Q&A Hero

Q: 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? A. 11.19% B. 23.75% C. 24.64% D. The answer cannot be determined from the information given.

Q: 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? A. 15.64% B. 16% C. 17.25% D. 17.5%

Q: 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. A. marketing; 1% B. marketing; 5% C. administrative; .5% D. administrative; 2%

Q: The SEC requires funds to disclose: I. After-tax returns for the past year II. After-tax returns for the last 5-year period III. The tax impact of portfolio turnover A. I only B. I and II only C. I and III only D. I, II, and III

Q: 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 ____________. A. direct operating expenses B. back-end loads C. 12b-1 charges D. front-end loads

Q: 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

Q: The commission, or front-end load, paid when you purchase shares in mutual funds may not exceed __________. A. 3.5% B. 6% C. 8.5% D. 10%

Q: If a mutual fund has multiple-class shares, which class typically has a front-end load? A. Class A B. Class B C. Class C D. Class D

Q: Specialized-sector funds concentrate their investments in _________________. A. bonds of a particular maturity B. geographic segments of the real estate market C. government securities D. securities issued by firms in a particular industry

Q: ______ 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

Q: Mutual funds that hold both equities and fixed-income securities in relatively stable proportions are called ____________________. A. income funds B. balanced funds C. asset allocation funds D. index funds

Q: An official description of a particular mutual fund's planned investment policy can be found in the fund's _____________. A. prospectus B. indenture C. investment statement D. 12b-1 forms

Q: Mutual funds account for roughly ______ of investment company assets. A. 30% B. 50% C. 70% D. 90%

Q: ______________________ are often called mutual funds. A. Unit investment trusts B. Open-end investment companies C. Closed-end investment companies D. REITs

Q: 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 A. I and II only B. II only C. II and IV only D. I, II, and III

Q: Measured by assets, about _____ of funds are money market funds. A. 15% B. 25% C. 40% D. 60%

Q: Most real estate investment trusts (REITs) have a debt ratio of around _________. A. 10% B. 30% C. 50% D. 70%

Q: Low-load mutual funds have front-end loads of no more than _____. A. 2% B. 3% C. 4% D. 5%

Q: 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 III. Is a characteristic of asset allocation funds A. I only B. II only C. I and II only D. I, II, and III

Q: Revenue sharing with respect to mutual funds refers to _________. A. fund companies paying brokers if the broker recommends the fund to investors B. allowing certain classes of investors to engage in market timing C. charging loads to new investors in a mutual fund D. directly marketing funds over the Internet

Q: __________ funds stand ready to redeem or issue shares at their net asset value. A. Closed-end B. Index C. Open-end D. Hedge

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

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

Q: Investors who want to liquidate their holdings in a closed-end fund may ___________________. A. sell their shares back to the fund at a discount if they wish B. sell their shares back to the fund at net asset value C. sell their shares on the open market D. sell their shares at a premium to net asset value if they wish

Q: Investors who want to liquidate their holdings in a unit investment trust may ___________________. A. sell their shares back to the trustee at a discount B. sell their shares back to the trustee at net asset value C. sell their shares on the open market D. sell their shares at a premium to net asset value

Q: Sponsors of unit investment trusts earn a profit by ___________________. A. deducting management fees from fund assets B. deducting a percentage of any gains in asset value C. selling shares in the trust at a premium to the cost of acquiring the underlying assets D. charging portfolio turnover fees

Q: The greatest percentage of mutual fund assets are invested in ________. A. bond funds B. equity funds C. hybrid funds D. money market funds

Q: A fund that invests in securities worldwide, including the United States, is called ______. A. an international fund B. an emerging market fund C. a global fund D. a regional fund

Q: 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

Q: 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

Q: 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

Q: 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? A. $25.50 B. $22.50 C. $19.50 D. $1.95

Q: 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? A. $12 B. $9 C. $10 D. $1

Q: Net asset value is defined as ________________________. A. book value of assets divided by shares outstanding B. book value of assets minus liabilities divided by shares outstanding C. market value of assets divided by shares outstanding D. market value of assets minus liabilities divided by shares outstanding

Q: The primary measurement unit used for assessing the value of one's stake in an investment company is ___________________. A. net asset value B. average asset value C. gross asset value D. total asset value

Q: Management fees for open-end and closed-end funds typically range between _____ and _____. A. .2%; 1.5% B. .5%; 5% C. 2%; 5% D. 3%; 8%

Q: As of 2011, approximately _____ of mutual fund assets were invested in money market funds. A. 5% B. 26% C. 44% D. 66%

Q: As of 2011, approximately _____ of mutual fund assets were invested in bond funds. A. 14% B. 19% C. 37% D. 47%

Q: As of 2011, approximately _____ of mutual fund assets were invested in equity funds. A. 5% B. 54% C. 30% D. 12%

Q: The type of mutual fund that primarily engages in market timing is called _______. A. a sector fund B. an index fund C. an ETF D. an asset allocation fund

Q: 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 III. Long-term capital gain distributions from the fund A. I only B. II only C. I and II only D. I, II, and III

Q: 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 A. IV, I, III, II B. III, II, IV, I C. I, II, III, IV D. III, I, II, IV

Q: The average maturity of fund investments in a money market mutual fund is _______. A. slightly more than 1 month B. slightly more than 1 year C. about 9 months D. between 2 and 3 years

Q: Mutual funds provide the following for their shareholders: A. Diversification B. Professional management C. Record keeping and administration D. All of these options

Q: Part B of a mutual fund prospectus contains information about: I. Fund holdings by directors and officers II. Front-end and back-end loads III. Securities held by the fund at the end of the fiscal year A. I only B. I and II only C. I and III only D. I, II, and III

Q: In the United States in 2011, there were approximately _______ mutual funds offered by fewer than _______ fund families. A. 12,000; 600 B. 7,000; 100 C. 8,000; 700 D. 9,000; 300

Q: A contingent deferred sales charge is commonly called a ____. A. front-end load B. back-end load C. 12b-1 charge D. top-end sales commission

Q: The commission structure on a stock purchase is $20 plus $.02 per share. If you purchase four round lots of a stock selling for $56, what is your commission? A. $20 B. $22 C. $26 D. $28

Q: You sell short 300 shares of Microsoft that are currently selling at $30 per share. You post the 50% margin required on the short sale. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Microsoft is selling at $27? (Ignore any dividends.) A. 10% B. 20% C. 6.67% D. 15%

Q: Level 3 NASDAQ subscribers _____. A. are registered market makers. B. can post bid and ask prices. C. have the fastest execution of trades. D. all of these options.

Q: An investor buys $16,000 worth of a stock priced at $20 per share using 60% initial margin. The broker charges 8% on the margin loan and requires a 35% maintenance margin. The stock pays a $.50-per-share dividend in 1 year, and then the stock is sold at $23 per share. What was the investor's rate of return? A. 17.5% B. 19.67% C. 23.83% D. 25.75%

Q: The over-the-counter securities market is a good example of _________. A. an auction market B. a brokered market C. a dealer market D. a direct search market

Q: The primary market where new security issues are offered to the public is a good example of _________. A. an auction market B. a brokered market C. a dealer market D. a direct search market

Q: The New York Stock Exchange is a good example of _________. A. an auction market B. a brokered market C. a dealer market D. a direct search market

Q: An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin. The broker charges 6% on the margin loan and requires a 30% maintenance margin. In 1 year the investor has interest payable and gets a margin call. At the time of the margin call the stock's price must have been ____. A. $20 B. $29.77 C. $30.29 D. $32.45

Q: An investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share, and in 1 year the investor sells the stock for $28. The investor's rate of return was ____. A. 17% B. 12% C. 14% D. 19%

Q: In ________ markets, participants post bid and ask prices at which they are willing to trade, but orders are not automatically executed by computer. ____________ execute trades for people other than themselves, and in _______________ markets a computer matches orders with an existing limit order book and executes the trades automatically. A. electronic; Dealers; brokers B. dealer; Brokers; electronic C. direct search; Brokers; electronic D. brokered; Dealers; direct search

Q: The largest nongovernmental regulator of securities firms in the United States is ________. A. the CFA Institute B. the Public Company Accounting Oversight Board C. the Financial Industry Regulatory Authority D. the Board of Directors of NYSE Euronext

Q: Which of the following are true concerning short sales of exchange-listed stocks? I. Proceeds from the short sale must be kept on deposit with the broker. II. Short-sellers must post margin with their broker to cover potential losses on the position. III. The short-seller earns interest on any cash deposited with the broker that is used to meet the margin requirement. A. I only B. I and III only C. I and II only D. I, II, and III

Q: Maintenance requirements for margin accounts are set by ____. A. brokerage firms B. the SEC C. the Federal Reserve System's Board of Governors D. the Supreme Court

Q: The SIPC was established by the ____. A. Insider Trading Act of 1931 B. Securities Act of 1933 C. Securities Exchange Act of 1934 D. none of these options

Q: The ____ requires full disclosure of relevant information relating to the issue of new securities. A. Insider Trading Act of 1931 B. Securities Act of 1933 C. Securities Exchange Act of 1934 D. Investment Company Act of 1940

Q: Trading on inside information is: I. Prohibited by federal law II. Prohibited by the CFA Institute Standards of Professional Conduct III. Monitored by the SEC A. I and II only B. II and III only C. I and III only D. I, II, and III

Q: The CFA Institute Standards of Professional Conduct require that members _____. A. place their clients' interests before their own B. disclose conflicts of interest to clients C. inform their employers that they are obligated to comply with the Standards of Professional Conduct D. all of these options

Q: The average depth of the limit order book is _____. A. lower for the large stocks in the S&P 500 Index than for the smaller stocks in the Russell 2000 Index B. higher for the large stocks in the S&P 500 Index than for the smaller stocks in the Russell 2000 Index C. about the same for both the large stocks in the S&P 500 Index and the smaller stocks in the Russell 2000 Index D. unrelated to the sizes of the stocks in the indexes

Q: If an investor uses the full amount of margin available, the equity in a margin account used for a stock purchase can be found as ________. A. market value of the stock - amount owed on the margin loan B. market value of the stock + amount owed on the margin loan C. market value of the stock margin loan D. margin loan market value of the stock

Q: You hold 5,000 shares of the 1 million outstanding shares of Wealthy Wranglers common stock. You've just learned that the company plans to issue more shares, so that 2 million shares will be outstanding. This is called _____. A. an advanced equity offering B. a weathered equity offering C. a seasoned equity offering D. a veteran equity offering

Q: In 2008, the NASDAQ stock market merged with _____. A. Euronext B. OMX, which operates seven Nordic and Baltic stock exchanges C. the International Securities Exchange (ISE) D. BATS

Q: All major stock markets today are effectively _______________. A. specialist trading systems B. electronic trading systems C. continuous auction markets D. direct search markets

Q: The commission structure on a stock purchase is $50 plus $.03 per share. If you purchase 600 shares of a stock selling for $65, what is your commission? A. $35 B. $45 C. $53 D. $68

Q: Regulation NMS: I. Supports the goal of integrating financial markets II. Requires the use of specialists to execute trades III. Requires that exchanges honor quotes of other exchanges when they can be executed automatically A. I only B. I and II only C. I and III only D. I, II, and III

Q: The market share held by the NYSE Arca system in February 2011 was approximately ____. A. 65% B. 45% C. 25% D. 10%

Q: __________ often accompany short sales and are used to limit potential losses from the short position. A. Limit orders B. Restricted orders C. Limit loss orders D. Stop-buy orders

Q: What was the result of high-frequency traders' leaving the market during the flash crash of 2010? A. Market liquidity decreased. B. Market liquidity increased. C. Market volatility decreased. D. Trading frequency increased.

Q: Transactions that do not involve the original issue of securities take place in _________. A. primary markets B. secondary markets C. over-the-counter markets D. institutional markets

Q: You sell short 200 shares of Doggie Treats Inc. that are currently selling at $25 per share. You post the 50% margin required on the short sale. If your broker requires a 30% maintenance margin, at what stock price will you get a margin call? (You earn no interest on the funds in your margin account, and the firm does not pay any dividends.) A. $28.85 B. $35.71 C. $31.50 D. $32.25

Q: You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65%, and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin. A. 35% B. 39% C. 43% D. 28%

Q: You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends, and ignore interest on the margin loan.) A. $26.55 B. $35.71 C. $28.95 D. $30.77

Q: You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____. A. $37.50 B. $62.50 C. $56.25 D. $59.75

Q: You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain, ignoring transactions cost? A. $50 B. $150 C. $10,000 D. Unlimited