ARE_143_Lecture_Probs_Chap_4

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University of California, Davis *

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143

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Finance

Date

Jan 9, 2024

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pdf

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Uploaded by SuperDangerWildcat44

An investment company which issues shares to anyone wishing to buy and redeems shares from anyone wishing to sell is called a(n) fund. a. hedge b. closed-end c. open-end d. public e. exchange traded A closed-end fund is a fund which: e aee o will no longer issue new shares but will still redeem existing shares. issues new shares only when old shares are redeemed by the fund. has a fixed net asset value. issues a fixed number of shares. trades only with a pre-selected group of investors. A fund charges 5 percent of the offering price as a fee when it issues new shares. This fee is called a(n): S R contingent deferred sales charge. 12b-1 fee. back-end load. front-end load. issuance charge. The annual fee charged by funds to cover the distribution and marketing expenses is called a(n): A contingent deferred sales charge. 12b-1 fee. back-end load. front-end load. issuance charge. An open-end fund which invests strictly in short-term, high-quality, low-risk securities is a0 o called a(n) mutual fund. bond stock money market asset allocation balanced You own shares in a mutual fund which charges a 4 percent front-end load. You are redeeming those shares today. The price that you will receive per share is: o0 o the NAV of the fund at the time the redemption order is received by the fund. the offering price of the fund at the time the redemption order is received by the fund. today’s opening NAV. today’s closing NAV. today’s closing offering price. Closed-end funds: a. o0 o are valued only at the end of each trading day. trade like a stock. have a fluctuating number of shares outstanding. are always purchased at NAV. can sell at a premium but never at a discount.

A mutual fund is owned by: o e o Investment advisory firms frequently create new mutual funds so that the advisory firm can: raise cash by issuing additional shares of stock and selling them to the fund. o0 o An investment company will be treated as a “regulated investment company” by the Internal Revenue its shareholders. a management company. a financial institution. the fund’s board of directors. a mutual fund family. pass its taxable income through the fund and thereby avoid income taxes. earn management fees by providing services to the fund. increase its number of outstanding shares and thereby raise new equity capital. leverage the fund’s assets and thereby increase the advisory firm’s rate of return. Service provided that it: L II. 1. Iv. o0 op invests almost all of its assets in bonds, stocks, and other securities. invests solely in U.S. securities. does not invest more than 5 percent of its assets in any one security. passes all its realized investment income through to its shareholders. I and III only I and IV only IT and 11T only I, 11, and IV only L, 111, and TV only Which one of the following lists the two best reasons for considering a load fund? a0 o lack of good no-load funds and superior market performance preference for a particular fund manager or a specialized type of fund superior market performance and preferential tax treatment tax-free income and superior fund managers no management fees and a particular fund manager The net asset value of a money market mutual fund: o0 o Which one of the following is the recommended method of determining the objective of a mutual fund? oo o generally fluctuates on a daily basis. is guaranteed to be $1. can be equal to or greater than $1 but not less than $1. can fall below $1. is guaranteed by the FDIC. refer to the fund’s objective statement read the fund’s prospectus review the portfolio’s holdings read the sales literature read the portfolio manager’s comments in the annual report

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