Question 1

Which of the following is an advantage to investors of an open-end mutual fund?

Accepted Answer

A) Once all the shares have been sold, the investor does not have to put in more money. 
B) The investors can sell their shares in the over-the-counter market with low transaction fees. 
C) The fund agrees to redeem shares at any time. 
D) The market value of the fund's shares may be higher than the value of the assets held by the fund. 
A) Once all the shares have been sold, the investor does not have to put in more money. 
B) The investors can sell their shares in the over-the-counter market with low transaction fees. 
C) The fund agrees to redeem shares at any time. 
D) The market value of the fund's shares may be higher than the value of the assets held by the fund.

Question 2

Hedge funds are

Accepted Answer

A) low risk because they are market-neutral. 
B) low risk if they buy Treasury bonds. 
C) low risk because they hedge their investments. 
D) high risk because they are market-neutral. 
E) high risk, even though they may be market-neutral. 
A) low risk because they are market-neutral. 
B) low risk if they buy Treasury bonds. 
C) low risk because they hedge their investments. 
D) high risk because they are market-neutral. 
E) high risk, even though they may be market-neutral.

Question 3

Open-end mutual funds are more common than closed-end funds.

Accepted Answer

A) True 
 B)False

Question 4

Capital appreciation funds select stocks of ________ and tend to be ________ risky than total return funds.

Accepted Answer

A) large, established companies that pay dividends regularly; more 
B) large, established companies that pay dividends regularly; less 
C) companies expected to grow rapidly; more 
D) companies expected to grow rapidly; less 
A) large, established companies that pay dividends regularly; more 
B) large, established companies that pay dividends regularly; less 
C) companies expected to grow rapidly; more 
D) companies expected to grow rapidly; less

Question 5

SEC research suggests that about three-fourths of mutual funds let privileged shareholders engage in market timing.

Accepted Answer

A) True 
 B)False

Question 6

Market timing

Accepted Answer

A) takes advantage of time differences between the east and west coasts of the United States. 
B) takes advantage of arbitrage opportunities in foreign stocks. 
C) takes advantage of the time lag between the receipt and execution of orders. 
D) is discouraged by the stiff fees mutual funds charge every investor for buying and then selling shares on the same day. 
A) takes advantage of time differences between the east and west coasts of the United States. 
B) takes advantage of arbitrage opportunities in foreign stocks. 
C) takes advantage of the time lag between the receipt and execution of orders. 
D) is discouraged by the stiff fees mutual funds charge every investor for buying and then selling shares on the same day.

Question 7

Which of the following is a feature of index funds?

Accepted Answer

A) They have lower fees. 
B) They select and hold stocks to match the performance of a stock index. 
C) They do not require managers to select stocks and decide when to buy and sell. 
D) All of the above. 
A) They have lower fees. 
B) They select and hold stocks to match the performance of a stock index. 
C) They do not require managers to select stocks and decide when to buy and sell. 
D) All of the above.

Question 8

Measured by assets, the most popular type of bond fund is the ________ bond fund.

Accepted Answer

A) state municipal 
B) strategic income 
C) government 
D) high-yield 
A) state municipal 
B) strategic income 
C) government 
D) high-yield

Question 9

How is a mutual fund's net asset value calculated?

Accepted Answer

A mutual fund's net asset value (NAV) is

Question 10

Equity funds can be placed in which class according to the Investment Company Institute?

Accepted Answer

A) capital appreciation funds 
B) world funds 
C) total return funds 
D) all of the above 
A) capital appreciation funds 
B) world funds 
C) total return funds 
D) all of the above

Question 11

Late trading is the practice of allowing orders received ________ to trade at the ________ net asset value.

Accepted Answer

A) before 4:00 pm; 4:00 pm 
B) after 4:00 pm; 4:00 pm 
C) after 4:00 pm; next day's 
D) before 4:00 pm; previous day's 
A) before 4:00 pm; 4:00 pm 
B) after 4:00 pm; 4:00 pm 
C) after 4:00 pm; next day's 
D) before 4:00 pm; previous day's

Question 12

The net asset value of a mutual fund is

Accepted Answer

A) determined by subtracting the fund's liabilities from its assets and dividing by the number of shares outstanding. 
B) determined by calculating the net price of the assets owned by the fund. 
C) calculated every 15 minutes and used for transactions occurring during the next 15-minute interval. 
D) calculated as the difference between the fund's assets and its liabilities. 
A) determined by subtracting the fund's liabilities from its assets and dividing by the number of shares outstanding. 
B) determined by calculating the net price of the assets owned by the fund. 
C) calculated every 15 minutes and used for transactions occurring during the next 15-minute interval. 
D) calculated as the difference between the fund's assets and its liabilities.

Question 13

The near collapse of Long Term Capital Management was caused by

Accepted Answer

A) the high management fees charged by the fund's two Nobel Prize winners. 
B) the fund's high leverage ratio of 20 to 1. 
C) a sharp decrease in the spread between corporate bonds and Treasury bonds. 
D) a sharp increase in the spread between corporate bonds and Treasury bonds. 
E) the fund's shift away from a market-neutral investment strategy. 
A) the high management fees charged by the fund's two Nobel Prize winners. 
B) the fund's high leverage ratio of 20 to 1. 
C) a sharp decrease in the spread between corporate bonds and Treasury bonds. 
D) a sharp increase in the spread between corporate bonds and Treasury bonds. 
E) the fund's shift away from a market-neutral investment strategy.

Question 14

Discuss the proposals that have been made to reduce the conflict of interest abuses in the mutual funds industry.

Accepted Answer

Several proposals have been made to redu

Question 15

The largest share of total investment in mutual funds is in

Accepted Answer

A) stock funds. 
B) hybrid funds 
C) bond funds. 
D) money market funds. 
A) stock funds. 
B) hybrid funds 
C) bond funds. 
D) money market funds.

Question 16

Mutual fund companies frequently offer a number of separate mutual funds called ________.

Accepted Answer

A) indexes 
B) complexes 
C) components 
D) actuaries 
A) indexes 
B) complexes 
C) components 
D) actuaries

Question 17

A deferred load is a fee charged when shares in a mutual fund are redeemed.

Accepted Answer

A) True 
 B)False

Exam 20: The Mutual Fund Industry

Which of the following is an advantage to investors of an open-end mutual fund?

Hedge funds are

Open-end mutual funds are more common than closed-end funds.

Capital appreciation funds select stocks of ________ and tend to be ________ risky than total return funds.

SEC research suggests that about three-fourths of mutual funds let privileged shareholders engage in market timing.

Market timing

Which of the following is a feature of index funds?

Measured by assets, the most popular type of bond fund is the ________ bond fund.

How is a mutual fund's net asset value calculated?

Equity funds can be placed in which class according to the Investment Company Institute?

Late trading is the practice of allowing orders received ________ to trade at the ________ net asset value.

The net asset value of a mutual fund is

The near collapse of Long Term Capital Management was caused by

Discuss the proposals that have been made to reduce the conflict of interest abuses in the mutual funds industry.

The largest share of total investment in mutual funds is in

Mutual fund companies frequently offer a number of separate mutual funds called ________.

A deferred load is a fee charged when shares in a mutual fund are redeemed.

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Bond Market

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

Filters

Capital appreciation funds select stocks of and tend to be risky than total return funds.

Late trading is the practice of allowing orders received to trade at the net asset value.