Q&A Hero

Q: The largest line of life insurance in terms of total contract value in the U.S. is A. ordinary life. B. group life. C. industrial life. D. credit life. E. noncontributory life.

Q: The primary function of insurance companies is to A. generate fees for the banks that sell insurance products. B. sell a variety of consumer investment products. C. protect policyholders from adverse events. D. assist in the transfer of wealth into the future. E. provide contracts that encourage policyholders to save current income.

Q: Unlike the banking industry, globalization of financial services is having little or no effect on the insurance industry.

Q: The Insurance Regulatory Information System (IRIS) is a standardized examination system used to measure the profitability of insurance companies.

Q: Insurance companies have resisted the investment in technology that banks and other financial service firms have pursued.

Q: One reason for the recent decline in the expense ratio for PC insurers is an increase dependence on independent brokers to sell and distribute insurance policies.

Q: Property-casualty insurers tend to have a higher level of liquidity risk than life insurers.

Q: Loss adjustment expenses refer to the costs surrounding the loss settlement process.

Q: Unexpected increases in inflation cause loss rates to increase more for long-tail risk than for short-tail risks.

Q: Automobile liability insurance provides protection against theft or damage to the vehicle.

Q: The expected loss potential is more difficult to determine with low-severity, high-frequency events.

Q: In general, maximum levels of losses in the property-casualty industry are more predictable for liability lines than for property lines.

Q: The largest property-casualty (PC) insurance companies have become less influential over the past decade.

Q: Property-casualty underwriting risk only exists when the premiums generated on a given insurance line are less than the claims (losses) on the line.

Q: Property insurance involves coverage against the loss of personal property as well as protection against legal liability claims.

Q: The growth of HMOs has increased the amount of health insurance premiums collected by life insurance companies.

Q: During the most recent financial crisis, life insurance companies with large proportions of separate accounts business were well-protected from the decline in the debt and equity markets.

Q: In the case of an insurance company failure, policyholders immediately receive a payout of the cash surrender value of their policies.

Q: As currently structured, state guarantee funds will continue to collect premium payments and honor life policies and annuity obligations of a failed insurance company.

Q: As currently structured, contributions to a state-sponsored guarantee fund are collected only after the actual failure of an insurance company.

Q: A permanent guarantee fund for the insurance industry does not exist.

Q: Insurance guarantee funds are administered by federal insurance regulators.

Q: State-sponsored insurance guarantee funds are run and administered by private insurance companies operating in the state.

Q: Insurance guaranty funds involve a permanent fund similar to the FDIC for the purpose of compensating the policyholders of failed insurers.

Q: As of 2012, chartering of life insurance companies can be done only at the state level.

Q: Because of the large amounts of policy reserves that life insurance companies carry as liabilities, they are rarely surprised by unexpected fluctuations in expected future payouts.

Q: The policy reserves on the liability side of the balance sheet of a life insurance company are estimated based on actuarial assumptions of expected future liability commitments on currently existing contracts.

Q: The cash surrender value of a life insurance policy represents the payment to the insured's beneficiaries at the time of death.

Q: Although life insurance companies also provide health and accident insurance, they underwrite less than 35% of all health insurance policies.

Q: Loss exposures faced by insurers in accident and health lines are more similar to those faced by traditional life insurance than by property-casualty insurance.

Q: By 2012, life insurance companies were managing approximately 40% of all private pension plans.

Q: Pension fund management is a relatively small portion of the life insurance industry.

Q: Life insurance companies also manage private pension plans that may include guaranteed investment contracts (GICs).

Q: The rate of growth in the annuities market is increasing primarily because of the recent changes in the capital gains tax rates.

Q: By regulation, the payments on an annuity contract must stop when the annuity holder dies.

Q: Annuities are popular retirement savings products because investment returns on contributions are tax-deferred.

Q: The payments from an annuity offered by a life insurance company can either begin immediately or may be deferred to start at some future date.

Q: Annuities are the reverse of life insurance in that they are different means of liquidating a fund.

Q: Employers that sponsor non-contributory group life insurance require the employee to pay the insurance premiums.

Q: In group life insurance, lower rates on policies can be offered because of cost economies as a result of mass administration of plans and reduced selling and commission costs.

Q: The policyholder can vary the premium payments on an endowment life policy.

Q: The policy that will pay a specific dollar benefit to beneficiaries and remains in effect as long as premiums are paid is called whole life.

Q: A term life policy allows the policyholder to vary the maturity of the policy.

Q: Term life insurance includes a savings element as well as the pure insurance element.

Q: As of 2011, ordinary life accounted for approximately 80% of policies in force.

Q: Adverse selection is a situation where customers who most need insurance are more likely to apply for insurance.

Q: The process of life insurance uses risk pooling to transfer income-related uncertainties from a group of individuals to an insured individual.

Q: Due to a recent increase in demand for new insurance products, the number of life insurance companies as been increasing in the United States.

Q: In recent years, the total assets of insurance companies in the U.S. have been decreasing.

Q: Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.If the price of P&G shares rises to $35 and the price of Microsoft falls to $40.00, what is the new NAV of both funds? A. $26.50 and $45.00.B. $13.25 and $13.00.C. $39.75 and $22.50.D. $53.00 and $45.00.E. $26.50 and $22.50.

Q: Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.To what level should the price of Microsoft shares decline in order for the NAV of Morningstar fund to remain constant if the price of P&G rises to $40? A. $60.B. $55.C. $50.D. $45.E. $40.

Q: Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.What is the NAV of both funds? A. $30.33 and $13.50.B. $60.00 and $27.00.C. $30.00 and $54.00.D. $60.00 and $27.00.E. $15.00 and $54.00.

Q: Which of the following are used to link the hedge fund manager's incentives more closely to those of the fund investors and to reduce the manager's incentive to increase the risk of trades? A. High-water marks. B. Discount rates. C. Trade limits. D. Management fees. E. Low hurdle rates.

Q: What does a hurdle rate specified by a hedge fund indicate? A. The maximum number of investors possible in the fund that would allow it to avoid regulations. B. The minimum amount required to be invested in the fund. C. The net worth criterion for an individual to be deemed an "accredited investor." D. The highest net asset value that the fund has previously achieved, above which the manager receives a performance fee. E. The minimum annualized performance benchmark that must be realized before a performance fee can be assessed.

Q: Which of the following is common to both hedge funds and mutual funds? A. SEC Registration. B. Disclosure norms. C. Management fees. D. Performance fees. E. Investor profiles.

Q: It is estimated that 75 percent of all hedge funds are located in A. Bermuda. B. Hong Kong. C. Cayman Islands. D. Luxembourg. E. San Marino.

Q: These types of funds mix hedge funds and other pooled investment vehicles. A. Distressed securities funds. B. Macro funds. C. Value funds. D. Opportunistic funds. E. Fund of funds.

Q: These "more risky" hedge funds aim to profit from changes in global economies, typically brought about by shifts in government policy that impact interest rates. A. Distressed securities funds. B. Macro funds. C. Value funds. D. Opportunistic funds. E. Market timing funds.

Q: Which of the following hedge fund objectives would be classified under the "risk avoidance" category? A. Special situations funds. B. Opportunistic funds. C. Fund of funds. D. Market timing funds. E. Value funds.

Q: Which of the following hedge fund objectives would be classified under the "moderate risk" category? A. Distressed securities funds. B. Market neutral-arbitrage funds. C. Value funds. D. Short selling funds. E. Market timing funds.

Q: Which of the following hedge fund objectives would be classified under the "more risky" category? A. Distressed securities funds. B. Fund of funds. C. Opportunistic funds. D. Emerging markets funds. E. Special situations funds.

Q: Hedge fund data such as assets held and trading activity A. are primarily self-reported. B. can be independently tracked. C. can be obtained from SEC filings. D. can be obtained from research agencies. E. All of the above.

Q: The hedge fund industry is built on the theory that A. a profit can always be made if each investment has an off-setting position to cover any losses. B. proper diversification can be attained with larger sums of money and fewer assets. C. wealthy individuals should be expected to make more informed investment decisions and can take on higher levels of risk. D. strategies such as program trading and arbitrage are only successful if leverage (borrowed funds) are used. E. it takes money to make money.

Q: To be deemed "accredited" and able to invest in a hedge fund, an investor must have A. a net worth of over $2 million. B. an annual income of at least $200,000. C. an annual income of at least $500,000 if married. D. a net worth of over $4 million. E. a retirement savings plan and over $1 million in net worth.

Q: Which of the following observations concerning hedge funds is NOT true? A. They are pooled investment vehicles. B. Historically, they were not required to register with the SEC. C. Historically, they were subject to virtually no regulatory oversight. D. They usually take significant risk. E. They have to disclose their activities to third parties.

Q: For mutual funds outside the United States, total amounts invested in this fund category topped the list in 2012. A. Equity funds. B. Bond funds. C. Hybrid funds. D. Money market funds. E. Hedge funds.

Q: An investor purchases fund shares with a 3 percent front-end load and expects to hold the shares for 10 years. The fund has a total fund expense ratio (including 12b-1 fees) of 1 percent per year. The annual total shareholder cost for this fund is _______ per year. A. 3 percent B. 30 percent C. 0.3 percent D. 1.3 percent E. 1 percent

Q: An investor purchases fund shares with a 3 percent front-end load and expects to hold the shares for 10 years. The annualized sales load incurred by the investor is _______ per year. A. 3 percent B. 30 percent C. 0.3 percent D. 1.3 percent E. 1 percent

Q: Which of the following is true about the values of most money market mutual fund shares? A. They fluctuate heavily. B. Values are fixed at $1. C. Values are fixed at $100. D. They depend on market demand. E. They are considered closed-end funds.

Q: Which act appointed the National Association of Securities Dealers (NASD) to supervise mutual fund share distributions? A. Securities Act of 1933. B. Securities Exchange Act of 1934. C. Investment Advisers Act. D. Investment Company Act. E. Market Reform Act of 1990.

Q: Which of the following refers to the process used to determine the value of mutual fund shares each per day? A. Directed brokerage. B. Marking-to-market. C. Late trading. D. Market timing. E. Spinning.

Q: Which practice is especially common in international funds as traders can exploit differences in time zones? A. Directed brokerage. B. Insider trading. C. Late trading. D. Market timing. E. Spinning.

Q: Which of the following is the practice that involves short-term trading of mutual funds seeking to take advantage of short-term discrepancies between the price of a mutual fund's shares and out-of-date values on the securities in the fund's portfolio? A. Market timing. B. Insider trading. C. Late trading. D. Directed brokerage. E. Spinning.

Q: Which of the following is the regulation that allowed the SEC to restrict program trading when it deems necessary? A. Securities Exchange Act. B. Investment Advisers Act. C. Investment Company Act. D. Insider Trading and Securities Fraud Enforcement Act. E. Market Reform Act.

Q: What agency acts as the distributor or "clearinghouse" for mutual fund transactions? A. SEC. B. NASD. C. FedWire. D. NYSE. E. U.S. Treasury.

Q: Identify the primary regulator (s) of mutual funds. A. Fed. B. SEC. C. NASD. D. State regulators. E. Stock exchanges.

Q: The front-end load on these type of shares is charged on new sales and is not generally incurred when these shares are exchanged for another mutual fund within the same fund family. A. Class A shares. B. Class B shares. C. Class C shares. D. Class D shares. E. Either Class A or Class C shares.

Q: Which of the following observations is true of a no-load fund? A. Purchase is subject to a sales charge. B. Sales charges may be as high as 8.5 percent. C. They market shares of the fund directly to investors. D. They use sales agents. E. They have up-front commission charges.

Q: The NAV of a closed-end investment company shares is determined at any point in time by A. the number of shares available. B. the value of the underlying shares owned by the company. C. the demand for the investment company's shares. D. Answers A and B only. E. Answers B and C only.

Q: Which of the following observations is true of open-end mutual funds? A. They have a fixed number of shares outstanding. B. The value of shares changes with the demand for the fund by investors. C. Investors buy and sell shares on a stock exchange. D. The demand for shares determines the number outstanding. E. Shares may trade at a premium or discount.