Chapter 17 Mutual Funds and Hedge Funds

Question 1

Approximately 25% of long-term funds are __
funds in which managers buy securities in proportions similar to those included in a specified major index
involve little research or management, which results in lower management fees and higher returns than actively managed funds

Answer 1

Index Funds

Question 2

traded on exchanges at prices determined by the market
management fees are lower than actively traded funds
unlike index funds, ETFs can be traded during the day, sold short, and purchased on margin

Answer 2

Exchange Traded Funds (ETFs)

Question 3

(a formal summary of a proposed investment), which is made available to potential investors
holds lists of the securities invested in by the funds
must be written in “plain English” instead of overly legal language (i.e., legalese)

Answer 3

Prospectus

Question 4

of a MF share is equal to the market value of the assets in the MF portfolio less liabilities divided by the number of shares outstanding

Answer 4

Net Asset Value (NAV)

Question 5

a fund for which the supply of shares is not fixed, but can increase or decrease daily with purchases and redemptions of shares

Answer 5

Open Ended Mutual Fund

Question 6

a specialized investment company that has a fixed supply of outstanding shares, but invests in the securities and assets of other firms

Answer 6

Closed end investment company

Question 7

fees related to the distribution costs of MF shares
cannot exceed 1% of average annual net assets for load funds
cannot exceed 0.25% of average annual net assets for no-load funds

Answer 7

12b-1 fee

Question 8

an MF with an up-front sales or commission charge that the investor must pay

Answer 8

Load Fund

Question 9

an MF that does not charge up-front sales or commission charges on the sale of mutual fund shares to investors

Answer 9

No Load Fund