Deck 4: Mutual Funds and Other Investment Companies

Question 1

Which of the following statements about real estate investment trusts is true?

A) REITs invest in real estate or loans secured by real estate.
B) REITs raise capital by borrowing from banks and issuing mortgages.
C) REITs are similar to open-end funds, with shares redeemable at NAV.
D) REITs invest in real estate or loans secured by real estate and raise capital by borrowing from banks and issuing mortgages.
E) All of the options are true.

Answer 1

D

Question 2

In 2018, the proportion of mutual funds (based on total assets) specializing in money market securities was

A) 21.7%.
B) 28.0%.
C) 54.1%.
D) 73.4%.
E) 15.2%.

Answer 2

E

Question 3

At issue, offering prices of open-end funds will often be

A) less than NAV due to loads.
B) greater than NAV due to loads.
C) less than NAV due to limited demand.
D) greater than NAV due to excess demand.
E) less than or greater than NAV with no apparent pattern.

Answer 3

B

Question 4

Which of the following functions do investment companies perform for their investors?

A) Record keeping and administration
B) Diversification and divisibility
C) Professional management
D) Lower transaction costs
E) All of the options.

Question 5

Diversified Portfolios had year-end assets of $279,000,000 and liabilities of $43,000,000. If Diversified's NAV was $42.13, how many shares must have been held in the fund?

A) 43,000,000
B) 6,488,372
C) 5,601,709
D) 1,182,203

Question 6

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

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

Question 7

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

A) The funds always trade at a discount from NAV.
B) The funds redeem shares at their net asset value.
C) The funds offer investors professional management.
D) The funds always trade at a discount from NAV and redeem shares at their net asset value.
E) None of the options are correct.

Question 8

Most actively-managed mutual funds, when compared to a market index such as the Wilshire 5000,

A) beat the market return in all years.
B) beat the market return in most years.
C) exceed the return on index funds.
D) do not outperform the market.

Question 9

The Profitability Fund had NAV per share of $17.50 on January 1, 2018. On December 31 of the same year, the fund's NAV was $19.47. Income distributions were $0.75, and the fund had capital gain distributions of $1.00. Without considering taxes and transactions costs, what rate of return did an investor receive on the Profitability Fund last year?

A) 11.26%
B) 15.54%
C) 16.97%
D) 21.26%
E) 9.83%

Question 10

Pinnacle Fund had year-end assets of $825,000,000 and liabilities of $25,000,000. If Pinnacle's NAV was $32.18, how many shares must have been held in the fund?

A) 21,619,346.92
B) 22,930,546.28
C) 24,860,161.59
D) 25,693,645.25

Question 11

In 2018, the proportion of US hybrid (bond and stock) mutual funds (based on total assets) was

A) 21.7%.
B) 28.0%.
C) 54.1%.
D) 8.1%.
E) 22.6%.

Question 12

Which of the following statements about real estate investment trusts is true?

A) REITs may be equity trusts or mortgage trusts.
B) REITs are usually highly leveraged.
C) REITs are similar to closed-end funds.
D) REITs may be equity trusts or mortgage trusts and are usually highly leveraged.
E) All of the options are true.

Question 13

Growth Fund had year-end assets of $862,000,000 and liabilities of $12,000,000. There were 32,675,254 shares in the fund at year end. What was Growth Fund's net asset value?

A) $28.17
B) $25.24
C) $19.62
D) $26.01
E) $21.56

Question 14

In 2018, the proportion of mutual funds (based on total assets) specializing in bonds was

A) 21.7%.
B) 28.0%.
C) 54.1%.
D) 73.4%.
E) 63.5%.

Question 15

Pools of money invested in a portfolio that is fixed for the life of the fund are called

A) closed-end funds.
B) open-end funds.
C) unit investment trusts.
D) REITS.
E) redeemable trust certificates.

Question 16

In 2018, the proportion of US mutual funds (based on total assets) specializing in common stocks was

A) 21.7%.
B) 28.0%.
C) 55.0%.
D) 73.4%.
E) 63.5%.

Question 17

Investors in closed-end funds who wish to liquidate their positions must

A) sell their shares through a broker.
B) sell their shares to the issuer at a discount to net asset value.
C) sell their shares to the issuer at a premium to net asset value.
D) sell their shares to the issuer for net asset value.
E) hold their shares to maturity.

Question 18

Which of the following statements about money market mutual funds is true?

A) They invest in commercial paper, CDs, and repurchase agreements.
B) They usually offer check-writing privileges.
C) They are highly leveraged and risky.
D) They invest in commercial paper, CDs, and repurchase agreements, and they usually offer check-writing privileges.
E) All of the options are true.

Question 19

Management fees and other expenses of mutual funds may include

A) only front-end loads.
B) onlyback-end loads.
C) only 12b-1 charges.
D) only front-end and back-end loads.
E) front-end loads, back-end loads, and 12b-1 charges.

Question 20

Multiple Mutual Funds 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?

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

Question 21

Assume that you purchased shares of High Flying mutual fund at a net asset value of $12.50 per share. During the year, you received dividend income distributions of $0.78 per share and capital gains distributions of $1.67 per share. At the end of the year, the shares had a net asset value of $13.87 per share. What was your rate of return on this investment?

A) 29.43%
B) 30.56%
C) 31.19%
D) 32.44%
E) 29.18%

Question 22

Commingled funds are

A) amounts invested in equity and fixed-income mutual funds.
B) funds that may be purchased at intervals of 3, 6, or 12 months at the discretion of management.
C) amounts invested in domestic and global equities.
D) closed-end funds that may be repurchased only once every two years at the discretion of mutual fund management.
E) partnerships of investors that pool their funds, which are then managed for a fee.

Question 23

A mutual fund had year-end assets of $700,000,000 and liabilities of $7,000,000. There were 40,150,000 shares in the fund at year end. What was the mutual fund's net asset value?

A) $9.63
B) $57.71
C) $16.42
D) $17.87
E) $17.26

Question 24

A mutual fund had year-end assets of $560,000,000 and liabilities of $26,000,000. There were 23,850,000 shares in the fund at year end. What was the mutual fund's net asset value?

A) $22.87
B) $22.39
C) $22.24
D) $17.61
E) $19.25

Question 25

Assume that you purchased shares of a mutual fund at a net asset value of $14.50 per share. During the year, you received dividend income distributions of $0.27 per share and capital gains distributions of $0.65 per share. At the end of the year, the shares had a net asset value of $13.74 per share. What was your rate of return on this investment?

A) 2.91%
B) 3.07%
C) 1.10%
D) 1.78%
E) −1.18%

Question 26

Investors' Choice Fund had NAV per share of $37.25 on January 1, 2018. On December 31 of the same year, the fund s rate of return for the year was 17.3%. Income distributions were $1.14, and the fund had capital gain distributions of $1.35. Without considering taxes and transactions costs, what ending NAV would you calculate for Investors' Choice?

A) $41.20
B) $33.88
C) $43.69
D) $42.03
E) $46.62

Question 27

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?

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

Question 28

Patty O Furniture purchased 100 shares of Green Isle mutual fund at a net asset value of $42 per share. During the year, Patty received dividend income distributions of $2.00 per share and capital gains distributions of $4.30 per share. At the end of the year, the shares had a net asset value of $40 per share. What was Patty's rate of return on this investment?

A) 5.43%
B) 10.24%
C) 7.19%
D) 12.44%
E) 9.18%

Question 29

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?

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

Question 30

Which of the following is true regarding equity mutual funds? I) They invest primarily in stock.II) They may hold fixed-income securities, as well as stock.III) Most hold money market securities, as well as stock.IV) Two types of equity funds are income funds and growth funds.

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

Question 31

Assume that you purchased 200 shares of Super Performing mutual fund at a net asset value of $21 per share. During the year, you received dividend income distributions of $1.50 per share and capital gains distributions of $2.85 per share. At the end of the year, the shares had a net asset value of $23 per share. What was your rate of return on this investment?

A) 30.24%
B) 25.37%
C) 27.19%
D) 22.44%
E) 29.18%

Question 32

A mutual fund had year-end assets of $521,000,000 and liabilities of $63,000,000. If the fund NAV was $26.12, how many shares must have been held in the fund?

A) 17,534,456
B) 16,488,372
C) 18,601,742
D) 17,542,515

Question 33

As of 2018, which class of mutual funds had the largest amount of assets invested?

A) Equity funds
B) Bond funds
C) Mixed asset classes, such as asset allocation funds
D) Money market funds
E) Global funds

Question 34

A mutual fund had year-end assets of $250,000,000 and liabilities of $4,000,000. There were 3,750,000 shares in the fund at year end. What was the mutual fund's net asset value?

A) $92.53
B) $67.39
C) $63.24
D) $65.60
E) $17.46

Question 35

The fee that mutual funds use to help pay for advertising and promotional literature is called a

A) front-end load fee.
B) back-end load fee.
C) operating expense fee.
D) 12b-1 fee.
E) structured fee.

Question 36

A mutual fund had year-end assets of $465,000,000 and liabilities of $37,000,000. If the fund NAV was $56.12, how many shares must have been held in the fund?

A) 4,300,000
B) 6,488,372
C) 8,601,709
D) 7,626,515
E) None of these options are correct.

Question 37

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

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

Question 38

The Yachtsman Fund had NAV per share of $36.12 on January 1, 2018. On December 31 of the same year, the fund's NAV was $39.71. Income distributions were $0.64, and the fund had capital gain distributions of $1.13. Without considering taxes and transactions costs, what rate of return did an investor receive on the Yachtsman Fund last year?

A) 22.92%
B) 17.68%
C) 14.39%
D) 18.52%
E) 14.84%

Question 39

Which of the following is not an advantage of owning mutual funds?

A) They offer a variety of investment styles.
B) They offer small investors the benefits of diversification.
C) They treat income as "passed through" to the investor for tax purposes.
D) All of the options are advantages of mutual funds.
E) None of the options are an advantage of mutual funds.

Question 40

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.

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 41

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the MSCI France Index should choose

A) SPY.
B) EWJ.
C) EWQ.
D) IWM.
E) VTI.

Question 42

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the Wilshire 5000 should choose

A) SPY.
B) DIA.
C) QQQ.
D) IWM.
E) VTI.

Question 43

A mutual fund had NAV per share of $23.00 on January 1, 2018. On December 31 of the same year, the fund's NAV was $23.15. Income distributions were $0.63, and the fund had capital gain distributions of $1.26. Without considering taxes and transactions costs, what rate of return did an investor receive on the fund last year?

A) 11.26%
B) 10.54%
C) 8.87%
D) 8.26%
E) 9.63%

Question 44

A mutual fund had NAV per share of $16.75 on January 1, 2018. On December 31 of the same year, the fund's rate of return for the year was 26.6%. Income distributions were $1.79, and the fund had capital gain distributions of $2.80. Without considering taxes and transactions costs, what ending NAV would you calculate?

A) $17.44
B) $13.28
C) $14.96
D) $17.25
E) $16.62

Question 45

Of the following types of mutual funds, an investor who wishes to invest in a diversified portfolio of stocks worldwide (including the U.S.) should choose

A) international funds.
B) global funds.
C) regional funds.
D) emerging-market funds.

Question 46

A mutual fund had NAV per share of $19.00 on January 1, 2018. On December 31 of the same year, the fund's NAV was $19.14. Income distributions were $0.57, and the fund had capital gain distributions of $1.12. Without considering taxes and transactions costs, what rate of return did an investor receive on the fund last year?

A) 11.26%
B) 10.54%
C) 7.97%
D) 8.26%
E) 9.63%

Question 47

A mutual fund had NAV per share of $36.15 on January 1, 2018. On December 31 of the same year, the fund's rate of return for the year was 14.0%. Income distributions were $1.16, and the fund had capital gain distributions of $2.12. Without considering taxes and transactions costs, what ending NAV would you calculate?

A) $37.93
B) $34.52
C) $44.69
D) $47.25
E) $36.28

Question 48

A mutual fund had NAV per share of $37.12 on January 1, 2018. On December 31 of the same year, the fund's rate of return for the year was 11.0%. Income distributions were $2.26, and the fund had capital gain distributions of $1.64. Without considering taxes and transactions costs, what ending NAV would you calculate?

A) $37.93
B) $34.52
C) $37.30
D) $47.25
E) $36.28

Question 49

A mutual fund had year-end assets of $327,000,000 and liabilities of $46,000,000. If the fund NAV was $30.48, how many shares must have been held in the fund?

A) 11,354,751
B) 8,412,642
C) 10,165,476
D) 9,165,414
E) 9,219,160

Question 50

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the Nasdaq 100 should choose

A) SPY.
B) DIA.
C) QQQ.
D) IWM.
E) VTI.

Question 51

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the Russell 2000 should choose

A) SPY.
B) DIA.
C) QQQQ.
D) IWM.
E) VTI.

Question 52

Of the following types of mutual funds, an investor who wishes to invest in a diversified portfolio of foreign stocks (excluding the U.S.) should choose

A) international funds.
B) global funds.
C) regional funds.
D) emerging-market funds.

Question 53

A mutual fund had average daily assets of $2.0 billion in 2018. The fund sold $500 million worth of stock and purchased $600 million worth of stock during the year. The fund's turnover ratio is

A) 27.5%.
B) 12%.
C) 15%.
D) 25%.
E) 20%.

Question 54

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the S&P 500 should choose

A) SPY.
B) DIA.
C) QQQ.
D) IWM.
E) VTI.

Question 55

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the MSCI Japan Index should choose

A) SPY.
B) EWJ.
C) QQQQ.
D) IWM.
E) VTI.

Question 56

A mutual fund had average daily assets of $3.0 billion in 2018. The fund sold $600 million worth of stock and purchased $700 million worth of stock during the year. The fund's turnover ratio is

A) 27.5%.
B) 12%.
C) 15%.
D) 25%.
E) 20%.

Question 57

A mutual fund had year-end assets of $437,000,000 and liabilities of $37,000,000. If the fund NAV was $60.12, how many shares must have been held in the fund?

A) 6,653,360
B) 8,412,642
C) 10,165,476
D) 9,165,414
E) 9,219,160

Question 58

Differences between hedge funds and mutual funds are that

A) hedge funds are only subject to minimal SEC regulation.
B) hedge funds are typically open only to wealthy or institutional investors.
C) hedge fund managers can pursue strategies not available to mutual funds, such as short selling, heavy use of derivatives, and leverage.
D) hedge funds are commonly structured as private partnerships.
E) All of the options.

Question 59

Of the following types of ETFs, an investor who wishes to invest in a diversified portfolio that tracks the Dow Jones Industrials should choose

A) SPY.
B) DIA.
C) QQQQ.
D) IWM.
E) VTI.

Question 60

A mutual fund had NAV per share of $26.25 on January 1, 2018. On December 31 of the same year, the fund's rate of return for the year was 16.4%. Income distributions were $1.27, and the fund had capital gain distributions of $1.85. Without considering taxes and transactions costs, what ending NAV would you calculate?

A) $27.44
B) $33.88
C) $24.69
D) $42.03
E) $16.62

Question 61

The phrase _____________________ is used to describe ETFs that, like actively managed mutual funds, attempt to outperform passive indexes.

A) non-transparent
B) growth
C) value
D) hedge

Question 62

You purchased shares of a mutual fund at a price of $20 per share at the beginning of the year and paid a front-end load of 5.75%. If the securities in which the fund invested increased in value by 11% during the year, and the fund's expense ratio was 1.25%, your return if you sold the fund at the end of the year would be

A) 4.33%.
B) 3.44%.
C) 2.45%.
D) 6.87%.

Question 63

Compared to mutual funds, hedge funds may use the following strategy.

A) Growth
B) Value
C) Sector specialization
D) Significant leverage

Question 64

You purchased shares of a mutual fund at a price of $17 per share at the beginning of the year and paid a front-end load of 5.0%. If the securities in which the fund invested increased in value by 12% during the year, and the fund's expense ratio was 1.0%, your return if you sold the fund at the end of the year would be

A) 4.75%.
B) 5.45%.
C) 5.65%.
D) 4.39%.

Question 65

These kind of money market funds must calculate net asset values, which may differ from $1.00.

A) Prime
B) Prime institutional
C) Government
D) Cash equivalents

Question 66

A type of REIT that invests primarily in construction loans would be classified as a ______________.

A) mortgage trust
B) equity trust.
C) revocable trust
D) bond trust
E) All of the options are true.

Question 67

You purchased shares of a mutual fund at a price of $20 per share at the beginning of the year and paid a front-end load of 6.0%. If the securities in which the fund invested increased in value by 10% during the year, and the fund's expense ratio was 1.5%, your return if you sold the fund at the end of the year would be

A) 1.99%.
B) 2.32%.
C) 1.65%.
D) 2.06%.
E) None of the options are correct.

Question 68

You purchased shares of a mutual fund at a price of $12 per share at the beginning of the year and paid a front-end load of 4.75%. If the securities in which the fund invested increased in value by 9% during the year, and the fund's expense ratio was 1.5%, your return if you sold the fund at the end of the year would be

A) 4.75%.
B) 3.54%.
C) 2.65%.
D) 2.39%.

Question 69

A mutual fund had average daily assets of $4.7 billion in 2018. The fund sold $2.2 billion worth of stock and purchased $3.6 billion worth of stock during the year. The fund's turnover ratio is

A) 37.5%.
B) 22.6%.
C) 15.3%.
D) 46.8%.
E) 20.7%.

Question 70

A mutual fund had average daily assets of $4.0 billion in 2018. The fund sold $1.5 billion worth of stock and purchased $1.6 billion worth of stock during the year. The fund's turnover ratio is

A) 37.5%.
B) 22%.
C) 15%.
D) 45%.
E) 20%.

Question 71

Compared to mutual funds, hedge funds may require investors to _______________.

A) Cover transaction costs
B) Lock-up their investment for an extended period of time
C) Invest in a mixture of equities, debt, and international securities
D) Use specific trading protocols