Exam 7: Investment Companies and Exchange Traded Funds

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Many high-net-worth individuals object to using mutual funds because of the individual investor's lack of control over taxes, their lack of any input into investment decisions, and the absence of "high-touch" service. The use of ________ respond to all these limitations of mutual funds.

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

The Investment Company Institute (ICI) provides data that permit the assessment of investors to the annual expense sales including the sales charge or load.

Free

(True/False)

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Question 2

Correct Answer:

Verified

False

Mutual funds be included in different investment vehicles. Given an example and in your example discuss a nonqualified vehicle and the inclusion of a retirement plan and an education plan.

Free

(Essay)

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Question 3

Correct Answer:

Verified

Mutual funds may be included in several different investment vehicles. For example, the Vanguard S&P500 Index Fund or the Fidelity Contrafund can be sold as a standard taxable investment instrument (as a no-load fund or a class A, B, C, F, or other load fund, whichever it is). This vehicle is often referred to as a nonqualified vehicle because it does not qualify for tax advantages. The same fund can also be included in a retirement plan such as a 401(k), Roth 401(k), IRA, or Roth IRA plan. These retirement plans are called qualified plans because they qualify for tax advantages. The same fund can also be included in a 529 educational plan or a variable annuity. Each placement of these funds requires a separate portfolio on the fund family's books but the portfolios are "look-alikes" and should have approximately the same returns.

The ________ provides purchasers of new issues of securities with information regarding the issuer and, thus, helps prevent fraud.

(Multiple Choice)

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Question 4

New investors in a mutual fund may assume a tax liability even though they have no gains. Explain how this is accomplished.

(Essay)

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Question 5

Suppose that a mutual fund with 10 million shares outstanding has a portfolio with a market value of $430 million and liabilities of $30 million.

(Multiple Choice)

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Question 6

Mutual funds must distribute at least ________ of their investment income in order to avoid taxation at the fund level.

(Multiple Choice)

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Question 7

Recent SEC priorities directly affect mutual funds. Which of the below is NOT one of these?

(Multiple Choice)

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Question 8

An investment company is a financial intermediary in that it pools the funds of and uses these funds to buy .

(Multiple Choice)

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Question 9

The shares of a ________ are very similar to the shares of common stock of a corporation in that the new shares are initially issued by an underwriter for the fund and after the new issue, the number of shares remains constant.

(Multiple Choice)

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Question 10

ETFs are priced only once a day by being redeemed or offered by the fund company at NAV. On the other hand, open-ended funds are traded on an exchange and so are priced continuously throughout the day.

(True/False)

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Question 11

There are two types of costs borne by investors in mutual funds: the first cost is the shareholder fee and the second cost is the annual fund operating expense. Which of the below descriptions relate to the second cost?

(Multiple Choice)

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Question 12

The price of a share in a closed-end fund is not determined by supply and demand, so the price can fall below or rise above the net asset value per share.

(True/False)

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Question 13

A rule called " ________" or "Plain English Disclosure" was enacted on October 1, 1998, to improve the readability of the fund prospectus and other fund documents.

(Multiple Choice)

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Question 14

Describe the differences in a front-end load, a back-end load, and a level load fund.

(Essay)

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Question 15

Financial intermediaries can provide six economic functions. Which of the below is NOT one of these?

(Multiple Choice)

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Question 16

________, commonly referred to simply as mutual funds, are portfolios of securities, mainly stocks, bonds, and money market instruments.

(Multiple Choice)

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Question 17

Stock funds differ by ________.

(Multiple Choice)

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Question 18

The amount of investment needed to obtain a reduction in the sales charge is called a breakpoint.

(True/False)

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Question 19

An important feature of the '40 Act exempts any company that qualifies as a "regulated investment company" (RIC) from taxation on its gains, either from income or capital appreciation, as previously indicated. How does a fund qualify as a RIC?

(Essay)

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Question 20

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Exam 7: Investment Companies and Exchange Traded Funds

Many high-net-worth individuals object to using mutual funds because of the individual investor's lack of control over taxes, their lack of any input into investment decisions, and the absence of "high-touch" service. The use of ________ respond to all these limitations of mutual funds.

The Investment Company Institute (ICI) provides data that permit the assessment of investors to the annual expense sales including the sales charge or load.

Mutual funds be included in different investment vehicles. Given an example and in your example discuss a nonqualified vehicle and the inclusion of a retirement plan and an education plan.

The ________ provides purchasers of new issues of securities with information regarding the issuer and, thus, helps prevent fraud.

New investors in a mutual fund may assume a tax liability even though they have no gains. Explain how this is accomplished.

Suppose that a mutual fund with 10 million shares outstanding has a portfolio with a market value of $430 million and liabilities of $30 million.

Mutual funds must distribute at least ________ of their investment income in order to avoid taxation at the fund level.

Recent SEC priorities directly affect mutual funds. Which of the below is NOT one of these?

An investment company is a financial intermediary in that it pools the funds of ________ and uses these funds to buy ________.

The shares of a ________ are very similar to the shares of common stock of a corporation in that the new shares are initially issued by an underwriter for the fund and after the new issue, the number of shares remains constant.

ETFs are priced only once a day by being redeemed or offered by the fund company at NAV. On the other hand, open-ended funds are traded on an exchange and so are priced continuously throughout the day.

There are two types of costs borne by investors in mutual funds: the first cost is the shareholder fee and the second cost is the annual fund operating expense. Which of the below descriptions relate to the second cost?

The price of a share in a closed-end fund is not determined by supply and demand, so the price can fall below or rise above the net asset value per share.

A rule called " ________" or "Plain English Disclosure" was enacted on October 1, 1998, to improve the readability of the fund prospectus and other fund documents.

Describe the differences in a front-end load, a back-end load, and a level load fund.

Financial intermediaries can provide six economic functions. Which of the below is NOT one of these?

________, commonly referred to simply as mutual funds, are portfolios of securities, mainly stocks, bonds, and money market instruments.

Stock funds differ by ________.

The amount of investment needed to obtain a reduction in the sales charge is called a breakpoint.

An important feature of the '40 Act exempts any company that qualifies as a "regulated investment company" (RIC) from taxation on its gains, either from income or capital appreciation, as previously indicated. How does a fund qualify as a RIC?

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Pension Funds

Properties and Pricing of Financial Assets

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters

An investment company is a financial intermediary in that it pools the funds of and uses these funds to buy .