Q&A Hero

Q: cash dividends are subject to federal income taxes.

Q: managements are often reluctant to reduce dividends because reductions may be viewed as indicating financial weakness.

Q: the exdividend date follows the date of record.

Q: dividend increases usually occur prior to an increase in earnings.

Q: the payout ratio is dividends divided by earnings.

Q: most stockholders of publicly held stock have preemptive rights.

Q: if a firm operates at a loss, its retained earnings are decreased.

Q: if a firm retains earnings, total equity increases.

Q: some firms have more than one class of common stock.

Q: cumulative voting gives more power to minority stockholders.

Q: most stockholders have cumulative voting rights.

Q: both corporate earnings and cash dividends received by stockholders are taxed by the federal government.

Q: corporate retained earnings are taxed on the individual investor's federal income form.

Q: stockholders in a publicly held corporation have limited liability.

Q: the relationship between a firm and its state of incorporation is specified in the bylaws.

Q: an investor bought 100 shares of a reit for $54 a share and two years later sold the shares for $62. the reit annually distributed $4.00 per share ($400) consisting of $2.00 return of capital $200), $1.20 ($120) in income and $0.80 ($80) in long-term capital gains. the investors income tax bracket is 30%. the long-term capital gains tax rate is 15 percent. what is the investors second years tax obligation?

Q: you buy a reit for $50 a share. the reit distributes $3.00 consisting of return of capital. you are in the 30% income tax bracket (which also applies to short-term capital gains) and the 15 percent long-term capital gains bracket. what is the tax implication of this distribution?

Q: a mutual funds net asset value is $50, but the fund charges an exit fee of 1 percent of net asset value and a load fee of 4 percent of net asset value. an individual purchases the shares. during the year the fund distributes $2.34. the net asset value rises to $58.38 and the investor redeems the shares. a. what is the percentage return the fund can report that was achieved by its portfolio managers. b. what is the percentage return the individual earned on the investment? c. why are the two percentages different?

Q: mutual fund a earned 10 percent while b earned 8 percent. the standard deviations of the returns were 10 percent and 7 percent, respectively. according to the sharpe ratio, which fund performed better?

Q: if an investor buys shares in a closed-end investment company for $46 and the net asset value is $53, what is the discount? if the company distributes $1, the net asset value rises to $58, and the investor sells the shares for a premium of 5 percent over the net asset value, what is the percentage earned on the investment?

Q: the net asset value of shares in a closed-end investment company is $36. an investor buys the shares for $34 in the secondary market. the company distributes $1 and after one year, the net asset rises to $4 the investor sells the shares for $44 in the secondary market. a. what is the discount? b. what is the percentage return on the investment? c. in both problems 1 and 2, the investment companys net asset value rose from $36 to $42 and the company distributed $1. why are the percentage returns different?

Q: if an investor purchases shares in a no load mutual fund for $36, receives cash distributions of $1 and redeems the shares after one year for $42, what is the percentage return on the investment?

Q: an american investor may take a position in foreign equities by acquiring 1> ishares specializing in foreign country indexes 2> international mutual funds 3> country closed-end investment companies a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above

Q: the portfolios of international funds a. stress european securities b. exclude u. s. securities c. are a diversified mix of securities from all countries with security markets d. specialize in the securities of one country

Q: hedge funds follow investment strategies such as a. acquiring shares in mutual funds b. shorting overvalued stocks while buying undervalued stocks c. limiting their portfolios to money market instruments d. underwriting new issues (ipos)

Q: a hedge fund a. is a public financial institution b. has its shares registered with the federal reserve c. is open to a select number of individual investors d. has actively traded shares

Q: many exchange-traded funds limit their portfolios to a. high quality securities b. stocks that respond to changes in consumer prices (the consumer price index or cpi) c. stocks included in an aggregate measure of stock prices d. stocks and bonds of companies in a particular industry

Q: exchange-traded funds a. consistently outperform other funds b. mimic an index of securities c. require investors to select individual stocks d. are illustrations of load funds

Q: exchange traded funds a. redeem their shares b. only buy exchangeable securities c. are bought and sold in secondary markets d. cannot be sold short

Q: which of the following is not a consideration for investing in real estate investment trusts (reits)? a. fluctuations in dividend payments b. excessive use of debt financing by some reits c. fluctuating interest rates affecting securities valuations d. the federal tax rate paid by the trust

Q: a real estate investment trust a. pays federal income taxes b. retains all of its earnings c. invests in mortgages or rental properties d. cannot use debt financing

Q: if a closed-end investment company sells for a discount, a. its price exceeds the net asset value b. its price is less than the net asset value c. dividend income exceeds capital gains d. capital gains exceed dividend income

Q: closed-end investment companies with beta coefficients less than 1.0 a. have outperformed the market b. have underperformed the market c. have more systematic risk than the market d. have less systematic risk than the market

Q: since closed-end investment companies acquire securities in efficient financial markets, they a. cannot outperform the market consistently b. should not outperform the market consistently c. will underperform the market when security prices decline d. primarily bear unsystematic risk

Q: the net asset value of a closed-end investment company fund increases with a. higher stock prices b. lower stock prices c. larger number of shares d. increased liabilities

Q: closedend investment companies 1> have a fixed capital structure 2> issue new stock whenever an individual buys shares 3> may sell for a premium over net asset value 4> must sell for their net asset value a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4

Q: if foreign securities markets are as efficient as u. s. securities markets, then foreign investments may offer the u. s. investor no advantages over investing in domestic securities.

Q: the shares of closedend investment companies that invest in foreign securities may sell for a premium over their net asset values.

Q: a global fund invests solely in foreign securities.

Q: american investors may acquire shares in mutual funds that specialize in foreign investments.

Q: hedge funds are sold primarily to high net worth investors and financial institutions such as pension plans.

Q: hedge fund strategies may include buying one stock while shorting another.

Q: the shares of hedge funds are often included in an individual investors iras.

Q: the shares of hedge funds are registered with the sec.

Q: a hedge fund is a conservative type of mutual fund.

Q: if an investor believes that financial markets are inefficient, that argues for the individual to pursue a more active portfolio strategy and purchase exchange-traded funds instead of individual stocks.

Q: compared to selecting individual stocks, etfs ease the process of constructing a well diversified portfolio.

Q: an investor may not sell short the shares of an etf.

Q: as a result of arbitrage, etfs tend to sell for their net asset value.

Q: since etfs mimic an index, they do not buy individual shares of stock.

Q: the first exchange-traded funds (etfs) were a type of index fund.

Q: an equity reit does not use financial leverage (i.e., its financing is entirely equity).

Q: a mortgage trust is a reit that specializes in mortgage loans.

Q: the cash flow generated by reits is taxed as income by the federal government.

Q: real estate investment trusts (reits) are illustrative of a closedend investment company.

Q: if a closed-end investment company specializes in the securities of one sector of the economy, systematic risk is reduced.

Q: a loading fee charged by a mutual fund does not apply to a closed-end investment company.

Q: many unit trusts are selfliquidating.

Q: a unit trust is a passive investment that holds a fixed portfolio of securities such as federal government bonds.

Q: distributions from a closed-end investment are subject to federal income taxation.

Q: distributions from an investment company may include earnings and capital gains.

Q: the only costs of investing in a closedend investment company are the commissions to buy and sell the shares.

Q: the discount paid for the shares of a closedend investment company is fixed by the firm.

Q: the shares of a closedend investment company often sell for a discount from their net asset value.

Q: a closedend investment companys shares cannot sell for a discount from net asset value.

Q: if a closed-end investment company were liquidated, the investor should receive the net asset value minus the cost of the liquidation.

Q: the per share net asset value of the shares in a closed-end investment company depends on the difference between the fund's assets and liabilities and the number of shares outstanding.

Q: a closedend investment company is not a "mutual fund."

Q: index funds tend to track a. the stock market as a whole b. the bond market c. a specific measure of the market d. the return on other index funds

Q: which of the following is a consideration when selecting a mutual fund? 1> portfolio turnover 2> 12b-1 fees 3> unrealized losses in the fund's portfolio a. 1 and 2 b. 1 and 3 c. 2 and 3 d. all of the above

Q: which of the following is a reason for selecting a mutual fund? a. its historic return b. high tax efficiency c. charging 12b-1 fees instead of load fees d. often realizing portfolio gains

Q: which of the following is true? a. mutual funds report returns before adjusting for taxes b. 12b-1 fees exceed a fund's nav c. small cap funds cannot have load fees d. exchange-traded funds exchange their portfolios

Q: if an investor's excess return is negative, a. the realized return was less than the return earned by the market b. the required return exceeded the realized return c. the investor constructed a poorly diversified portfolio d. the investor's portfolio had excessive diversification

Q: one means to adjust for risk is a. standardize funds' return by their beta coefficients b. compute their rates of return including both income and capital gain distributions c. standardize funds' costs by an aggregate index of mutual fund expenses d. to divide each funds' return by the return on the market

Q: a style portfolio manager offers two things: a. investment skill and market timing b. the specific style combined with a low beta c. a high beta and investment timing d. investment skill combined with the style

Q: mutual funds with beta coefficients greater than 1.0 a. have outperformed the market b. have underperformed the market c. have more systematic risk than the market d. have less systematic risk than the market

Q: if mutual funds make investments in efficient financial markets, they a. cannot outperform the market consistently b. should not outperform the market consistently c. will underperform the market when securities prices decline d. primarily bear unsystematic risk

Q: an exit fee has the same impact of a. a load fee of the same percentage b. a 12b1 fee with the same percentage c. commissions paid by a mutual fund to buy securities d. management fees

Q: empirical studies of returns earned by investment companies indicate that a. no funds outperform the market consistently b. most funds are less risky than the market c. most funds outperform the market consistently d. few funds outperform the market consistently

Q: which of the following should not have default risk? a. money market mutual funds b. commercial paper c. negotiable certificates of deposit d. treasury bills