Exam 17: Investment Companies

On Monday an equity mutual fund has cash of $150 and stocks worth $900. The fund has 100 shares outstanding. On Tuesday the stocks fall in value to $800 and 10 shares are then redeemed by the fund. Assuming that the fund uses its cash first to cover redemptions,what is the one-day rate of return to the remaining fund shareholders,and how much cash and stock does the fund now have?

As the economy weakens,one would expect investment in ________ funds to increase and investment in ________ funds to decrease,ceteris paribus.

ETFs are a direct competitor to ________.

A money market mutual fund's total assets increase from $100 to $105 when the fund has 100 shares outstanding. Which of the following will happen?

Open-end fund shares often trade at a discount or premium relative to NAV.

Load funds typically provide investors with higher rates of return and offer more services such as check writing,transfers between funds,and so forth,than no load funds.

Which of the following is not considered an abusive activity in mutual funds investing?

A hedge fund that goes long in a convertible bond and short in the equity of the same firm is employing a market neutral arbitrage strategy.

Why is it important to regulate the mutual fund industry?

Which of the following is not an advantage of a mutual fund?

A 12b-1 fee is an implicit load charge.

Investors pay load charges to receive

Money market mutual funds consist of a mixture of bonds and money market securities.

Why are mutual funds popular with individual investors?

A(n)________ fund must hold substantial cash reserves in order to meet fund redemptions from shareholders.

Actively managed funds find it difficult to consistently earn higher risk-adjusted returns than a broad stock market index. The difference in return between actively managed funds and passively managed index funds can be explained by which of the following? I. Lower expense ratios at index funds II. Higher turnover ratios at index funds III. Differences in returns in sectors of the market and the overall market return

Unit investment trusts (UITs)issue only a fixed number of shares redeemable at a specific termination date.

How are money market mutual funds similar to and different from bank deposits?

The price of an ETF is determined once a day when the market closes.

You have $15,000 to invest in a mutual fund. You choose a fund with a 3.5 percent front load,a 1.75 percent management fee,and a 0.5 percent 12b-1 fee. Assume,for simplicity,that the management and 12b-1 fees are charged on year-end assets. The gross annual return on the fund's shares was 12.50 percent. What was your net annual rate of return to the nearest basis point?