FIN 320 Week 3 Quiz – Strayer

FIN/320 Week 3 Quiz – Strayer

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3
Student: ___________________________________________________________________________
1. Underwriting is one of the services provided by _____.

A. the SEC

B. investment bankers

C. publicly traded companies

D. FDIC

2. Under firm-commitment underwriting, the ______ assumes the full risk that the shares cannot be sold to the public at the stipulated offering price.

A. red herring

B. issuing company

C. initial stockholder

D. underwriter

3. Explicit costs of an IPO tend to be around ______ of the funds raised.

A. 1%

B. 7%

C. 15%

D. 25%

4. Barnegat Light sold 200,000 shares in an initial public offering. The underwriter’s explicit fees were $90,000. The offering price for the shares was $35, but immediately upon issue, the share price jumped to $43. What is the best estimate of the total cost to Barnegat Light of the equity issue?

A. $90,000

B. $1,290,000

C. $2,390,000

D. $1,690,000

5. A red herring becomes a prospectus when ____.

A. the preliminary registration statement is approved by the SEC

B. the IPO is complete

C. the offering is seasoned

D. the lockup period expires

6. Private placements can be advantageous, compared to public issue, because:

I. Private placements are cheaper to market than public issues.
II. Private placements may still be sold to the general public under SEC Rule 144A.
III. Privately placed securities trade on secondary markets.

A. I only

B. I and III only

C. II and III only

D. I, II, and III

7. A level _____ subscriber to the NASDAQ system may enter bid and ask prices.

A. 1

B. 2

C. 3

D. 4

8. Which one of the following statements about IPOs is not true?

A. IPOs generally underperform in the short run.

B. IPOs often provide very good initial returns to investors.

C. IPOs generally provide superior long-term performance as compared to other stocks.

D. Shares in IPOs are often primarily allocated to institutional investors.

9. The margin requirement on a stock purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss?

A. 9%

B. 15%

C. 48%

D. 57%

10. The NYSE acquired the ECN _______, and NASDAQ recently acquired the ECN ________.

A. Archipelago; Instinet

B. Instinet; Archipelago

C. Island; Instinet

D. LSE; Euronext

11. Rank the following types of markets from least integrated and organized to most integrated and organized:

I. Brokered markets
II. Continuous auction markets
III. Dealer markets
IV. Direct search markets

A. IV, II, I, III

B. I, III, IV, II

C. II, III, IV, I

D. IV, I, III, II

12. As a result of flash crashes, the SEC is trying circuit breakers that will halt trading for 5 minutes if large stocks’ prices change by more than _____ in a 5-minute period.

A. 10%

B. 20%

C. 30%

D. 40%

13. Which one of the following is not an example of a brokered market?

A. Residential real estate market

B. Market for large block security transactions

C. Primary market for securities

D. NASDAQ

14. More than ______ of all trading is believed to be initiated by computer algorithms.

A. 25%

B. 40%

C. 50%

D. 75%

15. Purchases of new issues of stock take place _________.

A. at the desk of the Fed

B. in the primary market

C. in the secondary market

D. in the money markets

16. Initial margin requirements on stocks are set by _________.

A. the Federal Deposit Insurance Corporation

B. the Federal Reserve

C. the New York Stock Exchange

D. the Securities and Exchange Commission

17. Which one of the following types of markets requires the greatest level of trading activity to be cost-effective?

A. Broker market

B. Dealer market

C. Continuous auction market

D. Direct search market

18. Which one of the following is a false statement regarding NYSE specialists?

A. On a stock exchange most buy or sell orders are executed via an electronic system rather than through specialists.

B. Specialists cannot trade for their own accounts.

C. Specialists maintain limit order books, which contain the outstanding unexecuted limit orders.

D. Specialists stand ready to trade at narrower bid-ask spreads in cases where the spread has become too wide.

19. Restrictions on trading involving insider information apply to:

I. Corporate officers and directors
II. Major stockholders
III. Relatives of corporate directors and officers

A. I only

B. I and II only

C. II and III only

D. I, II, and III

20. An order to buy or sell a security at the current price is a ______________.

A. limit order

B. market order

C. stop-loss order

D. stop-buy order

21. The term inside quotes refers to _____.

A. the difference between the lowest bid price and the highest ask price in the limit order book.

B. the difference between the highest bid price and the lowest ask price in the limit order book.

C. the difference between the lowest bid price and the lowest ask price in the limit order book.

D. the difference between the highest bid price and the highest ask price in the limit order book.

22. The term latency refers to _____.

A. the lag between when an order is placed on the NYSE and when it is executed.

B. the amount of time it takes to accept, process, and deliver a trading order.

C. the time it takes to implement new rules and procedures for stock exchanges and computer trading systems.

D. the lag between when an order is executed and when the investor takes possession of the securities.

23. If an investor places a _________ order, the stock will be sold if its price falls to the stipulated level. If an investor places a __________ order, the stock will be bought if its price rises above the stipulated level.

A. stop-buy; stop-loss

B. market; limit

C. stop-loss; stop-buy

D. limit; market

24. On a given day a stock dealer maintains a bid price of $1,000.50 for a bond and an ask price of $1003.25. The dealer made 10 trades that totaled 500 bonds traded that day. What was the dealer’s gross trading profit for this security?

A. $1,375

B. $500

C. $275

D. $1,450

25. Advantages of ECNs over traditional markets include all but which one of the following?

A. Lower transactions costs

B. Anonymity of the participants

C. Small amount of time needed to execute and order

D. Ability to handle very large orders

26. The __________ was established to protect investors from losses if their brokerage firms fail.

A. CFTC

B. SEC

C. SIPC

D. AIMR

27. When matching orders from the public, a specialist is required to use the _______.

A. lowest outstanding bid price and highest outstanding ask price

B. highest outstanding bid price and highest outstanding ask price

C. lowest outstanding bid price and lowest outstanding ask price

D. highest outstanding bid price and lowest outstanding ask price

28. The process of polling potential investors regarding their interest in a forthcoming initial public offering (IPO) is called ________.

A. interest building

B. book building

C. market analysis

D. customer identification

29. The bulk of most initial public offerings (IPOs) of equity securities goes to ___________.

A. institutional investors

B. individual investors

C. the firm’s current shareholders

D. day traders

30. Initial public offerings (IPOs) are usually ___________ relative to the levels at which their prices stabilize after they begin trading in the secondary market.

A. overpriced

B. correctly priced

C. underpriced

D. mispriced, but without any particular bias

31. According to multiple studies by Ritter, initial public offerings tend to exhibit __________ performance initially and __________ performance over the long term.

A. bad; good

B. bad; bad

C. good; good

D. good; bad

32. Specialists try to maintain a narrow bid-ask spread because:

I. If the spread is too large, they will not participate in as many trades, losing commission income.
II. The exchange requires specialists to maintain price continuity.
III. Specialists are nonprofit entities designed to facilitate market transactions rather than make a profit.

A. I only

B. I and II only

C. II and III only

D. I, II, and III

33. In a __________ underwriting arrangement, the underwriter assumes the full risk that shares may not be sold to the public at the stipulated offering price.

A. best-efforts

B. firm-commitment

C. private placement

D. none of these options

34. The ______________ is the most important dealer market in the United States, and the ______________ is the most important auction market.

A. NYSE; NASDAQ

B. NASDAQ; NYSE

C. CME; OTC

D. AMEX; NYSE

35. The inside quotes on a limit order book can be found ______.

A. at the top of the list

B. at the bottom of the list

C. by taking the averages of the bid and ask prices on the list

D. only by direct contact with the specialist who maintains the book

36. The __________ system enables exchange members to send orders directly to a specialist over computer lines.

A. FAX

B. Direct Plus

C. NASDAQ

D. SUPERDOT

37. The fully automated trade-execution system installed on the NYSE is called _____.

A. FAX

B. Direct +

C. NASDAQ

D. SUPERDOT

38. The NYSE Hybrid Market allows _____.

A. individuals to send orders directly to a specialist

B. individuals to send orders directly to an electronic system

C. brokers to send orders directly to a specialist

D. brokers to send orders either to an electronic system or to a specialist

39. Approximately __________ of trades involving shares issued by firms listed on the New York Stock Exchange actually take place on the New York Stock Exchange.

A. 50%

B. 25%

C. 60%

D. 75%

40. The _________ price is the price at which a dealer is willing to purchase a security.

A. bid

B. ask

C. clearing

D. settlement

41. The _________ price is the price at which a dealer is willing to sell a security.

A. bid

B. ask

C. clearing

D. settlement

42. The difference between the price at which a dealer is willing to buy and the price at which a dealer is willing to sell is called the _________.

A. market spread

B. bid-ask spread

C. bid-ask gap

D. market variation

43. The bid-ask spread exists because of _______________.

A. market inefficiencies

B. discontinuities in the markets

C. the need for dealers to cover expenses and make a profit

D. lack of trading in thin markets

44. The NYSE has lost market share to ECNs in recent years. Part of the NYSE’s response to the growth of ECNs has been to:

I. Purchase Archipelago, a major ECN, and rename it NYSE Arca
II. Enable automatic trade execution through its new Market Center
III. Impose a tighter limit on bid-ask spreads

A. I only

B. II and III only

C. I and II only

D. I, II, and III

45. The cost of buying and selling a stock includes:

I. Broker’s commissions
II. Dealer’s bid-asked spread
III. Price concessions that investors may be forced to make

A. I and II only

B. II and III only

C. I and III only

D. I, II, and III

46. Which of the following is (are) true about dark pools?

I. They allow anonymity in trading.
II. They often involve large blocks of stocks.
III. Trades made through them might not be reported.

A. I and II only

B. II and III only

C. I and III only

D. I, II, and III

47. You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains could be protected by placing a _________.

A. limit buy order

B. limit sell order

C. market order

D. stop-loss order

48. Consider the following limit order book of a specialist. The last trade in the stock occurred at a price of $40. If a market buy order for 100 shares comes in, at what price will it be filled?

A. $39.75

B. $40.25

C. $40.375

D. $40.25 or less

49. You find that the bid and ask prices for a stock are $10.25 and $10.30, respectively. If you purchase or sell the stock, you must pay a flat commission of $25. If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars?

A. $50

B. $25

C. $30

D. $55

50. According to SEC Rule 415 regarding shelf registration, firms can gradually sell securities to the public for __________ following initial registration.

A. 1 year

B. 2 years

C. 3 years

D. 4 years

51. What happened to the effective spread on trades when the SEC allowed the minimum tick size to move from one-eighth of a dollar to one-sixteenth of a dollar in 1997 and from one-sixteenth of a dollar to one cent in 2001?

A. The tick size increased in 1997 but decreased in 2001.

B. The tick size increased in both cases.

C. The tick size decreased in 1997 but increased in 2001.

D. The tick size decreased in both cases.

52. Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________.

A. $20,000

B. $12,000

C. $8,000

D. $15,000

53. You sold short 300 shares of common stock at $30 per share. The initial margin is 50%. You must put up _________.

A. $4,500

B. $6,000

C. $9,000

D. $10,000

54. You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss?

A. $50

B. $150

C. $10,000

D. Unlimited

55. You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain, ignoring transactions cost?

A. $50

B. $150

C. $10,000

D. Unlimited

56. You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____.

A. $37.50

B. $62.50

C. $56.25

D. $59.75

57. You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends, and ignore interest on the margin loan.)

A. $26.55

B. $35.71

C. $28.95

D. $30.77

58. You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65%, and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.

A. 35%

B. 39%

C. 43%

D. 28%

59. You sell short 200 shares of Doggie Treats Inc. that are currently selling at $25 per share. You post the 50% margin required on the short sale. If your broker requires a 30% maintenance margin, at what stock price will you get a margin call? (You earn no interest on the funds in your margin account, and the firm does not pay any dividends.)

A. $28.85

B. $35.71

C. $31.50

D. $32.25

60. Transactions that do not involve the original issue of securities take place in _________.

A. primary markets

B. secondary markets

C. over-the-counter markets

D. institutional markets

61. What was the result of high-frequency traders’ leaving the market during the flash crash of 2010?

A. Market liquidity decreased.

B. Market liquidity increased.

C. Market volatility decreased.

D. Trading frequency increased.

62. __________ often accompany short sales and are used to limit potential losses from the short position.

A. Limit orders

B. Restricted orders

C. Limit loss orders

D. Stop-buy orders

63. The market share held by the NYSE Arca system in February 2011 was approximately ____.

A. 65%

B. 45%

C. 25%

D. 10%

64. Regulation NMS:

I. Supports the goal of integrating financial markets
II. Requires the use of specialists to execute trades
III. Requires that exchanges honor quotes of other exchanges when they can be executed automatically

A. I only

B. I and II only

C. I and III only

D. I, II, and III

65. The commission structure on a stock purchase is $50 plus $.03 per share. If you purchase 600 shares of a stock selling for $65, what is your commission?

A. $35

B. $45

C. $53

D. $68

66. All major stock markets today are effectively _______________.

A. specialist trading systems

B. electronic trading systems

C. continuous auction markets

D. direct search markets

67. In 2008, the NASDAQ stock market merged with _____.

A. Euronext

B. OMX, which operates seven Nordic and Baltic stock exchanges

C. the International Securities Exchange (ISE)

D. BATS

68. You hold 5,000 shares of the 1 million outstanding shares of Wealthy Wranglers common stock. You’ve just learned that the company plans to issue more shares, so that 2 million shares will be outstanding. This is called _____.

A. an advanced equity offering

B. a weathered equity offering

C. a seasoned equity offering

D. a veteran equity offering

69. If an investor uses the full amount of margin available, the equity in a margin account used for a stock purchase can be found as ________.

A. market value of the stock – amount owed on the margin loan

B. market value of the stock + amount owed on the margin loan

C. market value of the stock ÷ margin loan

D. margin loan × market value of the stock

70. The average depth of the limit order book is _____.

A. lower for the large stocks in the S&P 500 Index than for the smaller stocks in the Russell 2000 Index

B. higher for the large stocks in the S&P 500 Index than for the smaller stocks in the Russell 2000 Index

C. about the same for both the large stocks in the S&P 500 Index and the smaller stocks in the Russell 2000 Index

D. unrelated to the sizes of the stocks in the indexes

71. The CFA Institute Standards of Professional Conduct require that members _____.

A. place their clients’ interests before their own

B. disclose conflicts of interest to clients

C. inform their employers that they are obligated to comply with the Standards of Professional Conduct

D. all of these options

72. Trading on inside information is:

I. Prohibited by federal law
II. Prohibited by the CFA Institute Standards of Professional Conduct
III. Monitored by the SEC

A. I and II only

B. II and III only

C. I and III only

D. I, II, and III

73. The ____ requires full disclosure of relevant information relating to the issue of new securities.

A. Insider Trading Act of 1931

B. Securities Act of 1933

C. Securities Exchange Act of 1934

D. Investment Company Act of 1940

74. The SIPC was established by the ____.

A. Insider Trading Act of 1931

B. Securities Act of 1933

C. Securities Exchange Act of 1934

D. none of these options

75. Maintenance requirements for margin accounts are set by ____.

A. brokerage firms

B. the SEC

C. the Federal Reserve System’s Board of Governors

D. the Supreme Court

76. Which of the following are true concerning short sales of exchange-listed stocks?

I. Proceeds from the short sale must be kept on deposit with the broker.
II. Short-sellers must post margin with their broker to cover potential losses on the position.
III. The short-seller earns interest on any cash deposited with the broker that is used to meet the margin requirement.

A. I only

B. I and III only

C. I and II only

D. I, II, and III

77. The largest nongovernmental regulator of securities firms in the United States is ________.

A. the CFA Institute

B. the Public Company Accounting Oversight Board

C. the Financial Industry Regulatory Authority

D. the Board of Directors of NYSE Euronext

78. In ________ markets, participants post bid and ask prices at which they are willing to trade, but orders are not automatically executed by computer. ____________ execute trades for people other than themselves, and in _______________ markets a computer matches orders with an existing limit order book and executes the trades automatically.

A. electronic; Dealers; brokers

B. dealer; Brokers; electronic

C. direct search; Brokers; electronic

D. brokered; Dealers; direct search

79. An investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share, and in 1 year the investor sells the stock for $28. The investor’s rate of return was ____.

A. 17%

B. 12%

C. 14%

D. 19%

80. An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin. The broker charges 6% on the margin loan and requires a 30% maintenance margin. In 1 year the investor has interest payable and gets a margin call. At the time of the margin call the stock’s price must have been ____.

A. $20

B. $29.77

C. $30.29

D. $32.45

81. The New York Stock Exchange is a good example of _________.

A. an auction market

B. a brokered market

C. a dealer market

D. a direct search market

82. The primary market where new security issues are offered to the public is a good example of _________.

A. an auction market

B. a brokered market

C. a dealer market

D. a direct search market

83. The over-the-counter securities market is a good example of _________.

A. an auction market

B. a brokered market

C. a dealer market

D. a direct search market

84. An investor buys $16,000 worth of a stock priced at $20 per share using 60% initial margin. The broker charges 8% on the margin loan and requires a 35% maintenance margin. The stock pays a $.50-per-share dividend in 1 year, and then the stock is sold at $23 per share. What was the investor’s rate of return?

A. 17.5%

B. 19.67%

C. 23.83%

D. 25.75%

85. Level 3 NASDAQ subscribers _____.

A. are registered market makers.

B. can post bid and ask prices.

C. have the fastest execution of trades.

D. all of these options.

86. You sell short 300 shares of Microsoft that are currently selling at $30 per share. You post the 50% margin required on the short sale. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Microsoft is selling at $27? (Ignore any dividends.)

A. 10%

B. 20%

C. 6.67%

D. 15%

87. The commission structure on a stock purchase is $20 plus $.02 per share. If you purchase four round lots of a stock selling for $56, what is your commission?

A. $20

B. $22

C. $26

D. $28

4
Student: ___________________________________________________________________________
1. Which one of the following invests in a portfolio that is fixed for the life of the fund?

A. Mutual fund

B. Money market fund

C. Managed investment company

D. Unit investment trust

2. ______ are partnerships of investors with portfolios that are larger than most individual investors but are still too small to warrant managing on a separate basis.

A. Commingled funds

B. Closed-end funds

C. REITs

D. Mutual funds

3. A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds.

A. commingled pool

B. unit trust

C. hedge fund

D. money market fund

4. Advantages of investment companies to investors include all but which one of the following?

A. Record keeping and administration

B. Low-cost diversification

C. Professional management

D. Guaranteed rates of return

5. Which of the following typically employ significant amounts of leverage?

I. Hedge funds
II. REITs
III. Money market funds
IV. Equity mutual funds

A. I and II only

B. II and III only

C. III and IV only

D. I, II, and III only

6. The NAV of which funds is fixed at $1 per share?

A. Equity funds

B. Money market funds

C. Fixed-income funds

D. Commingled funds

7. The two principal types of REITs are equity trusts, which _______________, and mortgage trusts, which _______________.

A. invest directly in real estate; invest in mortgage and construction loans

B. invest in mortgage and construction loans; invest directly in real estate

C. use extensive leverage; distribute less than 95% of income to shareholders

D. distribute less than 95% of income to shareholders; use extensive leverage

8. A contingent deferred sales charge is commonly called a ____.

A. front-end load

B. back-end load

C. 12b-1 charge

D. top-end sales commission

9. In the United States in 2011, there were approximately _______ mutual funds offered by fewer than _______ fund families.

A. 12,000; 600

B. 7,000; 100

C. 8,000; 700

D. 9,000; 300

10. Part B of a mutual fund prospectus contains information about:

I. Fund holdings by directors and officers
II. Front-end and back-end loads
III. Securities held by the fund at the end of the fiscal year

A. I only

B. I and II only

C. I and III only

D. I, II, and III

11. Mutual funds provide the following for their shareholders:

A. Diversification

B. Professional management

C. Record keeping and administration

D. All of these options

12. The average maturity of fund investments in a money market mutual fund is _______.

A. slightly more than 1 month

B. slightly more than 1 year

C. about 9 months

D. between 2 and 3 years

13. Rank the following fund categories from most risky to least risky:

I. Equity growth fund
II. Balanced fund
III. Sector fund
IV. Money market fund

A. IV, I, III, II

B. III, II, IV, I

C. I, II, III, IV

D. III, I, II, IV

14. Which of the following result in a taxable event for investors?

I. Short-term capital gain distributions from the fund
II. Dividend distributions from the fund
III. Long-term capital gain distributions from the fund

A. I only

B. II only

C. I and II only

D. I, II, and III

15. The type of mutual fund that primarily engages in market timing is called _______.

A. a sector fund

B. an index fund

C. an ETF

D. an asset allocation fund

16. As of 2011, approximately _____ of mutual fund assets were invested in equity funds.

A. 5%

B. 54%

C. 30%

D. 12%

17. As of 2011, approximately _____ of mutual fund assets were invested in bond funds.

A. 14%

B. 19%

C. 37%

D. 47%

18. As of 2011, approximately _____ of mutual fund assets were invested in money market funds.

A. 5%

B. 26%

C. 44%

D. 66%

19. Management fees for open-end and closed-end funds typically range between _____ and _____.

A. .2%; 1.5%

B. .5%; 5%

C. 2%; 5%

D. 3%; 8%

20. The primary measurement unit used for assessing the value of one’s stake in an investment company is ___________________.

A. net asset value

B. average asset value

C. gross asset value

D. total asset value

21. Net asset value is defined as ________________________.

A. book value of assets divided by shares outstanding

B. book value of assets minus liabilities divided by shares outstanding

C. market value of assets divided by shares outstanding

D. market value of assets minus liabilities divided by shares outstanding

22. Assume that you have just purchased some shares in an investment company reporting $500 million in assets, $50 million in liabilities, and 50 million shares outstanding. What is the net asset value (NAV) of these shares?

A. $12

B. $9

C. $10

D. $1

23. Assume that you have recently purchased 100 shares in an investment company. Upon examining the balance sheet, you note that the firm is reporting $225 million in assets, $30 million in liabilities, and 10 million shares outstanding. What is the net asset value (NAV) of these shares?

A. $25.50

B. $22.50

C. $19.50

D. $1.95

24. The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so, the fund buys shares in each S&P 500 company __________.

A. in proportion to the market value weight of the firm’s equity in the S&P 500

B. in proportion to the price weight of the stock in the S&P 500

C. by purchasing an equal number of shares of each stock in the S&P 500

D. by purchasing an equal dollar amount of shares of each stock in the S&P 500

25. Which of the following is not a type of managed investment company?

A. Unit investment trusts

B. Closed-end funds

C. Open-end funds

D. Hedge funds

26. Which of the following funds invest specifically in stocks of fast-growing companies?

A. Balanced funds

B. Growth equity funds

C. REITs

D. Equity income funds

27. A fund that invests in securities worldwide, including the United States, is called ______.

A. an international fund

B. an emerging market fund

C. a global fund

D. a regional fund

28. The greatest percentage of mutual fund assets are invested in ________.

A. bond funds

B. equity funds

C. hybrid funds

D. money market funds

29. Sponsors of unit investment trusts earn a profit by ___________________.

A. deducting management fees from fund assets

B. deducting a percentage of any gains in asset value

C. selling shares in the trust at a premium to the cost of acquiring the underlying assets

D. charging portfolio turnover fees

30. Investors who want to liquidate their holdings in a unit investment trust may ___________________.

A. sell their shares back to the trustee at a discount

B. sell their shares back to the trustee at net asset value

C. sell their shares on the open market

D. sell their shares at a premium to net asset value

31. Investors who want to liquidate their holdings in a closed-end fund may ___________________.

A. sell their shares back to the fund at a discount if they wish

B. sell their shares back to the fund at net asset value

C. sell their shares on the open market

D. sell their shares at a premium to net asset value if they wish

32. __________ fund is defined as one in which the fund charges a sales commission to either buy into or exit from the fund.

A. A load

B. A no-load

C. An index

D. A specialized-sector

33. Which of the following is a false statement regarding open-end mutual funds?

A. They offer investors a guaranteed rate of return.

B. They offer investors a well-diversified portfolio.

C. They redeem shares at their net asset value.

D. They offer low-cost diversification.

34. __________ funds stand ready to redeem or issue shares at their net asset value.

A. Closed-end

B. Index

C. Open-end

D. Hedge

35. Revenue sharing with respect to mutual funds refers to _________.

A. fund companies paying brokers if the broker recommends the fund to investors

B. allowing certain classes of investors to engage in market timing

C. charging loads to new investors in a mutual fund

D. directly marketing funds over the Internet

36. Higher portfolio turnover:

I. Results in greater tax liability for investors
II. Results in greater trading costs for the fund, which investors have to pay for
III. Is a characteristic of asset allocation funds

A. I only

B. II only

C. I and II only

D. I, II, and III

37. Low-load mutual funds have front-end loads of no more than _____.

A. 2%

B. 3%

C. 4%

D. 5%

38. Most real estate investment trusts (REITs) have a debt ratio of around _________.

A. 10%

B. 30%

C. 50%

D. 70%

39. Measured by assets, about _____ of funds are money market funds.

A. 15%

B. 25%

C. 40%

D. 60%

40. Which of the following is not a type of real estate investment trust?

I. Equity trust
II. Debt trust
III. Mortgage trust
IV. Unit trust

A. I and II only

B. II only

C. II and IV only

D. I, II, and III

41. ______________________ are often called mutual funds.

A. Unit investment trusts

B. Open-end investment companies

C. Closed-end investment companies

D. REITs

42. Mutual funds account for roughly ______ of investment company assets.

A. 30%

B. 50%

C. 70%

D. 90%

43. An official description of a particular mutual fund’s planned investment policy can be found in the fund’s _____________.

A. prospectus

B. indenture

C. investment statement

D. 12b-1 forms

44. Mutual funds that hold both equities and fixed-income securities in relatively stable proportions are called ____________________.

A. income funds

B. balanced funds

C. asset allocation funds

D. index funds

45. ______ are mutual funds that vary the proportions of funds invested in particular market sectors according to the fund manager’s forecast of the performance of that market sector.

A. asset allocation funds

B. balanced funds

C. index funds

D. income funds

46. Specialized-sector funds concentrate their investments in _________________.

A. bonds of a particular maturity

B. geographic segments of the real estate market

C. government securities

D. securities issued by firms in a particular industry

47. If a mutual fund has multiple-class shares, which class typically has a front-end load?

A. Class A

B. Class B

C. Class C

D. Class D

48. The commission, or front-end load, paid when you purchase shares in mutual funds may not exceed __________.

A. 3.5%

B. 6%

C. 8.5%

D. 10%

49. You are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with a __________ rather than a __________, everything else equal.

A. 12b-1 fee; front-end load

B. front-end load; 12b-1 fee

C. back-end load; front-end load

D. 12b-1 fee; back-end load

50. Under SEC rules, the managers of certain funds are allowed to deduct charges for advertising, brokerage commissions, and other sales expenses directly from the fund assets rather than billing investors. These fees are known as ____________.

A. direct operating expenses

B. back-end loads

C. 12b-1 charges

D. front-end loads

51. The SEC requires funds to disclose:

I. After-tax returns for the past year
II. After-tax returns for the last 5-year period
III. The tax impact of portfolio turnover

A. I only

B. I and II only

C. I and III only

D. I, II, and III

52. SEC Rule 12b-1 allows managers of certain funds to deduct __________ expenses from fund assets; however, these expenses may not exceed __________ of the fund’s average net assets per year.

A. marketing; 1%

B. marketing; 5%

C. administrative; .5%

D. administrative; 2%

53. Consider a mutual fund with $300 million in assets at the start of the year and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year-end value, what is the rate of return on the fund?

A. 15.64%

B. 16%

C. 17.25%

D. 17.5%

54. Consider a no-load mutual fund with $200 million in assets and 10 million shares at the start of the year and with $250 million in assets and 11 million shares at the end of the year. During the year investors have received income distributions of $2 per share and capital gain distributions of $.25 per share. Assuming that the fund carries no debt, and that the total expense ratio is 1%, what is the rate of return on the fund?

A. 11.19%

B. 23.75%

C. 24.64%

D. The answer cannot be determined from the information given.

55. Consider a no-load mutual fund with $400 million in assets, 50 million in debt, and 15 million shares at the start of the year and with $500 million in assets, 40 million in debt, and 18 million shares at the end of the year. During the year investors have received income distributions of $.50 per share and capital gain distributions of $.30 per share. If the total expense ratio is .75%, what is the rate of return on the fund?

A. 12.09%

B. 12.99%

C. 8.25%

D. The answer cannot be determined from the information given.

56. Mutual fund returns may be granted pass-through status if _________________.

A. virtually all income is distributed to shareholders

B. the fund qualifies for pass-through status according to the U.S. tax code

C. the fund is sufficiently diversified

D. All of these options (All of the answers must be true for pass-through status to be granted.)

57. _____ is an example of an exchange-traded fund.

A. An SPDR or spider

B. A samurai

C. A Vanguard

D. An open-end fund

58. If you place an order to buy or sell a share of a mutual fund during the trading day, the order will be executed at _____.

A. the NAV calculated at the market close at 4 pm New York time

B. the real time NAV

C. the NAV delayed 15 minutes

D. the NAV calculated at the opening of the next day’s trading

59. According to the 2011 Mutual Fund Fact Book, _______ of total assets were in taxable money market funds and _______ were tax-exempt money market funds.

A. 35%; 14%

B. 12.3%; 75%

C. 22%; 3.9%

D. 5%; 47%

60. In his 1970 study, Malkiel found that mutual funds that do well in one period have an approximately ________ chance of doing well in the subsequent-year period.

A. 33%

B. 52%

C. 65%

D. 85%

61. In a recent study, Malkiel found that evidence of persistence in the performance of mutual funds ________________ in the 1980s.

A. grew stronger

B. remained about the same

C. became slightly weaker

D. virtually disappeared

62. The ratio of trading activity of a portfolio to the assets of the portfolio is called the ____________.

A. reinvestment ratio

B. trading rate

C. portfolio turnover

D. tax yield

63. Which of the following ETFs tracks the S&P 500 Index?

A. Qubes

B. Diamonds

C. Vipers

D. Spiders

64. The Stone Harbor Fund is a closed-end investment company with a portfolio currently worth $300 million. It has liabilities of $5 million and 9 million shares outstanding. If the fund sells for $30 a share, what is its premium or discount as a percent of NAV?

A. 9.26% premium

B. 8.47% premium

C. 9.26% discount

D. 8.47% discount

65. The difference between balanced funds and asset allocation funds is that _____.

A. balanced funds invest in bonds while asset allocation funds do not

B. asset allocation funds invest in bonds while balanced funds do not

C. balanced funds have relatively stable proportions of stocks and bonds while the proportions may vary dramatically for asset allocation funds

D. balanced funds make no capital gain distributions and asset allocation funds make both dividend and capital gain distributions

66. The Wildwood Fund sells Class A shares with a front-end load of 5% and Class B shares with a 12b-1 fee of 1% annually. If you plan to sell the fund after 4 years, are Class A or Class B shares the better choice? Assume a 10% annual return net of expenses before the 12b-1 fee is applied.

A. Class A.

B. Class B.

C. There is no difference.

D. The answer cannot be determined from the information given.

67. A mutual fund has total assets outstanding of $69 million. During the year the fund bought and sold assets equal to $17.25 million. This fund’s turnover rate was _____.

A. 25%

B. 28.5%

C. 18.63%

D. 33.4%

68. Which type of investment fund is commonly known to invest in options and futures in large scale?

A. Commingled funds

B. Hedge funds

C. ETFs

D. REITs

69. Advantages of ETFs over mutual funds include all but which one of the following?

A. ETFs trade continuously, so investors can trade throughout the day.

B. ETFs can be sold short or purchased on margin, unlike fund shares.

C. ETF providers do not have to sell holdings to fund redemptions.

D. ETF values can diverge from NAV.

70. Harold has just taken his company public and owns a large quantity of restricted stock. For purposes of diversification, what fund might he help create in order to diversify his holdings?

A. Commingled funds

B. Hedge funds

C. ETF

D. REITs

71. Which of the following funds is most likely to have a debt ratio of 70% or higher?

A. Bond fund

B. Commingled fund

C. Mortgage-backed securities

D. REIT

72. _______ have become the main way for investors to speculate in precious metals.

A. Strategic income funds

B. Balanced funds

C. Specialized-sector funds

D. Exchange-traded funds

73. From 1971 to 2010 the average return on the Wilshire 5000 Index was _________ the return of the average mutual fund.

A. identical to

B. .8% higher than

C. .8% lower than

D. 1.3% higher than

74. An open-end fund has a NAV of $16.50 per share. The fund charges a 6% load. What is the offering price?

A. $14.57

B. $15.95

C. $17.55

D. $16.49

75. The offer price of an open-end fund is $18 and the fund is sold with a front-end load of 5%. What is the fund’s NAV?

A. $18.74

B. $17.10

C. $15.40

D. $16.57

76. A mutual fund has $50 million in assets at the beginning of the year and 1 million shares outstanding throughout the year. Throughout the year assets grow at 12%. The fund imposes a 12b-1 fee on all shares equal to 1%. The fee is imposed on year-end asset values. If there are no distributions, what is the end-of-year NAV for the fund?

A. $50

B. $55.44

C. $56.12

D. $54.55

77. The assets of a mutual fund are $25 million. The liabilities are $4 million. If the fund has 700,000 shares outstanding and pays a $3 dividend, what is the dividend yield?

A. 5%

B. 10%

C. 15%

D. 20%

78. Which of the following funds are usually most tax-efficient?

A. Equity funds

B. Bond Funds

C. ETFs

D. Specialized-sector funds

79. You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 2% back-end load, which decreases .5% per year. How much will you pay in fees on a $10,000 investment that does not grow if you cash out after 3 years of no gain?

A. $103

B. $219

C. $553

D. $635

80. You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0% back-end load on Class A shares. The same fund charges a 0% front-end load, 1% total annual fees, and a 2% back-end load on Class B shares. What are the total fees in year 1 on a Class A investment of $20,000 with no growth in value?

A. $658

B. $794

C. $885

D. $902

81. You invest in a mutual fund that charges a 3% front-end load, 1% total annual fees, and a 0% back-end load on Class A shares. The same fund charges a 0% front-end load, 1% total annual fees, and a 2% back-end load on Class B shares. What are the total fees in year 1 on a Class B investment of $20,000 if you redeem shares with no growth in value?

A. $596

B. $794

C. $885

D. $902

82. You pay $21,600 to the Laramie Fund, which has a NAV of $18 per share at the beginning of the year. The fund deducted a front-end load of 4%. The securities in the fund increased in value by 10% during the year. The fund’s expense ratio is 1.3% and is deducted from year-end asset values. What is your rate of return on the fund if you sell your shares at the end of the year?

A. 4.35%

B. 4.23%

C. 6.45%

D. 5.63%

83. Which one of the following statements about returns reported by mutual funds is not correct?

A. Reported returns are net of management expenses.

B. Reported returns are net of 12b-1 fees.

C. Reported returns are net of brokerage fees paid on the fund’s trading activity.

D. None of these options. (All of the items are included in reported returns.)

84. The top Morningstar mutual fund performance rating is ________.

A. five stars

B. four stars

C. three stars

D. two stars

85. You are considering investing in a no-load mutual fund with an annual expense ratio of .6% and an annual 12b-1 fee of .75%. You could also invest in a bank CD paying 6.5% per year. What minimum annual rate of return must the fund earn to make you better off in the fund than in the CD?

A. 7.1%

B. 7.45%

C. 7.25%

D. 7.85%