages of investment companies to investors include all but which one of the following? Multiple Choice record keeping and administration low-cost diversification professional management guaranteed rates of return

guaranteed rates of return

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

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

Which type of fund generally has the lowest average expense ratio? Multiple Choice actively managed bond funds hedge funds indexed funds actively managed international funds

indexed funds

The two principal types of REITs are equity trusts, which _______________, and mortgage trusts, which _______________. Multiple Choice invest directly in real estate; invest in mortgage and construction loans invest in mortgage and construction loans; invest directly in real estate use extensive leverage; distribute less than 95% of income to shareholders distribute less than 95% of income to shareholders; use extensive leverage

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

SEC Rule 12b-1 allows managers of certain funds to deduct __________ expenses from fund assets; however, these expenses may not exceed __________ of the fund's average net assets per year. Multiple Choice marketing; 1% marketing; 5% administrative; .5% administrative; 2%

marketing; 1%