Question 1

A mutual fund that charges investors a fee similar to a commission charge is called a

Accepted Answer

A) full load fund. 
B) no-load fund. 
C) load fund. 
D) long-term fund. 
E) short-term fund. 
A) full load fund. 
B) no-load fund. 
C) load fund. 
D) long-term fund. 
E) short-term fund.

Question 2

The returns obtained by investors of mutual funds include the following except

Accepted Answer

A) interest income earned on assets. 
B) dividend income earned on assets. 
C) capital gains on assets sold by the fund. 
D) capital appreciation in the underlying value of the assets held in the portfolio. 
E) refunds of load charges and management fees. 
A) interest income earned on assets. 
B) dividend income earned on assets. 
C) capital gains on assets sold by the fund. 
D) capital appreciation in the underlying value of the assets held in the portfolio. 
E) refunds of load charges and management fees.

Question 3

The chief compliance officer of a mutual fund reports directly to the senior executives of the fund management company.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following hedge fund objectives would be classified under the "moderate risk" category?

Accepted Answer

A) Distressed securities funds. 
B) Market neutral-arbitrage funds. 
C) Value funds. 
D) Short selling funds. 
E) Market timing funds. 
A) Distressed securities funds. 
B) Market neutral-arbitrage funds. 
C) Value funds. 
D) Short selling funds. 
E) Market timing funds.

Question 5

Closed-end investment companies

Accepted Answer

A) have a fixed number of shares. 
B) can trade at a price that is greater than, equal to, or less than the NAV. 
C) will trade at a different price as the number of shares of the fund changes. 
D) have a fixed number of shares, and will trade at a different price as the number of shares in the fund changes. 
E) have a fixed number of shares and can trade at a price that is greater than, equal to, or less than the NAV. 
A) have a fixed number of shares. 
B) can trade at a price that is greater than, equal to, or less than the NAV. 
C) will trade at a different price as the number of shares of the fund changes. 
D) have a fixed number of shares, and will trade at a different price as the number of shares in the fund changes. 
E) have a fixed number of shares and can trade at a price that is greater than, equal to, or less than the NAV.

Question 6

Which of the following is the practice that involves short-term trading of mutual funds seeking to take advantage of short- term discrepancies between the price of a mutual fund's shares and out-of-date values on the securities in the fund's portfolio?

Accepted Answer

A) Market timing. 
B) Insider trading. 
C) Late trading. 
D) Directed brokerage. 
E) Spinning. 
A) Market timing. 
B) Insider trading. 
C) Late trading. 
D) Directed brokerage. 
E) Spinning.

Question 7

Mutual funds achieve economies of scale for individual investors by realizing the benefits of lower transaction costs and commissions as compared to those incurred by individual investors.

Accepted Answer

A) True 
 B)False

Question 8

Long-term mutual funds invest primarily in long-term, fixed-income securities such as corporate and/or government bonds.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following are used to link the hedge fund manager's incentives more closely to those of the fund investors and to reduce the manager's incentive to increase the risk of trades?

Accepted Answer

A) High-water marks. 
B) Discount rates. 
C) Trade limits. 
D) Management fees. 
E) Low hurdle rates. 
A) High-water marks. 
B) Discount rates. 
C) Trade limits. 
D) Management fees. 
E) Low hurdle rates.

Question 10

Mutual funds often offer multiple share classes which differentiate between different methods of paying the sales loads and management fees.

Accepted Answer

A) True 
 B)False

Question 11

A mutual fund objective statement provides general information about the types of securities a mutual fund will hold as assets.

Accepted Answer

A) True 
 B)False

Question 12

Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding. If the price of P&G shares rises to $35 and the price of Microsoft falls to $40.00, what is the new NAV of both funds?

Accepted Answer

A) $26.50 and $45.00. 
B) $13.25 and $13.00. 
C) $39.75 and $22.50. 
D) $53.00 and $45.00. 
E) $26.50 and $22.50. 
A) $26.50 and $45.00. 
B) $13.25 and $13.00. 
C) $39.75 and $22.50. 
D) $53.00 and $45.00. 
E) $26.50 and $22.50.

Question 13

Which of the following refers to the process used to determine the value of mutual fund shares each per day?

Accepted Answer

A) Directed brokerage. 
B) Marking-to-market. 
C) Late trading. 
D) Market timing. 
E) Spinning. 
A) Directed brokerage. 
B) Marking-to-market. 
C) Late trading. 
D) Market timing. 
E) Spinning.

Question 14

Historical evidence indicates that load funds perform better than no-load funds.

Accepted Answer

A) True 
 B)False

Question 15

Open-end mutual funds guarantee

Accepted Answer

A) investors a minimum rate of return. 
B) investors a minimum Net Asset Value (NAV). 
C) to redeem investors' shares upon demand at the daily Net Asset Value (NAV). 
D) to earn the rate of return promised in the prospectus. 
E) that there will be no load charges. 
A) investors a minimum rate of return. 
B) investors a minimum Net Asset Value (NAV). 
C) to redeem investors' shares upon demand at the daily Net Asset Value (NAV). 
D) to earn the rate of return promised in the prospectus. 
E) that there will be no load charges.

Question 16

What does a hurdle rate specified by a hedge fund indicate?

Accepted Answer

A) The maximum number of investors possible in the fund that would allow it to avoid regulations. 
B) The minimum amount required to be invested in the fund. 
C) The net worth criterion for an individual to be deemed an "accredited investor." 
D) The highest net asset value that the fund has previously achieved, above which the manager receives a performance fee. 
E) The minimum annualized performance benchmark that must be realized before a performance fee can be assessed. 
A) The maximum number of investors possible in the fund that would allow it to avoid regulations. 
B) The minimum amount required to be invested in the fund. 
C) The net worth criterion for an individual to be deemed an "accredited investor." 
D) The highest net asset value that the fund has previously achieved, above which the manager receives a performance fee. 
E) The minimum annualized performance benchmark that must be realized before a performance fee can be assessed.

Question 17

As compared to purchasing an individual stock, a no-load mutual fund investor will usually get

Accepted Answer

A) commissionless reinvestment opportunities. 
B) better diversification. 
C) no-cost switching between funds within the same fund family. 
D) lower commission costs. 
E) All of these. 
A) commissionless reinvestment opportunities. 
B) better diversification. 
C) no-cost switching between funds within the same fund family. 
D) lower commission costs. 
E) All of these.

Question 18

Which of the following observations is true of open-end mutual funds?

Accepted Answer

A) They have a fixed number of shares outstanding. 
B) The value of shares changes with the demand for the fund by investors. 
C) Investors buy and sell shares on a stock exchange. 
D) The demand for shares determines the number outstanding. 
E) Shares may trade at a premium or discount. 
A) They have a fixed number of shares outstanding. 
B) The value of shares changes with the demand for the fund by investors. 
C) Investors buy and sell shares on a stock exchange. 
D) The demand for shares determines the number outstanding. 
E) Shares may trade at a premium or discount.

Question 19

Which of the following observations is true of a no-load fund?

Accepted Answer

A) Purchase is subject to a sales charge. 
B) Sales charges may be as high as 8.5 percent. 
C) They market shares of the fund directly to investors. 
D) They use sales agents. 
E) They have up-front commission charges. 
A) Purchase is subject to a sales charge. 
B) Sales charges may be as high as 8.5 percent. 
C) They market shares of the fund directly to investors. 
D) They use sales agents. 
E) They have up-front commission charges.

Question 20

Mutual funds that are load funds use sales agents, and thus always have an up-front commission charge.

Accepted Answer

A) True 
 B)False

Exam 5: Mutual Funds, Hedge Funds, and Pension Funds

A mutual fund that charges investors a fee similar to a commission charge is called a

The returns obtained by investors of mutual funds include the following except

The chief compliance officer of a mutual fund reports directly to the senior executives of the fund management company.

Which of the following hedge fund objectives would be classified under the "moderate risk" category?

Closed-end investment companies

Which of the following is the practice that involves short-term trading of mutual funds seeking to take advantage of short- term discrepancies between the price of a mutual fund's shares and out-of-date values on the securities in the fund's portfolio?

Mutual funds achieve economies of scale for individual investors by realizing the benefits of lower transaction costs and commissions as compared to those incurred by individual investors.

Long-term mutual funds invest primarily in long-term, fixed-income securities such as corporate and/or government bonds.

Which of the following are used to link the hedge fund manager's incentives more closely to those of the fund investors and to reduce the manager's incentive to increase the risk of trades?

Mutual funds often offer multiple share classes which differentiate between different methods of paying the sales loads and management fees.

A mutual fund objective statement provides general information about the types of securities a mutual fund will hold as assets.

Which of the following refers to the process used to determine the value of mutual fund shares each per day?

Historical evidence indicates that load funds perform better than no-load funds.

Open-end mutual funds guarantee

What does a hurdle rate specified by a hedge fund indicate?

As compared to purchasing an individual stock, a no-load mutual fund investor will usually get

Which of the following observations is true of open-end mutual funds?

Which of the following observations is true of a no-load fund?

Mutual funds that are load funds use sales agents, and thus always have an up-front commission charge.

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