Question 1

What are the two best reasons for considering a load fund?

Accepted Answer

A) lack of good no-load funds and superior market performance 
B) preference for a particular fund manager or a specialized type of fund 
C) superior market performance and preferential tax treatment 
D) tax-free income and superior fund managers 
E) no management fees and a particular fund manager

Question 2

Assume a mutual fund is a pure no-load fund. Which of the following costs should an investor still expect to incur?
I. contingent deferred sales charge
II. management fee
III. trading costs
IV. redemption fee

Accepted Answer

A) I, II, and III only 
B) II and III only 
C) II, III, and IV only 
D) I, II, III, and IV 
E) none of the costs listed

Question 3

Which one of the following describes an investment company that generally has an unrestricted investment strategy and is not accessible to the general public?

Accepted Answer

A) mutual fund 
B) open-end fund 
C) closed-end fund 
D) exchange-traded fund 
E) hedge fund

Question 4

A mutual fund has an NAV of $10.25 with 252,000 shares outstanding. What is the value of the fund's assets if it has $340,500 in liabilities?

Accepted Answer

A) $2,844,537 
B) $2,923,500 
C) $3,055,380 
D) $3,187,019 
E) $3,267,337

Question 5

The value of a load mutual fund's assets less its liabilities, divided by the number of shares outstanding is referred to as the fund's:

Accepted Answer

A) net asset value. 
B) offering price. 
C) open-end value. 
D) closed-end value. 
E) prime value.

Question 6

A mutual fund is owned by:

Accepted Answer

A) its shareholders. 
B) a management company. 
C) a financial institution. 
D) the fund's board of directors. 
E) a mutual fund family.

Question 7

ETFs are:

Accepted Answer

A) limited to diversified index funds. 
B) generally held until they mature. 
C) sponsored primarily by large investment banks. 
D) based on market-cap-weighted indexes only. 
E) claims on shares held in a trust.

Question 8

Five months ago, you purchased 200 shares of a mutual fund at an offering price of $54 a share. The fund imposes a front-end load of 4.5% and has total annual expenses of 1.08%. The NAV of the fund today is $52.40. There were no fund distributions during these five months. What is your holding period return on this investment?

Accepted Answer

A) −2.96% 
B) −1.92% 
C) 1.44% 
D) 1.89% 
E) 2.26%

Question 9

A fund that is basically an index fund that trades like a closed-end fund is called a(n):

Accepted Answer

A) open-end fund. 
B) money market fund. 
C) exchange-traded fund. 
D) mutual fund. 
E) depository receipt.

Question 10

The Liberty Fund has an offer price of $57.32 per share and a front-end load of 2.25%. What is the net asset value?

Accepted Answer

A) $56.03 
B) $56.34 
C) $57.03 
D) $57.32 
E) $58.61

Question 11

Which one of the following trading symbols is associated with the ETF that is based on the S&P 500 index?

Accepted Answer

A) DIA 
B) QQQQ 
C) SPY 
D) SPX 
E) DIAX

Question 12

Investment advisory firms generally provide which of the following services to a mutual fund?
I. marketing
II. record keeping
III. investment research
IV. tax payment

Accepted Answer

A) I only 
B) II and III only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 13

An investment company that will repurchase shares at any time is called a(n)________ fund.

Accepted Answer

A) hedge 
B) closed-end 
C) open-end 
D) public 
E) exchange traded

Question 14

Which of the following will exempt a hedge fund from registering with the SEC?

Accepted Answer

A) offering shares to the general public 
B) being in existence for more than two years 
C) limiting sales to individual investors 
D) locking up investor's money for at least two years 
E) exceeding $25 million in assets

Question 15

A fund which tracks the S&P 500 would best be classified as which type of fund?

Accepted Answer

A) sector 
B) global 
C) equity income 
D) index 
E) growth

Question 16

Matt owns 724.08 shares of a fund which has a current NAV of $41.04. He has owned all these shares for 3.3 years. The fund charges a contingent deferred sales charge which starts at 5% for the first year and declines by 1% each year thereafter. How much cash will he receive if he redeems all of his shares today?

Accepted Answer

A) $29,121.92 
B) $29,709.36 
C) $30,334.82 
D) $30,647.55 
E) $31,023.14

Question 17

The income earned by a regulated investment company is:

Accepted Answer

A) exempt from all taxation. 
B) taxed only at the state and local level. 
C) taxed only at the federal level. 
D) taxable income for the fund. 
E) taxable income for the fund's shareholders.

Question 18

To determine the actual objective of a fund, you should primarily refer to the:

Accepted Answer

A) fund's objective statement. 
B) fund's prospectus. 
C) portfolio holdings. 
D) sales literature. 
E) portfolio manager's comments in the annual report.

Question 19

Besides size, how else does a mutual fund style box classify equity funds?

Accepted Answer

A) cost and fees as a percent of NAV 
B) taxability at federal, state, and local levels 
C) value versus growth characteristics 
D) age of the fund 
E) short and long-term rates of return

Question 20

Today, you are selling shares of an open-end mutual fund and will be charged a CDSC of 3%. The price you will receive per share is equal to:

Accepted Answer

A) 103% of the opening NAV. 
B) 97% of the opening offering price. 
C) 97% of the closing NAV. 
D) 103% of the closing offering price. 
E) the closing offering price.

Exam 4: Mutual Funds and Other Investment Companies