Chapter 23 Mutual Fund Operations 465 Chapter 23 Mutual Fund Operations 1 Which of the following statements is incorrect A Mutual funds serve as a key financial intermediary B Managers of mutual funds do not analyze economic and industry trends C Because of their diversification management expertise and liquidity mutual funds have grown at a rapid pace D Some mutual funds offer check writing privileges ANSWER B 2 No load mutual funds are normally promoted by Load funds are promoted by A registered representatives of a brokerage firm registered representatives of a brokerage firm B registered representatives of a brokerage firm the mutual fund of concern C the mutual fund of concern registered representatives of a brokerage firm D the mutual fund of concern the mutual fund of concern ANSWER C 3 To cover managerial expenses mutual funds typically charge A management fees of 1 to 2 percent of total assets per year B commissions of typically 8 to 10 percent of transaction market value per year C management fees of typically more than 10 percent of total assets per year D commissions of typically 3 to 5 percent of transaction market value per year ANSWER A 4 Mutual funds that are willing to repurchase their shares from investors at any time are referred to as mutual funds A closed end B load C no load D open end ANSWER D 5 Mutual funds that do not repurchase their shares from investors are mutual funds A closed end B load C no load D open end ANSWER A 466 Chapter 23 Mutual Fund Operations 6 Most closed end funds invest in A stock and bonds B money market securities C gold D derivatives ANSWER A 7 Exchange traded funds are like open end funds in the sense that 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 these ANSWER D 8 Hedge funds differ from open end mutual funds in the sense that A they require a much smaller initial investment B they are open to additional investments at any time C they do not accommodate investors who want to sell their shares back to the fund D they invest in a very limited set of securities ANSWER C 9 Mutual funds A are unregulated B are required to disclose the names of their portfolio managers in the prospectus C must disclose their performance record over the past 20 years D are exempt from all taxes ANSWER B 10 Which of the following is not disclosed in the prospectus A the minimum amount of investment required B the investment objective of the funds C the fees incurred by the mutual fund D All of these are disclosed in the prospectus ANSWER D 11 Money market funds invest mostly in A stocks B long term bonds C real estate D short term securities ANSWER D Chapter 23 Mutual Fund Operations 467 12 If investors sell their mutual fund shares after the net asset value of the fund increases the return is called A share price appreciation B capital gains distribution C dividends D split net asset value ANSWER A 13 Mutual funds composed of stocks that have potential for very high growth but may also be unproven are called funds A income B capital appreciation C specialty D dividend ANSWER B 14 Mutual funds composed of bonds that offer periodic coupon payments are funds A income B specialty C dividend D growth ANSWER A 15 Mutual funds whose bonds have a average time to maturity are sensitive to interest rate fluctuations A longer less B shorter less C shorter more D none of these ANSWER B 16 The net asset value of international stock mutual funds as the dollar strengthens against foreign currencies Assume no change in the prices of foreign stocks A increases B decreases C is unaffected D increases or decreases depending on the dollar s degree of strength ANSWER B 468 Chapter 23 Mutual Fund Operations 17 Mutual funds that include some non U S stocks and U S stocks are called funds A global B foreign C combined D mixed ANSWER A 18 A mutual fund consisting only of stocks of firms that are in a specific industry is an example of a fund A specialty B growth C capital appreciation D growth and income ANSWER A 19 The majority of mutual fund assets are in the form of A common stocks B preferred stocks C U S government bonds D municipal bonds ANSWER A 20 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 A 25 B 50 C 75 D 90 ANSWER D 21 When the redemptions of money market mutual fund shares exceed sales of shares the fund accommodates the amount of excessive redemptions by A selling some of the assets contained in the portfolio B issuing stock C issuing bonds D borrowing from banks ANSWER A 22 Money market fund assets are dominated by A commercial paper B repurchase agreements C Treasury bills D CDs ANSWER A Chapter 23 Mutual Fund Operations 469 23 If money market funds definitely expect interest rates to increase they will their average asset maturity A not adjust B shorten C lengthen D shorten if the expected change is small or lengthen if the expected change is large ANSWER B 24 Money market funds are normally perceived to have interest rate risk and default risk A low high B high high C high low D low low ANSWER D 25 Equity real estate investment trusts invest A in mortgage and construction loans B directly in properties C in common stocks issued by construction companies D in common stocks issued by real estate brokerage firms ANSWER B 26 Because real estate investment trusts essentially represent a fixed income portfolio their market value will as interest rates increase A equity increase B equity decrease C mortgage increase D mortgage decrease ANSWER D 27 When interest rates decline investors who want to earn a high return may tend to their investment in stock mutual funds and deposits in depository institutions A reduce reduce B reduce increase C increase reduce D increase increase ANSWER C 470 Chapter 23 Mutual Fund Operations 28 The composition of asset allocation funds is A focused completely on one type of security as specified by the particular mutual fund B fixed and not altered by the mutual fund managers C both of these D neither of these ANSWER D 29 The of a mutual fund indicates the value per share A net asset value B gross asset value C net stock value D net bond value E none of these ANSWER A 30 Mutual funds whose funds are promoted strictly by the mutual fund of concern are called mutual funds A closed