Question 1

The number of exchange-traded funds has declined over the last several years because the cost of managing them was excessive.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is incorrect?

Accepted Answer

A)  ETFs are like index mutual funds because the share price adjusts over time in response to the change in the index level.
B)  Both ETFs and index mutual funds pay dividends in the form of additional shares to investors.
C)  The portfolio management of both ETFs and index mutual funds is very complex.
D)  ETFs can be traded throughout the day.E) C) and D)
F) B) and D)

Question 3

Portfolio managers are hired by the mutual fund to invest in a portfolio of securities that satisfies the desires of investors.

Accepted Answer

A) True 
 B)False

Question 4

When the redemptions of money market mutual fund shares exceeds sales of shares, the fund accommodates the amount of excessive redemptions by

Accepted Answer

A)  selling some of the assets contained in the portfolio.
B)  issuing stock.
C)  issuing bonds.
D)  borrowing from banks.E) C) and D)
F) All of the above

Question 5

A front-end load is a withdrawal fee assessed when you withdraw money from the mutual fund.

Accepted Answer

A) True 
 B)False

Question 6

Shares of exchange-traded funds can be sold _________, and shares of open-end mutual funds can be sold _________.

Accepted Answer

A)  at any time during trading hours; at any time via private trading networks
B)  only at the end of the day; at any time during trading hours
C)  at any time via private trading networks; at any time during trading hours
D)  at any time during trading hours; only at the end of the dayE) A) and D)
F) B) and C)

Question 7

Which of the following is not a way in which mutual funds generate returns for their shareholders?

Accepted Answer

A)  They can pass on any earned income as dividend payments to shareholders.
B)  They distribute the capital gains resulting from the sale of securities within the fund.
C)  The mutual fund price appreciates.
D)  All of the above are ways in which a mutual fund generates returns to its shareholders.E) A) and B)
F) A) and C)

Question 8

Mutual funds must register with the U.S. Treasury and provide to interested investors a prospectus that discloses details about the components of the funds and risks involved.

Accepted Answer

A) True 
 B)False

Question 9

____ funds focus on a group of companies sharing a particular characteristic.

Accepted Answer

A)  Specialty
B)  Growth and income
C)  Closed-end
D)  Capital appreciation
E)  None of the aboveF) A) and E)
G) None of the above

Question 10

Money market funds commonly invest in

Accepted Answer

A)  stocks.
B)  real estate.
C)  commercial paper.
D)  U.S. Treasury bonds.
E)  none of the aboveF) A) and B)
G) C) and D)

Question 11

If a mutual fund distributes at least ____ percent of its taxable income to shareholders, the fund is exempt from taxes on dividends, interest, and capital gains distributed to shareholders.

Accepted Answer

A)  25
B)  50
C)  75
D)  90E) B) and C)
F) A) and B)

Question 12

Most closed-end funds invest in

Accepted Answer

A)  stock and bonds.
B)  money market securities.
C)  gold.
D)  derivatives.E) All of the above
F) B) and C)

Question 13

According to SEC regulations, the majority of the members on a mutual fund's board of directors must be

Accepted Answer

A)  employed by the fund.
B)  outsiders (not employed by the fund) .
C)  certified public accountants.
D)  certified financial analysts.E) A) and D)
F) A) and C)

Question 14

Which of the following statements is incorrect?

Accepted Answer

A)  A mutual fund is usually run by an investment company.
B)  Although many mutual funds have grown substantially over time, their expense ratios have generally increased over time.
C)  For each mutual fund, all expenses charged and reflected in the expense ratio are always valid.
D)  The SEC requires that a majority of the directors of a mutual fund board be independent.E) B) and D)
F) All of the above

Question 15

____ funds sell shares to wealthy individuals and financial institutions and use the proceeds to invest in securities.

Accepted Answer

A)  Growth
B)  Open-end
C)  Capital appreciation
D)  Hedge
E)  SpecialtyF) All of the above
G) C) and D)

Question 16

Diversification among types of mutual funds usually does little to reduce the volatility of returns on the overall investment.

Accepted Answer

A) True 
 B)False

Question 17

If investors sell their mutual fund shares after the net asset value of the fund increases, the return is called

Accepted Answer

A)  share price appreciation.
B)  capital gains distribution.
C)  dividends.
D)  split net asset value.E) A) and B)
F) A) and C)

Question 18

Bond portfolios with some bonds rated below Baa by Moody's or BBB by Standard and Poor's, available for investors desiring high return and willing to incur high risk, are called ____ funds.

Accepted Answer

A)  growth
B)  capital appreciation
C)  junk bond
D)  bond
E)  none of the aboveF) A) and E)
G) A) and B)

Question 19

Vulture funds are a type of private equity fund that purchase distressed assets of a firm that is in or near bankruptcy.

Accepted Answer

A) True 
 B)False

Question 20

Exchange-traded funds are like open-end funds in the sense that

Accepted Answer

A)  their shares are traded on an exchange, and their share price changes throughout the day.
B)  they have a fixed number of shares.
C)  they are not actively managed.
D)  none of the aboveE) B) and C)
F) None of the above

Exam 23: Mutual Fund Operations

Portfolio managers are hired by the mutual fund to invest in a portfolio of securities that satisfies the desires of investors.

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

A front-end load is a withdrawal fee assessed when you withdraw money from the mutual fund.

Correct AnswerverifiedShow Answer

If investors sell their mutual fund shares after the net asset value of the fund increases, the return is called

Correct AnswerverifiedShow Answer

Most closed-end funds invest in

Correct AnswerverifiedShow Answer

Money market funds commonly invest in

Correct AnswerverifiedShow Answer

Mutual funds must register with the U.S. Treasury and provide to interested investors a prospectus that discloses details about the components of the funds and risks involved.

Correct AnswerverifiedShow Answer

Bond portfolios with some bonds rated below Baa by Moody's or BBB by Standard and Poor's, available for investors desiring high return and willing to incur high risk, are called ____ funds.

Correct AnswerverifiedShow Answer

____ funds sell shares to wealthy individuals and financial institutions and use the proceeds to invest in securities.

Correct AnswerverifiedShow Answer

Diversification among types of mutual funds usually does little to reduce the volatility of returns on the overall investment.

Correct AnswerverifiedShow Answer

Shares of exchange-traded funds can be sold _________, and shares of open-end mutual funds can be sold _________.

Correct AnswerverifiedShow Answer

Vulture funds are a type of private equity fund that purchase distressed assets of a firm that is in or near bankruptcy.

Correct AnswerverifiedShow Answer

____ funds focus on a group of companies sharing a particular characteristic.

Correct AnswerverifiedShow Answer

If a mutual fund distributes at least ____ percent of its taxable income to shareholders, the fund is exempt from taxes on dividends, interest, and capital gains distributed to shareholders.

Correct AnswerverifiedShow Answer

Which of the following is not a way in which mutual funds generate returns for their shareholders?

Correct AnswerverifiedShow Answer

According to SEC regulations, the majority of the members on a mutual fund's board of directors must be

Correct AnswerverifiedShow Answer

The number of exchange-traded funds has declined over the last several years because the cost of managing them was excessive.

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

When the redemptions of money market mutual fund shares exceeds sales of shares, the fund accommodates the amount of excessive redemptions by

Correct AnswerverifiedShow Answer

Exchange-traded funds are like open-end funds in the sense that

Correct AnswerverifiedShow Answer

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Shares of exchange-traded funds can be sold _, and shares of open-end mutual funds can be sold _.

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