Question 1

Index funds are becoming increasingly unpopular because most mutual fund managers consistently outperform indexes.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is incorrect?

Accepted Answer

A)  Commercial paper is commonly purchased by money market funds. 
B)  From an investor's perspective, money market funds usually have a low level of credit risk. 
C)  Money market funds tend to have low interest rate risk compared to bond funds. 
D)  If mutual fund managers expect interest rates to decrease in the future, they should use funds generated from maturing securities today to purchase new securities with shorter maturities. 
A)  Commercial paper is commonly purchased by money market funds. 
B)  From an investor's perspective, money market funds usually have a low level of credit risk. 
C)  Money market funds tend to have low interest rate risk compared to bond funds. 
D)  If mutual fund managers expect interest rates to decrease in the future, they should use funds generated from maturing securities today to purchase new securities with shorter maturities.

Question 3

Which of the following are most likely to invest in mortgages?

Accepted Answer

A)  stock mutual funds 
B)  real estate investment trusts 
C)  load funds 
D)  money market funds 
A)  stock mutual funds 
B)  real estate investment trusts 
C)  load funds 
D)  money market funds

Question 4

A mutual fund consisting only of stocks of firms that are in a specific industry is an example of a ____ fund.

Accepted Answer

A)  specialty 
B)  growth 
C)  capital appreciation 
D)  growth and income 
A)  specialty 
B)  growth 
C)  capital appreciation 
D)  growth and income

Question 5

Which of the following is not true regarding mutual funds?

Accepted Answer

A)  They are a key financial intermediary. 
B)  They provide an important service to individual investors seeking to invest funds. 
C)  Most mutual funds use experienced portfolio managers, so investors do not have to manage the portfolio themselves. 
D)  They provide a way for individual investors to diversify, but most individual investors are unable to afford the purchase of mutual fund shares. 
A)  They are a key financial intermediary. 
B)  They provide an important service to individual investors seeking to invest funds. 
C)  Most mutual funds use experienced portfolio managers, so investors do not have to manage the portfolio themselves. 
D)  They provide a way for individual investors to diversify, but most individual investors are unable to afford the purchase of mutual fund shares.

Question 6

Which of the following statements is incorrect?

Accepted Answer

A)  A mutual fund is usually run by an investment company. 
B)  Mutual funds with lower expense ratios tend to outperform other funds with a similar investment objective. 
C)  For each mutual fund, all expenses charged and reflected in the expense ratio are always valid. 
D)  The SEC requires that a majority of the directors of a mutual fund board be independent. 
A)  A mutual fund is usually run by an investment company. 
B)  Mutual funds with lower expense ratios tend to outperform other funds with a similar investment objective. 
C)  For each mutual fund, all expenses charged and reflected in the expense ratio are always valid. 
D)  The SEC requires that a majority of the directors of a mutual fund board be independent.

Question 7

Exchange-traded funds can be purchased on margin.

Accepted Answer

A) True 
 B)False

Question 8

Hedge funds try to obtain an information advantage by using expert networks, whereby they hire consultants with expertise in specific industries.

Accepted Answer

A) True 
 B)False

Question 9

Money market funds invest mostly in

Accepted Answer

A)  stocks. 
B)  long-term bonds. 
C)  real estate. 
D)  short-term securities. 
A)  stocks. 
B)  long-term bonds. 
C)  real estate. 
D)  short-term securities.

Question 10

If interest rates are expected to ________, mortgage real investment trusts (REITs) ___________.

Accepted Answer

A)  decline; become less attractive 
B)  rise; become less attractive 
C)  rise; are not affected 
D)  decline; are not affected 
A)  decline; become less attractive 
B)  rise; become less attractive 
C)  rise; are not affected 
D)  decline; are not affected

Question 11

Which of the following is not disclosed in a mutual fund prospectus?

Accepted Answer

A)  the minimum amount of investment required 
B)  the investment objective of the mutual fund 
C)  the fees incurred by the mutual fund 
D)  All of the above are disclosed. 
A)  the minimum amount of investment required 
B)  the investment objective of the mutual fund 
C)  the fees incurred by the mutual fund 
D)  All of the above are disclosed.

Question 12

Mutual funds whose bonds have a ____ average time to maturity are ____ sensitive to interest rate fluctuations.

Accepted Answer

A)  longer; less 
B)  shorter; less 
C)  shorter; more 
D)  A and C 
A)  longer; less 
B)  shorter; less 
C)  shorter; more 
D)  A and C

Question 13

If investors sell their mutual fund shares after the net asset value of the fund increases, the return is called

Accepted Answer

A)  share price appreciation. 
B)  capital gains distribution. 
C)  dividends. 
D)  split net asset value. 
A)  share price appreciation. 
B)  capital gains distribution. 
C)  dividends. 
D)  split net asset value.

Question 14

The returns on international stock mutual funds are affected only by foreign companies' stock prices and are independent of currency movements.

Accepted Answer

A) True 
 B)False

Question 15

Based on the market value of total assets, which is the dominant type of mutual fund?

Accepted Answer

A)  hi-yield (junk) bond funds 
B)  hybrid funds 
C)  stock funds 
D)  taxable bond funds 
E)  municipal bond funds 
A)  hi-yield (junk) bond funds 
B)  hybrid funds 
C)  stock funds 
D)  taxable bond funds 
E)  municipal bond funds

Question 16

A mutual fund's performance is usually unrelated to market conditions.

Accepted Answer

A) True 
 B)False

Question 17

The average annual fee on actively managed exchange-traded funds is ________.

Accepted Answer

A)  zero. 
B)  lower than the typical annual fee on open-end mutual funds. 
C)  higher than the typical annual fee on open-end mutual funds. 
D)  the same as the typical annual fee on open-end mutual funds. 
A)  zero. 
B)  lower than the typical annual fee on open-end mutual funds. 
C)  higher than the typical annual fee on open-end mutual funds. 
D)  the same as the typical annual fee on open-end mutual funds.

Question 18

To cover managerial and other expenses, mutual funds typically charge

Accepted Answer

A)  management fees of less than 2 percent of total assets per year. 
B)  commissions of typically 8 to 10 percent on purchases or sales of securities. 
C)  management fees of typically more than 10 percent of total assets per year. 
D)  a one-time load of 5% upon the initial investment in the mutual fund. 
A)  management fees of less than 2 percent of total assets per year. 
B)  commissions of typically 8 to 10 percent on purchases or sales of securities. 
C)  management fees of typically more than 10 percent of total assets per year. 
D)  a one-time load of 5% upon the initial investment in the mutual fund.

Question 19

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.

Question 20

Mutual funds with ____ expense ratios tend to ____ others that have a similar investment objective.

Accepted Answer

A)  lower; underperform 
B)  higher; outperform 
C)  lower; outperform 
D)  A and B 
A)  lower; underperform 
B)  higher; outperform 
C)  lower; outperform 
D)  A and B

Exam 23: Mutual Fund Operations

Index funds are becoming increasingly unpopular because most mutual fund managers consistently outperform indexes.

Which of the following statements is incorrect?

Which of the following are most likely to invest in mortgages?

A mutual fund consisting only of stocks of firms that are in a specific industry is an example of a ____ fund.

Which of the following is not true regarding mutual funds?

Which of the following statements is incorrect?

Exchange-traded funds can be purchased on margin.

Hedge funds try to obtain an information advantage by using expert networks, whereby they hire consultants with expertise in specific industries.

Money market funds invest mostly in

If interest rates are expected to ________, mortgage real investment trusts (REITs) ___________.

Which of the following is not disclosed in a mutual fund prospectus?

Mutual funds whose bonds have a ____ average time to maturity are ____ sensitive to interest rate fluctuations.

If investors sell their mutual fund shares after the net asset value of the fund increases, the return is called

The returns on international stock mutual funds are affected only by foreign companies' stock prices and are independent of currency movements.

Based on the market value of total assets, which is the dominant type of mutual fund?

A mutual fund's performance is usually unrelated to market conditions.

The average annual fee on actively managed exchange-traded funds is ________.

To cover managerial and other expenses, mutual funds typically charge

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

Mutual funds with ____ expense ratios tend to ____ others that have a similar investment objective.

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

If interest rates are expected to , mortgage real investment trusts (REITs) ___.

Mutual funds whose bonds have a average time to maturity are sensitive to interest rate fluctuations.

Mutual funds with expense ratios tend to others that have a similar investment objective.