Question 1

Which one of the following fund types is likely to have the lowest annual expense ratio?

Accepted Answer

A) Index funds 
B) Equity funds 
C) Bond funds 
D) Balanced funds 
E) Hybrid funds 
A) Index funds 
B) Equity funds 
C) Bond funds 
D) Balanced funds 
E) Hybrid funds A

Question 2

You have $10,000 to invest and you are considering investing in a fund. The fund charges a front-end load of 5.75 percent and an annual expense fee of 1.25 percent of the average asset value over the year. You believe the fund's gross rate of return will be 11 percent per year. If you make the investment,what should your investment be worth in one year?

Accepted Answer

A) $10,135.48 
B) $10,337.46 
C) $10,461.75 
D) $10,556.23 
E) $10,578.92 
A) $10,135.48 
B) $10,337.46 
C) $10,461.75 
D) $10,556.23 
E) $10,578.92 B

Question 3

How do closed-end investment companies differ from open-end mutual funds?

Accepted Answer

Open-end funds create new fund shares when investors buy more fund shares; the fund also redeems the shares upon demand,so liquidity is provided by the fund. The number of fund shares fluctuates daily,but fund shares trade at the net asset value. Closed-end funds trade over the counter or on an exchange. The fund has a fixed supply of shares outstanding,and an investor wishing to purchase shares must find someone willing to sell their shares. Imbalances in supply and demand of the shares of the closed-end fund can cause the shares to trade at prices different from the fund's net asset value. Discounts from net asset value are common. Because a closed-end fund does not have to redeem shares from investors,it does not have to hold as large cash reserves as an open-end mutual fund.

Question 4

A fund has a NAV of $30 per share but the shares are currently selling for $32. This fund must be

Accepted Answer

A) an open-ended fund. 
B) a closed-end fund. 
C) a balanced fund. 
D) an aggressive growth fund. 
E) a money market mutual fund. 
A) an open-ended fund. 
B) a closed-end fund. 
C) a balanced fund. 
D) an aggressive growth fund. 
E) a money market mutual fund.

Question 5

The market value of a mutual fund's assets divided by the number of fund shares outstanding is equal to the

Accepted Answer

A) load charge. 
B) NAV. 
C) expense ratio. 
D) 12b-1 fee. 
E) management fee. 
A) load charge. 
B) NAV. 
C) expense ratio. 
D) 12b-1 fee. 
E) management fee.

Question 6

The Federal Mutual Fund Commission (FMFC)is the primary regulator of the mutual fund industry.

Accepted Answer

A) True 
 B)False

Question 7

You have $12,500 to invest and you are considering investing in Fund X. The fund charges a front-end load of 3 percent and an annual expense fee of 2.25 percent of the ending asset value over the year. You believe the fund's gross rate of return will be 8 percent per year. If you make the investment,what should your investment be worth in one year?

Accepted Answer

A) $12,125.20 
B) $13,095.00 
C) $12,654.80 
D) $12,800.36 
E) $13,162.50 
A) $12,125.20 
B) $13,095.00 
C) $12,654.80 
D) $12,800.36 
E) $13,162.50

Question 8

The market value of a fund's net assets divided by the number of mutual fund shares outstanding is called the NAV of the fund.

Accepted Answer

A) True 
 B)False

Question 9

You are considering purchasing shares in a typical mutual fund that has three classes of shares outstanding: Class A,Class B,and Class C. If you purchase Class A shares,you will pay

Accepted Answer

A) a back-end load and no 12b-1 fees. 
B) a front-end load and a small 12b-1 fee. 
C) no front-end load but a back-end load. 
D) a back-end load and full 12b-1 fees. 
E) a front-end load and full 2b-1 fees. 
A) a back-end load and no 12b-1 fees. 
B) a front-end load and a small 12b-1 fee. 
C) no front-end load but a back-end load. 
D) a back-end load and full 12b-1 fees. 
E) a front-end load and full 2b-1 fees.

Question 10

ETFs are private investment pools,which are exempt from SEC regulations and with the ability to pursue diverse investment choices.

Accepted Answer

A) True 
 B)False

Question 11

A fund that has a fixed number of shares outstanding and is traded on an exchange is called a(n)

Accepted Answer

A) open-end mutual fund. 
B) hybrid fund. 
C) market timing fund. 
D) index fund. 
E) closed-end fund. 
A) open-end mutual fund. 
B) hybrid fund. 
C) market timing fund. 
D) index fund. 
E) closed-end fund.

Question 12

Households are the largest owner of money market mutual funds.

Accepted Answer

A) True 
 B)False

Question 13

If you invest $10,000 in a mutual fund with a NAV of $50 per share and a 5.5 percent back-end load,you will receive less than 200 shares in the fund.

Accepted Answer

A) True 
 B)False

Question 14

You are considering purchasing shares in a typical mutual fund that has three classes of shares outstanding: Class A,Class B,and Class C. If you purchase Class C shares,you will pay

Accepted Answer

A) a back-end load and no 12b-1 fees. 
B) a front-end load and a small 12b-1 fee,but eventually your shares will be converted to Class A shares. 
C) no front-end load but a back-end load. 
D) a back-end load and full 12b-1 fees. 
E) a front-end load and full 12b-1 fees. 
A) a back-end load and no 12b-1 fees. 
B) a front-end load and a small 12b-1 fee,but eventually your shares will be converted to Class A shares. 
C) no front-end load but a back-end load. 
D) a back-end load and full 12b-1 fees. 
E) a front-end load and full 12b-1 fees.

Question 15

The shares of a closed-end fund with market value assets of $200 million and two million shares outstanding will always trade at a market value of $100 per share.

Accepted Answer

A) True 
 B)False

Question 16

Rank the following in asset size from largest to smallest in 2016.
I. Mutual funds
II. Insurance companies
III. Depository institutions

Accepted Answer

A) I,II,III 
B) I,III,II 
C) II,III,I 
D) III,II,I 
E) III,I,II 
A) I,II,III 
B) I,III,II 
C) II,III,I 
D) III,II,I 
E) III,I,II

Question 17

One of the recent trading abuses in the mutual fund industry was allowing selected investors to rapidly trade in and out of a mutual fund in order to profit on stale prices. This practice is called

Accepted Answer

A) diluted brokerage. 
B) front running. 
C) directed order flow. 
D) soft dollar commissions. 
E) market timing. 
A) diluted brokerage. 
B) front running. 
C) directed order flow. 
D) soft dollar commissions. 
E) market timing.

Question 18

Hedge funds and REITS often employ significant amounts of leverage,but standard open-end mutual funds do not.

Accepted Answer

A) True 
 B)False

Question 19

Hedge funds charge expense fees and performance fees. The average performance fee on hedge funds is ________.

Accepted Answer

A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 20 percent 
E) 25 percent 
A) 5 percent 
B) 10 percent 
C) 15 percent 
D) 20 percent 
E) 25 percent

Question 20

Open-end mutual funds guarantee

Accepted Answer

A) investors a minimum rate of return. 
B) investors a minimum NAV. 
C) to redeem investor's shares upon demand at current NAV. 
D) to earn the rate promised in the prospectus. 
E) None of these options are correct. 
A) investors a minimum rate of return. 
B) investors a minimum NAV. 
C) to redeem investor's shares upon demand at current NAV. 
D) to earn the rate promised in the prospectus. 
E) None of these options are correct.

Exam 17: Investment Companies

Which one of the following fund types is likely to have the lowest annual expense ratio?

How do closed-end investment companies differ from open-end mutual funds?

A fund has a NAV of $30 per share but the shares are currently selling for $32. This fund must be

The market value of a mutual fund's assets divided by the number of fund shares outstanding is equal to the

The Federal Mutual Fund Commission (FMFC)is the primary regulator of the mutual fund industry.

The market value of a fund's net assets divided by the number of mutual fund shares outstanding is called the NAV of the fund.

You are considering purchasing shares in a typical mutual fund that has three classes of shares outstanding: Class A,Class B,and Class C. If you purchase Class A shares,you will pay

ETFs are private investment pools,which are exempt from SEC regulations and with the ability to pursue diverse investment choices.

A fund that has a fixed number of shares outstanding and is traded on an exchange is called a(n)

Households are the largest owner of money market mutual funds.

If you invest $10,000 in a mutual fund with a NAV of $50 per share and a 5.5 percent back-end load,you will receive less than 200 shares in the fund.

You are considering purchasing shares in a typical mutual fund that has three classes of shares outstanding: Class A,Class B,and Class C. If you purchase Class C shares,you will pay

The shares of a closed-end fund with market value assets of $200 million and two million shares outstanding will always trade at a market value of $100 per share.

Rank the following in asset size from largest to smallest in 2016. I. Mutual funds II. Insurance companies III. Depository institutions

One of the recent trading abuses in the mutual fund industry was allowing selected investors to rapidly trade in and out of a mutual fund in order to profit on stale prices. This practice is called

Hedge funds and REITS often employ significant amounts of leverage,but standard open-end mutual funds do not.

Hedge funds charge expense fees and performance fees. The average performance fee on hedge funds is ________.

Open-end mutual funds guarantee

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Bond Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

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