Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Essentials of Investments, 11e (Bodie)
Chapter 4 Mutual Funds and Other Investment Companies
1) Which one of the following invests in a portfolio that is fixed for the life of the fund?
A) mutual fund
B) money market fund
C) managed investment company
D) unit investment trust
2) ________ are partnerships of investors with portfolios that are larger than most individual
investors but are still too small to warrant managing on a separate basis.
A) Commingled funds
B) Closed-end funds
C) REITs
D) Mutual funds
3) A ________ is a private investment pool open only to wealthy or institutional investors that is
exempt from SEC regulation and can therefore pursue more speculative policies than mutual
funds.
A) commingled pool
B) unit trust
C) hedge fund
D) money market fund
4) Advantages of investment companies to investors include all but which one of the following?
A) record keeping and administration
B) low-cost diversification
C) professional management
D) guaranteed rates of return
5) Which of the following typically employ significant amounts of leverage?
I. Hedge funds
II. REITs
III. Money market funds
IV. Equity mutual funds
A) I and II only
B) II and III only
C) III and IV only
D) I, II, and III only
6) The NAV of which funds is fixed at $1 per share?
A) equity funds
B) money market funds
C) fixed-income funds
D) commingled funds
7) The two principal types of REITs are equity trusts, which ________, and mortgage trusts,
which ________.
A) invest directly in real estate; invest in mortgage and construction loans
B) invest in mortgage and construction loans; invest directly in real estate
C) use extensive leverage; distribute less than 95% of income to shareholders
D) distribute less than 95% of income to shareholders; use extensive leverage
8) A contingent deferred sales load is commonly called a ________.
A) front-end load
B) back-end load
C) 12b-1 charge
D) top-end sales commission
9) In the United States in 2017, there were approximately ________ mutual funds offered by
fewer than ________ fund complexes.
A) 12,000; 650
B) 7,000; 100
C) 8,000; 850
D) 9,000; 300
10) Part B of a mutual fund prospectus contains information about:
I. Fund holdings by directors and officers
II. Front-end and back-end loads
III. Securities held by the fund at the end of the fiscal year
A) I only
B) I and II only
C) I and III only
D) I, II, and III
11) Mutual funds provide the following for their shareholders.
A) diversification
B) professional management
C) record keeping and administration
D) all of these options
12) The average maturity of fund investments in a money market mutual fund is ________.
A) slightly more than 1 month
B) slightly more than 1 year
C) about 9 months
D) between 2 and 3 years
13) Rank the following fund categories from most risky to least risky:
I. Equity growth fund
II. Balanced fund
III. Sector fund
IV. Money market fund
A) IV, I, III, II
B) III, II, IV, I
C) I, II, III, IV
D) III, I, II, IV
14) Which of the following result in a taxable event for investors?
I. Short-term capital gain distributions from the fund
II. Dividend distributions from the fund
III. Long-term capital gain distributions from the fund
A) I only
B) II only
C) I and II only
D) I, II, and III
15) The type of mutual fund that primarily engages in market timing is called ________.
A) a sector fund
B) an index fund
C) an ETF
D) an asset allocation fund
16) As of 2017, approximately ________ of mutual fund assets were invested in equity funds.
A) 5%
B) 52%
C) 30%
D) 12%
17) As of 2017, approximately ________ of mutual fund assets were invested in bond funds.
A) 22%
B) 32%
C) 37%
D) 47%
18) As of 2017, approximately ________ of mutual fund assets were invested in money market
funds.
A) 5%
B) 17%
C) 44%
D) 66%
19) Management fees for open-end and closed-end funds typically range between ________ and
________.
A) .2%; 2.0%
B) .5%; 5%
C) 2%; 5%
D) 3%; 8%
20) The primary measurement unit used for assessing the value of one's stake in an investment
company is ________.
A) net asset value
B) average asset value
C) gross asset value
D) total asset value
21) Net asset value is defined as ________.
A) book value of assets divided by shares outstanding
B) book value of assets minus liabilities divided by shares outstanding
C) market value of assets divided by shares outstanding
D) market value of assets minus liabilities divided by shares outstanding
22) Assume that you have just purchased some shares in an investment company reporting $500
million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the net
asset value (NAV) of these shares?
A) $12
B) $9
C) $10
D) $1
23) Assume that you have recently purchased 100 shares in an investment company. Upon
examining the balance sheet, you note that the firm is reporting $225 million in assets, $30
million in liabilities, and 10 million shares outstanding. What is the net asset value (NAV) of
these shares?
A) $25.50
B) $22.50
C) $19.50
D) $1.95
24) The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so, the fund
buys shares in each S&P 500 company ________.
A) in proportion to the market value weight of the firm's equity in the S&P 500
B) in proportion to the price weight of the stock in the S&P 500
C) by purchasing an equal number of shares of each stock in the S&P 500
D) by purchasing an equal dollar amount of shares of each stock in the S&P 500
25) Which of the following is not a type of managed investment company?
A) unit investment trusts
B) closed-end funds
C) open-end funds
D) hedge funds
26) Which of the following funds invest specifically in stocks of fast-growing companies?
A) balanced funds
B) growth equity funds
C) REITs
D) equity income funds
27) A fund that invests in securities worldwide, including the United States, is called ________.
A) an international fund
B) an emerging market fund
C) a global fund
D) a regional fund
28) The greatest percentage of mutual fund assets are invested in ________.
A) bond funds
B) equity funds
C) hybrid funds
D) money market funds
29) Sponsors of unit investment trusts earn a profit by ________.
A) deducting management fees from fund assets
B) deducting a percentage of any gains in asset value
C) selling shares in the trust at a premium to the cost of acquiring the underlying assets
D) charging portfolio turnover fees
30) Investors who want to liquidate their holdings in a unit investment trust may ________.
A) sell their shares back to the trustee at a discount
B) sell their shares back to the trustee at net asset value
C) sell their shares on the open market
D) sell their shares at a premium to net asset value
31) Investors who want to liquidate their holdings in a closed-end fund may ________.
A) sell their shares back to the fund at a discount if they wish
B) sell their shares back to the fund at net asset value
C) sell their shares on the open market
D) sell their shares at a premium to net asset value if they wish
32) ________ fund is defined as one in which the fund charges a sales commission to either buy
into or exit from the fund.
A) A load
B) A no-load
C) An index
D) A specialized-sector
33) Which of the following is a false statement regarding open-end mutual funds?
A) They offer investors a guaranteed rate of return.
B) They offer investors a well-diversified portfolio.
C) They redeem shares at their net asset value.
D) They offer low-cost diversification.
34) ________ funds stand ready to redeem or issue shares at their net asset value.
A) Closed-end
B) Index
C) Open-end
D) Hedge
35) Revenue sharing with respect to mutual funds refers to ________.
A) fund companies paying brokers if the broker recommends the fund to investors
B) allowing certain classes of investors to engage in market timing
C) charging loads to new investors in a mutual fund
D) directly marketing funds over the Internet
36) Higher portfolio turnover:
I. Results in greater tax liability for investors
II. Results in greater trading costs for the fund, which investors have to pay for
III. Is a characteristic of asset allocation funds
A) I only
B) II only
C) I and II only
D) I, II, and III
37) Low-load mutual funds have front-end loads of no more than ________.
A) 2%
B) 3%
C) 4%
D) 5%
38) Most real estate investment trusts (REITs) have a debt ratio of around ________.
A) 10%
B) 30%
C) 50%
D) 70%
39) Measured by assets, about ________ of funds are money market funds.
A) 25%
B) 17%
C) 40%
D) 60%
40) Which of the following is not a type of real estate investment trust?
I. Equity trust
II. Debt trust
III. Mortgage trust
IV. Unit trust
A) I and II only
B) II only
C) II and IV only
D) I, II, and III
41) ________ are often called mutual funds.
A) Unit investment trusts
B) Open-end investment companies
C) Closed-end investment companies
D) REITs
42) Mutual funds account for roughly ________ of investment company assets.
A) 30%
B) 50%
C) 70%
D) 90%
43) An official description of a particular mutual fund's planned investment policy can be found
in the fund's ________.
A) prospectus
B) indenture
C) investment statement
D) 12b-1 forms
44) Mutual funds that hold both equities and fixed-income securities in relatively stable
proportions are called ________.
A) income funds
B) balanced funds
C) asset allocation funds
D) index funds
45) ________ are mutual funds that vary the proportions of funds invested in particular market
sectors according to the fund manager's forecast of the performance of that market sector.
A) Asset allocation funds
B) Balanced funds
C) Index funds
D) Income funds
46) Specialized-sector funds concentrate their investments in ________.
A) bonds of a particular maturity
B) geographic segments of the real estate market
C) government securities
D) securities issued by firms in a particular industry
47) If a mutual fund has multiple-class shares, which class typically has a front-end load?
A) Class A
B) Class B
C) Class C
D) Class I
48) The commission, or front-end load, paid when you purchase shares in mutual funds may not
exceed ________.
A) 3.5%
B) 6%
C) 8.5%
D) 10%
49) You are considering investing in one of several mutual funds. All the funds under
consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The
longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with
a ________ rather than a ________, everything else equal.
A) 12b-1 fee; front-end load
B) front-end load; 12b-1 fee
C) back-end load; front-end load
D) 12b-1 fee; back-end load
