Financial Institutions Management 5th Canadian Edition By Marcia Cornett – Test Bank

Complete Test Bank With Answers

 

 

Sample Questions Posted Below

 

c5

Student: ___________________________________________________________________________

1. Mutual funds are financial intermediaries that invest in diversified portfolios of assets.
True    False

 

2. Open-end mutual funds are the major type of mutual funds.
True    False

 

3. Mutual funds achieve economies of scale for individual investors by realizing the benefits of lower transaction costs and commissions as compared to those incurred by individual investors.
True    False

 

4. As of 2013, banks are not allowed to own or invest in mutual funds.
True    False

 

5. Long-term mutual funds invest primarily in long-term, fixed-income securities such as corporate and/or government bonds.
True    False

 

6. Short-term mutual funds invest solely in tax-exempt securities.
True    False

 

7. Equity mutual funds may contain common stock, but not preferred stock.
True    False

 

8. The proportionate mix of total assets invested in long-term versus short-term mutual funds has varied over the last twenty years.
True    False

 

9. A change from bank deposits to money market mutual funds typically allows an investor to benefit from higher yields, but with the cost of losing deposit insurance coverage.
True    False

 

10. Most individuals who invest in mutual funds for the first time realize that mutual fund investments carries some risk.
True    False

 

11. One of the goals of mutual funds is to achieve superior diversification through fund and risk pooling compared to what individual investors can achieve.
True    False

 

12. A mutual fund objective statement provides general information about the types of securities a mutual fund will hold as assets.
True    False

 

13. The return from investing in mutual funds can include dividends, gains from the sale of the mutual fund assets, and gains from the sale of the mutual fund shares.
True    False

 

14. The net asset value of a mutual fund is determined four times each business day.
True    False

 

15. Mutual funds that are load funds use sales agents, and thus always have an up-front commission charge.
True    False

 

16. Since 2002, the amount of assets invested in load funds have exceeded those invested in no-load funds.
True    False

 

17. Mutual fund supermarkets often allow investors to purchase funds within large number of fund companies with no transaction fees.
True    False

 

18. Mutual funds often offer multiple share classes which differentiate between different methods of paying the sales loads and management fees.
True    False

 

19. Historical evidence indicates that load funds perform better than no-load funds.
True    False

 

20. Historical evidence indicates that the benefits of greater management attention in load funds do not outweigh the disadvantages of the load fee.
True    False

 

21. As of 2013, the total investment in long-term mutual funds is less than the total investment in money market mutual funds.
True    False

 

22. Directed brokerage is a trading abuse where a mutual fund and a brokerage agree to promote sales of certain funds in exchange for orders of specific stocks and bonds.
True    False

 

23. The chief compliance officer of a mutual fund reports directly to the senior executives of the fund management company.
True    False

 

24. Worldwide investments in mutual funds have grown at a rate faster than in Canada and the United States over the last decade.
True    False

 

25. The rate of investing in mutual funds tends to be positively correlated with economic activity in Canada, but is negatively correlated with economic activity in other countries.
True    False

 

26. The long-term mutual fund sector includes
A. money market mutual funds.
B. equity funds.
C. bond funds.
D. equity funds and bond funds.
E. All of these.

 

27. The short-term mutual fund sector includes
A. money market mutual funds.
B. hybrid funds.
C. equity funds.
D. bond funds.
E. tax-exempt municipal bond funds.

 

28. Open-end mutual funds guarantee
A. investors a minimum rate of return.
B. investors a minimum Net Asset Value (NAV).
C. to redeem investors’ shares upon demand at the daily Net Asset Value (NAV).
D. to earn the rate of return promised in the prospectus.
E. that there will be no load charges.

 

29. As compared to purchasing an individual stock, a no-load mutual fund investor will usually get
A. commissionless reinvestment opportunities.
B. better diversification.
C. no-cost switching between funds within the same fund family.
D. lower commission costs.
E. All of these.

 

30. The returns obtained by investors of mutual funds include the following except
A. interest income earned on assets.
B. dividend income earned on assets.
C. capital gains on assets sold by the fund.
D. capital appreciation in the underlying value of the assets held in the portfolio.
E. refunds of load charges and management fees.

 

31. Closed-end investment companies
A. have a fixed number of shares.
B. can trade at a price that is greater than, equal to, or less than the NAV.
C. will trade at a different price as the number of shares of the fund changes.
D. have a fixed number of shares, and will trade at a different price as the number of shares in the fund changes.
E. have a fixed number of shares and can trade at a price that is greater than, equal to, or less than the NAV.

 

32. Open-end mutual funds
A. require that NAV consider the amount of discount or premium in the share value.
B. calculate the NAV based on the total value of assets held divided by the number of fund shares outstanding.
C. may experience fluctuations in the number of shares outstanding on a daily basis.
D. All of these.
E. calculate the NAV based on the total value of assets held divided by the number of fund shares outstanding and may experience fluctuations in the number of shares outstanding on a daily basis

 

33. An open-ended fund has stocks of three companies: 200 shares of IBM currently valued at $50.00, 100 shares of GE currently values at $20 and 100 shares of Digital currently valued at $30. The fund has 500 shares outstanding. What is the net asset value (NAV) of the fund?
A. $30.00.
B. $60.00.
C. $120.00.
D. $12.00.
E. $37.50.

 

34. A mutual fund that charges investors a fee similar to a commission charge is called a
A. full load fund.
B. no-load fund.
C. load fund.
D. long-term fund.
E. short-term fund.

 

35. The type of abusive activity that involves cases where investors were able to buy or sell mutual fund shares long after the price had been set each day is
A. market timing.
B. late trading.
C. directed brokerage.
D. improper fee assessment.
E. None of these.

 

36. The type of abusive activity that involves arrangements between mutual fund companies and brokerage houses is
A. market timing.
B. late trading.
C. directed brokerage.
D. improper fee assessment.
E. None of these.

 

37. Duties of a mutual fund chief compliance officer include
A. policing the trading by non-fund managers.
B. ensuring the accuracy of information provided to fund managers.
C. reviewing fund business practices such as marketing and administration.
D. reporting any wrongdoing directly to fund directors.
E. All of these.

 

38. The net asset value of a mutual fund is found by
A. subtracting the daily market value of the fund’s asset portfolio from the previous days’ value.
B. dividing the cumulative value of all asset positions held by the fund by the total number of asset shares held by the fund.
C. computing the daily market value of the fund’s total asset portfolio and then dividing this amount by the number of mutual fund shares outstanding.
D. comparing the daily market value of the fund’s total asset portfolio with that of its peers.
E. subtracting expenses, commissions, and dividends from the fund’s total asset portfolio.

 

39. Which of the following observations is true of open-end mutual funds?
A. They have a fixed number of shares outstanding.
B. The value of shares changes with the demand for the fund by investors.
C. Investors buy and sell shares on a stock exchange.
D. The demand for shares determines the number outstanding.
E. Shares may trade at a premium or discount.

 

40. The NAV of a closed-end investment company shares is determined at any point in time by
A. the number of shares available.
B. the value of the underlying shares owned by the company.
C. the demand for the investment company’s shares.
D. the number of shares available, and the value of the underlying shares owned by the company.
E. the value of the underlying shares owned by the company, and the demand for the investment company’s shares.

 

41. Which of the following observations is true of a no-load fund?
A. Purchase is subject to a sales charge.
B. Sales charges may be as high as 8.5 percent.
C. They market shares of the fund directly to investors.
D. They use sales agents.
E. They have up-front commission charges.

 

42. Which of the following is the practice that involves short-term trading of mutual funds seeking to take advantage of short- term discrepancies between the price of a mutual fund’s shares and out-of-date values on the securities in the fund’s portfolio?
A. Market timing.
B. Insider trading.
C. Late trading.
D. Directed brokerage.
E. Spinning.

 

43. Which practice is especially common in international funds as traders can exploit differences in time zones?
A. Directed brokerage.
B. Insider trading.
C. Late trading.
D. Market timing.
E. Spinning.

 

44. Which of the following refers to the process used to determine the value of mutual fund shares each per day?
A. Directed brokerage.
B. Marking-to-market.
C. Late trading.
D. Market timing.
E. Spinning.

 

45. Which of the following is true about the values of most money market mutual fund shares?
A. They fluctuate heavily.
B. Values are fixed at $1.
C. Values are fixed at $100.
D. They depend on market demand.
E. They are considered closed-end funds.

 

46. An investor purchases fund shares with a 3 percent front-end load and expects to hold the shares for 10 years. The annualized sales load incurred by the investor is _______ per year.
A. 3 percent
B. 30 percent
C. 0.3 percent
D. 1.3 percent
E. 1 percent

 

47. Which of the following observations concerning hedge funds is NOT true?
A. They are pooled investment vehicles.
B. Historically, they were not required to register with an exchange.
C. Historically, they were subject to virtually no regulatory oversight.
D. They usually take significant risk.
E. They have to disclose their activities to third parties.

 

48. The hedge fund industry is built on the theory that
A. a profit can always be made if each investment has an off-setting position to cover any losses.
B. proper diversification can be attained with larger sums of money and fewer assets.
C. wealthy individuals should be expected to make more informed investment decisions and can take on higher levels of risk.
D. strategies such as program trading and arbitrage are only successful if leverage (borrowed funds) are used.
E. it takes money to make money.

 

49. Which of the following hedge fund objectives would be classified under the “more risky” category?
A. Distressed securities funds.
B. Fund of funds.
C. Opportunistic funds.
D. Emerging markets funds.
E. Special situations funds.

 

50. Which of the following hedge fund objectives would be classified under the “moderate risk” category?
A. Distressed securities funds.
B. Market neutral-arbitrage funds.
C. Value funds.
D. Short selling funds.
E. Market timing funds.

 

51. Which of the following hedge fund objectives would be classified under the “risk avoidance” category?
A. Special situations funds.
B. Opportunistic funds.
C. Fund of funds.
D. Market timing funds.
E. Value funds.

 

52. These “more risky” hedge funds aim to profit from changes in global economies, typically brought about by shifts in government policy that impact interest rates.
A. Distressed securities funds.
B. Macro funds.
C. Value funds.
D. Opportunistic funds.
E. Market timing funds.

 

53. These types of funds mix hedge funds and other pooled investment vehicles.
A. Distressed securities funds.
B. Macro funds.
C. Value funds.
D. Opportunistic funds.
E. Fund of funds.

 

54. It is estimated that 75 percent of all hedge funds are located in
A. Bermuda.
B. Hong Kong.
C. Cayman Islands.
D. Luxembourg.
E. San Marino.

 

55. Which of the following is common to both hedge funds and mutual funds?
A. Registration with an exchange.
B. Disclosure norms.
C. Management fees.
D. Performance fees.
E. Investor profiles.

 

56. What does a hurdle rate specified by a hedge fund indicate?
A. The maximum number of investors possible in the fund that would allow it to avoid regulations.
B. The minimum amount required to be invested in the fund.
C. The net worth criterion for an individual to be deemed an “accredited investor.”
D. The highest net asset value that the fund has previously achieved, above which the manager receives a performance fee.
E. The minimum annualized performance benchmark that must be realized before a performance fee can be assessed.

 

57. Which of the following are used to link the hedge fund manager’s incentives more closely to those of the fund investors and to reduce the manager’s incentive to increase the risk of trades?
A. High-water marks.
B. Discount rates.
C. Trade limits.
D. Management fees.
E. Low hurdle rates.

 

58. Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.

What is the NAV of both funds?
A. $30.33 and $13.50.
B. $60.00 and $27.00.
C. $30.00 and $54.00.
D. $46.67 and $45.00.
E. $15.00 and $54.00.

 

59. Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.

To what level should the price of Microsoft shares decline in order for the NAV of Morningstar fund to remain constant if the price of P&G rises to $40?
A. $60.
B. $55.
C. $50.
D. $45.
E. $40.

 

60. Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.

If the price of P&G shares rises to $35 and the price of Microsoft falls to $40.00, what is the new NAV of both funds?
A. $26.50 and $45.00.
B. $13.25 and $13.00.
C. $39.75 and $22.50.
D. $53.00 and $45.00.
E. $26.50 and $22.50.

 

61. Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.

Suppose Morningstar issues another 250 shares and purchases shares of Intel with the funds. What is its new NAV of Morningstar? (Assume the NAV found before the price change in P&G and Microsoft in the previous question).
A. $39.20.
B. $55.20.
C. $34.40.
D. $30.00.
E. $34.00.

 

c5 Key
1. Mutual funds are financial intermediaries that invest in diversified portfolios of assets.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #1

2. Open-end mutual funds are the major type of mutual funds.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #2

3. Mutual funds achieve economies of scale for individual investors by realizing the benefits of lower transaction costs and commissions as compared to those incurred by individual investors.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #3

4. As of 2013, banks are not allowed to own or invest in mutual funds.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #4

5. Long-term mutual funds invest primarily in long-term, fixed-income securities such as corporate and/or government bonds.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #5

6. Short-term mutual funds invest solely in tax-exempt securities.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #6

7. Equity mutual funds may contain common stock, but not preferred stock.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #7

8. The proportionate mix of total assets invested in long-term versus short-term mutual funds has varied over the last twenty years.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #8

9. A change from bank deposits to money market mutual funds typically allows an investor to benefit from higher yields, but with the cost of losing deposit insurance coverage.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #9

10. Most individuals who invest in mutual funds for the first time realize that mutual fund investments carries some risk.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #10

11. One of the goals of mutual funds is to achieve superior diversification through fund and risk pooling compared to what individual investors can achieve.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #11

12. A mutual fund objective statement provides general information about the types of securities a mutual fund will hold as assets.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #12

13. The return from investing in mutual funds can include dividends, gains from the sale of the mutual fund assets, and gains from the sale of the mutual fund shares.
TRUE

 

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Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #13

14. The net asset value of a mutual fund is determined four times each business day.
FALSE

 

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Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #14

15. Mutual funds that are load funds use sales agents, and thus always have an up-front commission charge.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #15

16. Since 2002, the amount of assets invested in load funds have exceeded those invested in no-load funds.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #16

17. Mutual fund supermarkets often allow investors to purchase funds within large number of fund companies with no transaction fees.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #17

18. Mutual funds often offer multiple share classes which differentiate between different methods of paying the sales loads and management fees.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #18

19. Historical evidence indicates that load funds perform better than no-load funds.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #19

20. Historical evidence indicates that the benefits of greater management attention in load funds do not outweigh the disadvantages of the load fee.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #20

21. As of 2013, the total investment in long-term mutual funds is less than the total investment in money market mutual funds.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #21

22. Directed brokerage is a trading abuse where a mutual fund and a brokerage agree to promote sales of certain funds in exchange for orders of specific stocks and bonds.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #22

23. The chief compliance officer of a mutual fund reports directly to the senior executives of the fund management company.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #23

24. Worldwide investments in mutual funds have grown at a rate faster than in Canada and the United States over the last decade.
TRUE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #24

25. The rate of investing in mutual funds tends to be positively correlated with economic activity in Canada, but is negatively correlated with economic activity in other countries.
FALSE

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #25

26. The long-term mutual fund sector includes
A. money market mutual funds.
B. equity funds.
C. bond funds.
D. equity funds and bond funds.
E. All of these.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #26

27. The short-term mutual fund sector includes
A. money market mutual funds.
B. hybrid funds.
C. equity funds.
D. bond funds.
E. tax-exempt municipal bond funds.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #27

28. Open-end mutual funds guarantee
A. investors a minimum rate of return.
B. investors a minimum Net Asset Value (NAV).
C. to redeem investors’ shares upon demand at the daily Net Asset Value (NAV).
D. to earn the rate of return promised in the prospectus.
E. that there will be no load charges.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #28

29. As compared to purchasing an individual stock, a no-load mutual fund investor will usually get
A. commissionless reinvestment opportunities.
B. better diversification.
C. no-cost switching between funds within the same fund family.
D. lower commission costs.
E. All of these.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #29

30. The returns obtained by investors of mutual funds include the following except
A. interest income earned on assets.
B. dividend income earned on assets.
C. capital gains on assets sold by the fund.
D. capital appreciation in the underlying value of the assets held in the portfolio.
E. refunds of load charges and management fees.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #30

31. Closed-end investment companies
A. have a fixed number of shares.
B. can trade at a price that is greater than, equal to, or less than the NAV.
C. will trade at a different price as the number of shares of the fund changes.
D. have a fixed number of shares, and will trade at a different price as the number of shares in the fund changes.
E. have a fixed number of shares and can trade at a price that is greater than, equal to, or less than the NAV.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #31

32. Open-end mutual funds
A. require that NAV consider the amount of discount or premium in the share value.
B. calculate the NAV based on the total value of assets held divided by the number of fund shares outstanding.
C. may experience fluctuations in the number of shares outstanding on a daily basis.
D. All of these.
E. calculate the NAV based on the total value of assets held divided by the number of fund shares outstanding and may experience fluctuations in the number of shares outstanding on a daily basis

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #32

33. An open-ended fund has stocks of three companies: 200 shares of IBM currently valued at $50.00, 100 shares of GE currently values at $20 and 100 shares of Digital currently valued at $30. The fund has 500 shares outstanding. What is the net asset value (NAV) of the fund?
A. $30.00.
B. $60.00.
C. $120.00.
D. $12.00.
E. $37.50.

The assets in the mutual fund are worth $15,000. With 500 shares of the mutual fund outstanding, the NAV is $15,000  500 = $30.00

 

Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #33

34. A mutual fund that charges investors a fee similar to a commission charge is called a
A. full load fund.
B. no-load fund.
C. load fund.
D. long-term fund.
E. short-term fund.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #34

35. The type of abusive activity that involves cases where investors were able to buy or sell mutual fund shares long after the price had been set each day is
A. market timing.
B. late trading.
C. directed brokerage.
D. improper fee assessment.
E. None of these.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #35

36. The type of abusive activity that involves arrangements between mutual fund companies and brokerage houses is
A. market timing.
B. late trading.
C. directed brokerage.
D. improper fee assessment.
E. None of these.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #36

37. Duties of a mutual fund chief compliance officer include
A. policing the trading by non-fund managers.
B. ensuring the accuracy of information provided to fund managers.
C. reviewing fund business practices such as marketing and administration.
D. reporting any wrongdoing directly to fund directors.
E. All of these.

 

Accessibility: Keyboard Navigation
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #37

38. The net asset value of a mutual fund is found by
A. subtracting the daily market value of the fund’s asset portfolio from the previous days’ value.
B. dividing the cumulative value of all asset positions held by the fund by the total number of asset shares held by the fund.
C. computing the daily market value of the fund’s total asset portfolio and then dividing this amount by the number of mutual fund shares outstanding.
D. comparing the daily market value of the fund’s total asset portfolio with that of its peers.
E. subtracting expenses, commissions, and dividends from the fund’s total asset portfolio.

 

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Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #38

39. Which of the following observations is true of open-end mutual funds?
A. They have a fixed number of shares outstanding.
B. The value of shares changes with the demand for the fund by investors.
C. Investors buy and sell shares on a stock exchange.
D. The demand for shares determines the number outstanding.
E. Shares may trade at a premium or discount.

 

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Saunders – Chapter 05 #39

40. The NAV of a closed-end investment company shares is determined at any point in time by
A. the number of shares available.
B. the value of the underlying shares owned by the company.
C. the demand for the investment company’s shares.
D. the number of shares available, and the value of the underlying shares owned by the company.
E. the value of the underlying shares owned by the company, and the demand for the investment company’s shares.

 

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Saunders – Chapter 05 #40

41. Which of the following observations is true of a no-load fund?
A. Purchase is subject to a sales charge.
B. Sales charges may be as high as 8.5 percent.
C. They market shares of the fund directly to investors.
D. They use sales agents.
E. They have up-front commission charges.

 

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Saunders – Chapter 05 #41

42. Which of the following is the practice that involves short-term trading of mutual funds seeking to take advantage of short- term discrepancies between the price of a mutual fund’s shares and out-of-date values on the securities in the fund’s portfolio?
A. Market timing.
B. Insider trading.
C. Late trading.
D. Directed brokerage.
E. Spinning.

 

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Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #42

43. Which practice is especially common in international funds as traders can exploit differences in time zones?
A. Directed brokerage.
B. Insider trading.
C. Late trading.
D. Market timing.
E. Spinning.

 

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Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #43

44. Which of the following refers to the process used to determine the value of mutual fund shares each per day?
A. Directed brokerage.
B. Marking-to-market.
C. Late trading.
D. Market timing.
E. Spinning.

 

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Saunders – Chapter 05 #44

45. Which of the following is true about the values of most money market mutual fund shares?
A. They fluctuate heavily.
B. Values are fixed at $1.
C. Values are fixed at $100.
D. They depend on market demand.
E. They are considered closed-end funds.

 

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Saunders – Chapter 05 #45

46. An investor purchases fund shares with a 3 percent front-end load and expects to hold the shares for 10 years. The annualized sales load incurred by the investor is _______ per year.
A. 3 percent
B. 30 percent
C. 0.3 percent
D. 1.3 percent
E. 1 percent

 

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Saunders – Chapter 05 #46

47. Which of the following observations concerning hedge funds is NOT true?
A. They are pooled investment vehicles.
B. Historically, they were not required to register with an exchange.
C. Historically, they were subject to virtually no regulatory oversight.
D. They usually take significant risk.
E. They have to disclose their activities to third parties.

 

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Learning Objective: 05-04 Discuss the size; structure; and composition of the hedge fund industry.
Saunders – Chapter 05 #47

48. The hedge fund industry is built on the theory that
A. a profit can always be made if each investment has an off-setting position to cover any losses.
B. proper diversification can be attained with larger sums of money and fewer assets.
C. wealthy individuals should be expected to make more informed investment decisions and can take on higher levels of risk.
D. strategies such as program trading and arbitrage are only successful if leverage (borrowed funds) are used.
E. it takes money to make money.

 

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Saunders – Chapter 05 #48

49. Which of the following hedge fund objectives would be classified under the “more risky” category?
A. Distressed securities funds.
B. Fund of funds.
C. Opportunistic funds.
D. Emerging markets funds.
E. Special situations funds.

 

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Saunders – Chapter 05 #49

50. Which of the following hedge fund objectives would be classified under the “moderate risk” category?
A. Distressed securities funds.
B. Market neutral-arbitrage funds.
C. Value funds.
D. Short selling funds.
E. Market timing funds.

 

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Saunders – Chapter 05 #50

51. Which of the following hedge fund objectives would be classified under the “risk avoidance” category?
A. Special situations funds.
B. Opportunistic funds.
C. Fund of funds.
D. Market timing funds.
E. Value funds.

 

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Saunders – Chapter 05 #51

52. These “more risky” hedge funds aim to profit from changes in global economies, typically brought about by shifts in government policy that impact interest rates.
A. Distressed securities funds.
B. Macro funds.
C. Value funds.
D. Opportunistic funds.
E. Market timing funds.

 

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Saunders – Chapter 05 #52

53. These types of funds mix hedge funds and other pooled investment vehicles.
A. Distressed securities funds.
B. Macro funds.
C. Value funds.
D. Opportunistic funds.
E. Fund of funds.

 

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Saunders – Chapter 05 #53

54. It is estimated that 75 percent of all hedge funds are located in
A. Bermuda.
B. Hong Kong.
C. Cayman Islands.
D. Luxembourg.
E. San Marino.

 

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Saunders – Chapter 05 #54

55. Which of the following is common to both hedge funds and mutual funds?
A. Registration with an exchange.
B. Disclosure norms.
C. Management fees.
D. Performance fees.
E. Investor profiles.

 

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Saunders – Chapter 05 #55

56. What does a hurdle rate specified by a hedge fund indicate?
A. The maximum number of investors possible in the fund that would allow it to avoid regulations.
B. The minimum amount required to be invested in the fund.
C. The net worth criterion for an individual to be deemed an “accredited investor.”
D. The highest net asset value that the fund has previously achieved, above which the manager receives a performance fee.
E. The minimum annualized performance benchmark that must be realized before a performance fee can be assessed.

 

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Saunders – Chapter 05 #56

57. Which of the following are used to link the hedge fund manager’s incentives more closely to those of the fund investors and to reduce the manager’s incentive to increase the risk of trades?
A. High-water marks.
B. Discount rates.
C. Trade limits.
D. Management fees.
E. Low hurdle rates.

 

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Saunders – Chapter 05 #57

58. Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.

What is the NAV of both funds?
A. $30.33 and $13.50.
B. $60.00 and $27.00.
C. $30.00 and $54.00.
D. $46.67 and $45.00.
E. $15.00 and $54.00.

Morningstar

Eveningstar

The net asset values (NAVs) are $30.00 and $54.00 respectively

 

Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #58

59. Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.

To what level should the price of Microsoft shares decline in order for the NAV of Morningstar fund to remain constant if the price of P&G rises to $40?
A. $60.
B. $55.
C. $50.
D. $45.
E. $40.

Morningstar

If P&G increases to $40.00, the value of holdings in Microsoft must decrease by $1,000.
$1,000  200 shares = $5.00 decrease from its current price of $60.00
Also, total value of Microsoft in the portfolio must decrease by $1,000 to $11,000: $11,000  200 shares = $55.00

 

Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #59

60. Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.

If the price of P&G shares rises to $35 and the price of Microsoft falls to $40.00, what is the new NAV of both funds?
A. $26.50 and $45.00.
B. $13.25 and $13.00.
C. $39.75 and $22.50.
D. $53.00 and $45.00.
E. $26.50 and $22.50.

Morningstar

Eveningstar

The net asset values (NAVs) are $26.50 and $45.00 respectively

 

Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #60

61. Eveningstar open-end fund has 1,000 shares outstanding and has the following assets in its portfolio: 100 shares of Procter & Gamble (P&G) priced at $30.00, 300 shares of Intel priced at $50.00 and 200 shares of Microsoft priced at $60.00. The Morningstar closed-end fund has the following stocks in its portfolio: 300 shares of P&G and 300 shares of Microsoft. It has a total of 500 shares outstanding.

Suppose Morningstar issues another 250 shares and purchases shares of Intel with the funds. What is its new NAV of Morningstar? (Assume the NAV found before the price change in P&G and Microsoft in the previous question).
A. $39.20.
B. $55.20.
C. $34.40.
D. $30.00.
E. $34.00.

Morningstar

Morningstar issues 250 shares and collects: $30 (NAV)  250 shares = $7,500
Shares of Intel purchased: $7,500  50 per share = 150
New net asset value = $30.00
Since issuing new shares brings dollar-for-dollar new investment funds into the portfolio, the Net Asset Value will not change immediately because of the choice of asset to purchase.

 

Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.
Saunders – Chapter 05 #61

c5 Summary

Category	# of Questions
Accessibility: Keyboard Navigation	56
Learning Objective: 05-01 Discuss the size; structure and composition of companies in the mutual fund industry in Canada.	50
Learning Objective: 05-04 Discuss the size; structure; and composition of the hedge fund industry.	11
Saunders – Chapter 05	61