Question 1

Since 2002, the amount of assets invested in load funds have exceeded those invested in no-load funds.

Accepted Answer

A) True 
 B)False

Question 2

A mutual fund has the following share characteristics: Shares are offered at the NAV with no front-end load, a 12b-1 fee of 1 percent is charged, a back-end load of 1 percent is charged only if the shares are sold by the investor within one year of purchase, and the shares do not convert to any other class of shares. These shares would be classified as

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 3

Short-term mutual funds invest solely in tax-exempt securities.

Accepted Answer

A) True 
 B)False

Question 4

Mutual fund share distributions and transactions are supervised and cleared by the National Association of Securities Dealers (NASD).

Accepted Answer

A) True 
 B)False

Question 5

Open-end mutual funds

Accepted Answer

A) require that NAV consider the amount of discount or premium in the share value. 
B) calculate the NAV based on the total value of assets held divided by the number of fund shares outstanding. 
C) may experience fluctuations in the number of shares outstanding on a daily basis. 
D) All of the above. 
E) Answers B and C only. 
A) require that NAV consider the amount of discount or premium in the share value. 
B) calculate the NAV based on the total value of assets held divided by the number of fund shares outstanding. 
C) may experience fluctuations in the number of shares outstanding on a daily basis. 
D) All of the above. 
E) Answers B and C only.

Question 6

Which practice is especially common in international funds as traders can exploit differences in time zones?

Accepted Answer

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

Question 7

Mutual funds are required to hire chief compliance officers whose job is to monitor whether the mutual fund company follows exchange and regulatory rules.

Accepted Answer

A) True 
 B)False

Question 8

The net asset value of a mutual fund is found by

Accepted Answer

A) subtracting the daily market value of the fund's asset portfolio from the previous days' value. 
B) dividing the cumulative value of all asset positions held by the fund by the total number of asset shares held by the fund. 
C) computing the daily market value of the fund's total asset portfolio and then dividing this amount by the number of mutual fund shares outstanding. 
D) comparing the daily market value of the fund's total asset portfolio with that of its peers. 
E) subtracting expenses, commissions, and dividends from the fund's total asset portfolio. 
A) subtracting the daily market value of the fund's asset portfolio from the previous days' value. 
B) dividing the cumulative value of all asset positions held by the fund by the total number of asset shares held by the fund. 
C) computing the daily market value of the fund's total asset portfolio and then dividing this amount by the number of mutual fund shares outstanding. 
D) comparing the daily market value of the fund's total asset portfolio with that of its peers. 
E) subtracting expenses, commissions, and dividends from the fund's total asset portfolio.

Question 9

To be deemed "accredited" and able to invest in a hedge fund, an investor must have

Accepted Answer

A) a net worth of over $2 million. 
B) an annual income of at least $200,000. 
C) an annual income of at least $500,000 if married. 
D) a net worth of over $4 million. 
E) a retirement savings plan and over $1 million in net worth. 
A) a net worth of over $2 million. 
B) an annual income of at least $200,000. 
C) an annual income of at least $500,000 if married. 
D) a net worth of over $4 million. 
E) a retirement savings plan and over $1 million in net worth.

Question 10

Equity mutual funds may contain common stock, but not preferred stock.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

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

Question 12

These types of funds mix hedge funds and other pooled investment vehicles.

Accepted Answer

A) Distressed securities funds. 
B) Macro funds. 
C) Value funds. 
D) Opportunistic funds. 
E) Fund of funds. 
A) Distressed securities funds. 
B) Macro funds. 
C) Value funds. 
D) Opportunistic funds. 
E) Fund of funds.

Question 13

An investor purchases fund shares with a 3 percent front-end load and expects to hold the shares for 10 years. The fund has a total fund expense ratio (including 12b-1 fees) of 1 percent per year. The annual total shareholder cost for this fund is _______ per year.

Accepted Answer

A) 3 percent 
B) 30 percent 
C) 0.3 percent 
D) 1.3 percent 
E) 1 percent 
A) 3 percent 
B) 30 percent 
C) 0.3 percent 
D) 1.3 percent 
E) 1 percent

Question 14

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 15

The rate of investing in mutual funds tends to be positively correlated with economic activity in the U.S., but is negatively correlated with economic activity in other countries.

Accepted Answer

A) True 
 B)False

Question 16

As a result of trading and fee assignment abuses by the mutual fund industry, the SEC established new rules regarding fund governance and conflicts of interest in 2004 and 2005.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) 12b-1 fee. 
B) no-load fund. 
C) load fund. 
D) long-term fund. 
E) short-term fund. 
A) 12b-1 fee. 
B) no-load fund. 
C) load fund. 
D) long-term fund. 
E) short-term fund.

Question 18

What is the NAV of both funds?

Accepted Answer

A) $30. 33 and $13.50. 
B) $60.00 and $27.00. 
C) $30.00 and $54.00. 
D) $60.00 and $27.00 . 
E) $15.00 and $54.00 
A) $30. 33 and $13.50. 
B) $60.00 and $27.00. 
C) $30.00 and $54.00. 
D) $60.00 and $27.00 . 
E) $15.00 and $54.00

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which of the following observations concerning hedge funds is NOT true?

Accepted Answer

A) They are pooled investment vehicles. 
B) Historically, they were not required to register with the SEC. 
C) Historically, they were subject to virtually no regulatory oversight. 
D) They usually take significant risk. 
E) They have to disclose their activities to third parties. 
A) They are pooled investment vehicles. 
B) Historically, they were not required to register with the SEC. 
C) Historically, they were subject to virtually no regulatory oversight. 
D) They usually take significant risk. 
E) They have to disclose their activities to third parties.

Exam 5: Financial Services: Mutual Funds and Hedge Funds

Since 2002, the amount of assets invested in load funds have exceeded those invested in no-load funds.

Short-term mutual funds invest solely in tax-exempt securities.

Mutual fund share distributions and transactions are supervised and cleared by the National Association of Securities Dealers (NASD).

Open-end mutual funds

Which practice is especially common in international funds as traders can exploit differences in time zones?

Mutual funds are required to hire chief compliance officers whose job is to monitor whether the mutual fund company follows exchange and regulatory rules.

The net asset value of a mutual fund is found by

To be deemed "accredited" and able to invest in a hedge fund, an investor must have

Equity mutual funds may contain common stock, but not preferred stock.

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

These types of funds mix hedge funds and other pooled investment vehicles.

An investor purchases fund shares with a 3 percent front-end load and expects to hold the shares for 10 years. The fund has a total fund expense ratio (including 12b-1 fees) of 1 percent per year. The annual total shareholder cost for this fund is _______ per year.

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

The rate of investing in mutual funds tends to be positively correlated with economic activity in the U.S., but is negatively correlated with economic activity in other countries.

As a result of trading and fee assignment abuses by the mutual fund industry, the SEC established new rules regarding fund governance and conflicts of interest in 2004 and 2005.

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

What is the NAV of both funds?

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

Which of the following observations concerning hedge funds is NOT true?

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