Question 1

Class C shares of a mutual fund usually convert to Class A shares after some length of time which may be as long as 6 to 8 years.

Accepted Answer

A) True 
 B)False  False

Question 2

Worldwide investments in mutual funds have grown at a rate faster than in the United States over the last decade.

Accepted Answer

A) True 
 B)False  True

Question 3

The Securities Act of 1933 sets rules and procedures regarding a mutual fund's prospectus sent to potential investors.

Accepted Answer

A) True 
 B)False  True

Question 4

Which act appointed the National Association of Securities Dealers (NASD) to supervise mutual fund share distributions?

Accepted Answer

A) Securities Act of 1933. 
B) Securities Exchange Act of 1934. 
C) Investment Advisers Act. 
D) Investment Company Act. 
E) Market Reform Act of 1990. 
A) Securities Act of 1933. 
B) Securities Exchange Act of 1934. 
C) Investment Advisers Act. 
D) Investment Company Act. 
E) Market Reform Act of 1990.

Question 5

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 6

It is estimated that 75 percent of all hedge funds are located in

Accepted Answer

A) Bermuda. 
B) Hong Kong. 
C) Cayman Islands. 
D) Luxembourg. 
E) San Marino. 
A) Bermuda. 
B) Hong Kong. 
C) Cayman Islands. 
D) Luxembourg. 
E) San Marino.

Question 7

Directed brokerage is a trading abuse where a mutual fund and a brokerage agree to promote sales of certain funds in exchange for orders of specific stocks and bonds.

Accepted Answer

A) True 
 B)False

Question 8

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 9

What agency acts as the distributor or "clearinghouse" for mutual fund transactions?

Accepted Answer

A) SEC. 
B) NASD. 
C) FedWire. 
D) NYSE. 
E) U.S.Treasury. 
A) SEC. 
B) NASD. 
C) FedWire. 
D) NYSE. 
E) U.S.Treasury.

Question 10

Regarding the relative asset size and asset growth rate of mutual fund sectors,

Accepted Answer

A) long-term funds had more assets at the end of 2012, but short-term funds had grown at a faster rate since 1980. 
B) long-term funds had more assets at the end of 2012, and long-term funds had grown at a faster rate since 1980. 
C) short-term funds had more assets at the end of 2012, but long-term funds had grown at a faster rate since 1980. 
D) short-term funds had more assets at the end of 2012, and short-term funds had grown at a faster rate since 1980. 
E) More than one of the above is correct. 
A) long-term funds had more assets at the end of 2012, but short-term funds had grown at a faster rate since 1980. 
B) long-term funds had more assets at the end of 2012, and long-term funds had grown at a faster rate since 1980. 
C) short-term funds had more assets at the end of 2012, but long-term funds had grown at a faster rate since 1980. 
D) short-term funds had more assets at the end of 2012, and short-term funds had grown at a faster rate since 1980. 
E) More than one of the above is correct.

Question 11

Identify the primary regulator (s) of mutual funds.

Accepted Answer

A) Fed. 
B) SEC. 
C) NASD. 
D) State regulators. 
E) Stock exchanges. 
A) Fed. 
B) SEC. 
C) NASD. 
D) State regulators. 
E) Stock exchanges.

Question 12

The front-end load on these type of shares is charged on new sales and is not generally incurred when these shares are exchanged for another mutual fund within the same fund family.

Accepted Answer

A) Class A shares. 
B) Class B shares. 
C) Class C shares. 
D) Class D shares. 
E) Either Class A or Class C shares. 
A) Class A shares. 
B) Class B shares. 
C) Class C shares. 
D) Class D shares. 
E) Either Class A or Class C shares.

Question 13

Retirement funds under management of mutual funds manage approximately what percentage of the mutual fund assets.

Accepted Answer

A) One-tenth 
B) One-quarter 
C) One-half 
D) Three-quarters 
E) Zero. 
A) One-tenth 
B) One-quarter 
C) One-half 
D) Three-quarters 
E) Zero.

Question 14

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 15

To what level should the price of Microsoft shares decline in order for the NAV of Morningstar fund to remain constant if the price of P&G rises to $40?

Accepted Answer

A) $60. 
B) $55. 
C) $50. 
D) $45. 
E) $40. 
A) $60. 
B) $55. 
C) $50. 
D) $45. 
E) $40.

Question 16

Class B shares of a mutual fund are typically charged a back-end load when the shares are redeemed.

Accepted Answer

A) True 
 B)False

Question 17

The National Securities Markets Improvement Act of 1996 exempts mutual funds from oversight by state securities regulators and reduced their regulatory burden.

Accepted Answer

A) True 
 B)False

Question 18

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 19

The proportionate mix of total assets invested in long-term versus short-term mutual funds has varied over the last twenty years.

Accepted Answer

A) True 
 B)False

Question 20

The type of abusive activity that involves arrangements between mutual fund companies and brokerage houses is

Accepted Answer

A) market timing. 
B) late trading. 
C) directed brokerage. 
D) improper fee assessment. 
E) None of the above. 
A) market timing. 
B) late trading. 
C) directed brokerage. 
D) improper fee assessment. 
E) None of the above.

Exam 5: Financial Services: Mutual Funds and Hedge Funds

Class C shares of a mutual fund usually convert to Class A shares after some length of time which may be as long as 6 to 8 years.

Worldwide investments in mutual funds have grown at a rate faster than in the United States over the last decade.

The Securities Act of 1933 sets rules and procedures regarding a mutual fund's prospectus sent to potential investors.

Which act appointed the National Association of Securities Dealers (NASD) to supervise mutual fund share distributions?

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

It is estimated that 75 percent of all hedge funds are located in

Directed brokerage is a trading abuse where a mutual fund and a brokerage agree to promote sales of certain funds in exchange for orders of specific stocks and bonds.

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

What agency acts as the distributor or "clearinghouse" for mutual fund transactions?

Regarding the relative asset size and asset growth rate of mutual fund sectors,

Identify the primary regulator (s) of mutual funds.

The front-end load on these type of shares is charged on new sales and is not generally incurred when these shares are exchanged for another mutual fund within the same fund family.

Retirement funds under management of mutual funds manage approximately what percentage of the mutual fund assets.

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.

To what level should the price of Microsoft shares decline in order for the NAV of Morningstar fund to remain constant if the price of P&G rises to $40?

Class B shares of a mutual fund are typically charged a back-end load when the shares are redeemed.

The National Securities Markets Improvement Act of 1996 exempts mutual funds from oversight by state securities regulators and reduced their regulatory burden.

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

The proportionate mix of total assets invested in long-term versus short-term mutual funds has varied over the last twenty years.

The type of abusive activity that involves arrangements between mutual fund companies and brokerage houses is

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