Chapter 23: Mutual Fund Operations
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50. Which of the following statements is incorrect?
a.
ETFs are like index mutual funds in that the share price adjusts over time in response to changes in the index
level.
b.
ETFs normally do not have capital gains and losses that must be distributed to shareholders.
c.
The portfolio management of both ETFs and index mutual funds is very complex.
d.
ETFs can be traded throughout the day.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
51. Funds that are designed to mimic particular stock indexes and are traded on a stock exchange are known as
a.
index mutual funds.
b.
exchange-traded funds.
c.
money market funds.
d.
none of the above
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
52. Exchange-traded funds can be
a.
b.
c.
d.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
53. ____ trade at one-tenth of the S&P 500 value.
a.
Spiders
b.
Cubes
c.
Diamonds
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d.
World Equity Benchmark Shares
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
54. Mutual funds must register with the U.S. Treasury and provide interested investors with a prospectus that discloses
details about the components of the funds and the risks involved.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
55. The net asset value (NAV) is estimated each day by first determining the market value of all securities comprising the
mutual fund.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
56. Portfolio managers are hired by the mutual fund to invest in a portfolio of securities that satisfies the desires of
investors.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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Page 18
61. The term “mutual funds” is normally used to refer to closed-end funds and does not include open-end funds.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
62. Exchange-traded funds differ from open-end funds in that their share price is adjusted only at the end of each day.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
63. Capital appreciation funds are suited to investors who are more willing to risk a possible loss in value.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
64. The returns on international stock mutual funds are affected only by foreign companies’ stock prices and are
independent of currency movements.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
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Page 19
65. Index funds are becoming increasingly unpopular because most mutual fund managers consistently outperform
indexes.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
66. A mutual fund’s performance is usually unrelated to market conditions.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
67. Hedge funds try to obtain an information advantage by using expert networks, whereby they hire consultants with
expertise in specific industries.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
68. Diversification among types of mutual funds usually does little to reduce the volatility of returns on the overall
investment.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.02
KEYWORDS:
Bloom’s: Knowledge
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Page 20
69. Closed-end funds may sometimes engage in a stock repurchase, in which they purchase shares on the exchange where
the shares are listed.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
70. Because money market funds contain instruments with short-term maturities, their market values are not very sensitive
to movements in market interest rates.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
71. Equity REITs are sometimes purchased to hedge against inflation, as rents and property values tend to rise with
inflation.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
72. Equity REITs essentially represent fixed-income portfolios, so their market values are heavily influenced by interest
rate movements.
a.
True
b.
False
ANSWER:
b
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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73. Hedge funds are more heavily regulated than mutual funds.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
74. Which of the following is not true regarding mutual funds?
a.
They are a key financial intermediary.
b.
They provide an important service to individual investors seeking to invest funds.
c.
Most mutual funds use experienced portfolio managers, so investors do not have to manage the portfolio
themselves.
d.
They provide a way for individual investors to diversify, but most individual investors are unable to afford the
purchase of mutual fund shares.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Challenging
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
75. Which of the following statements is incorrect?
a.
Exchange-traded funds (ETFs) are designed to mimic particular stock indexes and are traded on a stock
exchange.
b.
ETFs have very high expense ratios.
c.
ETFs differ from most open-end and closed-end funds in that they are not actively managed.
d.
One disadvantage of ETFs is that each purchase of additional shares must be done through the exchange where
they are traded.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Challenging
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
Chapter 23: Mutual Fund Operations
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Page 23
market index.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
80. Which of the following is not a way in which mutual funds generate returns for their shareholders?
a.
They can pass on any earned income as dividend payments to shareholders.
b.
They distribute the capital gains resulting from the sale of securities within the fund.
c.
The mutual fund price appreciates.
d.
All of the above are ways in which a mutual fund generates returns to its shareholders.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
81. A(n) ____ fund contains a sales charge.
a.
Load
b.
no-load
c.
closed-end
d.
open-end
e.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
82. Based on the market value of total assets, which is the dominant type of mutual fund?
a.
hi-yield (junk) bond funds
b.
hybrid funds
c.
stock funds
d.
taxable bond funds
e.
municipal bond funds
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ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
83. Which of the following statements is incorrect?
a.
Investors can purchase shares directly from an open-end fund at any time.
b.
The number of shares of an open-end fund is always changing.
c.
Open-end funds typically maintain some cash on hand in case investments exceed redemptions.
d.
There are many different categories of open-end mutual funds.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
84. ____ funds focus on a group of companies sharing a particular characteristic.
a.
Specialty
b.
Growth and income
c.
Closed-end
d.
Capital appreciation
e.
None of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
85. When at least two-thirds of a bond mutual fund’s portfolio consists of bonds rated below Baa by Moody’s or BBB by
Standard and Poor’s, the fund is called a ____ fund.
a.
Growth
b.
capital appreciation
c.
junk bond
d.
leveraged bond
e.
none of the above
ANSWER:
c
POINTS:
1
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Page 25
86. Which of the following statements is incorrect?
a.
A mutual fund is usually run by an investment company.
b.
Mutual funds with lower expense ratios tend to outperform other funds with a similar investment objective.
c.
For each mutual fund, all expenses charged and reflected in the expense ratio are always valid.
d.
The SEC requires that a majority of the directors of a mutual fund board be independent.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Challenging
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
87. Money market funds commonly invest in
a.
stocks.
b.
real estate.
c.
commercial paper.
d.
U.S. Treasury bonds.
e.
none of the above
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
88. Which of the following is not true with respect to venture capital funds?
a.
They typically invest in young, growing firms that need equity funding but are not ready or willing to go
public.
b.
More than half of all VC investing is in businesses that are being created.
c.
Venture capital funds tend to focus on technology firms, which have the potential for high returns but also
exhibit a high level of risk.
d.
Because VC funds invest in fairly safe ventures, a low percentage of their ventures fail.
e.
All of the above are correct with respect to venture capital funds.
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
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89. ____ funds sell shares to wealthy individuals and financial institutions and use the proceeds to invest in securities.
a.
Growth
b.
Open-end
c.
Capital appreciation
d.
Hedge
e.
Specialty
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
90. Compared to open-end mutual funds, exchange-traded funds generate much more capital gain income that must
be distributed to their shareholders, who must pay tax on the gains.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
91. Shares of exchange-traded funds can be sold _________, and shares of open-end mutual funds can be sold
_________.
a.
at any time during trading hours; at any time via private trading networks
b.
only at the end of the day; at any time during trading hours
c.
at any time via private trading networks; at any time during trading hours
d.
at any time during trading hours; only at the end of the day
ANSWER:
d
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
Chapter 23: Mutual Fund Operations
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b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
96. Hedge funds commonly use financial leverage, which can:
a.
magnify their returns and magnify their losses.
b.
magnify their returns and limit their losses.
c.
reduce their risk and limit their losses.
d.
magnify their returns and not affect their risk.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.23.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge