Question 1

The market price of shares of a closed-end fund is typically determined by supply and demand.

Accepted Answer

A) True 
 B)False  False

Question 2

The market price of shares of a closed-end fund is typically determined by supply and demand.

Accepted Answer

A) True 
 B)False  True

Question 3

A low-load fund allows to

Accepted Answer

A)  Charge a redemption fee. 
B)  Deduct 7 to 8% commission at the initial offering. 
C)  Deduct 3% of the average net assets per year. 
D)  Charge a contingent deferred sales load. 
E)  Switch from closed-end to open-end. 
A)  Charge a redemption fee. 
B)  Deduct 7 to 8% commission at the initial offering. 
C)  Deduct 3% of the average net assets per year. 
D)  Charge a contingent deferred sales load. 
E)  Switch from closed-end to open-end. C

Question 4

All investment firms charge annual management fees to compensate the professional manager of the fund.

Accepted Answer

A) True 
 B)False

Question 5

When alternative assets of investors are pooled together into a single pool of assets

Accepted Answer

A)  The collection of assets is formed as a limited partnership. 
B)  One or more general partners are responsible for running the organization. 
C)  The limited partners are only liable to the extent of their investments. 
D)  Both a and c 
E)  All of the above. 
A)  The collection of assets is formed as a limited partnership. 
B)  One or more general partners are responsible for running the organization. 
C)  The limited partners are only liable to the extent of their investments. 
D)  Both a and c 
E)  All of the above.

Question 6

Exhibit 17-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Suppose ABC Mutual fund owned only 4 stocks as follows: $$\begin{array} { c c c } 
\text { Stack } & \text { Shares } & \text { Price } \
\hline W & 2500 & \$ 11 \
\mathbf { X } & 2100 & 14 \
\mathbf { Y } & 2700 & 23 \
Z & 1900 & 15
\end{array}$$
-Refer to Exhibit 17-1. The fund originated by selling $100,000 of stock at $10.00 per share. What is its current NAV?

Accepted Answer

A)  $1.47 
B)  $14.75 
C)  $16.03 
D)  $27.62 
E)  $234.12 
A)  $1.47 
B)  $14.75 
C)  $16.03 
D)  $27.62 
E)  $234.12

Question 7

A closed-end investment company is normally referred to as a mutual fund.

Accepted Answer

A) True 
 B)False

Question 8

Ethical conflicts may arise as a result of

Accepted Answer

A)  Incentive compensation schemes. 
B)  Soft dollar arrangements. 
C)  Marketing investment management services. 
D)  All of the above. 
E)  None of the above. 
A)  Incentive compensation schemes. 
B)  Soft dollar arrangements. 
C)  Marketing investment management services. 
D)  All of the above. 
E)  None of the above.

Question 9

Suppose you consider investing $1,000 in a load fund which charges a fee of 2%, and you expect the fund to earn 14% over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 9% and charges a 1/2% redemption fee. Which is better and by how much?

Accepted Answer

A)  Funds are equal 
B)  Load fund by $32.65 
C)  Load fund by $50.55 
D)  No-load fund by $64.55 
E)  No-load fund by $44.30 
A)  Funds are equal 
B)  Load fund by $32.65 
C)  Load fund by $50.55 
D)  No-load fund by $64.55 
E)  No-load fund by $44.30

Question 10

Open-end and closed-end investment companies are similar in that both companies will repurchase shares on demand.

Accepted Answer

A) True 
 B)False

Question 11

In the case of investment companies

Accepted Answer

A)  Investors deal with a fund company and do not have separate accounts tailored to their specific needs. 
B)  Investors deal with a fund company and have separate accounts tailored to their specific needs. 
C)  Investors deal with an asset manager and do not have separate accounts tailored to their specific needs. 
D)  Investors deal with an asset manager have separate accounts tailored to their specific needs. 
E)  None of the above. 
A)  Investors deal with a fund company and do not have separate accounts tailored to their specific needs. 
B)  Investors deal with a fund company and have separate accounts tailored to their specific needs. 
C)  Investors deal with an asset manager and do not have separate accounts tailored to their specific needs. 
D)  Investors deal with an asset manager have separate accounts tailored to their specific needs. 
E)  None of the above.

Question 12

Closed-end investment companies never sell at discounts to their NAV.

Accepted Answer

A) True 
 B)False

Question 13

Funds that normally contain a combination of common stock and fixed income securities are known as

Accepted Answer

A)  Unit investment trust. 
B)  Balanced funds. 
C)  Contractual plans. 
D)  Income funds. 
E)  Flexible funds. 
A)  Unit investment trust. 
B)  Balanced funds. 
C)  Contractual plans. 
D)  Income funds. 
E)  Flexible funds.

Question 14

A major question in modern finance regarding closed-end investment companies is

Accepted Answer

A)  Why do these funds sell at discounts? 
B)  Why do the discounts differ between funds? 
C)  What are the returns available to investors from funds that sell at a large discount? 
D)  Choices a and b 
E)  All of the above. 
A)  Why do these funds sell at discounts? 
B)  Why do the discounts differ between funds? 
C)  What are the returns available to investors from funds that sell at a large discount? 
D)  Choices a and b 
E)  All of the above.

Question 15

Income distributions and capital gains distributions are the only source of returns for mutual funds.

Accepted Answer

A) True 
 B)False

Question 16

Suppose you consider investing $5,000 in a load fund from which a fee of 8% is deducted and you expect the fund to earn 12% over the next year. Alternatively, you could invest in a no load fund which is expected to earn 10% and which takes a 1/2% redemption fee. Which is better and by how much?

Accepted Answer

A)  Load fund by $320.50 
B)  Load fund by $575.50 
C)  Funds are equal 
D)  No load fund by $320.50 
E)  No load fund by $575.50 
A)  Load fund by $320.50 
B)  Load fund by $575.50 
C)  Funds are equal 
D)  No load fund by $320.50 
E)  No load fund by $575.50

Question 17

Suppose you consider investing $10,000 in a load fund from which a fee of 3% is deducted and you expect the fund to earn 12% over the next year. Alternatively, you could invest in a no load fund which is expected to earn 10% and which takes a 0% redemption fee. Which is better and by how much?

Accepted Answer

A)  Load fund by $151 
B)  No load fund by $136 
C)  Funds are equal 
D)  No load fund by $421 
E)  Load fund by $115 
A)  Load fund by $151 
B)  No load fund by $136 
C)  Funds are equal 
D)  No load fund by $421 
E)  Load fund by $115

Question 18

When the offer price and the NAV of a mutual fund are equal it is an indication that

Accepted Answer

A)  The fund's assets are in equilibrium. 
B)  The fund is trading at par. 
C)  It is strictly a coincidence. 
D)  The fund has no initial fee. 
E)  The fund is backloaded. 
A)  The fund's assets are in equilibrium. 
B)  The fund is trading at par. 
C)  It is strictly a coincidence. 
D)  The fund has no initial fee. 
E)  The fund is backloaded.

Question 19

Exhibit 17-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Suppose ABC Mutual fund owned only 4 stocks as follows: $$\begin{array} { c c c } 
\text { Stack } & \text { Shares } & \text { Price } \
\hline W & 2500 & \$ 11 \
\mathbf { X } & 2100 & 14 \
\mathbf { Y } & 2700 & 23 \
Z & 1900 & 15
\end{array}$$
-Refer to Exhibit 17-1. What is the offering price for the fund if the NAV is $25.25 and a the load is 6%?

Accepted Answer

A)  $26.19 
B)  $23.74 
C)  $25.25 
D)  $26.77 
E)  $24.13 
A)  $26.19 
B)  $23.74 
C)  $25.25 
D)  $26.77 
E)  $24.13

Question 20

When securities are held in an investment company the appropriate way to value a client's investment is by net asset value (NAV).

Accepted Answer

A) True 
 B)False

Exam 17: Professional Money Management, Alternative Assets, and Industry Ethics

The market price of shares of a closed-end fund is typically determined by supply and demand.

The market price of shares of a closed-end fund is typically determined by supply and demand.

A low-load fund allows to

All investment firms charge annual management fees to compensate the professional manager of the fund.

When alternative assets of investors are pooled together into a single pool of assets

Exhibit 17-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Suppose ABC Mutual fund owned only 4 stocks as follows: Stack Shares Price W 2500 \ 11 2100 14 2700 23 Z 1900 15 -Refer to Exhibit 17-1. The fund originated by selling $100,000 of stock at $10.00 per share. What is its current NAV?

A closed-end investment company is normally referred to as a mutual fund.

Ethical conflicts may arise as a result of

Suppose you consider investing $1,000 in a load fund which charges a fee of 2%, and you expect the fund to earn 14% over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 9% and charges a 1/2% redemption fee. Which is better and by how much?

Open-end and closed-end investment companies are similar in that both companies will repurchase shares on demand.

In the case of investment companies

Closed-end investment companies never sell at discounts to their NAV.

Funds that normally contain a combination of common stock and fixed income securities are known as

A major question in modern finance regarding closed-end investment companies is

Income distributions and capital gains distributions are the only source of returns for mutual funds.

Suppose you consider investing $5,000 in a load fund from which a fee of 8% is deducted and you expect the fund to earn 12% over the next year. Alternatively, you could invest in a no load fund which is expected to earn 10% and which takes a 1/2% redemption fee. Which is better and by how much?

Suppose you consider investing $10,000 in a load fund from which a fee of 3% is deducted and you expect the fund to earn 12% over the next year. Alternatively, you could invest in a no load fund which is expected to earn 10% and which takes a 0% redemption fee. Which is better and by how much?

When the offer price and the NAV of a mutual fund are equal it is an indication that

Exhibit 17-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Suppose ABC Mutual fund owned only 4 stocks as follows: Stack Shares Price W 2500 \ 11 2100 14 2700 23 Z 1900 15 -Refer to Exhibit 17-1. What is the offering price for the fund if the NAV is $25.25 and a the load is 6%?

When securities are held in an investment company the appropriate way to value a client's investment is by net asset value (NAV).

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

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