TEST BANK
CAPITAL MARKETS: INSTITUTIONS AND INSTRUMENTS
FABOZZI/MODIGLIANI
Chapter 5
ASSET MANAGEMENT FIRMS
MULTIPLE CHOICE
1. Which of the following are types of investment companies?
[E]
2. Investors in mutual funds incur:
[E]
3. Shares selling below the net asset value (NAV) are said to be trading at:
[E]
4. The family of funds concept represents the strategy of the mutual fund industry to offer
investors a choice of numerous funds with different investment objectives in the same
fund family. Thus, investors may move their assets among:
5. Exchange-traded mutual funds have which of the following characteristics?
[E]
6. When the asset manager customizes the investment selection to the objectives of the
investor, this is referred to as:
[E]
7. The term “hedge fund” was first used to describe:
[M]
8. The management fee structure for hedge funds is:
[M]
9. A fund in which the asset manager retains some exposure to systematic risk is:
10. All of the following fall under the category of convergence trading hedge funds
EXCEPT:
[M]
11. Which of the following are considered plan sponsors?
[E]
12. Pension funds are financed by contributions from:
[M]
13. The different types of pension plans include:
[M]
14. By far the fastest growing sector of the defined contribution plans is the:
15. In a defined contribution plan, the plan sponsor is responsible for making:
[M]
16. Pension equity and floor-offset plans are examples of:
[M]
17. Pension plans are regulated under which of the following acts?
[M]
18. The Pension Funding Equity Act:
[D]
19. When the value of the assets of a defined benefit plan is exceeded by the value of its
liabilities, the plan is said to:
28
20. The pension crisis being faced by corporate defined benefit plans is due to:
[M]
TRUE/FALSE
1. A mutual fund that charges no sales commission is called a front-end load fund.
[E]
2. The NAV of a fund valued at $2 million with $500,000 in liabilities and 10,000 shares
outstanding is $250.
[M]
3. For a closed-end fund, the share price is always the NAV of the fund.
[M]
4. An active fund tries to outperform an index and other funds by actively trading the fund
portfolio.
[E]
5. Unlike a mutual fund, a closed-end fund does not provide risk reduction via
diversification.
[M]
6. At the current time, hedge funds are not regulated by the SEC.
[M]
7. Qualified pension funds are exempt from federal income taxes.
[E]
8. An insured defined benefit plan is safer than a noninsured plan.
[E]
9. Under ERISA, when an employee retires the plan sponsor may take the necessary
retirement benefits out of current cash flow.
[M]
10. A plan is said to be underfunded when its funding ratio falls below 100%.
ESSAY QUESTIONS
1. Discuss the similarities and differences between exchange traded funds and closed-end
funds.
Key Issues:
2. Explain the economic functions provided by mutual funds.
Key Issues:
3. Discuss the management of pension funds.
Key Issues: