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S7 > Ch. 9 S7 > Flashcards

Ch. 9 S7 Flashcards

1
Q

Into what does a growth fund invest?

A

Common stock

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2
Q

What terms are synonymous with a mutual funds NAV?

A

Bid price or Redemption price

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3
Q

When a fund distributed a capital gain, is it the funds or the shareholders holding period that is considered?

A

The funds holding period is used to determine whether long term or short term

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4
Q

What is a funds net investment income?

A

Dividends ➗ interest -expenses

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5
Q

T/F: Investors can buy fractional shares of a mutual fund.

A

T; investors are not required to purchase full shares of a mutual fund

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6
Q

If $25,000 is invested in an inverse ETF, what is the value of the market rises by 5% on day 1, then drops 10% on day 2?

A

Day 1: $25,000 x .95= $23,750
Day 2: $23,750 x 1.10= $26,125

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7
Q

T/F: the market price of closed end shares could be higher, lower, or equal to the NAV.

A

T; shares can trade at a premium or discount to NAV based on supply and demand forces

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8
Q

T/F: mutual fund shares may be purchased and sold in the secondary market.

A

F; mutual funds are always considered new issues and are bought and sold through the fund

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9
Q

A ___________ fund is one that invests in a specific industry or geographic region.

A

Sector or specialized

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10
Q

Funds offer ___________ to allow buyers to add all purchases made from a fund family to reduce sales charge.

A

Rights of Accumulation

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11
Q

To calculate the sales charge percentage for a mutual fund, the formula is: (_______ - _______) ➗_________

A

(POP -NAV) ➗ POP

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12
Q

May closed end funds issue more than one type of security?

A

Yes, closed end funds may issue common stock, preferred stock, or bonds

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13
Q

Identify the acronym: UIT

A

Unit Investment Trust

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14
Q

Define breakpoint.

A

Dollar levels of investment purchases that qualify for a reduced sales charge

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15
Q

T/F: Promoting the purchase of certain fund shares due to an impending dividend payment is acceptable.

A

F; selling dividends is prohibited. Since the dividend is imbedded in the share price, there is no monetary benefit.

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16
Q

What is the annual fee levied against a funds assets and used to pay expenses of commissions and retail communications?

A

12b-1 fee

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17
Q

T/F: To lower sales charges, investors add mutual fund purchases in all accounts using Rights of Accumulation.

A

T; however, the purchases must all be from the same fund family.

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18
Q

T/F: Regulated investment companies (under subchapter m) may relieve their burden of paying tax on income.

A

T; regulates investment companies will only be taxed on the income retained

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19
Q

Identify the acronym: POP

A

Public offering price

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20
Q

A fund distributes a gain on shares held for 3 years Joe has owned the fund shares for 6 months. How is Joes gain taxed?

A

As a long term capital gain, since the fund held the shares for three years. Joes holding period is irrelevant

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21
Q

Identify the acronym: NAV

A

Net asset value

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22
Q

What are three distinct advantages to investing in an open end investment company?

A
  1. Diversification, 2. Professional management, and 3. Liquidity
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23
Q

What funds are similar to an index fund, but trade in the secondary market like stock?

A

ETFs

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24
Q

A fund whose portfolio is created to mirror the composition of a particular index is referred to as an _______ fund.

A

Index

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25
T/F: ETFs are marginable and my be sold short.
True
26
An investor has been purchasing mutual fund shares using dollar cost averaging. Is she guaranteed against loss?
No, the market may never recover
27
A Regulated Investment Company’s net investment income will ultimately be taxed to the ___________.
Shareholders
28
Is a letter of intent binding on the investor?
No, however it is binding on the investment company
29
What are the three different types of investment companies?
FAC, UIT, management companies
30
Describe a typical index funds expenses and management style.
The expenses are generally low and it is passively managed
31
Identify the acronym: SAI
Statement of Additional Information
32
Does a UIT have a BOD?
No, these entities are supervised by a board of trustees
33
What does the following quote indicate about the fund? NAV: $9.20 POP: $9.20
It’s a no-load fund
34
What are the requirements for being considered a Regulated Investment Company?
The fund must be a domestic company that distributes at least 90% of its net investment income
35
Is a redemption fee the same as a CDSC?
No the CDSC is a sales charge, not a fee
36
When do most mutual funds calculate their NAV?
4pm ET, when the markets close
37
What price is paid for mutual fund shares?
The POP (POP=NAV+Sales Charge)
38
Identify the acronym: FAC
Face Amount Certificate
39
According to industry rules, _____% is the maximum sales charge on mutual funds.
8.5%
40
A _________ is a type of investment company which has a fixed portfolio of securities and is supervised, not managed.
UIT
41
Is a UIT considered managed or unmanaged?
Unmanaged, since the holdings are supervised as opposed to actively managed
42
What are some of the advantages of investing in open end investment companies (mutual funds)?
Diversification, professional management, liquidity, and ability to reduce sales charge.
43
Describe DCA.
DCA involves investing a fixed-dollar amount at regular intervals, regardless of the price of the asset
44
T/F: Custodian banks provide investment management service to a fund.
F; custodian banks provide safe keeping for a funds cash and securities
45
Identify the acronym: POP
Public offering price
46
Letters of intent may be back dated for ______ days.
90 days
47
If the ahi-Tech fund has a NAV of $4.25 and a POP of $4.50, what is its sales charge percentage?
5.5% ($4.50-$4.25= $.25/$4.50=5.5%)
48
A mutual funds POP= _____ + _________
POP= NAV + Sales charge
49
T/F: if a mutual fund investor chooses to reinvest dividends, taxes will be deferred.
F
50
A funds management fee is typically calculated based on a percentage of __________.
AUM
51
If the Green Fund has a NAV of $12.70 and a sales charge of 5.5%, what is the POP?
$13.44= $12.70/94.5
52
_____________ is the balancing of investment classes according to an investors investment objectives.
Asset allocation
53
Letters of intent are valid for _______ months.
13 months
54
What do the difference in mutual fund share classes represent?
The different methods by which the sales charge is collected
55
Sales charge is always expressed as a percentage of the _________.
POP
56
What restrictions exist in describing a fund as no load?
It may have no-front end or deferred sales charge, and a 12b-1 fee cannot exceed .25%
57
Since mutual funds are considered primary market issues, they must be sold by _________.
Prospectus
58
Is a mutual funds redemption fee considered a sales charge?
No, since it does not go to selling brokers, but rather stays within the fund
59
T/F: A breakpoint sale is a prohibitive action of selling shares at just under where breakpoints are available.
T
60
Are mutual funds considered marginable securities?
No, investors must pay 100% of the purchase price.
61
What is the formula for determining the number of shares able to be purchased when reaching a breakpoint?
Dollars invested ➗ newly calculated offering price (based on the reduced sales charge)
62
If $25,000 is invested in an inverse ETF, what is the value of the market drops 10% on day 1, and rises 10% on day 2?
Day 1: $25,000 x 1.10= $27,500 Day 2: $27,500 x .90= $24,750
63
Identify the acronym: ETF
Exchange Traded Fund
64
After the initial offering, where are share last of a closed end management company purchased?
In the secondary market
65
To calculate the POP for a mutual fund, the formula is: ________➗(_______-_______)
NAV ➗ (100 - Sales charge)
66
Identify the acronym: CDSC
Contingent Deferred Sales Charge
67
What price is paid for closed end management company shares?
Market price plus a commission

S7 (18 decks)

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