FIN 431: CHAPTER 4

Question 1

Firm managing funds for investors. An investment company may manage several mutual funds.

Answer 1

investment company

Question 2

The value of each share expressed as assets minus liabilities on a per-share basis.

Answer 2

net asset value (NAV)

Question 3

Money invested in a portfolio whose composition is fixed for the life of the fund. Shares in a unit trust are called redeemable trust certificates, and they are sold at a premium above net asset value.

Answer 3

unit investment trust

Question 4

A fund that issues or redeems its own shares at their net asset value (NAV).

Answer 4

open-end (mutual) fund

Question 5

A fund whose shares are traded through brokers at market prices; the fund will not redeem shares at their net asset value. The market price of the fund can differ from the net asset value.

Answer 5

closed-end (mutual) fund

Question 6

Sales charge on the purchase of some mutual funds.

Answer 6

load

Question 7

A private investment pool, open to institutional or wealthy investors, that is largely exempt from SEC regulation and can pursue more speculative policies than mutual funds.

Answer 7

hedge fund

Question 8

Hedge funds that invest in several other hedge funds.

Answer 8

funds of funds

Question 9

Annual fees charged by a mutual fund to pay for marketing and distribution costs.

Answer 9

12b-1 fees

Question 10

The value of research services that brokerage houses supply to investment managers “free of charge” in exchange for the investment managers’ business.

Answer 10

soft dollars

Question 11

The ratio of the trading activity of a portfolio to the assets of the portfolio.

Answer 11

turnover

Question 12

Offshoots of mutual funds that allow investors to trade portfolios of securities just as they do shares of stock.

Answer 12

exchange-traded funds (ETFs)