Q&A Hero

Q: 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? A. $50 B. $55.44 C. $56.12 D. $54.55

Q: 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? A. $18.74 B. $17.10 C. $15.40 D. $16.57

Q: An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is the offering price? A. $14.57 B. $15.95 C. $17.55 D. $16.49

Q: From 1971 to 2013 the average return on the Wilshire 5000 Index was _________ the return of the average mutual fund.A. identical toB. .9% higher thanC. .9% lower thanD. 1.3% higher than

Q: _______ have become the main way for investors to speculate in precious metals. A. Strategic income funds B. Balanced funds C. Specialized-sector funds D. Exchange-traded funds

Q: Which of the following funds is most likely to have a debt ratio of 70% or higher?A. bond fundB. commingled fundC. mortgage-backed securitiesD. REIT

Q: 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 C. ETF D. REITs

Q: Advantages of ETFs over mutual funds include all but which one of the following? A. ETFs trade continuously, so investors can trade throughout the day. B. ETFs can be sold short or purchased on margin, unlike fund shares. C. ETF providers do not have to sell holdings to fund redemptions. D. ETF values can diverge from NAV.

Q: Which type of investment fund is commonly known to invest in options and futures in large scale? A. commingled funds B. hedge funds C. ETFs D. REITs

Q: 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 _____. A. 25% B. 28.5% C. 18.63% D. 33.4%

Q: 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. A. Class A. B. Class B. C. There is no difference. D. The answer cannot be determined from the information given.

Q: The difference between balanced funds and asset allocation funds is that _____. A. balanced funds invest in bonds while asset allocation funds do not B. asset allocation funds invest in bonds while balanced funds do not C. balanced funds have relatively stable proportions of stocks and bonds while the proportions may vary dramatically for asset allocation funds D. balanced funds make no capital gain distributions and asset allocation funds make both dividend and capital gain distributions

Q: 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? A. 9.26% premium B. 8.47% premium C. 9.26% discount D. 8.47% discount

Q: Which of the following ETFs tracks the S&P 500 Index? A. Qubes B. Diamonds C. Vipers D. Spiders

Q: The ratio of trading activity of a portfolio to the assets of the portfolio is called the ____________. A. reinvestment ratio B. trading rate C. portfolio turnover D. tax yield

Q: In a recent study, Malkiel found that evidence of persistence in the performance of mutual funds ________________ in the 1980s. A. grew stronger B. remained about the same C. became slightly weaker D. virtually disappeared

Q: 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. A. 33% B. 52% C. 65% D. 85%

Q: According to the 2014 Mutual Fund Fact Book, _______ of total assets were in taxable money market funds and _______ were tax-exempt money market funds. A. 35%; 14% B. 12.3%; 75% C. 16.3%; 1.8% D. 5%; 47%

Q: 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 _____. A. the NAV calculated at the market close at 4 pm New York time B. the real time NAV C. the NAV delayed 15 minutes D. the NAV calculated at the opening of the next day's trading

Q: _____ is an example of an exchange-traded fund. A. An SPDR or spider B. A samurai C. A Vanguard D. An open-end fund

Q: Mutual fund returns may be granted pass-through status if _________________. A. virtually all income is distributed to shareholders B. the fund qualifies for pass-through status according to the U.S. tax code C. the fund is sufficiently diversified D. All of these options (All of the answers must be true for pass-through status to be granted.)

Q: 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? A. 12.09% B. 12.99% C. 8.25% D. The answer cannot be determined from the information given.

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 I

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 2014, approximately _____ of mutual fund assets were invested in money market funds. A. 5% B. 18% C. 44% D. 66%

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 2014, there were approximately _______ mutual funds offered by fewer than _______ fund complexes. A. 12,000; 600 B. 7,000; 100 C. 8,000; 800 D. 9,000; 300

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: 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

Q: ______ 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

Q: 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

Q: Initial public offerings (IPOs) are usually ___________ relative to the levels at which their prices stabilize after they begin trading in the secondary market. A. overpriced B. correctly priced C. underpriced D. mispriced, but without any particular bias

Q: The bulk of most initial public offerings (IPOs) of equity securities goes to ___________. A. institutional investors B. individual investors C. the firm's current shareholders D. day traders

Q: The process of polling potential investors regarding their interest in a forthcoming initial public offering (IPO) is called ________. A. interest building B. book building C. market analysis D. customer identification

Q: When matching orders from the public, a specialist is required to use the _______. A. lowest outstanding bid price and highest outstanding ask price B. highest outstanding bid price and highest outstanding ask price C. lowest outstanding bid price and lowest outstanding ask price D. highest outstanding bid price and lowest outstanding ask price

Q: The __________ was established to protect investors from losses if their brokerage firms fail. A. CFTC B. SEC C. SIPC D. AIMR

Q: Advantages of ECNs over traditional markets include all but which one of the following? A. lower transactions costs B. anonymity of the participants C. small amount of time needed to execute and order D. ability to handle very large orders