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42. A mutual fund had year-end assets of $521,000,000 and liabilities of $63,000,000. If the
fund NAV was $26.12, how many shares must have been held in the fund?
D. 17,542,515
E. None of the above.
Difficulty: Moderate
43. A mutual fund had year-end assets of $327,000,000 and liabilities of $46,000,000. If the
fund NAV was $30.48, how many shares must have been held in the fund?
A. 11,354,751
Difficulty: Moderate
44. A mutual fund had year-end assets of $437,000,000 and liabilities of $37,000,000. If the
fund NAV was $60.12, how many shares must have been held in the fund?
D. 9,165,414
E. 9,219,160
Difficulty: Moderate
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45. A mutual fund had NAV per share of $19.00 on January 1, 2007. On December 31 of the
same year the fund’s NAV was $19.14. Income distributions were $0.57 and the fund had
capital gain distributions of $1.12. Without considering taxes and transactions costs, what rate
of return did an investor receive on the fund last year?
A. 11.26%
B. 10.54%
Difficulty: Moderate
46. A mutual fund had NAV per share of $23.00 on January 1, 2007. On December 31 of the
same year the fund’s NAV was $23.15. Income distributions were $0.63 and the fund had
capital gain distributions of $1.26. Without considering taxes and transactions costs, what rate
of return did an investor receive on the fund last year?
A. 11.26%
B. 10.54%
Difficulty: Moderate
Chapter 04 – Mutual Funds and other Investment Companies
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47. A mutual fund had NAV per share of $26.25 on January 1, 2007. On December 31 of the
same year the fund’s rate of return for the year was 16.4%. Income distributions were $1.27
and the fund had capital gain distributions of $1.85. Without considering taxes and
transactions costs, what ending NAV would you calculate?
D. $42.03
E. $16.62
Difficulty: Moderate
48. A mutual fund had NAV per share of $16.75 on January 1, 2007. On December 31 of the
same year the fund’s rate of return for the year was 26.6%. Income distributions were $1.79
and the fund had capital gain distributions of $2.80. Without considering taxes and
transactions costs, what ending NAV would you calculate?
A. $17.44
B. $13.28
Difficulty: Moderate
Chapter 04 – Mutual Funds and other Investment Companies
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49. A mutual fund had NAV per share of $36.15 on January 1, 2007. On December 31 of the
same year the fund’s rate of return for the year was 14.0%. Income distributions were $1.16
and the fund had capital gain distributions of $2.12. Without considering taxes and
transactions costs, what ending NAV would you calculate?
D. $47.25
E. $36.28
Difficulty: Moderate
50. A mutual fund had NAV per share of $37.12 on January 1, 2007. On December 31 of the
same year the fund’s rate of return for the year was 11.0%. Income distributions were $2.26
and the fund had capital gain distributions of $1.64. Without considering taxes and
transactions costs, what ending NAV would you calculate?
A. $37.93
B. $34.52
Difficulty: Moderate
Chapter 04 – Mutual Funds and other Investment Companies
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51. Differences between hedge funds and mutual funds are that
A. hedge funds are only subject to minimal SEC regulation.
B. hedge funds are typically open only to wealthy or institutional investors.
Difficulty: Moderate
52. Of the following types of mutual funds, an investor that wishes to invest in a diversified
portfolio of stocks worldwide (including the U.S.) should choose
A. international funds.
Difficulty: Moderate
53. Of the following types of mutual funds, an investor that wishes to invest in a diversified
portfolio of foreign stocks (excluding the U.S.) should choose
D. Emerging market funds
E. None of the above
Difficulty: Moderate
Chapter 04 – Mutual Funds and other Investment Companies
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54. Of the following types of EFTs, an investor that wishes to invest in a diversified portfolio
D. IWM.
E. VTI.
Difficulty: Moderate
55. Of the following types of EFTs, an investor that wishes to invest in a diversified portfolio
that tracks the Dow Jones Industrials should choose
A. SPY.
Difficulty: Moderate
56. Of the following types of EFTs, an investor that wishes to invest in a diversified portfolio
that tracks the Nasdaq 100 should choose
A. SPY.
B. DIA.
Difficulty: Moderate
Chapter 04 – Mutual Funds and other Investment Companies
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57. Of the following types of EFTs, an investor that wishes to invest in a diversified portfolio
that tracks the Russell 2000 should choose
A. SPY.
Difficulty: Moderate
58. Of the following types of EFTs, an investor that wishes to invest in a diversified portfolio
that tracks the Wilshire 5000 should choose
A. SPY.
B. DIA.
Difficulty: Moderate
59. Of the following types of EFTs, an investor that wishes to invest in a diversified portfolio
that tracks the MSCI Japan Index should choose
A. SPY.
Difficulty: Moderate
Chapter 04 – Mutual Funds and other Investment Companies
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60. Of the following types of EFTs, an investor that wishes to invest in a diversified portfolio
that tracks the MSCI France Index should choose
A. SPY.
B. EWJ.
Difficulty: Moderate
61. A mutual funds had average daily assets of $3.0 billion in 2007. The fund sold $600
million worth of stock and purchased $700 million worth of stock during the year. The funds
turnover ratio is ___.
A. 27.5%
Difficulty: Moderate
62. A mutual funds had average daily assets of $2.0 billion on 2007. The fund sold $500
million worth of stock and purchased $600 million worth of stock during the year. The funds
turnover ratio is ___.
A. 27.5%
B. 12%
Difficulty: Moderate
Chapter 04 – Mutual Funds and other Investment Companies
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63. A mutual funds had average daily assets of $4.0 billion on 2007. The fund sold $1.5
billion worth of stock and purchased $1.6 billion worth of stock during the year. The funds
turnover ratio is ____________.
D. 45%
E. 20%
Difficulty: Moderate
64. A mutual funds had average daily assets of $4.7 billion on 2007. The fund sold $2.2
billion worth of stock and purchased $3.6 billion worth of stock during the year. The funds
turnover ratio is ____________.
A. 37.5%
B. 22.6%
Difficulty: Moderate
Chapter 04 – Mutual Funds and other Investment Companies
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65. You purchased shares of a mutual fund at a price of $20 per share at the beginning of the
year and paid a front-end load of 5.75%. If the securities in which the find invested increased
in value by 11% during the year, and the funds expense ratio was 1.25%, your return if you
sold the fund at the end of the year would be ____________.
D. 6.87
E. None of the above
Difficulty: Difficult
66. You purchased shares of a mutual fund at a price of $12 per share at the beginning of the
year and paid a front-end load of 4.75%. If the securities in which the fund invested increased
in value by 9% during the year, and the funds expense ratio was 1.5%, your return if you sold
the fund at the end of the year would be ____________.
A. 4.75
Difficulty: Difficult
Chapter 04 – Mutual Funds and other Investment Companies
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67. You purchased shares of a mutual fund at a price of $17 per share at the beginning of the
year and paid a front-end load of 5.0%. If the securities in which the find invested increased in
value by 12% during the year, and the funds expense ratio was 1.0%, your return if you sold
D. 4.39
E. None of the above
Difficulty: Difficult
68. You purchased shares of a mutual fund at a price of $20 per share at the beginning of the
year and paid a front-end load of 6.0%. If the securities in which the find invested increased in
value by 10% during the year, and the funds expense ratio was 1.5%, your return if you sold
the fund at the end of the year would be ____________.
D. 2.06
E. None of the above
Difficulty: Difficult
Chapter 04 – Mutual Funds and other Investment Companies
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Short Answer Questions
69. List and describe the more important types of mutual funds according to their investment
policy and use.
Some of the more important fund types, classified by investment policy, are:
Money Market Funds – These funds invest in money market securities. They usually offer
check-writing features and NAV is fixed at $1 per share, so that there are no tax implications
associated with redemption of shares. They provide low risk, relatively low return and high
liquidity.
Equity Funds – These funds invest primarily in stock, although they may hold other types of
securities at the manager’s discretion. They may also hold some money market securities to
provide liquidity for share redemption. Typical objectives are capital gain, growth, growth
and income, income, and income and security.
Bond Funds – These funds specialize in fixed-income securities such as corporate bonds,
Treasury bonds, mortgage-backed securities or municipal bonds. These funds may specialize
by maturity or credit risk as well.
Difficulty: Moderate
Chapter 04 – Mutual Funds and other Investment Companies
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70. Discuss the taxation of mutual fund income.
Investment returns of mutual funds are granted “pass-through status” under the U.S. tax code,
meaning that taxes are paid only by the investor in the mutual fund, not by the fund itself. The
income is treated as passed through to the investor as long as all income is distributed to
shareholders.
Difficulty: Difficult
Chapter 04 – Mutual Funds and other Investment Companies
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71. What is an Exchange-traded fund? Give two examples of specific ETFs. What are some
advantages they have over ordinary open-end mutual funds? What are some disadvantages?
ETFs allow investors to trade index portfolios. Some examples are spiders (SPDR), which
track the S&P500 index, diamonds (DIA), which track the Dow Jones Industrial Average, and
qubes (QQQ), which track the NASDAQ 100 index. Other examples are listed in Table 4-3.
(It is anticipated that there may soon be ETFs that track actively managed funds as well ad the
current ones that track indexes.)
Advantages –
1. ETFs may be bought and sold during the trading day at prices that reflect the current value
of the underlying index. This is different from ordinary open-end mutual funds, which are
Difficulty: Difficult
Chapter 04 – Mutual Funds and other Investment Companies
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72. Discuss the consistency of mutual fund performance results, as studied by Goetzmann and
Ibbotson (1994) and Malkiel (1995).
Goetzmann and Ibbotson found that, of mutual funds that performed in the top half of their
categories during an initial period, 62% remained “winners” during the subsequent two-year
period. The other 38% became “losers”. Of the funds that performed in the bottom half of
their categories during the initial period, 63.4% remained “losers” in the subsequent two-year
Difficulty: Moderate