Chapter 17 – Professional Money Management, Alternative Assets, and Industry Ethics
d.
$23.63
e.
$27.50
85. You are considering investing $50,000 in two mutual funds. The first fund is a load fund with a fee of 6 percent, and
you expect the fund to earn 11 percent over the next year. Alternatively, you could invest in a no-load fund that is
expected to earn 8 percent and has a 0.5 percent redemption fee. What fund has a higher return and how much more value
will it have after the first year?
a.
load fund by $1,360
b.
load fund by $580
c.
no load fund by $580
d.
no load fund by $1,560
e.
no load fund by $1,820
86. On January 1, 2017, you invest $20,000 in Libby Mutual Fund, a load fund that charges a fee of 2.5 percent. The
fund’s returns were 9 percent in 2017, 8 percent in 2018, and 3 percent in 2019. If you redeem all your shares on
December 31, 2019, what is the dollar value?
a.
b.
c.
d.
e.
87. Suppose NBT Mutual Fund has no liabilities and owns only three stocks with the following number of shares and
respective market prices.
Stock
Shares
Price
X
7900
16
Y
8100
15
Z
9200
12
The fund originated by selling $500,000 of stock at $100.00 per share. What is its current NAV?
a.
$0.72
b.
$14.33
c.
$15.21
d.
$71.66
e.
$70.25
88. You are considering investing $1,000 in a load fund that charges a fee of 2.5 percent, with an expected return of 12
percent over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 8
percent and charges a 1/2 percent redemption fee. Which is better and by how much?
a.
load fund by $12.00
b.
load fund by $15.32
c.
load fund by $17.40
d.
no-load fund by $6.55
e.
no-load fund by $1.30
89. What is the offering price for a mutual fund with a NAV of $36.50 and a load of 4 percent?
a.
$34.78
b.
$35.51
c.
$35.77
d.
$36.50
e.
$37.96
90. The 12b-1 plan permits funds to deduct as much as ____ percent of average net asset per year to cover distribution
costs, brokers’ commissions, and general marketing expenses.
a.
0.25
b.
0.50
c.
0.75
d.
1.00
e.
1.50
91. An example of an international fund would be one that consisted of investments in securities from
a.
the U.S., Germany, and Japan.
b.
Germany, Italy, and the U.K.
c.
the U.S., Korea, and Argentina.
Chapter 17 – Professional Money Management, Alternative Assets, and Industry Ethics
d.
the U.S., Germany, and Italy.
e.
the U.S. and Canada.
92. What type of funds are typically no-load funds that impose no penalty for early withdrawal and generally allow
holders to write checks against their account?
a.
mutual funds
b.
open-end funds
c.
closed-end funds
d.
money market funds
e.
balanced funds
93. Which of the following is NOT an example of an alternative asset class?
a.
hedge funds
b.
private equity
c.
real estate
d.
commodities
e.
All of these are correct.
94. When alternative assets of investors are pooled together into a single pool of assets,
a.
the collection of assets is formed as a limited partnership.
b.
one or more general partners are responsible for running the organization.
c.
the limited partners are only liable to the extent of their investments.
d.
the limited partners provide most of the capital.
e.
All of these are correct.
95. Investing in emerging markets can be viewed as a global application of
a.
fixed-income arbitrage.
b.
convertible arbitrage.
c.
merger arbitrage.
d.
distressed opportunistic strategies.
e.
equity market neutral.
96. An investment vehicle that acts like a mutual fund of hedge funds and allows investors access to managers that may
otherwise be unavailable is known as
a.
managed futures funds.
b.
long-short equity funds.
c.
fund of funds.
d.
private equity funds.
e.
leveraged Buyouts (LBOs).
Chapter 17 – Professional Money Management, Alternative Assets, and Industry Ethics
97. Which of the following is a characteristic of hedge funds?
a.
They are generally less restricted in how and where they can make investments.
b.
They are more liquid than mutual fund shares.
c.
They have no limitations on when and how often investment capital can be contributed or removed.
d.
They are more restricted in how and where they can make investments.
e.
They are highly correlated with traditional asset class investments.
98. In a long short hedge fund strategy,
a.
managers take long positions in undervalued stocks and short positions in overvalued stocks.
b.
managers take short positions in undervalued stocks and long positions in overvalued stocks.
c.
managers take offsetting risk positions on the long and short side.
d.
managers take long positions in undervalued stocks and long positions in overvalued stocks.
e.
managers take short positions in undervalued stocks and short positions in overvalued stocks.
99. In a convertible arbitrage strategy, hedge fund managers attempt to
a.
generate profits by taking advantage of convertible bond pricing disparities caused by changing market events.
b.
generate profits by taking advantage of disparities in the relationship between prices for convertible bonds and
the underlying common stock.
c.
generate profits by taking advantage of disparities in the relationship between prices for convertible bonds and
the underlying common stock option.
d.
purchase bonds of distressed companies.
e.
profit from changes in the global economy.
100. Hedge funds that are organized as a limited partnership
a.
are less restricted in how they make investments than general partnership hedge funds.
b.
typically have larger abnormal returns than general partnership hedge funds.
c.
are usually less correlated with traditional asset class investments than general partnership hedge funds.
d.
have less liquid investments than mutual funds.
e.
have more liquid investments than mutual funds.
101. The Investment Company Act of 1940
a.
contains various anti-fraud provisions and record keeping and reporting requirements for fund advisors.
b.
regulates broker-dealers.
c.
requires federal registration of all public offerings of securities.
d.
regulates the structure and operations of mutual funds.
e.
contains a code of ethics and standards of professional conduct.
102. The Securities Act of 1933
a.
contains various anti-fraud provisions and record keeping and reporting requirements for fund advisors.
b.
regulates broker-dealers.
c.
requires federal registration of all public offerings of securities.
d.
regulates the structure and operations of mutual funds.
e.
contains a code of ethics and standards of professional conduct.
103. The Securities Exchange Act of 1934
a.
contains various anti-fraud provisions and record keeping and reporting requirements for fund advisors.
b.
regulates broker-dealers.
c.
requires federal registration of all public offerings of securities.
d.
regulates the structure and operations of mutual funds.
e.
contains a code of ethics and standards of professional conduct.
104. The Investment Advisors Act of 1940
a.
contains various anti-fraud provisions and record keeping and reporting requirements for fund advisors.
b.
regulates broker-dealers.
Chapter 17 – Professional Money Management, Alternative Assets, and Industry Ethics
c.
requires federal registration of all public offerings of securities.
d.
regulates the structure and operations of mutual funds.
e.
contains a code of ethics and standards of professional conduct.
105. Soft dollars are generated when
a.
a manager commits to paying a higher than normal brokerage fee in exchange for additional bundled services.
b.
a manager commits to paying a higher than normal brokerage fee in exchange for secretarial services.
c.
a manager commits to paying a higher than normal brokerage fee in exchange for office equipment.
d.
a manager commits to paying a higher than normal brokerage fee in exchange for research services.
e.
All of these are correct.
106. Ethical conflicts may arise as a result of
a.
incentive compensation schemes.
b.
soft dollar arrangements.
c.
marketing investment management services.
d.
agency conflicts.
e.
All of these are correct.
107. Which of the following are guiding principles for ethical behavior in the asset management industry as put forward
by the CFA Center for Financial Market Integrity?
a.
The interests of investment professional come first.
b.
The preferred method for promoting fair and efficient markets is to set up a central oversight board.
c.
Financial markets in various countries should develop high-quality standards for reporting financial
information that reflect local customs.
d.
Financial statements should be reported from the perspective of firm shareholders.
e.
All of these are correct.
108. Which of the following are functions that a portfolio manager should perform for clients?
a.
determine investment objectives and constraints, diversify the portfolio, and eliminate tax payments
b.
determine investment objectives, diversify the portfolio, maintain ethical standards, and eliminate tax
payments
c.
determine investment objectives and constraints, diversify the portfolio, and maintain ethical standards
d.
determine constraints, diversify the portfolio, and eliminate tax payments
e.
determine investment objectives and constraints, diversify the portfolio, eliminate tax payments, and achieve
risk adjusted return superior to the relevant benchmark
109. A portfolio manager should be able to perform all of the following functions, EXCEPT
a.
determine risk-return preferences.
b.
eliminate systematic risk.
Chapter 17 – Professional Money Management, Alternative Assets, and Industry Ethics
c.
maintain diversification ensuring a stabilized risk class.
d.
attempt to derive a risk-adjusted performance that is superior to the market.
e.
administer the account, keep records, and provide timely information.