Chapter 12 (Investment Companies)

Question 1

1. Unit investment trusts (UITs)
2. Closed-end funds (known as closed-end companies)
3. Exchange-traded funds (ETFs)
4. Mutual funds (known as open-end companies)

Answer 1

Investment Companies

Question 2

These are investment companies that combine the advantages of ETFs and regular open-end mutual funds.

However, these lack the involvement of authorized participants, who play such a significant role in supply and demand conditions in the ETF world.

Answer 2

Closed-end Funds

Question 3

These are the most common type of investment company used by investors to gain equity exposure. They are open-ended because the fund manager continually accepts new capital and continually redeems shares to the investing public, which means that total capitalization changes constantly.

Answer 3

Open-end investment companies

Question 4

NAV:

(Market Value of Assets - Market Value of Liabilities) / Total Outstanding Shares

Answer 4

Net Asset Value

Question 5

What fee covers: distribution costs, printing expenses, and compensation fees paid to brokers who sell their funds, and other shareholder services.

Potentially removes need for front-end load

Answer 5

12b-1 Fee

Question 6

These include management fees, 12b-1 fees, operating expenses, administrative fees, and other expenses based on asset size necessary to run the fund, such as rent, computer costs, and cash flows paid on borrowed securities.

Answer 6

Expense Ratio