Question 1

As of 2017, approximately ________ of mutual fund assets were invested in equity funds.

Accepted Answer

A)  5% 
B)  52% 
C)  30% 
D)  12%

Question 2

The type of mutual fund that primarily engages in market timing is called ________.

Accepted Answer

A)  a sector fund 
B)  an index fund 
C)  an ETF 
D)  an asset allocation fund

Question 3

Which of the following is not a type of real estate investment trust?
I. Equity trust
II. Debt trust
III. Mortgage trust
IV. Unit trust

Accepted Answer

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

Question 4

The SEC requires funds to disclose:
I. After-tax returns for the past year
II. After-tax returns for the last 5-year period
III. The tax impact of portfolio turnover

Accepted Answer

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

Question 5

In the United States in 2017, there were approximately ________ mutual funds offered by fewer than ________ fund complexes.

Accepted Answer

A)  12,000; 650 
B)  7,000; 100 
C)  8,000; 850 
D)  9,000; 300

Question 6

Sponsors of unit investment trusts earn a profit by ________.

Accepted Answer

A)  deducting management fees from fund assets 
B)  deducting a percentage of any gains in asset value 
C)  selling shares in the trust at a premium to the cost of acquiring the underlying assets 
D)  charging portfolio turnover fees

Question 7

Which of the following funds invest specifically in stocks of fast-growing companies?

Accepted Answer

A)  balanced funds 
B)  growth equity funds 
C)  REITs 
D)  equity income funds

Question 8

You are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with a ________ rather than a ________, everything else equal.

Accepted Answer

A)  12b-1 fee; front-end load 
B)  front-end load; 12b-1 fee 
C)  back-end load; front-end load 
D)  12b-1 fee; back-end load

Question 9

The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B shares with a 12b-1 fee of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses before the 12b-1 fee is applied.

Accepted Answer

A)  Class A. 
B)  Class B. 
C)  There is no difference. 
D)  The answer cannot be determined from the information given.

Question 10

A ________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.

Accepted Answer

A)  commingled pool 
B)  unit trust 
C)  hedge fund 
D)  money market fund

Question 11

Which of the following ETFs tracks the S&P 500 Index?

Accepted Answer

A)  Qubes 
B)  Diamonds 
C)  Vipers 
D)  Spiders

Question 12

Advantages of investment companies to investors include all but which one of the following?

Accepted Answer

A)  record keeping and administration 
B)  low-cost diversification 
C)  professional management 
D)  guaranteed rates of return

Question 13

Assume that you have just purchased some shares in an investment company reporting $500 million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the net asset value (NAV) of these shares?

Accepted Answer

A)  $12 
B)  $9 
C)  $10 
D)  $1

Question 14

Investors who want to liquidate their holdings in a closed-end fund may ________.

Accepted Answer

A)  sell their shares back to the fund at a discount if they wish 
B)  sell their shares back to the fund at net asset value 
C)  sell their shares on the open market 
D)  sell their shares at a premium to net asset value if they wish

Question 15

You pay $21,600 to the Laramie Fund, which has a NAV of $18 per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is 1.3% and is deducted from year-end asset values. What is your rate of return on the fund if you sell your shares at the end of the year?

Accepted Answer

A)  4.35% 
B)  4.23% 
C)  6.45% 
D)  5.63%

Question 16

Which type of investment fund is commonly known to invest in options and futures in large scale?

Accepted Answer

A)  commingled funds 
B)  hedge funds 
C)  ETFs 
D)  REITs

Question 17

The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so, the fund buys shares in each S&P 500 company ________.

Accepted Answer

A)  in proportion to the market value weight of the firm's equity in the S&P 500 
B)  in proportion to the price weight of the stock in the S&P 500 
C)  by purchasing an equal number of shares of each stock in the S&P 500 
D)  by purchasing an equal dollar amount of shares of each stock in the S&P 500

Question 18

Higher portfolio turnover:
I. Results in greater tax liability for investors
II. Results in greater trading costs for the fund, which investors have to pay for
III. Is a characteristic of asset allocation funds

Accepted Answer

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

Question 19

Disadvantages of ETFs include all of the following except

Accepted Answer

A)  investors incur a bid-ask spread when purchasing. 
B)  investors must pay a broker fee when purchasing. 
C)  prices are only quoted once each day. 
D)  prices can depart from NAV at times.

Question 20

________ fund is defined as one in which the fund charges a sales commission to either buy into or exit from the fund.

Accepted Answer

A)  A load 
B)  A no-load 
C)  An index 
D)  A specialized-sector

Exam 4: Mutual Funds and Other Investment Companies