Part 1 Practice Test Questions-Based On Facts

Question 1

The first ETF began in ___

Answer 1

1993 or 1995 if you ask IBF

Question 2

a mutual fund’s financial highlights table contains information for the past ___.

Answer 2

10 years or less if the mutual fund is younger

Question 3

Today, the average equity REIT has a ____ return correlation with the S&P 500.

Answer 3

moderately positive correlation (between .5-.7 appx)

Question 4

FINRA does not permit mutual fund sales loads to exceed ___.

Answer 4

8.5%

Question 5

Mutual funds generally list only their top ___ holdings.

Answer 5

10

Question 6

Equities include which of the following (1) stocks, (2) commodities, (3) collectibles, and/or (4) real estate.

Answer 6

Only stocks and real estate if in REITs

Question 7

Over the past 90-100 years-if the S&P 500 has averaged about 10% a year, how much of the 10% annualized return can be attributed to dividends?

Answer 7

about 40% … at least that’s possible to be deduced from p. 9

Question 8

The vast majority of mutual fund sources use ___ to report fund turnover.

Answer 8

simple average turnover rate

Question 9

Current SEC rules require that independent mutual fund board members make up at least ___ of the board.

Answer 9

40%

Question 10

A fund’s turnover ratio is calculated by taking the ___ purchases or sales, and dividing that number by average ___ net assets.

Answer 10

lesser of; monthly

Question 11

In 1981, the prime interest rate in the U.S. peaked at ___. This was the highest rate seen in the past ___ years.

Answer 11

21.5%; 100

Question 12

The P/E for a stock is computed by dividing the price of a stock (the “P”) by the company’s annual earnings per share (the “E”). If a stock is trading at $20 per share and its earnings per share are $1, then the stock has a P/E of ___

Answer 12

20 ($20/$1).

Question 13

A financial writer (Kopcke) found average annual trading costs for the lowest quintile of funds with the lowest costs to be ___ of assets annually.

Answer 13

.11%

Question 14

The current price per square foot for U.S. homes for sale is roughly ___.

Answer 14

$233 according to Rocket Mortgage, but no options on practice test are close to this as of 10/28/24

Question 15

From its then October 2007 peak to its March 2009 trough, the S&P 500 lost ___.

Answer 15

51% according to Practice test options … but closer to the mid/high 50s according to other sources.

Question 16

Average annual turnover for EQUITY funds is approximately ___.

Answer 16

100%

Question 17

There are 6 possible 1-time fees for a mutual fund.
1) ___ sales charge/load on purchases
2) ____ sales charge (charged for redeeming shares before a certain point)
3) ____ fee (these are capped at 2% and meant to make sure brokers get paid)
4) ___ fee (generic fee to defer costs for the fund)
5) ___ fee (charged for shareholders transferring to a fund within the same family; usually around $5-$10)
6) ___ fee ($10-$25 per year usually for shareholders having below a certain amount in a fund)

Answer 17

1) Front end
2) Back end/Deferred
3) Redemption
4) Purchase
5) Exchange
6) Account

Question 18

Over the past 90+ years, the stock market’s P/B ratio has ranged from ___.

Answer 18

< 1 to 8

Question 19

___ is unique among all mutual fund families because any and all profit goes right back to its shareholders (fund investors).

Answer 19

Vanguard

Question 20

There are 3 broad categories of REITs.
1) ___ REITs are composed of income-producing real estate
2) ___ REITs tend to be more leveraged.
3) ___ REITs are self-explanatory.

Answer 20

1) Equity
2) Mortgage
3) Hybrid

Question 21

A mutual fund’s financial highlights table can be found in the ___

Answer 21

prospectus

Question 22

From 1926-2019, $1 inflated to ___.

Answer 22

$14.44 according to Fed … or $15 on test.

Question 23

Excluding the fund itself, where else can you download a fund’s SAI?

Answer 23

EDGAR-the SEC’s Electronic Data Gathering And Retrieval system

Question 24

From 1972-2018, $10,000 invested in the S&P 500 or equity REITs grew to ___.

Answer 24

$2.2 million plus

Question 25

According to Morningstar’s 2020 U.S. Fund Fee Study, the average asset-weighted expense ratio of mutual funds has ___.

Answer 25

fell to 0.41% in 2020 from 0.93% in 2000.

Question 26

How many ways is a fund’s turnover ratio commonly calculated?

Answer 26

There are three commonly used ways to calculate turnover: simple average, median, and asset-weighted.
The simple average turnover rate is what the vast majority of sources use when reporting turnover

Question 27

All money market funds must have virtually all of their assets in fixed income securities maturing in ___ or less.

Answer 27

60 days

Question 28

A mutual fund is either a ___ or ___ or ____.

Answer 28

corporation; trust; partnership

Question 29

What does a fund’s statement of additional information contain that is NOT also detailed in the fund’s prospectus?

Answer 29

amount of brokerage fees paid (when fund positions change)

Question 30

Mutual funds are permitted to list ___, plus any affiliate holdings representing >1% of the portfolio.

Answer 30

only their top 50 holdings

Question 31

What is the most popular investment in the U.S., as measured by a percentage of net worth?

Answer 31

real estate

p. 13

Question 32

The average mutual fund chief investment officer makes ___ per year.

Answer 32

$260,000

Question 33

A fund averaging a 10% gross annual return and annual expenses of 1.00% would grow to ___ after 20 years, assuming a $10,000 initial investment.

Answer 33

$56,044

Question 34

A mutual fund’s standardized fee table is found toward the beginning of the ___.

Answer 34

prospectus

Question 35

The four MOST COMMON types of equity REITs are
1) ___ buildings
2) r____________
3) regional ___
4) ____ centers

But TEXT also lists “THE 3 TYPES of REITs are e____, m____, and h____.”

Answer 35

1) office
2) residential (apartments)
3) malls
4) shopping

equity; mortgage; hybrid

Question 36

Since the 1950s, the 2 best-returning decades have been the 1950s ( ___ annualized) and the 1990s ( ___ annualized).

Answer 36

18.2%; 17.6%

Question 37

A mutual fund’s financial highlights table can be found in the ___.

Answer 37

prospectus.

Question 38

September 2010 was the 3nd time cotton traded for > $1 a pound since ___.

Answer 38

the Civil War

Question 39

You can find a fund’s turnover ratio in the ___.

Answer 39

financial highlights table which is inside the prospectus and inside the latest financial statement

Question 40

Close to ___ of all American families own a home.

Answer 40

2/3

Question 41

The typical large cap mutual fund holds stocks with an average market capitalization of ___

Answer 41

$10+ billion

Question 42

There is a/an ___ relationship between a bond’s current value and interest rate changes.

Answer 42

inverse

Question 43

A mutual fund’s published expense ratio includes which of the following: (1) management fee, (2) admin fees, and/or (3) any 12b-1 fee.

Answer 43

All of 1-3

Question 44

Looking at a table of long-term returns for the FHFA (single-family home index) vs. a REIT index, it is easy to conclude ___.

Answer 44

equity REITs have done better

Question 45

Over the past 90+ years, the stock market’s P/E ratio (as measured by the S&P 500) has ranged from ___.

Answer 45

6-120 https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart

Question 46

According to Dalbar, over the past 20 years, fund investors held shares for ___.

Answer 46

2-4 years according to page 13

Question 47

Who oversees most mutual fund distribution activities?

Answer 47

the SEC

Question 48

If a fund charges an exchange fee, such a fee is typically ___.

Answer 48

$5-10

Question 49

Another name for return correlation is ____.
From 1976-2022, the return correlation between equity REITs and the S&P 500 ranged from ____.

Answer 49

serial correlation.

20-85%.

Question 50

The first large oil field in Pennsylvania resulted in oil selling for $20 a barrel over 100 years ago. The next year, the per barrel oil price dropped to ___.

Answer 50

10 cents a barrel.

Question 51

Current tax law requires capital gains dividends to be declared prior to _____ and distributed by _____.
Capital gains distributions are ____ in the year declared.

Answer 51

December 31; January 31 of the following year

taxable to shareholders

Question 52

Total return figures are net of expenses but do not normally show ____

Answer 52

the impact of front-end loads or any redemption fees. p.56

Question 53

From 1926 through 2018, $1 invested in the S&P 500 grew to ___.

Answer 53

$6,759

Question 54

Of the 20 largest mutual fund companies, ___ is/are charging less on an asset-weighted basis than they were 15 years ago.

Answer 54

5

Question 55

Another name for arithmetic mean is ___.

Answer 55

simple average

Question 56

The Guess Right Ratio is associated with ___.

Answer 56

Dalbar

Question 57

Corporate earnings are ___

Answer 57

not particularly stable. P. 8