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| 1 | |
Investors in a common stock mutual fund incur an income tax liability when _______________. |
| | A) | they sell their mutual fund shares at a gain |
| | B) | the mutual fund sells stock in its portfolio at a gain |
| | C) | the mutual fund receives dividends on the stock owned by the mutual fund |
| | D) | all of the above |
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| 2 | |
Cost incurred by a mutual fund in managing the fund, including administrative expenses and advisory fees, are referred to as the fund's ______________. |
| | A) | 12b-1 charges |
| | B) | front-end load |
| | C) | management fee |
| | D) | operating expenses |
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| 3 | |
Which of the following is an advantage to investors of exchange traded funds (ETFs) that is not available to investors in open-end mutual funds? |
| | A) | ETFs allow investors to invest in broad U.S. market indexes as well as international indexes. |
| | B) | Investors can avoid incurring an expense in the form of a bid-ask spread by purchasing an ETF rather than investing in an open-end mutual fund. |
| | C) | ETFs offer a potential tax advantage to investors who incur capital gains taxes only when they sell ETF shares. |
| | D) | ETF prices can not deviate from net asset value. |
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| 4 | |
A type of mutual fund that maintains relatively stable proportions of its funds invested in equities and in fixed-income securities is called a _______________. |
| | A) | specialized sector fund |
| | B) | index fund |
| | C) | asset allocation fund |
| | D) | balanced fund |
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| 5 | |
A real estate investment trust is a(n) _________________. |
| | A) | open-end mutual fund that invests primarily in mortgage and construction loans |
| | B) | closed-end mutual fund that invests directly in real estate |
| | C) | hedge fund that invests in real estate or loans secured by real estate |
| | D) | none of the above |
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| 6 | |
A mutual fund with a relatively high portfolio turnover rate is generally regarded as ________________. |
| | A) | tax inefficient because frequent trading creates capital gains and losses that affect investors' income taxes |
| | B) | tax inefficient because frequent trading results in high transaction costs |
| | C) | tax efficient because capital gains and capital losses can be offset against each other by the investor |
| | D) | tax efficient because investors tend to earn high after-tax returns when a fund has a high turnover rate |
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| 7 | |
A mutual fund has $500 million in assets at the beginning of the year and 20 million shares outstanding throughout the year. The assets in the fund increase in price by 10%. The fund charges 12b-1 fees of 1%. This fee is imposed on year-end asset values. There are no capital gains distributions from the fund during the year. What is the end of year net asset value for the fund? |
| | A) | $25.00 |
| | B) | $27.23 |
| | C) | $27.25 |
| | D) | $27.50 |
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| 8 | |
Shares of a closed–end fund ________________. |
| | A) | always trade at net asset value, because large investors can redeem their shares in the fund for a portfolio of stocks |
| | B) | always trade at net asset value, because all investors can redeem their shares in the fund for net asset value |
| | C) | can trade at a substantial discount from net asset value, although such a discount tends to dissipate over time |
| | D) | can trade at a substantial discount from net asset value but can not trade at a premium above net asset value |
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| 9 | |
A mutual fund had average daily assets of $500 million in the past year. During the year, the fund sold $60 million of Stock X and purchased $90 million of Stock Y. What was the fund's turnover ratio? |
| | A) | 12.0% |
| | B) | 15.0% |
| | C) | 18.0% |
| | D) | 30.0% |
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| 10 | |
A closed-end fund has a portfolio currently worth $350 million. The fund has liabilities of $5 million and 17 million shares outstanding. What is the net asset value of the fund? |
| | A) | $20.88 |
| | B) | $20.29 |
| | C) | $20.59 |
| | D) | $29.17 |
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| 11 | |
Which of the following statements is true about hedge funds? |
| | A) | Hedge funds are mutual funds that specialize in derivative investments designed primarily for hedging purposes. |
| | B) | Because of their large size and varied investments, hedge funds are closely regulated by both the SEC and the CFTC. |
| | C) | The term hedge fund derives from a common hedge fund strategy based on anticipated changes in relative valuations in two market sectors. |
| | D) | Investments in hedge funds are very liquid, which means that investors in a hedge fund can withdraw their investments at any time without risk of loss in market value. |
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| 12 | |
You purchased 2,000 shares of the Lambert Fund, which had a net asset value of $10.00 per share at the beginning of the year. The fund deducted a front-end load of 5%. The securities in the fund increased in value by 10% during the year. The fund's expense ratio is 1.1%. What is your rate of return on the fund if you sell your shares at the end of the year? |
| | A) | -1.47% |
| | B) | 3.46% |
| | C) | 3.90% |
| | D) | 8.90% |
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| 13 | |
"Late trading" is the practice of _______________. |
| | A) | buying or selling exchange-traded funds after the NYSE closes; this practice violates securities laws |
| | B) | exploiting time zone difference on trades in international mutual funds; this practice does not violate securities laws |
| | C) | buying or selling mutual funds at net asset value after 4:00 PM New York time; this practice violates securities laws |
| | D) | buying and simultaneously selling exchange-traded funds in different markets at different prices; this practice does not violate securities laws |
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| 14 | |
An open-end fund has a net asset value of $13.40 per share. The fund is sold with a front-end load of 4%. What is the offering price? |
| | A) | $13.96 |
| | B) | $12.86 |
| | C) | $13.94 |
| | D) | $12.88 |
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| 15 | |
You are considering an investment of $5,000 in a mutual fund with a 6% load and an annual expense ratio of 0.8%. You plan to invest for five years. Assume the portfolio rate of return net of operating expenses is 10% annually. What is the value of your portfolio after five years? |
| | A) | $5,852.86 |
| | B) | $7,298.12 |
| | C) | $7,848.68 |
| | D) | $8,229.80 |
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