978-1260013924 Test Bank Chapter 4 Part 1

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