11
19) Which of the following characteristics apply to exchange-traded funds (ETFs)?
I. unlimited number of outstanding shares
II. typically track the performance of some index
III. market prices reflect demand for the fund rather than NAV.
IV. shares are purchased from and redeemed by the investment company managing the fund.
A) I and II only
B) II and III only
C) I, II and III only
D) I, II and IV only
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Revised
Learning Goal: Learning Goal 2
20) Closed-end funds
A) hold a portfolio whose size and content are fixed when the fund opens.
B) are subject to both front loads and redemption fees.
C) are purchased directly from the funds’ manager.
D) are traded at NAV.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 2
12
21) Open end mutual funds may charge which of the following fees?
I. A front-end load at the time of purchase.
II. A back-end load when shares are sold.
III. Annual fees based on marketing and distribution costs.
IV. Annual performance fees up to 20% of increases in net asset value.
A) I, II and IV only
B) I, II, and III only
C) I, III and IV only
D) I, II, III and IV
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 2
22) Which of the following statements is(are) correct concerning exchange-traded funds
(ETFs)?
I. You can buy and sell ETFs any time during trading hours.
II. ETFs are actively managed.
III. ETFs have high portfolio turnover rates.
IV. ETFs rarely distribute any capital gains.
A) I, II and IV only
B) I and IV only
C) II and III only
D) I, III and IV only
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
13
23) The commission charged when shares of an open-end mutual fund are purchased is called a
A) management fee.
B) back-end load.
C) front-end load.
D) 12(b)-1 fee.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
24) Back-end loads
A) are charged when an investor buys their mutual fund shares.
B) are charged if an investor sells his or her shares within the first few years.
C) were designed to help no-load funds cover their marketing expenses.
D) encourage short-term trading.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
25) One characteristic of 12(b)-1 charges is that they are payable
A) only in years that the mutual fund shows an increase in net asset value.
B) each year regardless of the performance of the mutual fund.
C) only during the first year the fund is owned.
D) only when shares in the fund are sold.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
14
26) Two mutual funds are quoted as follows.
Given these quotes, which one of the following is true?
A) Both funds are load funds.
B) Fund A is a no-load fund.
C) Fund B is a no-load fund.
D) Both funds are no-load funds.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
27) A type of fund that invests in real estate and/or mortgages is known as a
A) REIT.
B) ETF.
C) sector fund.
D) hedge fund.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
28) Which type of fund is always passively managed?
A) a closed-end fund
B) a growth fund
C) a value fund
D) an index fund
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
15
29) Performance fees based on profits earned by the fund are typical of
A) hedge funds.
B) exchange-traded funds.
C) closed-end investment companies.
D) open end mutual funds.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
30) Which of the following statements is(are) correct concerning hedge funds?
I. They are highly regulated.
II. They hedge all positions to limit risks.
III. Management and other fees are extremely low compared to other types of funds.
IV. Access is limited to institutions and high net worth or high income individuals.
A) I, II and III only
B) II and IV only
C) IV only
D) I, II, III and, IV
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
31) Investors in hedge funds have the legal status of
A) shareholders.
B) limited partners.
C) general partners.
D) trustees.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
16
32) Mutual funds can carry a number of different types of sales charges and fees. Briefly
explain the following such expenses.
(a) a front-end load
(b) a back-end load
(c) a 12(b)-1 fee
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
33) Explain why closed-end funds can sell at prices other than the fund’s NAV.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
17
34) Use this information to answer the following questions.
(a) Which fund does NOT charge a front-end load?
(b) Which fund can best be described as a low-load fund?
(c) What can you say about Fund B with respect to the type of investments it most likely holds?
(d) If you want to buy a fund and hold it for five years, which one of these funds should you
purchase based on fund costs? Assume the funds earn a positive rate of return each year.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
35) What are the primary disadvantages of owning mutual fund shares?
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 2
18
Copyright © 2017 Pearson Education, Inc.
12.3 Learning Goal 3
1) The primary objective of growth mutual funds is capital appreciation with a high level of
current income.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
2) Morningstar, a leading. mutual fund industry publication, classifies funds by the number of
shareholders and the total amount of money invested in the fund.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
3) Index funds merely attempt to match the performance of some benchmark, not to outperform
it.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
4) The maximum average maturity of the holdings within a money market account must be 6
months or less.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
19
5) Socially responsible funds only hold stocks of companies that meet the fund’s ethical
guidelines.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
6) In spite of lower fees, index funds underperform actively managed funds in most years.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 3
7) A REIT or real estate investment trust may invest in all of the following EXCEPT
A) office buildings.
B) apartment complexes.
C) stocks of companies engaged in construction and building materials.
D) mortgages.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 3
8) Risk-seeking investors seeking maximum capital appreciation with little, if any current
income, should invest in
A) value funds.
B) growth funds.
C) aggressive growth funds.
D) equity-income funds.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
20
9) An aggressive growth mutual fund is least likely to purchase a stock
A) with a high P/E ratio.
B) with a high anticipated rate of growth.
C) of an unseasoned firm.
D) with a high dividend yield.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
10) Aggressive mutual funds often employ investing strategies such as
I. short selling.
II. margin trading.
III. option trading.
IV. hedging.
A) I and III only
B) II and III only
C) I, II and IV only
D) I, II, III and IV
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3