Portfolio Management - Questions

Question 1

Compared to exchange-traded funds (ETFs), open-end mutual funds are typically associated with lower:

A)
brokerage costs.

B)
minimum investment amounts.

C)
management fees

Answer 1

A

Explanation
Open-end mutual funds do not have brokerage costs, as the shares are purchased from and redeemed with the fund company. Minimum investment amounts and management fees are typically higher for mutual funds. (Module 61.2, LOS 61.f)

Question 2

Private equity and venture capital funds:

A)
expect that only a small percentage of investments will pay off.

B)
play an active role in the management of companies.

C)
restructure companies to increase cash flow.

Answer 2

B
Explanation
Private equity and venture capital funds play an active role in the management of companies. Private equity funds other than venture capital expect that the majority of investments will pay off. Venture capital funds do not typically restructure companies. (Module 61.2, LOS 61.f)

Question 3

Hedge funds most likely:

A)
have stricter reporting requirements than a typical investment firm because of their use of leverage and derivatives.
Incorrect Answer
B)
hold equal values of long and short securities.
Incorrect Answer
C)
are not offered for sale to the general public.
Correct Answer

Answer 3

C

Explanation
Hedge funds may not be offered for sale to the general public; they can be sold only to qualified investors who meet certain criteria. Hedge funds that hold equal values of long and short securities today make up only a small percentage of funds; many other kinds of hedge funds exist that make no attempt to be market neutral. Hedge funds have reporting requirements that are less strict than those of a typical investment firm. (Module 61.2, LOS 61.f)