Question 1

Because money market funds contain instruments with short-term maturities, their market values are not very sensitive to movements in market interest rates.

Accepted Answer

A) True 
 B)False  True

Question 2

A mutual fund's expense ratio represents the ____ divided by the fund's ____.

Accepted Answer

A)  annual fees charged to investors; 12b-1 fees 
B)  annual fees charged to investors; net asset value 
C)  initial sales charge (load); 12b-1 fees 
D)  initial sales charge (load); net asset value 
A)  annual fees charged to investors; 12b-1 fees 
B)  annual fees charged to investors; net asset value 
C)  initial sales charge (load); 12b-1 fees 
D)  initial sales charge (load); net asset value B

Question 3

The composition of asset allocation funds

Accepted Answer

A)  is focused completely on one type of security as specified by the particular mutual fund. 
B)  is fixed and not altered by the mutual fund managers. 
C)  A and B 
D)  none of the above 
A)  is focused completely on one type of security as specified by the particular mutual fund. 
B)  is fixed and not altered by the mutual fund managers. 
C)  A and B 
D)  none of the above D

Question 4

The term "mutual funds" is normally used to refer to closed-end funds and does not include open-end funds.

Accepted Answer

A) True 
 B)False

Question 5

When at least two-thirds of a bond mutual fund's portfolio consists of bonds rated below Baa by Moody's or BBB by Standard and Poor's, the fund is called a ____ fund.

Accepted Answer

A)  Growth 
B)  capital appreciation 
C)  junk bond 
D)  leveraged bond 
E)  none of the above 
A)  Growth 
B)  capital appreciation 
C)  junk bond 
D)  leveraged bond 
E)  none of the above

Question 6

The ____ of a mutual fund represents the price at which shares can be purchased from a mutual fund.

Accepted Answer

A)  gross asset value 
B)  net asset value 
C)  net stock value 
D)  net bond value 
A)  gross asset value 
B)  net asset value 
C)  net stock value 
D)  net bond value

Question 7

Mutual funds composed of _____ bonds with high credit ratings allow investors in high tax brackets to avoid taxes while maintaining a low degree of ______.

Accepted Answer

A)  Treasury; liquidity risk 
B)  municipal; credit risk 
C)  high-yield; credit risk 
D)  international; exchange rate risk 
A)  Treasury; liquidity risk 
B)  municipal; credit risk 
C)  high-yield; credit risk 
D)  international; exchange rate risk

Question 8

____ trade at one-tenth of the S&P 500 value.

Accepted Answer

A)  Spiders 
B)  Cubes 
C)  Diamonds 
D)  World Equity Benchmark Shares 
A)  Spiders 
B)  Cubes 
C)  Diamonds 
D)  World Equity Benchmark Shares

Question 9

The majority of closed-end funds invest in

Accepted Answer

A)  derivatives. 
B)  bonds and other debt securities. 
C)  money market securities. 
D)  international equity securities. 
A)  derivatives. 
B)  bonds and other debt securities. 
C)  money market securities. 
D)  international equity securities.

Question 10

Mutual funds composed of bonds that offer periodic coupon payments are

Accepted Answer

A)  income funds. 
B)  specialty funds. 
C)  dividend funds 
D)  growth funds. 
A)  income funds. 
B)  specialty funds. 
C)  dividend funds 
D)  growth funds.

Question 11

____ funds focus on a group of companies sharing a particular characteristic.

Accepted Answer

A)  Specialty 
B)  Growth and income 
C)  Closed-end 
D)  Capital appreciation 
E)  None of the above 
A)  Specialty 
B)  Growth and income 
C)  Closed-end 
D)  Capital appreciation 
E)  None of the above

Question 12

Investors who invest in a hedge fund of funds essentially pay two layers of management fees.

Accepted Answer

A) True 
 B)False

Question 13

Equity REITs are sometimes purchased to hedge against inflation, as rents and property values tend to rise with inflation.

Accepted Answer

A) True 
 B)False

Question 14

Mutual funds composed of stocks that have potential for very high growth, but may also be unproven, are called

Accepted Answer

A)  income funds. 
B)  capital appreciation funds. 
C)  specialty funds. 
D)  dividend funds. 
A)  income funds. 
B)  capital appreciation funds. 
C)  specialty funds. 
D)  dividend funds.

Question 15

Which of the following is incorrect about money market funds (MMFs)?

Accepted Answer

A)  The credit risk of MMFs is normally perceived to be lower than that of corporate bonds. 
B)  MMFs have higher interest rate risk than bond funds. 
C)  MMFs normally generate positive returns over time. 
D)  All of the above are correct. 
A)  The credit risk of MMFs is normally perceived to be lower than that of corporate bonds. 
B)  MMFs have higher interest rate risk than bond funds. 
C)  MMFs normally generate positive returns over time. 
D)  All of the above are correct.

Question 16

Mutual funds must register with the U.S. Treasury and provide interested investors with a prospectus that discloses details about the components of the funds and the risks involved.

Accepted Answer

A) True 
 B)False

Question 17

Closed-end fund managers must hold more cash than open-end mutual fund managers.

Accepted Answer

A) True 
 B)False

Question 18

____ fund contains a sales charge.

Accepted Answer

A)  Load 
B)  no-load 
C)  closed-end 
D)  open-end 
E)  none of the above 
A)  Load 
B)  no-load 
C)  closed-end 
D)  open-end 
E)  none of the above

Question 19

The net asset value of a mutual fund is estimated once every week.

Accepted Answer

A) True 
 B)False

Question 20

An investor who believes that technology stocks will perform well but does not want to select individual technology stocks might invest in:

Accepted Answer

A)  Spiders. 
B)  WEBs. 
C)  Cubes. 
D)  Diamonds. 
A)  Spiders. 
B)  WEBs. 
C)  Cubes. 
D)  Diamonds.

Exam 23: Mutual Fund Operations

Because money market funds contain instruments with short-term maturities, their market values are not very sensitive to movements in market interest rates.

A mutual fund's expense ratio represents the ____ divided by the fund's ____.

The composition of asset allocation funds

The term "mutual funds" is normally used to refer to closed-end funds and does not include open-end funds.

When at least two-thirds of a bond mutual fund's portfolio consists of bonds rated below Baa by Moody's or BBB by Standard and Poor's, the fund is called a ____ fund.

The ____ of a mutual fund represents the price at which shares can be purchased from a mutual fund.

Mutual funds composed of _____ bonds with high credit ratings allow investors in high tax brackets to avoid taxes while maintaining a low degree of ______.

____ trade at one-tenth of the S&P 500 value.

The majority of closed-end funds invest in

Mutual funds composed of bonds that offer periodic coupon payments are

____ funds focus on a group of companies sharing a particular characteristic.

Investors who invest in a hedge fund of funds essentially pay two layers of management fees.

Equity REITs are sometimes purchased to hedge against inflation, as rents and property values tend to rise with inflation.

Mutual funds composed of stocks that have potential for very high growth, but may also be unproven, are called

Which of the following is incorrect about money market funds (MMFs)?

Mutual funds must register with the U.S. Treasury and provide interested investors with a prospectus that discloses details about the components of the funds and the risks involved.

Closed-end fund managers must hold more cash than open-end mutual fund managers.

____ fund contains a sales charge.

The net asset value of a mutual fund is estimated once every week.

An investor who believes that technology stocks will perform well but does not want to select individual technology stocks might invest in:

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Securities Operations

Insurance Operations

Pension Fund Operations

Filters

A mutual fund's expense ratio represents the divided by the fund's .

Mutual funds composed of _ bonds with high credit ratings allow investors in high tax brackets to avoid taxes while maintaining a low degree of __.