Exam 17: Investment Companies

An investor is considering two mutual funds. Fund A has a 5.75 percent front-end load and a 1.25 percent expense ratio. Fund B is no-load,but has a 2.25 percent expense ratio. If the investor plans on being in either fund for six years,which should they choose given that they have $16,000 to invest and both funds have gross returns of 12 percent per year? Fees are applied at each year-end to year-end asset values,but the load is taken out up front only once.

You wish to invest $17,445 in a mutual fund with a NAV of $26.03. The fund charges a front-end load of 4.50 percent. How many fund shares will you receive?

ETFs have several advantages over index funds,including the ability to I. trade throughout the day at continuously updated prices. II. purchase ETF shares on margin. III. sell ETF shares short. IV. sell the shares back to the fund.

Hedge funds can short sell securities,whereas most mutual funds cannot.

The largest proportion of long-term mutual fund assets is held by ________.

Why do many mutual funds now offer three different classes of shares? What are the differences and what should you consider in choosing the classes?

What is the purpose of index funds? How does this differ from other equity mutual funds? Why are index funds growing in popularity?

Offshore hedge funds are not subject to taxation on fund distributions nor to U.S. estate taxes.

Because of their ability to hedge,the subprime mortgage crisis did not cause any significant losses to hedge funds.

Funds that specialize in municipal bonds and certain types of real estate to minimize tax liabilities are called hybrid funds.

What are the four main categories of mutual fund trading abuses mentioned in the text? Explain the problem with each.

By type of fund,there are more ________ funds than any other.

What are the primary differences between index funds and ETFs? What are two examples of ETFs?

What new rules have resulted from the mutual fund trading abuses?

In what ways are hedge funds different from mutual funds?

An open-end mutual fund owns 1,500 shares of Krispy Kreme priced at $12. The fund also owns 1,000 shares of Ben & Jerry's priced at $43,and 2,000 shares of Pepsi priced at $50. The fund itself has 3,500 of its own shares outstanding. What is the NAV of a fund's share?

The primary regulator of mutual funds is the

Load funds charge one-time sales commissions that can be paid either upfront or at end of the investing period in the mutual fund.

You have $16,000 to invest in a mutual fund with a NAV = $45. You choose a fund with a 4 percent front load,a 1 percent management fee,and a 0.25 percent 12b-1 fee. Assume that the management and 12b-1 fees are charged on year-end assets. The gross annual return on the fund's shares was 9 percent. What was your net annual rate of return to the nearest basis point?

Index funds have the highest cost among the different types of mutual funds.