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
______ are partnerships of investors with portfolios that are larger than most individual investors but are still too small to warrant managing on a separate basis.
A.Commingled funds
B.Closed-end funds
C.REITs
D.Mutual funds
A
A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.
A.commingled pool
B.unit trust
C.hedge fund
D.money market fund
C
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
D
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
A
The NAV of which funds is fixed at $1 per share?
A. equity funds
B. money market funds
C. fixed-income
funds
D. commingled funds
B
The two principal types of REITs are equity trusts, which _______________, and mortgage trusts, which _______________.
A.invest directly in real estate; invest in mortgage and construction loans
B.invest in mortgage and construction loans; invest directly in real estate
C.use extensive leverage; distribute less than 95% of income to shareholders
D.distribute less than 95% of income to shareholders; use extensive leverage
A
A contingent deferred sales load is commonly called a ____.
A.front-end load
B.back-end load
C. 12b-1 charge
D. top-end sales commission
B
In the United States in 2014, there were approximately _______ mutual funds offered by fewer than _______ fund complexes.
12,000; 600
7,000; 100
8,000; 800
9,000; 300
C
10. Part B of a mutual fund prospectus contains information about:
I. Fund holdings by directors and officers
II. Front-end and back-end loads
Securities held by the fund at the end of the fiscal year
I only
I and II only
I and III only
I, II, and III
C
11. Mutual funds provide the following for their shareholders.
A. diversification
B. professional management
C. record
keeping and administration
D. all of these options
D
12. The average maturity of fund investments in a money market mutual fund is _______.
slightly more than 1 month
slightly more than 1 year
about 9 months
between 2 and 3 years
A
13. 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
IV, I, III, II
III, II, IV, I
I, II, III, IV
III, I, II, IV
D
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
Long-term capital gain distributions from the fund
I only
II only
I and II only
I, II, and III
D
15. The type of mutual fund that primarily engages in market timing is called _______.
a sector fund
an index fund
an ETF
an asset allocation fund
D
16. As of 2014, approximately _____ of mutual fund assets were invested in equity funds.
5%
52%
30%
12%
B
17. As of 2014, approximately _____ of mutual fund assets were invested in bond funds.
22%
32%
37%
47%
A
18. As of 2014, approximately _____ of mutual fund assets were invested in money market funds.
5%
18%
44%
B
19. Management fees for open-end and closed-end funds typically range between _____ and _____.
A. .2%; 1.5%
B. .5%; 5%
2%; 5%
3%; 8%
A
20. The primary measurement unit used for assessing the value of one's stake in an investment company is ___________________.
net asset value
average asset value
gross asset value
A
21. Net asset value is defined as ________________________.
book value of assets divided by shares outstanding
book value of assets minus liabilities divided by shares outstanding
market value of assets divided by shares outstanding
market value of assets minus liabilities divided by shares outstanding
D
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?
$12
$9
$10
$1
B
Assume that you have recently purchased 100 shares in an investment company. Upon examining the balance sheet, you note that the firm is reporting $225 million in assets, $30 million in liabilities, and 10 million shares outstanding. What is the net asset value (NAV) of these shares?
$25.50
$22.50
$19.50
D. $1.95
C
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
A
25. Which of the following is not a type of managed investment company?
A. unit investment trusts
B. closed-end funds
C. open-end
funds
D. hedge funds
A
26. Which of the following funds invest specifically in stocks of fast-growing companies?
A. balanced funds
B. growth equity funds
C. REITs
D.
equity income funds
B
27. A fund that invests in securities worldwide, including the United States, is called ______.
an international fund
an emerging market fund
a global fund
a regional fund
C
28. The greatest percentage of mutual fund assets are invested in ________.
bond funds
equity funds
hybrid funds
money market funds
B
29. Sponsors of unit investment trusts earn a profit by ___________________.
deducting management fees from fund assets
deducting a percentage of any gains in asset value
selling shares in the trust at a premium to the cost of acquiring the underlying assets
charging portfolio turnover fees
C
30. Investors who want to liquidate their holdings in a unit investment trust may ___________________.
sell their shares back to the trustee at a discount
sell their shares back to the trustee at net asset value
sell their shares on the open market
sell their shares at a premium to net asset value
B
31. Investors who want to liquidate their holdings in a closed-end fund may ___________________.
sell their shares back to the fund at a discount if they wish
sell their shares back to the fund at net asset value
sell their shares on the open market
sell their shares at a premium to net asset value if they wish
C
32. __________ fund is defined as one in which the fund charges a sales commission to either buy into or exit from the fund.
A load
A no-load
An index
A specialized-sector
A
33. Which of the following is a false statement regarding open-end mutual funds?
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.
A
34. __________ funds stand ready to redeem or issue shares at their net asset value.
Closed-end
Index
Open-end
Hedge
C
35. Revenue sharing with respect to mutual funds refers to _________.
fund companies paying brokers if the broker recommends the fund to investors
allowing certain classes of investors to engage in market timing
charging loads to new investors in a mutual fund
directly marketing funds over the Internet
A
36. Higher portfolio turnover:
I. Results in greater tax liability for investors
II. Results in greater trading costs for the fund, which investors have to pay for
Is a characteristic of asset allocation funds
I only
II only
I and II only
I, II, and III
D
37. Low-load mutual funds have front-end loads of no more than _____.
2%
3%
4%
5%
B
38. Most real estate investment trusts (REITs) have a debt ratio of around _________.
10%
30%
50%
70%
D
39. Measured by assets, about _____ of funds are money market funds.
15%
25%
40%
B
40. Which of the following is not a type of real estate investment trust?
I. Equity trust
II. Debt trust
III. Mortgage trust
IV. Unit trust
I and II only
II only
II and IV only
I, II, and III
C
41. ______________________ are often called mutual funds.
Unit investment trusts
Open-end investment companies
Closed-end investment companies
REITs
B
42. Mutual funds account for roughly ______ of investment company assets.
30%
50%
70%
90%
D
43. An official description of a particular mutual fund's planned investment policy can be found in the fund's _____________.
prospectus
indenture
investment statement
D. 12b-1 forms
A
44. Mutual funds that hold both equities and fixed-income securities in relatively stable proportions are called ____________________.
income funds
balanced funds
asset allocation funds
index funds
B
______ are mutual funds that vary the proportions of funds invested in particular market sectors according to the fund manager's forecast of the performance of that market sector.
A. Asset allocation funds
B. Balanced funds
C. Index
funds
D. Income funds
A
46. Specialized-sector funds concentrate their investments in _________________.
bonds of a particular maturity
geographic segments of the real estate market
government securities
securities issued by firms in a particular industry
D
47. If a mutual fund has multiple-class shares, which class typically has a front-end load?
Class A
Class B
Class C
Class I
A
48. The commission, or front-end load, paid when you purchase shares in mutual funds may not exceed __________.
3.5%
6%
8.5%
10%
C
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
B
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 ____________.
direct operating expenses
back-end loads
C. 12b-1 charges
D. front-end loads
C
51. The SEC requires funds to disclose:
I. After-tax returns for the past year
II. After-tax returns for the last 5-year period
The tax impact of portfolio turnover
I only
I and II only
I and III only
I, II, and III
D
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.
marketing; 1%
marketing; 5%
administrative; .5%
administrative; 2%
A
Consider a mutual fund with $300 million in assets at the start of the year and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year-end value, what is the rate of return on the fund?
15.64%
16%
17.25%
D. 17.5%
A
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?
11.19%
23.75%
24.64%
D. The answer cannot be determined from the information given.
B
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?
12.09%
12.99%
8.25%
D. The answer cannot be determined from the information given.
A
56. Mutual fund returns may be granted pass-through status if _________________.
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.)
D
57. _____ is an example of an exchange-traded fund.
An SPDR or spider
A samurai
A Vanguard
An open-end fund
A
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 _____.
the NAV calculated at the market close at 4 pm New York time
the real time NAV
the NAV delayed 15 minutes
the NAV calculated at the opening of the next day's trading
A
According to the 2014 Mutual Fund Fact Book, _______ of total assets were in taxable money market funds and _______ were tax-exempt money market funds.
35%; 14%
12.3%; 75%
16.3%; 1.8%
5%; 47%
C
In his 1970 study, Malkiel found that mutual funds that do well in one period have an approximately ________ chance of doing well in the subsequent-year period.
33%
52%
65%
85%
C
61. In a recent study, Malkiel found that evidence of persistence in the performance of mutual funds ________________ in the 1980s.
grew stronger
remained about the same
became slightly weaker
virtually disappeared
D
62. The ratio of trading activity of a portfolio to the assets of the portfolio is called the ____________.
reinvestment ratio
trading rate
portfolio turnover
tax yield
C
63. Which of the following ETFs tracks the S&P 500 Index?
Qubes
Diamonds
Vipers
Spiders
D
The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million. It has liabilities of $5 million and 9 million shares outstanding. If the fund sells for $30 a share, what is its premium or discount as a percent of NAV?
9.26% premium
8.47% premium
9.26% discount
D. 8.47% discount
D
65. The difference between balanced funds and asset allocation funds is that _____.
balanced funds invest in bonds while asset allocation funds do not
asset allocation funds invest in bonds while balanced funds do not
balanced funds have relatively stable proportions of stocks and bonds while the proportions may vary dramatically for asset allocation funds
balanced funds make no capital gain distributions and asset allocation funds make both dividend and capital gain distributions
C
The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B shares with a 12b-1 fee of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses before the 12b-1 fee is applied.
Class A.
Class B.
There is no difference.
D. The answer cannot be determined from
the information given.
B
A mutual fund has total assets outstanding of $69 million. During the year the fund bought and sold assets equal to $17.25 million. This fund's turnover rate was _____.
25%
28.5%
18.63%
D. 33.4%
A
68. Which type of investment fund is commonly known to invest in options and futures in large scale?
A. commingled funds
B. hedge funds
ETFs
REITs
B
69. Advantages of ETFs over mutual funds include all but which one of the following?
ETFs trade continuously, so investors can trade throughout the day.
ETFs can be sold short or purchased on margin, unlike fund shares.
ETF providers do not have to sell holdings to fund redemptions.
ETF values can diverge from NAV.
D
Harold has just taken his company public and owns a large quantity of restricted stock. For purposes of diversification, what fund might he help create in order to diversify his holdings?
A. commingled funds
B. hedge funds
ETF
REITs
A
71. Which of the following funds is most likely to have a debt ratio of 70% or higher?
A. bond fund
B. commingled fund
C. mortgage-backed
securities
D. REIT
D
72. _______ have become the main way for investors to speculate in precious metals.
Strategic income funds
Balanced funds
Specialized-sector funds
Exchange-traded funds
D
73. From 1971 to 2013 the average return on the Wilshire 5000 Index was _________ the return of the average mutual fund.
A. identical to
B. .9% higher than
C. .9% lower than
D. 1.3% higher than
B
74. An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is the offering price?
$14.57
$15.95
$17.55
D. $16.49
C
75. The offer price of an open-end fund is $18 and the fund is sold with a front-end load of 5%. What is the fund's NAV?
$18.74
$17.10
$15.40
D. $16.57
B
A mutual fund has $50 million in assets at the beginning of the year and 1 million shares outstanding throughout the year. Throughout the year assets grow at 12%. The fund imposes a 12b-1 fee on all shares equal to 1%. The fee is imposed on year-end asset values. If there are no distributions, what is the end-of-year NAV for the fund?
$50
$55.44
$56.12
D. $54.55
B
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?
5%
10%
15%
D. 20%
B
78. Which of the following funds are usually most tax-efficient?
A. equity funds
B. bond Funds
C. ETFs
D.
specialized-sector funds
C
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 2% back-end load, which decreases .5% per year. How much will you pay in fees on a $10,000 investment that does not grow if you cash out after 3 years of no gain?
$103
$219
$553
D. $635
D
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0% back-end load on Class A shares. The same fund charges a 0% front-end load, 1% total annual fees, and a 2% back-end load on Class B shares. What are the total fees in year 1 on a Class A investment of $20,000 with no growth in value?
$658
$794
$885
D. $902
B
You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0% back-end load on Class A shares. The same fund charges a 0% front-end load, 1% total annual fees, and a 2% back-end load on Class B shares. What are the total fees in year 1 on a Class B investment of $20,000 if you redeem shares with no growth in value?
$596
$794
$885
D. $902
A
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?
4.35%
4.23%
6.45%
D. 5.63%
B
83. Which one of the following statements about returns reported by mutual funds is not correct?
A. Reported returns are net of management expenses.
B. Reported
returns are net of 12b-1 fees.
Reported returns are net of
brokerage fees paid on the fund's trading activity.
None of these options. (All of the items are included in reported returns.)
D
84. The top Morningstar mutual fund performance rating is ________.
five stars
four stars
three stars
two stars
A
You are considering investing in a no-load mutual fund with an annual expense ratio of .6% and an annual 12b-1 fee of .75%. You could also invest in a bank CD paying 6.5% per year. What minimum annual rate of return must the fund earn to make you better off in the fund than in the CD?
7.1%
7.45%
7.25%
D. 7.85%
D
86. The five-star Morningstar rating implies
A. superior returns compared to risk.
B. superior risk compared
to return.
C. lowest turnover compared to peers.
D. lowest
fees compared to peers.
A
87. Which type of fund is often priced at a significant discount to net asset value?
A. open-end fund
B. closed-end fund
C. hedge fund
D. ETF
B
88. Which type of fund generally has the lowest average expense ratio?
A. actively managed bond funds
B. hedge funds
C. indexed
funds
D. actively managed international funds
C
89. Approximately what percentage of assets held in equity funds in 2014 was in index funds?
20%
33%
50%
D. 60%
A
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