Q&A Hero

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 2017 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) 15.9%; 0.8% 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: 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) 25% B) 17% 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: 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%; 2.0% B) .5%; 5% C) 2%; 5% D) 3%; 8%

Q: As of 2017, approximately ________ of mutual fund assets were invested in money market funds. A) 5% B) 17% C) 44% D) 66%

Q: As of 2017, approximately ________ of mutual fund assets were invested in bond funds. A) 22% B) 32% C) 37% D) 47%

Q: As of 2017, approximately ________ of mutual fund assets were invested in equity funds. A) 5% B) 52% 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 2017, there were approximately ________ mutual funds offered by fewer than ________ fund complexes. A) 12,000; 650 B) 7,000; 100 C) 8,000; 850 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: 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 less than ________. 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 2007, 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