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29 Cards in this Set

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15. Open-end mutual funds guarantee


A. investors a minimum rate of return.


B. investors a minimum NAV.


C. to redeem investor's shares upon demand at current NAV.


D. to earn the rate promised in the prospectus.


E. none of the above

C. to redeem investor's shares upon demand at current NAV.

16. Hedge funds charge expense fees and performance fees. The average performance fee on hedge funds is


____________.


A. 5%


B. 10%


C. 15%


D. 20%


E. 25%

D. 20%

17. ETFs are a direct competitor to ___________.


A. hedge funds


B. money market mutual funds


C. REITS


D. index funds


E. market neutral funds

D. index funds

18. As the economy weakens, one would expect investment in ____________ funds to increase and


investment in _____________ funds to decrease, ceteris paribus.


A. money market mutual; equity


B. equity; bond


C. municipal bond; money market mutual


D. corporate bond; municipal bond


E. long-term; short-term


A. money market mutual; equity

19. Hybrid mutual funds normally invest significant amounts in


A. common stock.


B. commercial paper.


C. long-term bonds.


D. treasury bills.


E. both A and C


E. both A and C

20. About ___________ of retirement plan investments are in so-called institutional funds, which are funds


that manage retirement plans for an institution's employees.


A. 40%


B. 50%


C. 60%


D. 70%


E. 80%


E. 80%

21. Money market mutual funds (MMMFs) have caused disintermediation at banks at times. This is because


MMMFs


A. sometimes pay higher interest rates than bank deposits.


B. are less risky than bank deposits.


C. are now federally insured, like bank deposits.


D. offer guaranteed rates of return.


E. none of the above


A. sometimes pay higher interest rates than bank deposits.

22. Actively managed funds find it difficult to consistently earn higher risk-adjusted returns than a broad


stock market index. The difference in return between actively managed funds and passively managed


index funds can be explained by which of the following?


I. Lower expense ratios at index funds


II. Higher turnover ratios at index funds


III. Differences in returns in sectors of the market and the overall market return


A. II only


B. I and III only


C. I and II only


D. II and III only


E. I, II, and III


B. I and III only

23. By type of fund, there are more ______________ funds than any other.


A. equity


B. bond


C. taxable money market


D. tax-exempt money market


E. hybrid


A. equity

24. The largest proportion of long-term mutual fund assets is held by ___________________.


A. bank trusts and estates


B. the household sector


C. nonfinancial corporate business


D. private pension funds


E. life insurance firms


B. the household sector

25. The market value of a mutual fund's assets divided by the number of fund shares outstanding is equal to


the


A. load charge.


B. NAV.


C. expense ratio.


D. 12b-1 fee.


E. management fee.


B. NAV.

26. Rank the following in asset size from largest to smallest in 2010.


I. Mutual funds


II. Insurance companies


III. Commercial banks


A. I, II, III


B. I, III, II


C. II, III, I


D. III, II, I


E. III, I, II


E. III, I, II

27. You have $10,000 to invest and you are considering investing in a fund. The fund charges a front-end


load of 5.75% and an annual expense fee of 1.25% of the average asset value over the year. You believe


the fund's gross rate of return will be 11% per year. If you make the investment, what should your


investment be worth in one year?


A. $10,135.48


B. $10,337.46


C. $10,461.75


D. $10,556.23


E. $10,578.92

B. $10,337.46



Investment amount = $10,000 * (1 - 0.0575)= $9,425;


FV1:$9,425 * 1.11 = $10,461.75;


Average assets = ($10,461.75 + $9,425)/2 = 9,943.375;


$9,943.375 * 0.0125 = $124.29;


$10,461.75 - $124.29 = $10,337.46



28. A fund has a NAV of $30 per share but the shares are currently selling for $32. This fund must be


A. an open-ended fund.


B. a closed-end fund.


C. a balanced fund.


D. an aggressive growth fund.


E. a money market mutual fund.


B. a closed-end fund.

29. An open-end mutual fund owns 1500 share of Krispy Kreme priced at $12. The fund also owns 1,000


shares of Ben & Jerry's priced at $43, and 2,000 shares of Pepsi priced at $50. The fund itself has 3,500


of its own shares outstanding. What is the NAV of a fund's share?


A. $66


B. $56


C. $46


D. $36


E. $26


C. $46

[(1500*12) + (1000 * 43) + (2000 * 50)]/3500 fund shares = $46

30. You have $16,000 to invest in a mutual fund with a NAV = $45. You choose a fund with a 4% front load, a 1% management fee, and a 0.25% 12b-1 fee. Assume that the management and 12b-1 fees are charged


on year-end assets. The gross annual return on the fund's shares was 9%. What was your net annual rate


of return to the nearest basis point?


A. 3.33%


B. 7.64%


C. 6.25%


D. 4.52%


E. 4.64%


A. 3.33%

{{[$16,000 * (1-0.04) * 1.09] * (1-0.0125)}/$16,000} - 1 = 3.33%

31. Investors pay load charges to receive


A. higher returns on their investments.


B. additional services from funds.


C. voting shares of stock.


D. advice on which fund to buy.


E. 12b-1 remunerations.


D. advice on which fund to buy.

32. A money market mutual fund's total assets increase from $100 to $105 when the fund has 100 shares


outstanding. Which of the following will happen?


A. The fund's NAV will rise from $100 to $105.


B. The fund's NAV per share will rise from $1 to $1.05.


C. The fund will issue a total of 5 new shares.


D. The fund's NAV will fall 5%.


E. The fund will close to new investors.


C. The fund will issue a total of 5 new shares.

33. The primary regulator of mutual funds is the


A. NASD.


B. CFTC.


C. NYSE.


D. SEC.


E. NSMIA.


D. SEC.

34. You have $12,500 to invest and you are considering investing in Fund X. The fund charges a front-end


load of 3% and an annual expense fee of 2.25% of the ending asset value over the year. You believe the


fund's gross rate of return will be 8% per year. If you make the investment, what should your investment


be worth in one year?


A. $12,125.20


B. $13,095.00


C. $12,654.80


D. $12,800.36


E. $13,162.50


D. $12,800.36

Investment amount = $12,500 * (1 - 0.03) = $12,125; FV1:$12,125 * 1.08 = $13,095.00;


After expenses: $13,095.00 * (1 - 0.0225) = $12,800.36



35. You have $15,000 to invest in a mutual fund. You choose a fund with a 3.5% front load, a 1.75%


management fee, and a 0.5% 12b-1 fee. Assume that the management and 12b-1 fees are charged on


year-end assets for simplicity. The gross annual return on the fund's shares was 12.50%. What was your


net annual rate of return to the nearest basis point?


A. 9.97%


B. 6.12%


C. 9.25%


D. 5.42%


E. 8.56%


B. 6.12%



{{[$15,000 * (1 - 0.035) * 1.1125] * (1 - 0.0225)}/$15,000} - 1 = 6.12%

36. Which one of the following fund types is likely to have the lowest annual expense ratio?


A. Index funds


B. Equity funds


C. Bond funds


D. Balanced funds


E. Hybrid funds


A. Index funds

37. A(n) ___________ fund must hold substantial cash reserves in order to meet fund redemptions from


shareholders.


A. closed-end


B. REIT


C. open-end mutual


D. ETF


E. unit trusts


C. open-end mutual

38. You wish to invest $17,445 in a mutual fund with a NAV of $26.03. The fund charges a front-end load of


4.50%. How many fund shares will you receive?


A. 595


B. 640


C. 616


D. 668


E. 628

B. 640



((1 - 0.045) * 17,445)/26.03

39. A fund that has a fixed number of shares outstanding and is traded on an exchange is called a(n)


A. open-end mutual fund


B. hybrid fund


C. market timing fund


D. index fund


E. closed-end fund


E. closed-end fund

40. ETFs have several advantages over index funds including the ability to:


I. trade throughout the day at continuously updated prices.


II. purchase ETF shares on margin.


II. sell ETF shares short.


IV. sell the shares back to the fund.


A. I, II, and III only


B. I, III, and IV only


C. II, III, and IV only


D. II and III only


E. I, II, III, and IV


A. I, II, and III only

41. You are considering purchasing shares in a typical mutual fund that has three classes of shares


outstanding: Class A, Class B, and Class C. If you purchase Class A shares you will pay


A. a back-end load and no 12b-1 fees.


B. a front-end load and a small 12b-1 fee.


C. no front-end load but a back-end load.


D. a back-end load and full 12b-1 fees.


E. a front-end load and full 2b-1 fees.


B. a front-end load and a small 12b-1 fee.

42. You are considering purchasing shares in a typical mutual fund that has three classes of shares


outstanding: Class A, Class B, and Class C. If you purchase Class C shares you will pay


A. a back-end load and no 12b-1 fees.


B. a front-end load and a small 12b-1 fee, but eventually your shares will be converted to Class A shares.


C. no front-end load but a back-end load.


D. a back-end load and full 12b-1 fees.


E. a front-end load and full 12b-1 fees.


D. a back-end load and full 12b-1 fees.

43. One of the recent trading abuses in the mutual fund industry was allowing selected investors to rapidly


trade in and out of a mutual fund in order to profit on stale prices. This practice is called


A. diluted brokerage.


B. front running.


C. directed order flow.


D. soft dollar commissions.


E. market timing.


E. market timing.