Unit 2: Session 4: Pooled Investments

All of the following are redeemable securities EXCEPT: A)variable annuities. B)mutual funds. C)REITs. D)unit investment trusts.

C

A mutual fund's expense ratio is found by dividing its expenses by its: A)dividends. B)income. C)public offering price. D)average annual net assets.

D

Which of the following 2 are TRUE of a leveraged exchange-traded fund (ETF)? - The leveraged ETF may be purchased on margin. - Securities within the leveraged fund portfolio may be purchased on margin. - The leveraged ETF may never be purchased on margin. - Securities within the leveraged fund portfolio may never be purchased on margin.

1 & 2

Exchange-trade notes (ETNs) are - unsecured debt securities - unsecured equity securities - issued by financial institutions, such as banks - insured by the FDIC

1 & 3

With regard to taxation of distributions from a REIT, - in the majority of cases, dividends are taxed as ordinary income - in the majority of cases, dividends are considered -qualified for the lower tax rate - capital gains distributions are treated as long-term -capital gains - capital gains distributions are taxed as ordinary income

1 & 3

If a customer purchases shares in a municipal bond fund, which of the following statements are TRUE? - Dividends are taxable. - Dividends are not taxable. - Capital gains distributions are taxable. - Capital gains distributions are not taxable.

2 & 3

Which of the following statements correctly describe similarities between exchange-traded funds and closed-end investment companies? - There are a limited number of outstanding shares. - They are traded on registered stock exchanges. - They trade at prices that are not dependent upon but close to their net asset value. - Investors pay commissions to purchase and liquidate their positions.

2 & 4

A prospect has primary investment objectives of current income and safety of principal. During the initial public offering of a closed-end government bond fund, an agent explains to the prospect that the fund invests in U.S. government-backed bonds, which are very safe as to principal, and plans to make monthly distributions. Little could therefore go wrong. Taken as a whole, this representation is: A)accurate because the fund offers current income. B)misleading because closed-end fund shares are subject to market pricing. C)accurate because the fund invests in government bonds. D)misleading because government bonds experience considerable credit risk.

B

The primary difference between an open-end and a closed-end investment company is: A)capitalization. B)management. C)diversification. D)regulation.

A

Your customer is interested in a leveraged fund and makes the following statements about leveraged funds to you. All of the statements regarding leveraged funds are true EXCEPT A)there are no unusual risks associated with these funds other than those one would incur with any index tracking fund B)these funds sometimes use derivatives products to achieve their stated goals C)the funds attempt to return a multiple of the return of a benchmark index they are tracking, perhaps 2 or 3 times D)some leveraged funds are exchange-traded products

A

An investor reading the open-end investment company section of today's "The Wall Street Journal" sees that Bull in the Teashop Fund has a NAV of $10.65 and an offering price of $11.15. He knows that he would have received which of the following if his redemption order had been received by the fund prior to yesterday's market close? A)$10.65. B)$10.65, less redemption fee, if any. C)$11.15, less redemption fee, if any. D)$10.65, less commission.

B

Net asset value per share for a mutual fund can be expected to decrease if the: A)issuers of securities in the portfolio have made dividend distributions. B)fund has made dividend distributions to shareholders. C)fund has experienced net redemptions of shares. D)securities in the portfolio have appreciated in value.

B

Which of the following would be the most important reason for an investor interested in adding foreign stocks to his portfolio to do so by purchasing an international mutual fund? A)Purchasing foreign stocks through a mutual fund saves on foreign taxation. B)He would have the benefit of the portfolio managers picking the stocks instead of having to rely on his own efforts. C)The voting rights granted to a mutual fund shareholder are much stronger than those to the holder of an ADR. D)He could select a fund whose portfolio had the proper mix of foreign and domestic stocks to maximize his diversification.

B

A review of the prospectus of an open-end investment company reveals that its portfolio consists entirely of CDs, Treasury bills, and repurchase agreements. This is probably a(n): A)index fund. B)balance fund. C)money market fund. D)exchange-traded fund (ETF).

C

If a securities salesperson encourages a customer to invest $20,000 in Class A shares in each of 3 different families of mutual funds, which of the following is most likely to occur? A)More predictable income B)Improved diversification C)Breakpoint sale violation D)Reduced expense

C

Which of the following is NOT an investment objective that must be stated in an investment company's prospectus? A)Tax-advantaged income. B)Income. C)Retirement. D)Growth.

C

A 50-year-old client with modest means wants to construct an investment program. He has no investment experience, his major consideration is saving for retirement, and he has limited risk tolerance. Which of the following would you recommend? A)High-grade bond fund. B)Aggressive growth mutual funds. C)Call options on the S&P 500 Index. D)Growth and income mutual funds.

D

If general interest rates increase, the interest income of an open-end bond fund whose sales exceed redemptions will likely: A)remain unchanged. B)decrease. C)It cannot be determined from the information given. D)increase.

D

Which of the following are characteristics of a money market mutual fund? - Shares are offered without a sales charge. - There is a redemption fee. - All purchasers must receive a copy of the prospectus. - The letter of intent must be signed within 16 months.

1 & 3

A mutual fund has a net asset value (NAV) of $7.80 per share, and the fund pays its underwriter a concession of $0.12 per share. If the fund has a sales load of $0.50 per share and an administrative fee of $0.15 per share, how much does the investor pay per share to purchase a Class A share of this fund? A)$8.30. B)$7.80. C)$8.57. D)$8.42.

A

A client of yours recommends your services to his mother, who is 80 years old. She lives on Social Security ($2,215 per month) and has a home with a net value of $186,000. She has lost a large amount of money that she had placed into a high-risk technology fund about 10 years ago. The fund is part of a family that has a wide range of funds with varying objectives. With only $27,000 left in that account, what would you suggest as the best option for her? A)Ask her attorney what the best choice would be B)Leave the funds where they are and hope for a recovery C)Move her to a lower risk fund that is in the fund family D)Sell all of the account and select a more appropriate fund in a different family

C

When comparing mutual funds, one of the factors to consider is A)the amount of sales charge levied on reinvested capital gain distributions B)the fund's net asset value per share C)the length of time the fund manager has been managing the fund D)the length of time it takes for the fund to redeem shares

C

Your elderly client has $10,000 to invest and seeks preservation of capital and a moderate income stream. If she has never invested in mutual funds before and all of her savings are in bank CDs and saving accounts, you should recommend a: A)T-bill. B)government bond fund. C)money market fund. D)tax-exempt bond fund.

C

Which of the following types of investment company securities is the most likely to have a NAV that is 90% of its offer price? A)Open-end company share. B)Face-amount certificate. C)Closed-end company share. D)Unit investment trust unit.

C - The market determines the offer price of closed-end company shares; the offer price may be either more or less than the NAV. Because the NAV in this situation is 90% of the offer price, this must be a closed-end share. An open-end share's NAV must be at least 91.5% of its offered price because the maximum sales charge on open-end shares is 8.5% of the POP.

A debt instrument, which may or may not be exchange traded, and where the final payment at maturity is based on the return of a single stock, a basket of stocks, or an equity index is known as A)a bond fund B)a collateralized mortgage obligation (CMO) C)a preferred share D)an equity- or index-linked note (ELN or ILN)

D

The tax consequence of transferring proceeds from one fund to another within the same family of funds is: A)losses are deducted and gains are deferred. B)gains are taxed and losses are deferred. C)no gain or loss is recognized until redemption. D)on the date of the transaction, any gain or loss is recognized for tax purposes.

D

All of the following are characteristics of exchange-traded notes (ETNs) EXCEPT A)their value can be impacted by changes in the credit rating of the issuer B)they are issued by financial institutions such as banks C)each note is secured by a single specified asset D)they can be bought or sold during normal trading hours on an exchange

C

Asset-based sales charges will generally be lowest when holding A)Class B shares B)Class C shares C)Class A shares D)Class D shares

C

Which of the following statements about the redemption of mutual fund shares are TRUE? - A mutual fund may, but is not required to, redeem its shares if requested by a shareholder. - A mutual fund will redeem fractional shares as well as full shares. - Redemptions of mutual fund shares are handled under forward pricing.

2 & 3 - A mutual fund is required by law to redeem (buy back) its shares on the request of a shareholder, and a mutual fund will redeem fractional shares as well as full shares. Redemptions are handled under what is known as forward pricing, which means that the redemption price will be the next net asset value per share calculated after the mutual fund receives the request for redemption.

Your 30-year-old client has $100,000 to invest and she is willing to assume a moderate amount of risk, but would also like to have $10,000 available for a down payment on a home in 6 months. Which of the following asset allocation strategies would best suit her situation? A)70% large-cap stock fund, 20% balanced fund, 10% money market fund B)70% high-yield corporate bond fund, 20% growth fund, 10% government bond fund C)50% large-cap stock fund, 40% municipal bond fund, 10% money market fund D)50% government bond fund, 50% large-cap fund

A

Your client is 75 years old and has $100,000 to invest. He enjoys a relatively high income and is not concerned with immediate liquidity, although he is risk averse. The most suitable asset allocation strategies listed below would be a: A)50% municipal bond fund, 40% money market fund, 10% large-cap common stock fund. B)50% municipal bond fund, 40% government bond fund, 10% large-cap common stock fund. C)50% municipal bond fund, 40% government bond fund, 10% money market fund. D)50% municipal bond fund, 50% large-cap common stock fund.

B

To calculate the amount to be received on redemption of open-end investment company shares, which of the following would be used? A)The NAV, plus the redemption fee. B)The offering price, minus the redemption fee. C)The offering price, plus the redemption fee. D)The NAV, minus the redemption fee.

D -The mutual fund will redeem shares at the NAV. Redemption fees or deferred sales loads, if any, are subtracted from the proceeds sent to the investor.

The fee charged by some mutual fund companies if shares are redeemed within a specified time after being purchased is known as a: A) breakpoint fee. B)contingent deferred sales charge. C)forward pricing fee. D)12b-1 fee.

B