Question 1

In order to avoid paying income taxes, an investment company must:

Accepted Answer

A)  be classified as a non-profit organization. 
B)  invest only in municipal bonds. 
C)  pass on interest, dividends, and capital gains to the stockholders. 
D)  be registered as a closed-end investment company. 
A)  be classified as a non-profit organization. 
B)  invest only in municipal bonds. 
C)  pass on interest, dividends, and capital gains to the stockholders. 
D)  be registered as a closed-end investment company.

Question 2

Single-country funds have traditionally:

Accepted Answer

A)  outperformed international funds. 
B)  underperformed international funds. 
C)  been open-end. 
D)  been closed-end. 
A)  outperformed international funds. 
B)  underperformed international funds. 
C)  been open-end. 
D)  been closed-end.

Question 3

Net asset value takes into account:

Accepted Answer

A)  both realized and unrealized capital gains. 
B)  only realized capital gains. 
C)  only unrealized capital gains. 
D)  neither realized or unrealized capital gains. 
A)  both realized and unrealized capital gains. 
B)  only realized capital gains. 
C)  only unrealized capital gains. 
D)  neither realized or unrealized capital gains.

Question 4

Sally is optimistic about the performance of both the U.S. and foreign equity markets. She wants to invest in a security that takes advantage of her optimism yet is tax payer friendly. Sally should purchase a:

Accepted Answer

A)  global stock fund with high portfolio turnover. 
B)  international stock fund with low portfolio turnover. 
C)  global stock fund with low portfolio turnover. 
D)  international stock fund with high portfolio turnover. 
A)  global stock fund with high portfolio turnover. 
B)  international stock fund with low portfolio turnover. 
C)  global stock fund with low portfolio turnover. 
D)  international stock fund with high portfolio turnover.

Question 5

Index funds provide low-cost, passive investment exposure in a similar fashion to:

Accepted Answer

A)  hybrid mutual funds. 
B)  money market mutual funds. 
C)  exchange-traded funds. 
D)  equity income funds. 
A)  hybrid mutual funds. 
B)  money market mutual funds. 
C)  exchange-traded funds. 
D)  equity income funds.

Question 6

If NAV > market price of a fund, then the fund:

Accepted Answer

A)  is selling at a discount. 
B)  is selling at a premium. 
C)  is an index fund. 
D)  is an ETF. 
A)  is selling at a discount. 
B)  is selling at a premium. 
C)  is an index fund. 
D)  is an ETF.

Question 7

Which of the following characteristics would you expect the stocks in a value fund to exhibit?

Accepted Answer

A)  Relatively low beta and relatively high dividend yield 
B)  Relatively high price-to-book and relatively low price-to-earnings 
C)  Relatively high beta and relatively low dividend yield 
D)  Relatively high current ratio and relatively low debt ratios 
A)  Relatively low beta and relatively high dividend yield 
B)  Relatively high price-to-book and relatively low price-to-earnings 
C)  Relatively high beta and relatively low dividend yield 
D)  Relatively high current ratio and relatively low debt ratios

Question 8

A major difference between a closed-end investment company and an open-end investment company is that:

Accepted Answer

A)  closed-end investment companies are generally much riskier. 
B)  their security portfolios are substantially different. 
C)  closed-end investment companies are passive investments and open-ends are not. 
D)  the capitalization of closed-end companies is more fixed. 
A)  closed-end investment companies are generally much riskier. 
B)  their security portfolios are substantially different. 
C)  closed-end investment companies are passive investments and open-ends are not. 
D)  the capitalization of closed-end companies is more fixed.

Question 9

Which of the following statements concerning the trend in investment company growth is true?

Accepted Answer

A)  The recent trend shows more growth in closed-end investment companies. 
B)  The recent trend shows more growth in unit investment trusts. 
C)  The recent trend shows more growth in open-end investment companies. 
D)  The recent trend shows more growth in exchange traded funds. 
A)  The recent trend shows more growth in closed-end investment companies. 
B)  The recent trend shows more growth in unit investment trusts. 
C)  The recent trend shows more growth in open-end investment companies. 
D)  The recent trend shows more growth in exchange traded funds.

Question 10

No-load funds charge no sales fee because:

Accepted Answer

A)  they are legally prohibited from doing so. 
B)  they charge a redemption fee instead. 
C)  they have no sales force. 
D)  they charge a 12b-1 fee instead. 
A)  they are legally prohibited from doing so. 
B)  they charge a redemption fee instead. 
C)  they have no sales force. 
D)  they charge a 12b-1 fee instead.

Question 11

For investors, ETFs generally offer greater tax efficiency than most mutual funds.

Accepted Answer

A) True 
 B)False

Question 12

Which brokerage firm was charged in 2004 with allowing late trading of mutual funds for some of its clients?

Accepted Answer

A)  Merrill Lynch 
B)  E. F. Hutton 
C)  Charles Schwab 
D)  Edward D. Jones 
A)  Merrill Lynch 
B)  E. F. Hutton 
C)  Charles Schwab 
D)  Edward D. Jones

Question 13

Is an investor able to achieve significant diversification by purchasing a single-country fund?

Accepted Answer

The fund itself might be well diversifie

Question 14

What are the common costs incurred by mutual fund investors in Class A shares?

Accepted Answer

Front-end sales charge, 12b-1

Question 15

Walter purchased a large-cap, value fund at a 6% discount from NAV. Which of the following are most consistent with the characteristics of Walter's fund?

Accepted Answer

A)  It is an open-end fund that invests in high-yield bonds. 
B)  It is a closed-end fund that invests in high beta stocks. 
C)  It is a closed-end fund that invests in stocks with high dividend yields. 
D)  It is an open-end fund that invests in investment grade bonds. 
A)  It is an open-end fund that invests in high-yield bonds. 
B)  It is a closed-end fund that invests in high beta stocks. 
C)  It is a closed-end fund that invests in stocks with high dividend yields. 
D)  It is an open-end fund that invests in investment grade bonds.

Question 16

In addition to a management fee, Sally pays a 1% fee on her mutual fund every year. The fee Sally is being assessed is most consistent with a:

Accepted Answer

A)  front-end load. 
B)  12b-1 charge. 
C)  dealers bid/asked spread. 
D)  brokerage commission. 
A)  front-end load. 
B)  12b-1 charge. 
C)  dealers bid/asked spread. 
D)  brokerage commission.

Question 17

Explain why an equity market neutral hedge fund can be considered both a low-risk and a high-risk investment.

Accepted Answer

Equity market neutral funds are designed

Question 18

No-load funds charge a one-time expense fee to cover all operating expenses.

Accepted Answer

A) True 
 B)False

Question 19

An environmentally-friendly balanced mutual fund began the year with a net asset value (NAV) of $12.25 per share. During the year, it received $1.00 of dividend and interest income, $0.25 in realized capital gains, and $0.50 in unrealized capital gains. Ninety percent of the income and all of the realized capital gain were distributed to shareholders. Calculate the year-end NAV.

Accepted Answer

None

Question 20

ETNs represent unsecured notes.

Accepted Answer

A) True 
 B)False

Exam 3: Indirect Investing

In order to avoid paying income taxes, an investment company must:

Single-country funds have traditionally:

Net asset value takes into account:

Sally is optimistic about the performance of both the U.S. and foreign equity markets. She wants to invest in a security that takes advantage of her optimism yet is tax payer friendly. Sally should purchase a:

Index funds provide low-cost, passive investment exposure in a similar fashion to:

If NAV > market price of a fund, then the fund:

Which of the following characteristics would you expect the stocks in a value fund to exhibit?

A major difference between a closed-end investment company and an open-end investment company is that:

Which of the following statements concerning the trend in investment company growth is true?

No-load funds charge no sales fee because:

For investors, ETFs generally offer greater tax efficiency than most mutual funds.

Which brokerage firm was charged in 2004 with allowing late trading of mutual funds for some of its clients?

Is an investor able to achieve significant diversification by purchasing a single-country fund?

What are the common costs incurred by mutual fund investors in Class A shares?

Walter purchased a large-cap, value fund at a 6% discount from NAV. Which of the following are most consistent with the characteristics of Walter's fund?

In addition to a management fee, Sally pays a 1% fee on her mutual fund every year. The fee Sally is being assessed is most consistent with a:

Explain why an equity market neutral hedge fund can be considered both a low-risk and a high-risk investment.

No-load funds charge a one-time expense fee to cover all operating expenses.

ETNs represent unsecured notes.

Understanding Investments

Investment Alternatives

Securities Markets and Market Indexes

How Securities Are Traded

The Risk and Return From Investing

Portfolio Theory

Portfolio Selection and Asset Allocation

Capital Market Theory and Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Managing Your Financial Assets

Evaluation of Investment Performance

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