Financial Markets and Institutions, 8e (Mishkin)
1) At the beginning of 2013, mutual funds held about ________ of the U.S. stock market was
held by mutual funds.
A) 30%
B) 50%
C) 10%
D) 70%
2) The origins of mutual funds can be traced back to the mid to late 1800s in ________.
A) England and Scotland
B) New York City
C) Boston
D) Germany
3) ________ intermediation means that small investors can pool their funds with other investors
to purchase high face value securities.
A) Liquidity
B) Financial
C) Denomination
D) Share
4) Mutual funds offer investors all of the following except
A) greater-than-average returns.
B) diversified portfolios.
C) lower transaction costs.
D) professional investment management.
5) Mutual funds
A) pool the resources of many small investors by selling these investors shares and using the
proceeds to buy securities.
B) allow small investors to obtain the benefits of lower transaction costs in purchasing securities.
C) provide small investors a diversified portfolio that reduces risk.
D) do all of the above.
E) do only A and B of the above.
6) ________ enables mutual funds to consistently outperform a randomly selected group of
stocks.
A) Managerial expertise
B) Diversification
C) Denomination intermediation
D) None of the above
7) At the end of 2012 there were over ________ separate mutual funds with total assets over
________.
A) 800; $10 trillion
B) 7,500; $13 trillion
C) 10,000; $10 trillion
D) 1,000; $7 trillion
8) Most mutual funds are structured in two ways. The most common structure is a(n) ________
fund, from which shares can be redeemed at any time at a price that is tied to the asset value of
the fund. A(n) ________ fund has a fixed number of nonredeemable shares that are traded in the
over-the-counter market.
A) closed-end; open-end
B) open-end; closed-end
C) no-load; closed-end
D) no-load; load
E) load; no-load
9) Which of the following is an advantage to investors of an open-end mutual fund?
A) Once all the shares have been sold, the investor does not have to put in more money.
B) The investors can sell their shares in the over-the-counter market with low transaction fees.
C) The fund agrees to redeem shares at any time.
D) The market value of the fund’s shares may be higher than the value of the assets held by the
fund.
10) The net asset value of a mutual fund is
A) determined by subtracting the fund’s liabilities from its assets and dividing by the number of
shares outstanding.
B) determined by calculating the net price of the assets owned by the fund.
C) calculated every 15 minutes and used for transactions occurring during the next 15-minute
interval.
D) calculated as the difference between the fund’s assets and its liabilities.
11) ________ funds are the simplest type of investment funds to manage.
A) Balanced
B) Global equity
C) Growth
D) Index
12) The majority of mutual fund assets are now owned by
A) individual investors.
B) institutional investors.
C) fiduciaries.
D) business organizations.
E) retirees.
13) Capital appreciation funds select stocks of ________ and tend to be ________ risky than
total return funds.
A) large, established companies that pay dividends regularly; more
B) large, established companies that pay dividends regularly; less
C) companies expected to grow rapidly; more
D) companies expected to grow rapidly; less
14) From largest to smallest in terms of total assets, the four classes of mutual funds are
A) equity funds, bond funds, hybrid funds, money market funds.
B) equity funds, money market funds, bond funds, hybrid funds.
C) money market funds, equity funds, hybrid funds, bond funds.
D) bond funds, money market funds, equity funds, hybrid funds.
15) Measured by assets, the most popular type of bond fund is the ________ bond fund.
A) state municipal
B) strategic income
C) government
D) high-yield
16) People who take their money out of insured bank deposits to invest in uninsured money
market mutual funds have ________ risk because money market funds invest in ________
assets.
A) high; long-term
B) low; short-term
C) high; short-term
D) low; long-term
17) The largest share of assets held by money market mutual funds is
A) Treasury bills.
B) certificates of deposit.
C) commercial paper.
D) repurchase agreements.
18) Which of the following is a feature of index funds?
A) They have lower fees.
B) They select and hold stocks to match the performance of a stock index.
C) They do not require managers to select stocks and decide when to buy and sell.
D) All of the above.
19) A deferred-load mutual fund charges a commission
A) when shares are purchased.
B) when shares are sold.
C) both when shares are purchased and when they are sold.
D) when shares are redeemed.
20) Over the past twenty years, mutual fund fees have ________, largely because ________.
A) fallen; SEC fee disclosure rules have led to greater competition
B) risen; investors have learned that funds with high fees provide better performance
C) risen; there has been collusion between large mutual fund companies
D) fallen; advances in information technology have lowered transaction costs
21) Which of the following is most likely to be a no-load fund?
A) Value funds
B) Hedge funds
C) Growth funds
D) Index funds
22) When investors switch between funds within the same fund family, mutual funds may charge
A) a contingent deferred sales charge.
B) a redemption fee.
C) an exchange fee.
D) 12b-1 fees.
E) an account maintenance fee.
23) The Securities Acts of 1933 and 1934 did not
A) regulate the activities of investment funds.
B) require funds to register with the SEC.
C) include antifraud rules covering the purchase and sale of fund shares.
D) apply to investment funds.
24) The largest share of total investment in mutual funds is in
A) stock funds.
B) hybrid funds.
C) bond funds.
D) money market funds.
25) Over ________ of the total daily volume in stocks is due to institutions initiating trades.
A) 70%
B) 50%
C) 25%
D) 90%
26) Hedge funds are
A) low risk because they are market-neutral.
B) low risk if they buy Treasury bonds.
C) low risk because they hedge their investments.
D) high risk because they are market-neutral.
E) high risk, even though they may be market-neutral.
27) The near collapse of Long Term Capital Management was caused by
A) the high management fees charged by the fund’s two Nobel Prize winners.
B) the fund’s high leverage ratio of 20 to 1.
C) a sharp decrease in the spread between corporate bonds and Treasury bonds.
D) a sharp increase in the spread between corporate bonds and Treasury bonds.
E) the fund’s shift away from a market-neutral investment strategy.