Exam 3: Indirect Investing

Survivorship bias occurs when mutual funds are merged or liquidated, and only the performance of the surviving funds is reported.

The most popular type of investment company is a:

Buying shares of a mutual fund is an example of indirect investing.

Each investor in an investment company shares in the returns of the fund's portfolio and also shares in the cost of running the fund.

You have a publication listing alternative growth funds with their most recent 12-month total returns. Is this a good predictor of future performance for the funds?

The expense ratio for a SPDR (spider) is approximately:

How is the individual investor's income tax position affected by owning investment company shares compared to owning securities directly?

An equity mutual fund began the year with a net asset value (NAV) of $6.50 per share. During the year, it received $0.15 of dividend income, $1.25 in realized capital losses, and $0.50 in unrealized capital gains. Ninety percent of the income was distributed to shareholders. Calculate the fund's year-end NAV.

Which of the following is not true regarding ETFs?

Which of the following types of mutual fund shares typically do not charge a front-end sales charge but do impose a redemption fee that declines over time?

Investment company managers seek to increase assets under management (AUM) since the cost of overseeing additional amounts of money rises less than the revenue rate.

Index funds tend to have lower expenses than other funds because they do not incur the costs of professional portfolio management.

Under the Securities Act of 1933, investment companies are required to register with the SEC.

Investment companies must register with the SEC under the provisions of the:

Relative to mutual funds, ETFs offer a tax advantage because:

Stan invested $15,000 in a mutual fund with a 4% load when the fund's net asset value (NAV) was $10.00. Stan held his shares for three years before selling his shares when the fund's NAV was $13.25. Stan received three annual year-end dividends of $0.50, $0.60, and $0.75 per share in years one, two and three, respectively (his dividends were not reinvested). What annual return did Stan earn on his investment in the fund? Ignore other fees and operating expenses in calculating the return.

Relative to ETFs, ETNs generally:

Walter plans to invest $50,000 in a mutual fund that requires either a 4% front-end load or a 4% back-end load. He expects the fund to return 8% per year and he plans to hold the investment for three years. Calculate the size of the front-end and back-end load and show evidence that Walter is indifferent between the front-end versus back-end load alternatives.

Kendall purchased a security that gives him a position in the energy industry. Kendall has been told that he will only pay a capital gains tax if he sells his security but will pay taxes on dividends. Based on this information, Kendall must have purchased:

Would one expect to find higher P/E ratios in an aggressive growth fund or in growth and income fund?