Chapter 04 – Mutual Funds and other Investment Companies
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Chapter 04
Mutual Funds and other Investment Companies
Multiple Choice Questions
1. Which one of the following statements regarding open-end mutual funds is false?
A. The funds redeem shares at net asset value.
B. The funds offer investors professional management.
Difficulty: Moderate
2. Which one of the following statements regarding closed-end mutual funds is false?
A. The funds always trade at a discount from NAV.
B. The funds redeem shares at their net asset value.
Difficulty: Moderate
3. Which of the following functions do mutual fund companies perform for their investors?
A. Record keeping and administration
B. Diversification and divisibility
Difficulty: Easy
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4. Multiple Mutual Funds had year-end assets of $457,000,000 and liabilities of $17,000,000.
There were 24,300,000 shares in the fund at year-end. What was Multiple Mutual’s Net Asset
Value?
D. $7.00
E. $181.07
Difficulty: Moderate
5. Growth Fund had year-end assets of $862,000,000 and liabilities of $12,000,000. There
were 32,675,254 shares in the fund at year-end. What was Growth Fund’s Net Asset Value?
A. $28.17
B. $25.24
Difficulty: Moderate
6. Diversified Portfolios had year-end assets of $279,000,000 and liabilities of $43,000,000. If
Diversified’s NAV was $42.13, how many shares must have been held in the fund?
A. 43,000,000
B. 6,488,372
Difficulty: Moderate
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7. Pinnacle Fund had year-end assets of $825,000,000 and liabilities of $25,000,000. If
Pinnacle’s NAV was $32.18, how many shares must have been held in the fund?
A. 21,619,346,92
B. 22,930,546.28
Difficulty: Moderate
8. Most actively managed mutual funds, when compared to a market index such as the
Wilshire 5000,
A. beat the market return in all years.
B. beat the market return in most years.
Difficulty: Easy
9. Pools of money invested in a portfolio that is fixed for the life of the fund are called
A. closed-end funds.
B. open-end funds.
Difficulty: Easy
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10. Investors in closed-end funds who wish to liquidate their positions must
D. sell their shares to the issuer for Net Asset Value.
E. hold their shares to maturity.
Difficulty: Moderate
11. Closed end funds are frequently issued at a ______ to NAV and subsequently trade at a
__________ to NAV.
A. discount, discount
B. discount, premium
Difficulty: Moderate
12. At issue, offering prices of open-end funds will often be
A. less than NAV due to loads and commissions.
Difficulty: Difficult
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13. Which of the following statements about Real Estate Investment Trusts is true?
A. REITs invest in real estate or loans secured by real estate.
Difficulty: Moderate
14. Which of the following statements about Real Estate Investment Trusts is true?
A. REITs may be equity trusts or mortgage trusts.
Difficulty: Moderate
15. Which of the following statements about Money Market Mutual Funds is true?
A. They invest in commercial paper, CDs, and repurchase agreements.
B. They usually offer check-writing privileges.
Difficulty: Moderate
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16. In 2007 the proportion of mutual funds specializing in common stocks was
A. 21.7%
B. 28.0%
Difficulty: Moderate
17. In 2007 the proportion of mutual funds specializing in bonds was
D. 73.4%
E. 63.5%
Difficulty: Moderate
18. In 2007 the proportion of mutual funds specializing in money market securities was
A. 21.7%
B. 28.0%
Difficulty: Moderate
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19. In 2007 the proportion of hybrid (bond and stock) mutual funds was
A. 21.7%
Difficulty: Moderate
20. Management fees and other expenses of mutual funds may include
A. front-end loads.
B. back-end loads.
Difficulty: Easy
21. The Profitability Fund had NAV per share of $17.50 on January 1, 2007. On December 31
of the same year the fund’s NAV was $19.47. Income distributions were $0.75 and the fund
had capital gain distributions of $1.00. Without considering taxes and transactions costs, what
rate of return did an investor receive on the Profitability fund last year?
A. 11.26%
B. 15.54%
Difficulty: Moderate
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22. The Yachtsman Fund had NAV per share of $36.12 on January 1, 2007. On December 31
of the same year the fund’s NAV was $39.71. Income distributions were $0.64 and the fund
had capital gain distributions of $1.13. Without considering taxes and transactions costs, what
rate of return did an investor receive on the Yachtsman Fund last year?
A. 22.92%
Difficulty: Moderate
23. Investors’ Choice Fund had NAV per share of $37.25 on January 1, 2007. On December
31 of the same year the fund’s rate of return for the year was 17.3%. Income distributions
were $1.14 and the fund had capital gain distributions of $1.35. Without considering taxes and
transactions costs, what ending NAV would you calculate for Investors’ Choice?
D. $42.03
E. $46.62
Difficulty: Moderate
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24. Which of the following is not an advantage of mutual funds?
A. They offer a variety of investment styles.
B. They offer small investors the benefits of diversification.
Difficulty: Easy
25. Which of the following would increase the net asset value of a mutual fund share,
assuming all other things remain unchanged?
A. an increase in the number of fund shares outstanding
Difficulty: Easy
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26. Which of the following characteristics apply to unit investment trusts?
I) Most are invested in fixed-income portfolios.
II) They are actively managed portfolios.
III) The sponsor pools securities, then sells public shares in the trust.
IV) The portfolio is fixed for the life of the fund.
A. I and IV
B. I and II
Difficulty: Moderate
27. Jargon Rapid Growth is a mutual fund that has traditionally accepted funds from new
investors and issued new shares at net asset value. Jeremy Jargon manages the fund himself
and has become concerned that its level of assets has become too high for his management
abilities. He issues a statement that Jargon will no longer accept funds from new investors, but
will continue to accept additional investments from current shareholders. Which of the
following is true about Jargon Rapid Growth fund?
A. Jargon used to be an open-end fund but has now become a closed-end fund.
Difficulty: Moderate
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28. As of 2007, which class of mutual funds had the largest amount of assets invested?
D. money market funds
E. global funds
Difficulty: Easy
29. Commingled funds are
A. amounts invested in equity and fixed-income mutual funds.
B. funds that may be purchased at intervals of 3, 6, or 12 month intervals at the discretion of
management.
Difficulty: Easy
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30. Which of the following is true regarding equity mutual funds:
I) They invest primarily in stock.
II) They may hold fixed-income securities as well as stock.
III) Most hold money market securities as well as stock.
IV) Two types of equity funds are income funds and growth funds.
A. I and IV
B. I, III, and IV
Difficulty: Moderate
31. The fee that mutual funds use to help pay for advertising and promotional literature is
called a
A. front-end load fee.
B. back-end load fee.
Difficulty: Easy
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32. Patty O’Furniture purchased 100 shares of Green Isle mutual fund at a net asset value of
$42 per share. During the year Patty received dividend income distributions of $2.00 per share
and capital gains distributions of $4.30 per share. At the end of the year the shares had a net
asset value of $40 per share. What was Patty’s rate of return on this investment?
A. 5.43%
Difficulty: Moderate
33. Assume that you purchased 200 shares of Super Performing mutual fund at a net asset
value of $21 per share. During the year you received dividend income distributions of $1.50
per share and capital gains distributions of $2.85 per share. At the end of the year the shares
D. 22.44%
E. 29.18%
Difficulty: Moderate
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34. Assume that you purchased shares of High Flying mutual fund at a net asset value of
$12.50 per share. During the year you received dividend income distributions of $0.78 per
share and capital gains distributions of $1.67 per share. At the end of the year the shares had a
net asset value of $13.87 per share. What was your rate of return on this investment?
A. 29.43%
Difficulty: Moderate
35. Assume that you purchased shares of a mutual fund at a net asset value of $14.50 per
share. During the year you received dividend income distributions of $0.27 per share and
capital gains distributions of $0.65 per share. At the end of the year the shares had a net asset
value of $13.74 per share. What was your rate of return on this investment?
A. 2.91%
Difficulty: Moderate
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36. Assume that you purchased shares of a mutual fund at a net asset value of $10.00 per
share. During the year you received dividend income distributions of $0.05 per share and
capital gains distributions of $0.06 per share. At the end of the year the shares had a net asset
value of $8.16 per share. What was your rate of return on this investment?
A. -18.24%
Difficulty: Moderate
37. A mutual fund had year-end assets of $560,000,000 and liabilities of $26,000,000. There
were 23,850,000 shares in the fund at year end. What was the mutual fund’s Net Asset Value?
A. $22.87
Difficulty: Moderate
38. A mutual fund had year-end assets of $250,000,000 and liabilities of $4,000,000. There
were 3,750,000 shares in the fund at year-end. What was the mutual fund’s Net Asset Value?
A. $92.53
Difficulty: Moderate
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39. A mutual fund had year-end assets of $700,000,000 and liabilities of $7,000,000. There
were 40,150,000 shares in the fund at year-end. What was the mutual fund’s Net Asset
Value?
A. $9.63
B. $57.71
Difficulty: Moderate
40. A mutual fund had year-end assets of $750,000,000 and liabilities of $7,500,000. There
were 40,000,000 shares in the fund at year-end. What was the mutual fund’s Net Asset
Value?
A. $9.63
Difficulty: Moderate
41. A mutual fund had year-end assets of $465,000,000 and liabilities of $37,000,000. If the
fund NAV was $56.12, how many shares must have been held in the fund?
A. 4,300,000
B. 6,488,372
Difficulty: Moderate