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Investments > Chapter 04 > Flashcards

Chapter 04 Flashcards

1
Q

Which one of the following statements regarding open-end mutual funds is false?

A

The funds offer investors a guaranteed rate of return.

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2
Q

Which one of the following statements regarding closed-end mutual funds is false?

A

The funds always trade at a discount from NAV and redeem shares at their net asset value

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3
Q

Which of the following functions do investment companies perform for their investors?

A

All of the options

(Options being record keeping and administration, diversification and divisibility, professional management, lower transaction costs)

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4
Q

Multiple Mutual Funds had year-end assets of $457,000,000 and liabilities of $17,000,000. There were 24,300,000 shares in the fund at year-end. What was the Multiple Mutual’s net asset value?

A

$18.11

(457,000,000-17,000,000)/24,300,000

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5
Q

Growth Fund had year-end assets of $862,000,000 and liabilities of $12,000,000. There were 32,675,254 shares in the fund at year-end. What was Growth Fund’s net asset value?

A

$26.01

(862,000,000-12,000,000)/32,675,254

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6
Q

Diversified Portfolios had year-end assets of $279,000,000 and liabilities of $43,000,000. If Diversified’s NAV was $42.13, how many shares must have been held in the fund?

A

5,601,709
(279,000,000-43,000,000)/42.13 = 5,601,708.996

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7
Q

Pinnacle Fund had year-end assets of $825,000,000 and liabilities of $25,000,000. If Pinnacle’s NAV was $32.18, how many shares must have been held in the fund?

A

24,860,161.59

(825,000,000-25,000,000)/32.18

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8
Q

Most actively managed mutual funds, when compared to a market index such as the Wilshire 5000

A

do not outperform the market

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9
Q

Pools of money invested in a portfolio that is fixed for the life of the fund are called

A

unit investment trusts

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10
Q

Investors in closed-end. funds who wish to liquidate their positions must

A

sell their shares through a broker

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11
Q

Closed end funds are frequently issued at a … to NAV and subsequently traded at a … to NAV.

A

premium, discount

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12
Q

At issue, offering prices of open-end funds will often be

A

greater than NAV due to loads and commissions

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13
Q

Which of the following statements about real estate investment trusts is true?

A

REITs invest in real estate or loans secured by real estate and raise capital by borrowing from banks and issuing mortgages

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14
Q

Which of the following statements about real estate investments trusts is true?

A

All of the options are true.

Options include: REITs may be equally trusts or mortgage trusts, REITs are usually highly leveraged, REITs are similar to closed-end funds, REITs may be equity trusts or mortgage trusts and are usually highly leveraged

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15
Q

Which of the following statements about money market mutual funds is true

A

They invest in commercial paper, CDs, and repurchase agreements, an they usually offer check-writing privileges

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16
Q

Management fees and other expenses of mutual funds may include

A

front-end loads, back-end loads, and 12b-1 charges

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17
Q

The Profitability Fund had NAV per share of $17.50 on January 1, 2012. On December 31 of the same year, the fund’s NAV was $19.47. Income distributions were $0.75, and the fund had capital gain distributions of $1.00. Without considering taxes and transactions costs, what rate of return did an investor receive on the Profitability Fund last year?

A

21.26%

R = (19.47-17.50+0.75+1)/17.50

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18
Q

The Yachtsman Fund had NAV per share of $36.12 on January 1, 2012. On December 31 of the same year the fund’s NAV was $39.71. Income distributions were $0.64 and the fund had capital gain distributions of $1.13. Without considering taxes and transactions costs, what rate of return did an investor receive on the Yachtsman Fund last year?

A

14.84%

R = (39.71+36.12+0.64+1.13)/36.12

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19
Q

Investors’ Choice Fund had NAV per share of $37.25 on January 1, 2012. On December 31 of the same year the fund’s rate of return for the year was 17.3%. Income distributions were $1.14, and the fund had capital gain distributions of $1.35. Without considering taxes and transactions costs, what ending NAV would you calculate for Investors’ Choice?

A

$41.20

0.173 = (P-37.25 + 1.14 + 1.35) / 37.25

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20
Q

Which of the following is not an advantage of mutual funds?

A

They treat income as “passed through” to the investor for tax purposes

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21
Q

Which of the following would increase the net asset value of a mutual fund share, assuming all other things remain unchanged?

A

An increase in the value of one of the fund’s stocks

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22
Q

Which of the following characteristics apply to unit investment trusts?

I) Most are invested in fixed-income portfolios
II) They are actively managed portfolios
III) The sponsor pools securities, then sells public shares in the trust.
IV) The portfolio is fixed for the life of the fund

A

I, III and IV

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23
Q

Jargon Rapid Growth is a mutual fund that has traditionally accepted funds from new investors and issued new shares at net asset value. Jeremy Jargon manages the fund himself and has become concerned that its level of assets has become too high for his management abilities. He issues a statement that Jargon will no longer accept funds from new investors, but will continue to accept additional investments from current shareholders. Which of the following is true about Jargon Rapid Growth fund?

A

Jargon used to be an open-end fund but has now become a closed-end fund

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24
Q

Commingled funds are

A

Partnerships of investors that pool their funds, which are then managed for a fee

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25
Q

Which of the following is true regarding equity mutual funds?

I) They invest primarily in stock
II) They may hold fixed-income securities as well as stock
III) Most hold money market securities as well as stock
IV) Two types of equity funds are income funds and growth funds

A

I, II, III, and IV

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26
Q

The fee that mutual funds use to help pay for advertising and promotional literature is called a

A

12b-1 fee

27
Q

Patty O’Furniture purchased 100 shares of Green Isle mutual fund at a net asset value of $42 per share. During the year Patty received dividend income distributions of $2.00 per share and capital gains distributions of $4.30 per share. At the end of the year the shares had a net asset value of $40 per share. What was Patty’s rate of return on this investment?

A

10.24%

R = (40-42+2+4.3)/42

28
Q

Assume that you purchased 200 shares of Super Performing mutual fund at a net asset value of $21 per share. During the year you received dividend income distributions of $1.50 per share and capital gains distributions of $2.85 per share. At the end of the year the shares had a net asset value of $23 per share. What was your rate of return on this investment?

A

30.24%

R = (23-21+1.5+2.85)/21

29
Q

Assume that you purchased shares of High Flying mutual fund at a net asset value of $12.50 per share. During the year you received dividend income distributions of $0.78 per share and capital gains distributions of $1.67 per share. At the end of the year the shares had a net asset value of $13.87 per share. What was your rate of return on this investment?

A

30.56%

R = (13.87-12.50+0.78+1.67)/12.50

30
Q

Assume that you purchased shares of a mutual fund at a net asset value of $14.50 per share. During the year you received dividend income distributions of $0.27 per share and capital gains distributions of $0.65 per share. At the end of the year the shares had a net asset value of $13.74 per share. What was your rate of return on this investment?

A

1.10%

R = (13.74-14.50+0.27+0.65)/14.50

31
Q

Assume that you purchased shares of a mutual fund at a net asset value of $10.00 per share. During the year you received dividend income distributions of $0.05 per share and capital gains distributions of $0.06 per share. At the end of the year the shares had a net asset value of $8.16 per share. What was your rate of return on this investment?

A

-17.3%

R = (8.16-10.00+0.05+0.06)/10

32
Q

A mutual fund had year-end assets of $560,000,000 and liabilities of $26,000,000. There were 23,850,000 shares in the fund at year-end. What was the mutual fund’s net asset value?

A

$22.39

(560,000,000-26,000,000)/23,850,000

33
Q

A mutual fund had year-end assets of $250,000,000 and liabilities of $4,000,000. There were 3,750,000 shares in the fund at year-end. What was the mutual fund’s net asset value?

A

$65.60

(250,000,000-4,000,000)/3,750,000

34
Q

A mutual fund had year-end assets of $700,000,000 and liabilities of $7,000,000. There were 40,150,000 shares in the fund at year-end. What was the mutual fund’s net asset value?

A

$17.26

(700,000,000-7,000,000)/40,150,000

35
Q

A mutual fund had year-end assets of $750,000,000 and liabilities of $7,500,000/ There were 40,000,000 shares in the fund at year-end. What was the mutual fund’s net asset value?

A

$18.56

(750,000,000-7,500,000)/40,000,000

36
Q

A mutual fund had year-end assets of $465,000,000 and liabilities of $37,000,000. If the fund NAV was $56.12, how many shares must have been held in the fund?

A

7,626,515

(465,000,000-37,000,000)/56.12

37
Q

A mutual fund had year-end assets of $521,000,000 and liabilities of $63,000,000. If the fund NAV was $26.12, how many shares must have been held in the fund?

A

17,534,456

(521,000,000-63,000,000)/26.12

38
Q

A mutual fund had year-end assets of $327,000,000 and liabilities of $46,000,000. If the fund NAV was $30.48, how many shares must have been held in the fund?

A

9,219,160

(327,000,000-46,000,000)/30.48

39
Q

A mutual fund had year-end assets of $437,000,000 and liabilities of $37,000,000. If the fund NAV was $60.12, how many shares must have been held in the fund?

A

6,653,360

(437,000,000-37,000,000)/60.12

40
Q

A mutual fund had NAV per share of $19.00 on January 1, 2012. On December 31 of the same year the fund’s NAV was $19.14. Income distributions were $0.57 and the fund had capital gain distributions of $1.12. Without considering taxes and transactions costs, what rate of return did an investor receive on the fund last year?

A

9.63%

R = (19.14-19.00 + 0.57 + 1.12)/19.00

41
Q

A mutual fund had NAV per share of $23.00 on January 1, 2012. On December 31 of the same year the fund’s NAV was $23.15. Income distributions were $0.63 and the fund had capital gain distributions of $1.26. Without considering taxes and transactions costs, what rate of return did an investor receive on the fund last year?

A

8.87%

R = (23.15 - 23.00 + 0.63 + 1.26)/23.00

42
Q

A mutual fund had NAV per share of $26.25 on January 1, 2012. On December 31 of the same year the fund’s rate of return for the year was 16.4%. Income distributions were $1.27 and the fund had capital gain distributions of $1.85. Without considering taxes and transactions costs, what ending NAV would you calculate?

A

$27.44

0.164 = (P-26.25 + 1.27 + 1.85)/26.25

43
Q

A mutual fund had NAV per share of $16.75 on January 1, 2012. On December 31 of the same year the fund’s rate of return for the year was 26.6%. Income distributions were $1.79 and the fund had capital gain distributions of $2.80. Without considering taxes and transactions costs, what ending NAV would you calculate?

A

$16.62

0.266 = (P - 16.75 + 1.79 + 2.80) / 16.75

44
Q

A mutual fund had NAV per share of $36.15 on January 1, 2012. On December 31 of the same year the fund’s rate of return for the year was 14.0%. Income distributions were $1.16 and the fund had capital gain distributions of $2.12. Without considering taxes and transactions costs, what ending NAV would you calculate?

A

$37.93

0.14 = (P-36.15 + 1.16 + 2.12) / 36.15

45
Q

A mutual fund had NAV per share of $37.12 on January 1, 2012. On December 31 of the same year the fund’s rate of return for the year was 11.0%. Income distributions were $2.26 and the fund had capital gain distributions of $1.64. Without considering taxes and transactions costs, what ending NAV would you calculate?

A

$37.50

0.11 = (P - 37.12 + 2.26 + 1.64) / 37.12

46
Q

Differences between hedge funds and mutual funds are that

A

All of the options

Options include: hedge funds are only subject to minimal SeC regulation, hedge funds are typically open only to wealthy or institutional investors, hedge fund managers can pursue strategies not available to mutual funds, such as short selling, heavy use of derivatives, and leverage, hedge funds are common structured as private partnerships

47
Q

Of the following types of mutual funds, an investor who wishes to invest in a diversified portfolio of stocks worldwide (including the US) should choose

A

global funds

48
Q

Of the following types of mutual funds, an investor who wishes to invest in a diversified portfolio of foreign stocks (excluding the US) should choose

A

international funds

49
Q

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the S&P 500 should choose

A

SPY

50
Q

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the Dow Jones Industrials should choose

A

DIA

51
Q

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that racks the Nasdaq 100 should choose

A

QQQQ

52
Q

Of the following of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the Russell 2000 should choose

A

IWM

53
Q

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the Wilshire 5000 should choose

A

VTi

54
Q

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the MSCI Japan Index should choose

A

EWJ

55
Q

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the MSCI France Index should choose

A

EWQ

56
Q

A mutual fund had average daily assets of $3.0 billion in 2012. The fund sold $600 million worth of stock and purchased $700 million worth of stock during the year. The fund’s turnover ratio is

A

20%

600,000,000/3,000,000.000

57
Q

A mutual fund had average daily assets of $2.0 billion in 2012. The fund sold $500 million worth of stock and purchased $600 million worth of stock during the year. The fund’s turnover ratio is

A

25%

500,000,000/2,000,000,000

58
Q

A mutual fund had average daily assets of $4.0 billion in 2012. The fund sold $1.5 billion worth of stock and purchased $1.6 billion worth of stock during the year. The fund’s turnover ratio is

A

37.5%

1,500,000,000/4,000,000,000

59
Q

A mutual fund had average daily assets of $4.7 billion in 2012. The fund sold $2.2 billion worth of stock and purchased $3.6 billion worth of stock during the year. The fund’s turnover ratio is

A

46.8%

2,200,000,000/4,700,000,000

60
Q

You purchased shares of a mutual fund at a price of $20 per share at the beginning of the year and paid a front-end load of 5.75%. If the securities in which the fund invested increased in value by 11% during the year, and the fund’s expense ratio was 1.25%, your return if you sold the fund at the end of the year would be

A

3.44%

{[20 x 0.9425 x (1.11-0.01250)] - 20} / 20

61
Q

You purchased shares of a mutual fund at a price of $12 per share at the beginning of the year and paid a front-end load of 4.75%. If the securities in which the fund invested increased in value by 9% during the year, and the fund’s expense ratio was 1.5%, your return if you sold the fund at the end of the year would be

A

2.39%

{[12 x 0.9525 x (1.09 - 0.015)] - 12} / 12

62
Q

You purchased shares of a mutual fund at a price of $17 per share at the beginning of the year and paid a front-end load of 5.0%. If the securities in which the fund invested increased in value by 12% during the year, and the fund’s expense ratio was 1.0%, your return if you sold the fund at the end of the year would be

A

5.45%

{[17 x 0.95 x (1.12-0.01)] - 17} / 17

63
Q

You purchased shares of a mutual fund at a price of $20 per share at the beginning of the year and paid a front-end load of 6.0%. If the securities in which the fund invested increased in value by 10% during the year, and the fund’s expense ratio was 1.5%, your return if you sold the fund at the end of the year would be

A

1.99%

{[20 x 0.94 x (1.10-0.015)]-20}/20

Investments (14 decks)

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