Question 1

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 2

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 3

________ enables mutual funds to consistently outperform a randomly selected group of stocks.

Accepted Answer

A) Managerial expertise 
B) Diversification 
C) Denomination intermediation 
D) None of the above 
A) Managerial expertise 
B) Diversification 
C) Denomination intermediation 
D) None of the above

Question 4

Mutual funds hold about ________ of financial intermediaries' total assets.

Accepted Answer

A) one-sixth 
B) one-fourth 
C) one-half 
D) two-thirds 
A) one-sixth 
B) one-fourth 
C) one-half 
D) two-thirds

Question 5

Mutual funds offer investors all of the following except

Accepted Answer

A) greater-than-average returns. 
B) diversified portfolios. 
C) lower transaction costs. 
D) professional investment management. 
A) greater-than-average returns. 
B) diversified portfolios. 
C) lower transaction costs. 
D) professional investment management.

Question 6

The increase in the number of defined contribution pension funds has slowed the growth of mutual funds.

Accepted Answer

A) True 
 B)False

Question 7

Conflicts arise in the mutual funds industry because ________ cannot effectively monitor ________.

Accepted Answer

A) investment advisers; directors 
B) directors; shareholders 
C) shareholders; investment advisers 
D) investment advisers; stocks that will outperform the overall market 
A) investment advisers; directors 
B) directors; shareholders 
C) shareholders; investment advisers 
D) investment advisers; stocks that will outperform the overall market

Question 8

The dollar amount invested in mutual funds is about the same as the total assets of all commercial banks at the beginning of 2004.

Accepted Answer

A) True 
 B)False

Question 9

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 10

Late trading and market timing

Accepted Answer

A) allow large, favored investors in a mutual fund to profit at the expense of other investors in the fund. 
B) hurt ordinary investors by increasing the number of fund shares and diluting the fund's net asset value. 
C) are both A and B of the above. 
D) are none of the above. 
A) allow large, favored investors in a mutual fund to profit at the expense of other investors in the fund. 
B) hurt ordinary investors by increasing the number of fund shares and diluting the fund's net asset value. 
C) are both A and B of the above. 
D) are none of the above.

Question 11

A mutual fund's board of directors picks the securities that will be held and makes buy and sell decisions.

Accepted Answer

A) True 
 B)False

Question 12

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 13

Money market mutual funds originated when the brokerage firm Merrill Lynch offered its customers an account from which funds could be taken to purchase securities and into which funds could be deposited when securities were sold.

Accepted Answer

A) True 
 B)False

Question 14

What benefits do mutual funds offer investors?

Accepted Answer

The answer of What benefits do mutual funds offer investors?...

Question 15

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 16

The larger the number of shares traded in a stock transaction, the lower the transaction costs per share.

Accepted Answer

A) True 
 B)False

Question 17

A deferred-load mutual fund charges a commission

Accepted Answer

A) when shares are purchased. 
B) when shares are sold. 
C) both when shares are purchased and when they are sold. 
D) when shares are redeemed. 
A) when shares are purchased. 
B) when shares are sold. 
C) both when shares are purchased and when they are sold. 
D) when shares are redeemed.

Exam 20: The Mutual Fund Industry

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.

________ enables mutual funds to consistently outperform a randomly selected group of stocks.

Mutual funds hold about ________ of financial intermediaries' total assets.

Mutual funds offer investors all of the following except

The increase in the number of defined contribution pension funds has slowed the growth of mutual funds.

Conflicts arise in the mutual funds industry because ________ cannot effectively monitor ________.

The dollar amount invested in mutual funds is about the same as the total assets of all commercial banks at the beginning of 2004.

Market timing

Late trading and market timing

A mutual fund's board of directors picks the securities that will be held and makes buy and sell decisions.

The near collapse of Long Term Capital Management was caused by

Money market mutual funds originated when the brokerage firm Merrill Lynch offered its customers an account from which funds could be taken to purchase securities and into which funds could be deposited when securities were sold.

What benefits do mutual funds offer investors?

The net asset value of a mutual fund is

The larger the number of shares traded in a stock transaction, the lower the transaction costs per share.

A deferred-load mutual fund charges a commission

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.

Conflicts arise in the mutual funds industry because cannot effectively monitor .