50) Under SEC rules, the managers of certain funds are allowed to deduct charges for
advertising, brokerage commissions, and other sales expenses directly from the fund assets rather
than billing investors. These fees are known as ________.
A) direct operating expenses
B) back-end loads
C) 12b-1 charges
D) front-end loads
51) The SEC requires funds to disclose:
I. After-tax returns for the past year
II. After-tax returns for the last 5-year period
III. The tax impact of portfolio turnover
A) I only
B) I and II only
C) I and III only
D) I, II, and III
52) SEC Rule 12b-1 allows managers of certain funds to deduct ________ expenses from fund
assets; however, these expenses may not exceed ________ of the fund’s average net assets per
year.
A) marketing; 1%
B) marketing; 5%
C) administrative; .5%
D) administrative; 2%
53) Consider a mutual fund with $300 million in assets at the start of the year and 12 million
shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the
year-end value, what is the rate of return on the fund?
A) 15.64%
B) 16%
C) 17.25%
D) 17.5%
54) Consider a no-load mutual fund with $200 million in assets and 10 million shares at the start
of the year and with $250 million in assets and 11 million shares at the end of the year. During
the year investors have received income distributions of $2 per share and capital gain
distributions of $.25 per share. Assuming that the fund carries no debt, and that the total expense
ratio is 1%, what is the rate of return on the fund?
A) 11.19%
B) 23.75%
C) 24.64%
D) The answer cannot be determined from the information given.
55) Consider a no-load mutual fund with $400 million in assets, 50 million in debt, and 15
million shares at the start of the year and with $500 million in assets, 40 million in debt, and 18
million shares at the end of the year. During the year investors have received income
distributions of $.50 per share and capital gain distributions of $.30 per share. If the total expense
ratio is .75%, what is the rate of return on the fund?
A) 12.09%
B) 12.99%
C) 8.25%
D) The answer cannot be determined from the information given.
56) Mutual fund returns may be granted pass-through status if ________.
A) virtually all income is distributed to shareholders
B) the fund qualifies for pass-through status according to the U.S. tax code
C) the fund is sufficiently diversified
D) All of these options (All of the answers must be true for pass-through status to be granted.)
57) ________ is an example of an exchange-traded fund.
A) An SPDR or spider
B) A samurai
C) A Vanguard
D) An open-end fund
58) If you place an order to buy or sell a share of a mutual fund during the trading day, the order
will be executed at ________.
A) the NAV calculated at the market close at 4 pm New York time
B) the real time NAV
C) the NAV delayed 15 minutes
D) the NAV calculated at the opening of the next day’s trading
59) According to the 2017 Mutual Fund Fact Book, ________ of total assets were in taxable
money market funds and ________ were tax-exempt money market funds.
A) 35%; 14%
B) 12.3%; 75%
C) 15.9%; 0.8%
D) 5%; 47%
60) In his 1970 study, Malkiel found that mutual funds that do well in one period have an
approximately ________ chance of doing well in the subsequent-year period.
A) 33%
B) 52%
C) 65%
D) 85%
61) In a recent study, Malkiel found that evidence of persistence in the performance of mutual
funds ________ in the 1980s.
A) grew stronger
B) remained about the same
C) became slightly weaker
D) virtually disappeared
62) The ratio of trading activity of a portfolio to the assets of the portfolio is called the
________.
A) reinvestment ratio
B) trading rate
C) portfolio turnover
D) tax yield
63) Which of the following ETFs tracks the S&P 500 Index?
A) Qubes
B) Diamonds
C) Vipers
D) Spiders
64) The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth
$300 million. It has liabilities of $5 million and 9 million shares outstanding. If the fund sells for
$30 a share, what is its premium or discount as a percent of NAV?
A) 9.26% premium
B) 8.47% premium
C) 9.26% discount
D) 8.47% discount
65) The difference between balanced funds and asset allocation funds is that ________.
A) balanced funds invest in bonds while asset allocation funds do not
B) asset allocation funds invest in bonds while balanced funds do not
C) balanced funds have relatively stable proportions of stocks and bonds while the proportions
may vary dramatically for asset allocation funds
D) balanced funds make no capital gain distributions and asset allocation funds make both
dividend and capital gain distributions
66) The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B shares
with a 12b-1 fee of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B
shares the better choice? Assume a 10% annual return net of expenses before the 12b-1 fee is
applied.
A) Class A.
B) Class B.
C) There is no difference.
D) The answer cannot be determined from the information given.
67) A mutual fund has total assets outstanding of $69 million. During the year the fund bought
and sold assets equal to $17.25 million. This fund’s turnover rate was ________.
A) 25%
B) 28.5%
C) 18.63%
D) 33.4%
68) Which type of investment fund is commonly known to invest in options and futures in large
scale?
A) commingled funds
B) hedge funds
C) ETFs
D) REITs
69) Advantages of ETFs over mutual funds include all but which one of the following?
A) ETFs trade continuously, so investors can trade throughout the day.
B) ETFs can be sold short or purchased on margin, unlike fund shares.
C) ETF providers do not have to sell holdings to fund redemptions.
D) ETF values can diverge from NAV.
70) Harold has just taken his company public and owns a large quantity of restricted stock. For
purposes of diversification, what fund might he help create in order to diversify his holdings?
A) commingled funds
B) hedge funds
C) ETF
D) REITs
71) Which of the following funds is most likely to have a debt ratio of 70% or higher?
A) bond fund
B) commingled fund
C) mortgage-backed securities
D) REIT
72) ________ have become the main way for investors to speculate in precious metals.
A) Strategic income funds
B) Balanced funds
C) Specialized-sector funds
D) Exchange-traded funds
73) From 1971 to 2013 the average return on the Wilshire 5000 Index was ________ the return
of the average mutual fund.
A) identical to
B) 1.0% higher than
C) .9% lower than
D) 1.3% higher than
74) An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is the
offering price?
A) $14.57
B) $15.95
C) $17.55
D) $16.49
75) The offer price of an open-end fund is $18 and the fund is sold with a front-end load of 5%.
What is the fund’s NAV?
A) $18.74
B) $17.10
C) $15.40
D) $16.57
76) A mutual fund has $50 million in assets at the beginning of the year and 1 million shares
outstanding throughout the year. Throughout the year assets grow at 12%. The fund imposes a
12b-1 fee on all shares equal to 1%. The fee is imposed on year-end asset values. If there are no
distributions, what is the end-of-year NAV for the fund?
A) $50
B) $55.44
C) $56.12
D) $54.55
77) The assets of a mutual fund are $25 million. The liabilities are $4 million. If the fund has
700,000 shares outstanding and pays a $3 dividend, what is the dividend yield?
A) 5%
B) 10%
C) 15%
D) 20%
78) Which of the following funds are usually most tax-efficient?
A) equity funds
B) bond Funds
C) ETFs
D) specialized-sector funds
79) You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 2%
back-end load, which decreases .5% per year. How much will you pay in fees on a $10,000
investment that does not grow if you cash out after 3 years of no gain?
A) $103
B) $219
C) $553
D) $635
80) You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0%
back-end load on Class A shares. The same fund charges a 0% front-end load, 1% total annual
fees, and a 2% back-end load on Class B shares. What are the total fees in year 1 on a Class A
investment of $20,000 with no growth in value?
A) $658
B) $794
C) $885
D) $902
81) You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0%
back-end load on Class A shares. The same fund charges a 0% front-end load, 1% total annual
fees, and a 2% back-end load on Class B shares. What are the total fees in year 1 on a Class B
investment of $20,000 if you redeem shares with no growth in value?
A) $596
B) $794
C) $885
D) $902
82) You pay $21,600 to the Laramie Fund, which has a NAV of $18 per share at the beginning
of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in
value by 10% during the year. The fund’s expense ratio is 1.3% and is deducted from year-end
asset values. What is your rate of return on the fund if you sell your shares at the end of the year?
A) 4.35%
B) 4.23%
C) 6.45%
D) 5.63%
83) Which one of the following statements about returns reported by mutual funds is not correct?
A) Reported returns are net of management expenses.
B) Reported returns are net of 12b-1 fees.
C) Reported returns are net of brokerage fees paid on the fund’s trading activity.
D) None of these options. (All of the items are included in reported returns.)
84) The top Morningstar mutual fund performance rating is ________.
A) five stars
B) four stars
C) three stars
D) two stars
85) You are considering investing in a no-load mutual fund with an annual expense ratio of .6%
and an annual 12b-1 fee of .75%. You could also invest in a bank CD paying 6.5% per year.
What minimum annual rate of return must the fund earn to make you better off in the fund than
in the CD?
A) 7.1%
B) 7.45%
C) 7.25%
D) 7.85%
86) The five-star Morningstar rating implies
A) superior returns compared to risk.
B) superior risk compared to return.
C) lowest turnover compared to peers.
D) lowest fees compared to peers.
87) Which type of fund is often priced at a significant discount to net asset value?
A) open-end fund
B) closed-end fund
C) hedge fund
D) ETF
88) Which type of fund generally has the lowest average expense ratio?
A) actively managed bond funds
B) hedge funds
C) indexed funds
D) actively managed international funds
89) Approximately what percentage of assets held in equity funds in 2017 was in index funds?
A) 20%
B) 33%
C) 50%
D) 60%
90) Disadvantages of ETFs include all of the following except
A) investors incur a bid-ask spread when purchasing.
B) investors must pay a broker fee when purchasing.
C) prices are only quoted once each day.
D) prices can depart from NAV at times.