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FIN 220 > CH 4 > Flashcards

CH 4 Flashcards

1
Q

1) An investment company:
A) is a closed-end fund that invests in real estate.
B) pools funds from individual investors.
C) is a specific type of a bank.
D) is a specialized form of a joint stock company.
E) specializes in investing funds on behalf of a financial institution.

A

B

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2
Q

2) An investment company that will repurchase shares at any time is called a(n) ________ fund.
A) hedge
B) exchange traded
C) open-end
D) public
E) closed-end

A

C

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3
Q

3) An investment company that issues a fixed number of shares which can only be resold in the open stock market is called a(n) ________fund.
A) closed-end
B) open-end
C) market
D) public
E) hedge

A

A

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4
Q

4) 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:
A) net asset value.
B) prime value.
C) open-end value.
D) offering price.
E) closed-end value.

A

A

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5
Q

5) A fee that is charged at the time mutual fund shares are purchased by an investor is called a:
A) issuance charge.
B) front-end load.
C) back-end load.
D) 12b-1 fee.
E) contingent deferred sales charge.

A

B

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6
Q

6) A 12b-1 fee is a fee charged by a mutual fund:
A) at the time shares are issued.
B) if shares are sold within a stated period of time.
C) to cover marketing costs.
D) to pay the fund’s managers.
E) to cover trading costs.

A

C

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7
Q

7) The turnover for a mutual fund refers to:
A) the length of time an average investor holds fund shares.
B) the percentage change in the ownership of fund shares. C) a measure of trading activity.
D) replacing the fund’s investment manager.
E) the annual change in the number of shares outstanding.

A

C

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8
Q

8) An open-end fund which invests solely in short-term debt obligations is called a(n) ________ mutual fund.
A) money market
B) growth
C) balanced
D) asset allocation
E) stock

A

A

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9
Q

9) A fund that is basically an index fund that trades like a closed-end fund is called a(n):
A) mutual fund.
B) open-end fund.
C) exchange-traded fund.
D) depository receipt.
E) money market fund.

A

C

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10
Q

11) Which of the following are three key advantages of mutual funds?
A) liquidity, high initial investments, diversification
B) diversification, taxes, high initial investments
C) low initial investments, professional management, diversification
D) costs, diversification, liquidity
E) professional management, high initial investments, taxes

A

C

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11
Q

12) Which one of the following statements is correct concerning mutual funds?
A) Profits on the sale of mutual fund shares are tax-free.
B) Mutual funds generally pay no taxes.
C) Investments in mutual funds are guaranteed from loss by a private agency of the
federal government.
D) All mutual funds are diversified.
E) Mutual funds are risk-free.

A

B

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12
Q

13) Which one of the following statements is correct concerning an open-end mutual fund which charges a front-end load?
A) Investors receive the NAV when shares are sold.
B) The load is expressed as a percentage of the NAV.
C) The number of shares outstanding was fixed at the time the fund was created.
D) If an investor wishes to sell her shares, she must do so by selling to another
investor.
E) The NAV exceeds the offering price.

A

A

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13
Q

14) Which one of the following statements correctly relates to closed-end funds? A) Shares in closed-end funds must be held until the funds mature.
B) Once a fund closes, a new investor is unable to purchase shares in that fund. C) Shares of closed-end funds trade just like stocks.
D) The number of shares outstanding changes on a daily basis as shares are sold and
repurchased.
E) Closed-end funds must sell at the NAV or above.

A

C

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14
Q

15) Shares in closed-end funds:
A) may sell for more or less than the NAV.
B) cannot be resold.
C) are referred to as mutual fund shares.
D) are more popular than shares in open-end funds.
E) can be resold to the fund at any time.

A

A

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15
Q

16) A mutual fund is owned by:
A) its shareholders.
B) a financial institution.
C) a management company.
D) the fund’s board of directors.
E) a mutual fund family.

A

A

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16
Q

17) A mutual fund is created by which one of the following parties?
A) SEC
B) fund’s board of directors
C) investment advisory firm
D) fund shareholders
E) discount broker

A

C

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17
Q

18) Mutual funds are generally created to: A) generate fees for an advisory firm.
B) avoid regulation.
C) provide tax shelters for investors.
D) avoid taxes.
E) eliminate investment risk.

A

A

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18
Q

19) 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
A) II and III only
B) I, II, and III only
C) I, II, III, and IV
D) I only
E) II, III, and IV only

A

B

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19
Q

20) An investment company will be treated as a “regulated investment company” by the
Internal Revenue Service provided that it:
I. invests almost all of its assets in bonds, stocks, and other securities.
II. invests solely in U.S. securities.
III. does not invest more than two percent of its assets in any one security. IV. passes all its realized investment income through to its shareholders.
A) II and III only
B) I and IV only
C) I and III only
D) I, III, and IV only
E) I, II, and IV only

A

B

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20
Q

21) The income earned by a regulated investment company is:
A) taxed only at the federal level.
B) taxed only at the state and local level.
C) taxable income for the fund’s shareholders.
D) exempt from all taxation.
E) taxable income for the fund.

A

C

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21
Q

22) Today, you are selling shares of an open-end mutual fund and will be charged a CDSC of 3 percent. The price you will receive per share is equal to:
A) 103 percent of the closing offering price.
B) 97 percent of the opening offering price.
C) 103 percent of the opening NAV.
D) 97 percent of the closing NAV.
E) the closing offering price.

A

D

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22
Q

23) Which one of the following costs can a mutual fund shareholder avoid by holding shares for an extended period of time?
A) management fee
B) front-end load
C) trading costs
D) contingent deferred sales charge
E) 12b-1 fee

A

D

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23
Q

24) When the offering price and the NAV are the same, you know that a mutual fund is not charging which one of the following fees?
A) contingent deferred sales charge
B) 12b-1 fee
C) management fee
D) front-end load
E) trading costs

A

D

24
Q

25) 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
A) I, II, and III only
B) I, II, III, and IV
C) II and III only
D) II, III, and IV only
E) none of the costs listed

A

C

25
Q

26) Contingent deferredsalescharges:
A) are applied at the time fund shares are purchased.
B) are applied only to front-end load funds.
C) can be avoided.
D) are no longer permissible.
E) are charged on an annual basis to cover distribution and marketing costs.

A

C

26
Q

27) Mutual fund trading costs:
A) are generally set at a flat amount per year.
B) are computed as a percentage of a fund’s assets.
C) generally include a bonus fee for outperforming an index.
D) are the costs paid to brokers in the form of sales commissions.
E) increase in direct relation to the turnover rate.

A

E

27
Q

28) Which one of the following is not included in the fee table found in a mutual fund prospectus?
A) redemption fee percentage
B) 12b-1 fee
C) management fee
D) turnover rate
E) front-end load

A

D

28
Q

29) What are the two best reasons for considering a load fund?
A) lack of good no-load funds and superior market performance
B) no management fees and a particular fund manager
C) tax-free income and superior fund managers
D) preference for a particular fund manager or a specialized type of fund
E) superior market performance and preferential tax treatment

A

D

29
Q

30) Money market mutual funds do which one of the following? A) trade for $10 a share
B) invest only in government bonds
C) provide a risk-free means of investing
D) invest in securities that mature in 90 days or less
E) offer a guaranteed rate of return

A

D

30
Q

31) The net asset value of a money market mutual fund:
A) fluctuates as new shares are issued and old shares are redeemed.
B) is insured by the sponsoring investment advisory firm.
C) is dependent upon the value of the fund’s assets.
D) is guaranteed to be $1 a share.
E) varies inversely with market interest rates.

A

C

31
Q

32) Money market mutual funds:
A) produce income that is always tax-exempt.
B) must be valued at $1 a share or more.
C) are insured by the FDIC.
D) can provide “triple-tax-free” income.
E) invest only in certificates of deposit.

A

D

32
Q

33) To determine the actual objective of a fund, you should primarily refer to the:
A) portfolio manager’s comments in the annual report.
B) fund’s prospectus.
C) fund’s objective statement.
D) sales literature.
E) portfolio holdings.

A

E

33
Q

34) Which type of stock fund focuses on maximizing share price appreciation?
A) large-company
B) equity income
C) capital appreciation
D) growth
E) growth and income

A

C

34
Q

35) Which type of stock fund focuses primarily on current income?
A) growth and income
B) growth
C) small-company
D) equity income
E) capital appreciation

A

D

35
Q

36) Small-cap funds:
A) focus more on capital appreciation than on current income.
B) are generally also classified as equity income funds.
C) generally focus on dividend-paying stocks.
D) are defined as the smallest 20 percent of all funds based on total asset value.
E) are defined as the 20 percent of funds with the smallest NAVs.

A

A

36
Q

37) The primary difference between an international fund and a global fund is the fact that:
A) all international funds are country specific while global funds are not.
B) global funds may opt to be country or region specific while international funds may not.
C) international funds tend to be more geographically diversified than global funds.
D) an international fund invests in U.S. stocks while a global fund does not.
E) a global fund invests in U.S. stocks while an international fund does not.

A

E

37
Q

38) Which type of fund should you purchase if you are interested in investing primarily in countries that have relatively new stock markets?
A) global fund
B) international fund
C) emerging markets fund
D) social conscience fund
E) sector fund

A

C

38
Q

39) A sector fund:
A) is best evaluated by its past performance.
B) rarely outperforms other types of funds.
C) tends to perform consistently from one year to the next.
D) is usually highly diversified.
E) concentrates on investing in one industry or one commodity.

A

E

39
Q

40) A fund which tracks the S&P 500 would best be classified as which type of fund?
A) equity income
B) index
C) growth
D) global
E) sector

A

B

40
Q

41) Which one of the following characteristics best fits an index fund? A) market outperformer
B) dividend oriented
C) high expenses
D) passively managed
E) high turnover rate

A

D

41
Q

42) You want to purchase shares in a fund and also ensure that your money does not support firms that harm the environment. Which type of fund should you purchase?
A) tax-managed fund
B) index fund
C) international fund
D) income fund
E) social conscience fund

A

E

42
Q

43) Which one of the following is a general characteristic of a tax-managed fund?
A) matching of dividend income to capital gains
B) high level of realized capital gains
C) concentration on income-producing securities
) low turnover rate
E) higher trading costs than average funds

A

D

43
Q

44) Which one of the following is the distinguishing characteristic of a municipal bond fund?
A) short-term
B) low quality
C) high-yield
D) federally tax-free income
E) mortgage backed

A

D

44
Q

45) Which one of the following types of bond funds tends to have the highest level of risk?
A) single-state municipal
B) high-yield
C) treasury
D) short-term government
E) intermediate-term corporate

A

B

45
Q

46) Renee wants to invest in a bond fund. She is a very conservative investor with a high marginal tax rate. Which one of the following types of bond funds might be most suited for her situation?
A) mortgage
B) short-term municipal
C) single-state corporate
D) long-term world
E) high-yield corporate

A

B

46
Q

47) Jack has managed to save $1,000 and wants to start investing. The financial markets make him nervous as he has very limited financial resources. Which one of the following types of funds is probably best for Jack at this time?
A) balanced
B) social conscience
C) high yield
D) aggressive growth
E) sector

A

A

47
Q

48) Which one of the following types of funds invests in both stocks and bonds and actively attempts to time the market?
A) convertible
B) income
C) balanced
D) insured
E) flexible portfolio

A

E

48
Q

49) Which one of the following types of funds is most apt to invest in preferred stocks?
A) world
B) balanced
C) income
D) insured
E) index

A

C

49
Q

50) Besides size, how else does a mutual fund style box classify equity funds?
A) short and long-term rates of return
B) age of the fund
C) cost and fees as a percent of NAV
D) value versus growth characteristics
E) taxability at federal, state, and local levels

A

D

50
Q

51) Letter grades are most frequently assigned to mutual funds based on the fund’s:
A) investment objective.
B) historical rates of return.
C) management style.
D) projected future returns.
E) portfolio size.

A

B

51
Q

52) Trading symbols for mutual funds end in which letter?
A) M
B) X
C) F
D) Z
E) Q

A

B

52
Q

53) While reviewing mutual fund reports, Allen noticed that a fund was reported as “closed”. What is the primary reason for closing a fund?
A) the NAV has declined noticeably
B) the fund has grown too large in size
C) the fund is suffering a loss
D) all issued shares have been sold
E) the fund is underperforming its peers

A

B

53
Q

54) You recently purchased a fund at a price of $39.97 per share. The NAV at the time of purchase was $40.67. You must have purchased a(n) ________ fund.
A) bond
B) index
C) asset allocation
D) global
E) closed-end

A

E

54
Q

55) Which one of the following is a common characteristic of a closed-end fund but not of an open-end fund?
A) discounted price
B) taxable distributions
C) annual fees
D) professional management
E) stated objective

A

A

55
Q

56) If you purchase shares in a closed-end fund at the initial offer price, you should expect to:
A) receive offers to purchase your shares at a premium prior to the official first day of trading.
B) immediately see a decrease in the value of yourinvestment.
C) realize a capital gain if you sell your shares as soon as trading in the shares
commences.
D) earn an abnormally high rate of return the first year.
E) earn tax-advantaged income.

A

B

56
Q
A

FIN 220 (8 decks)

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