Question 1

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

Accepted Answer

A)  The funds offer investors professional management. 
B)  The funds do not offer investors a guaranteed rate of return. 
C)  The funds redeem shares at gross asset value. 
D)  B and C 
E)  A and B 
A)  The funds offer investors professional management. 
B)  The funds do not offer investors a guaranteed rate of return. 
C)  The funds redeem shares at gross asset value. 
D)  B and C 
E)  A and B

Question 2

What is an Exchange-traded fund? Give two examples of specific ETFs.What are some advantages they have over ordinary open-end mutual funds? What are some disadvantages?

Accepted Answer

ETFs allow investors to trade index port

Question 3

Assume that you manage a $2 million portfolio that pays no dividends,has a beta of 1.25 and an alpha of 2% per month.Also,assume that the risk-free rate is 0.05% (per month)and the S&P 500 is at 1300.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 8 
C)  buying 1 
D)  buying 8 
E)  selling 6 
A)  selling 1 
B)  selling 8 
C)  buying 1 
D)  buying 8 
E)  selling 6

Question 4

Hedge funds are ______ transparent than mutual funds because of ______ strict SEC regulation on hedge funds.

Accepted Answer

A)  more;more 
B)  more;less 
C)  less;less 
D)  less;more 
E)  none of these 
A)  more;more 
B)  more;less 
C)  less;less 
D)  less;more 
E)  none of these

Question 5

Market neutral bets can result in ______ volatility because hedge funds use _____.

Accepted Answer

A)  very low;hedging techniques to eliminate risk 
B)  low;risk management techniques to reduce risk 
C)  considerable;risk management techniques to reduce risk 
D)  considerable;considerable leverage 
E)  none of these 
A)  very low;hedging techniques to eliminate risk 
B)  low;risk management techniques to reduce risk 
C)  considerable;risk management techniques to reduce risk 
D)  considerable;considerable leverage 
E)  none of these

Question 6

Investors wishing to minimize taxes should look for funds with

Accepted Answer

A)  high turnover. 
B)  low turnover. 
C)  high dividend payout. 
D)  both a and c. 
E)  both b and c. 
A)  high turnover. 
B)  low turnover. 
C)  high dividend payout. 
D)  both a and c. 
E)  both b and c.

Question 7

Hedge funds are typically set up as ______ and provide ______ information about portfolio composition and strategy to their investors.

Accepted Answer

A)  limited partnerships;minimal 
B)  limited partnerships;extensive 
C)  investment trusts;minimal 
D)  investment trusts;extensive 
E)  none of these 
A)  limited partnerships;minimal 
B)  limited partnerships;extensive 
C)  investment trusts;minimal 
D)  investment trusts;extensive 
E)  none of these

Question 8

A bet on particular mispricing across two or more securities,with extraneous sources of risk such as general market exposure hedged away is a _____.

Accepted Answer

A)  pure play 
B)  relative play 
C)  long shot 
D)  sure thing 
E)  B and D 
A)  pure play 
B)  relative play 
C)  long shot 
D)  sure thing 
E)  B and D

Question 9

Hedge funds may invest or engage in

Accepted Answer

A)  distressed firms 
B)  convertible bonds 
C)  currency speculation 
D)  merger arbitrage 
E)  all of these 
A)  distressed firms 
B)  convertible bonds 
C)  currency speculation 
D)  merger arbitrage 
E)  all of these

Question 10

Which of the following characteristics apply to unit investment trusts?
I.Most are invested in fixed-income portfolios.
II.They are actively managed portfolios.
III.The sponsor pools securities,then sells public shares in the trust.
IV.The portfolio is fixed for the life of the fund.

Accepted Answer

A)  I and IV 
B)  I and II 
C)  I,III,and IV 
D)  I,II,and III 
E)  I,II,III,and IV 
A)  I and IV 
B)  I and II 
C)  I,III,and IV 
D)  I,II,and III 
E)  I,II,III,and IV

Question 11

Suppose that the pre-tax holding period returns on two stocks are the same.Stock A has a high dividend payout policy and stock B has a low dividend payout policy.If you are an individual in a high marginal tax bracket and do not intend to sell the stocks during the holding period,_________.

Accepted Answer

A)  stock A will have a higher after-tax holding period return than stock B 
B)  the after-tax holding period returns on stocks A and B will be the same 
C)  stock B will have a higher after-tax holding period return than stock A 
D)  it is impossible to determine which stock will have a higher after-tax holding period return given the information available 
E)  none of these 
A)  stock A will have a higher after-tax holding period return than stock B 
B)  the after-tax holding period returns on stocks A and B will be the same 
C)  stock B will have a higher after-tax holding period return than stock A 
D)  it is impossible to determine which stock will have a higher after-tax holding period return given the information available 
E)  none of these

Question 12

Lo (2201)examined up and down betas of hedge funds and concluded that up market betas were ______ down market betas.

Accepted Answer

A)  generally larger than 
B)  generally smaller than 
C)  the same size as 
D)  twice the size of 
E)  half the size of 
A)  generally larger than 
B)  generally smaller than 
C)  the same size as 
D)  twice the size of 
E)  half the size of

Question 13

Multiple Mutual Fund had year-end assets of $457,000,000 and liabilities of $17,000,000.There were 24,300,000 shares in the fund at year end.What was Multiple Mutual's Net Asset Value?

Accepted Answer

A)  $18.11 
B)  $18.81 
C)  $69.96 
D)  $7.00 
E)  $181.07 
A)  $18.11 
B)  $18.81 
C)  $69.96 
D)  $7.00 
E)  $181.07

Question 14

Hedge funds exhibit a pattern known as a

Accepted Answer

A)  January effect 
B)  Santa effect 
C)  size effect 
D)  book-to-market 
E)  none of these 
A)  January effect 
B)  Santa effect 
C)  size effect 
D)  book-to-market 
E)  none of these

Question 15

______ uses quantitative techniques and often automated trading systems to seek out many temporary misalignments among securities.

Accepted Answer

A)  Covered interest arbitrage 
B)  Locational arbitrage 
C)  Triangular arbitrage 
D)  Statistical arbitrage 
E)  All arbitrage 
A)  Covered interest arbitrage 
B)  Locational arbitrage 
C)  Triangular arbitrage 
D)  Statistical arbitrage 
E)  All arbitrage

Question 16

List and describe the more important types of mutual funds according to their investment policy and use.

Accepted Answer

Some of the more important fund types,cl

Question 17

Closed end funds are frequently issued at a ______ to NAV and subsequently trade at a __________ to NAV.

Accepted Answer

A)  discount,discount 
B)  discount,premium 
C)  premium,premium 
D)  premium,discount 
E)  No consistent relationship has been observed. 
A)  discount,discount 
B)  discount,premium 
C)  premium,premium 
D)  premium,discount 
E)  No consistent relationship has been observed.

Question 18

The typical hedge fund fee structure is

Accepted Answer

A)  a management fee of 1% to 2% 
B)  an annual incentive fee equal to 20% of investment profits beyond a stipulated benchmark performance 
C)  a 12-b1 fee of 1% 
D)  A and B 
E)  A and C 
A)  a management fee of 1% to 2% 
B)  an annual incentive fee equal to 20% of investment profits beyond a stipulated benchmark performance 
C)  a 12-b1 fee of 1% 
D)  A and B 
E)  A and C

Question 19

Hedge fund strategies can be classified as _____.

Accepted Answer

A)  directional and non-directional 
B)  stock or bond 
C)  arbitrage or speculation 
D)  B and C 
E)  A and B 
A)  directional and non-directional 
B)  stock or bond 
C)  arbitrage or speculation 
D)  B and C 
E)  A and B

Question 20

Assume that you manage a $2 million portfolio that pays no dividends,has a beta of 1.3 and an alpha of 2% per month.Also,assume that the risk-free rate is 0.05% (per month)and the S&P 500 is at 1500.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 7 
C)  buying 1 
D)  buying 7 
E)  selling 11 
A)  selling 1 
B)  selling 7 
C)  buying 1 
D)  buying 7 
E)  selling 11

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

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

What is an Exchange-traded fund? Give two examples of specific ETFs.What are some advantages they have over ordinary open-end mutual funds? What are some disadvantages?

Hedge funds are ______ transparent than mutual funds because of ______ strict SEC regulation on hedge funds.

Market neutral bets can result in ______ volatility because hedge funds use _____.

Investors wishing to minimize taxes should look for funds with

Hedge funds are typically set up as ______ and provide ______ information about portfolio composition and strategy to their investors.

A bet on particular mispricing across two or more securities,with extraneous sources of risk such as general market exposure hedged away is a _____.

Hedge funds may invest or engage in

Which of the following characteristics apply to unit investment trusts? I.Most are invested in fixed-income portfolios. II.They are actively managed portfolios. III.The sponsor pools securities,then sells public shares in the trust. IV.The portfolio is fixed for the life of the fund.

Suppose that the pre-tax holding period returns on two stocks are the same.Stock A has a high dividend payout policy and stock B has a low dividend payout policy.If you are an individual in a high marginal tax bracket and do not intend to sell the stocks during the holding period,_________.

Lo (2201)examined up and down betas of hedge funds and concluded that up market betas were ______ down market betas.

Multiple Mutual Fund had year-end assets of $457,000,000 and liabilities of $17,000,000.There were 24,300,000 shares in the fund at year end.What was Multiple Mutual's Net Asset Value?

Hedge funds exhibit a pattern known as a

______ uses quantitative techniques and often automated trading systems to seek out many temporary misalignments among securities.

List and describe the more important types of mutual funds according to their investment policy and use.

Closed end funds are frequently issued at a ______ to NAV and subsequently trade at a __________ to NAV.

The typical hedge fund fee structure is

Hedge fund strategies can be classified as _____.

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 are transparent than mutual funds because of strict SEC regulation on hedge funds.

Market neutral bets can result in __ volatility because hedge funds use _.

Hedge funds are typically set up as and provide information about portfolio composition and strategy to their investors.

Closed end funds are frequently issued at a to NAV and subsequently trade at a ____ to NAV.