Question 1

______ are subject to the Securities act of 1933 and the Investment Company Act of 1940 to protect unsophisticated investors.

Accepted Answer

A)  Hedge funds 
B)  Mutual funds 
C)  ADRs 
D)  A and C 
E)  B and C 
A)  Hedge funds 
B)  Mutual funds 
C)  ADRs 
D)  A and C 
E)  B and C B

Question 2

Jargon Rapid Growth is a mutual fund that has traditionally accepted funds from new investors and issued new shares at net asset value.Jeremy Jargon manages the fund himself and has become concerned that its level of assets has become too high for his management abilities.He issues a statement that Jargon will no longer accept funds from new investors,but will continue to accept additional investments from current shareholders.Which of the following is true about Jargon Rapid Growth fund?

Accepted Answer

A)  Jargon used to be an open-end fund but has now become a closed-end fund. 
B)  Jargon has always been an open-end fund and will remain an open-end fund. 
C)  Jargon has always been a closed-end fund and will remain a closed-end fund. 
D)  Jargon is an open-end fund but would change to a closed-end fund if it wouldn't accept additional funds from current investors. 
E)  Jargon is violating SEC policy by refusing to accept new investors. 
A)  Jargon used to be an open-end fund but has now become a closed-end fund. 
B)  Jargon has always been an open-end fund and will remain an open-end fund. 
C)  Jargon has always been a closed-end fund and will remain a closed-end fund. 
D)  Jargon is an open-end fund but would change to a closed-end fund if it wouldn't accept additional funds from current investors. 
E)  Jargon is violating SEC policy by refusing to accept new investors. B

Question 3

Explain the five major differences between hedge funds and mutual funds.

Accepted Answer

The five major categories of differences are transparency,investors,investment strategies,liquidity,and compensation structure.Mutual funds are more highly regulated by the SEC and thus are required to be far more transparent.However,hedge funds provide only minimal information about portfolio composition or strategy.Investors in hedge funds differ in that investment minimums were traditionally set at $250,000 to $1,000,000.While newer hedge funds are starting to reduce the minimum investment to $25,000,this minimum is outside the reach of many mutual fund investors.Mutual funds must provide an investment strategy and are restricted in the use of leverage,short selling,and in their use of derivatives.However,hedge funds are less restricted and frequently make large bets that can results in large losses over the short term.Mutual funds are liquid and investors can redeem shares at NAV and have proceeds within seven business days.Conversely,hedge funds often impose lock-up periods as long as several years and require redemption notices of several months even after the lock-up period is over.Thus,hedge funds a re far less liquid.While mutual funds charge a management fee,hedge funds add an incentive fee as well.This incentive fee is similar to a call option and the portfolio manager receives a "performance" bonus if the portfolio outperforms the chosen benchmark.

Question 4

Like mutual funds,hedge funds

Accepted Answer

A)  allow private investors to pool assets to be managed by a fund manager. 
B)  are commonly organized as private partnerships. 
C)  are subject to extensive SEC regulations. 
D)  are typically only open to wealthy or institutional investors. 
E)  B and D 
A)  allow private investors to pool assets to be managed by a fund manager. 
B)  are commonly organized as private partnerships. 
C)  are subject to extensive SEC regulations. 
D)  are typically only open to wealthy or institutional investors. 
E)  B and D

Question 5

Assume newly issued 30-year-on-the-run bonds sell at lower yields (higher prices)than 29 ½ year bonds with a nearly identical duration.A hedge fund that sells 29 ½ year bonds and buys 30 year bonds is taking a _____.

Accepted Answer

A)  market neutral position 
B)  conservative position 
C)  bullish position 
D)  bearish position 
E)  none of these 
A)  market neutral position 
B)  conservative position 
C)  bullish position 
D)  bearish position 
E)  none of these

Question 6

Hedge funds often have ______ provisions as long as _____,which preclude redemption.

Accepted Answer

A)  crackdown,2 months 
B)  lock-up;2 months 
C)  crackdown;several years 
D)  lock-up;several years 
E)  none of these 
A)  crackdown,2 months 
B)  lock-up;2 months 
C)  crackdown;several years 
D)  lock-up;several years 
E)  none of these

Question 7

Assume that you purchased shares of a mutual fund at a net asset value of $10.00 per share.During the year you received dividend income distributions of $0.05 per share and capital gains distributions of $0.06 per share.At the end of the year the shares had a net asset value of $8.16 per share.What was your rate of return on this investment?

Accepted Answer

A)  -18.24% 
B)  -16.1% 
C)  16.10% 
D)  -17.3% 
E)  17.3% 
A)  -18.24% 
B)  -16.1% 
C)  16.10% 
D)  -17.3% 
E)  17.3%

Question 8

Couch Potato Furniture purchased 100 shares of Natural Spring mutual fund at a net asset value of $56 per share.During the year Patty received dividend income distributions of $3.00 per share and capital gains distributions of $5.20 per share.At the end of the year the shares had a net asset value of $53 per share.What was Couch Potato's rate of return on this investment?

Accepted Answer

A)  5.43% 
B)  9.29% 
C)  7.19% 
D)  12.44% 
E)  9.91% 
A)  5.43% 
B)  9.29% 
C)  7.19% 
D)  12.44% 
E)  9.91%

Question 9

Which one of the following statements regarding closed-end mutual funds is false?

Accepted Answer

A)  The funds invest in large volumes of several securities. 
B)  The funds redeem shares at their net asset value. 
C)  The funds offer investors professional management. 
D)  a and b. 
E)  None of these. 
A)  The funds invest in large volumes of several securities. 
B)  The funds redeem shares at their net asset value. 
C)  The funds offer investors professional management. 
D)  a and b. 
E)  None of these.

Question 10

Statistical arbitrage is a version of a ______ strategy.

Accepted Answer

A)  market neutral 
B)  directional 
C)  relative value 
D)  divergence 
E)  convergence 
A)  market neutral 
B)  directional 
C)  relative value 
D)  divergence 
E)  convergence

Question 11

Hedge funds are prohibited from investing or engaging in

Accepted Answer

A)  distressed firms 
B)  convertible bonds 
C)  currency speculation 
D)  merger arbitrage 
E)  none of these 
A)  distressed firms 
B)  convertible bonds 
C)  currency speculation 
D)  merger arbitrage 
E)  none of these

Question 12

Assume that you manage a $1.3 million portfolio that pays no dividends,has a beta of 1.45 and an alpha of 1.5% per month.Also,assume that the risk-free rate is 0.025% (per month)and the S&P 500 is at 1220.If you expect the market to fall within the next 30 days you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a multiplier of $250).

Accepted Answer

A)  selling 1 
B)  selling 6 
C)  buying 1 
D)  buying 6 
E)  selling 4 
A)  selling 1 
B)  selling 6 
C)  buying 1 
D)  buying 6 
E)  selling 4

Question 13

Liquidity is:

Accepted Answer

A)  the ease with which an asset can be sold. 
B)  the ability to sell an asset for a fair price. 
C)  the degree of inflation protection an asset provides. 
D)  all of these. 
E)  both a and b. 
A)  the ease with which an asset can be sold. 
B)  the ability to sell an asset for a fair price. 
C)  the degree of inflation protection an asset provides. 
D)  all of these. 
E)  both a and b.

Question 14

Assume that at retirement you have accumulated $500,000 in a variable annuity contract.The assumed investment return is 6% and your life expectancy is 15 years.What is the hypothetical constant benefit payment?

Accepted Answer

A)  $30,000.00 
B)  $33,333.33 
C)  $51,481.38 
D)  $52,452.73. 
E)  cannot tell without additional information. 
A)  $30,000.00 
B)  $33,333.33 
C)  $51,481.38 
D)  $52,452.73. 
E)  cannot tell without additional information.

Question 15

Professional investment analysts suggest that investors should look for certain characteristics when choosing a mutual fund.These include:

Accepted Answer

A)  market timing 
B)  consistency of style 
C)  consistency of performance 
D)  a,b and c 
E)  b and c 
A)  market timing 
B)  consistency of style 
C)  consistency of performance 
D)  a,b and c 
E)  b and c

Question 16

Discuss the tax status of the major categories of institutional investors described in the text.

Accepted Answer

Mutual funds,pension plans,and endowment

Question 17

Which of the following would increase the net asset value of a mutual fund share,assuming all other things remain unchanged?

Accepted Answer

A)  an increase in the number of fund shares outstanding 
B)  an increase in the fund's accounts payable 
C)  a change in the fund's management 
D)  an increase in the value of one of the fund's stocks 
E)  a decrease in the fund's 12b-1 fee 
A)  an increase in the number of fund shares outstanding 
B)  an increase in the fund's accounts payable 
C)  a change in the fund's management 
D)  an increase in the value of one of the fund's stocks 
E)  a decrease in the fund's 12b-1 fee

Question 18

______ bias arises because hedge funds only report returns to database publishers if they want to.

Accepted Answer

A)  Survivorship 
B)  Backfill 
C)  Omission 
D)  Incubation 
E)  none of these 
A)  Survivorship 
B)  Backfill 
C)  Omission 
D)  Incubation 
E)  none of these

Question 19

A mutual fund had year-end assets of $750,000,000 and liabilities of $7,500,000.There were 40,000,000 shares in the fund at year-end.What was the mutual fund's Net Asset Value?

Accepted Answer

A)  $9.63 
B)  $18.56 
C)  $16.42 
D)  $17.87 
E)  $17.26 
A)  $9.63 
B)  $18.56 
C)  $16.42 
D)  $17.87 
E)  $17.26

Question 20

Assume that you manage a $3 million portfolio that pays no dividends,has a beta of 1.45 and an alpha of 1.5% per month.Also,assume that the risk-free rate is 0.025% (per month)and the S&P 500 is at 1220.If you expect the market to fall within the next 30 days you can hedge your portfolio by ______ S&P 500 futures contracts (the futures contract has a multiplier of $250).

Accepted Answer

A)  selling 1 
B)  selling 14 
C)  buying 1 
D)  buying 14 
E)  selling 6 
A)  selling 1 
B)  selling 14 
C)  buying 1 
D)  buying 14 
E)  selling 6

______ are subject to the Securities act of 1933 and the Investment Company Act of 1940 to protect unsophisticated investors.

Explain the five major differences between hedge funds and mutual funds.

Like mutual funds,hedge funds

Assume newly issued 30-year-on-the-run bonds sell at lower yields (higher prices)than 29 ½ year bonds with a nearly identical duration.A hedge fund that sells 29 ½ year bonds and buys 30 year bonds is taking a _____.

Hedge funds often have __ provisions as long as _,which preclude redemption.

Which one of the following statements regarding closed-end mutual funds is false?

Statistical arbitrage is a version of a ______ strategy.

Hedge funds are prohibited from investing or engaging in

Liquidity is:

Assume that at retirement you have accumulated $500,000 in a variable annuity contract.The assumed investment return is 6% and your life expectancy is 15 years.What is the hypothetical constant benefit payment?

Professional investment analysts suggest that investors should look for certain characteristics when choosing a mutual fund.These include:

Discuss the tax status of the major categories of institutional investors described in the text.

Which of the following would increase the net asset value of a mutual fund share,assuming all other things remain unchanged?

______ bias arises because hedge funds only report returns to database publishers if they want to.

A mutual fund had year-end assets of $750,000,000 and liabilities of $7,500,000.There were 40,000,000 shares in the fund at year-end.What was the mutual fund's Net Asset Value?

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

Exam 22: Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

______ are subject to the Securities act of 1933 and the Investment Company Act of 1940 to protect unsophisticated investors.

Explain the five major differences between hedge funds and mutual funds.

Like mutual funds,hedge funds

Assume newly issued 30-year-on-the-run bonds sell at lower yields (higher prices)than 29 ½ year bonds with a nearly identical duration.A hedge fund that sells 29 ½ year bonds and buys 30 year bonds is taking a _____.

Hedge funds often have ______ provisions as long as _____,which preclude redemption.

Which one of the following statements regarding closed-end mutual funds is false?

Statistical arbitrage is a version of a ______ strategy.

Hedge funds are prohibited from investing or engaging in

Liquidity is:

Assume that at retirement you have accumulated $500,000 in a variable annuity contract.The assumed investment return is 6% and your life expectancy is 15 years.What is the hypothetical constant benefit payment?

Professional investment analysts suggest that investors should look for certain characteristics when choosing a mutual fund.These include:

Discuss the tax status of the major categories of institutional investors described in the text.

Which of the following would increase the net asset value of a mutual fund share,assuming all other things remain unchanged?

______ bias arises because hedge funds only report returns to database publishers if they want to.

A mutual fund had year-end assets of $750,000,000 and liabilities of $7,500,000.There were 40,000,000 shares in the fund at year-end.What was the mutual fund's Net Asset Value?

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

Hedge funds often have __ provisions as long as _,which preclude redemption.