Results Reporter

Out of 15 questions, you answered 3 correctly with a final grade of 20%

3 correct
(20%)
10 incorrect
(67%)
2
unanswered
(13%)

Your Results:

The correct answer for each question is indicated by a .

Top of Form
Multiple Choice Q no Mutual Funds and 4 1952761 1

0073405175

1 4

1 INCORRECT
Investors in a common stock mutual fund incur an income tax liability when
_______________.

they sell their mutual fund shares at a gain

A)

the mutual fund sells stock in its portfolio at a gain

B)

the mutual fund receives dividends on the stock owned by the mutual
fund
C)

all of the above

D)

2 4

2 INCORRECT
Cost incurred by a mutual fund in managing the fund, including
administrative expenses and advisory fees, are referred to as the fund's
______________.
12b-1 charges
 A)

front-end load
B)

management fee
C)

operating expenses
D)

3 4

3
UNANSWERED Which of the following is an advantage to investors of exchange traded funds
(ETFs) that is not available to investors in open-end mutual funds?

ETFs allow investors to invest in broad U.S. market indexes as well as

international indexes.
A)

Investors can avoid incurring an expense in the form of a bid-ask spread

by purchasing an ETF rather than investing in an open-end mutual fund.
B)

ETFs offer a potential tax advantage to investors who incur capital gains
taxes only when they sell ETF shares.
C)

ETF prices can not deviate from net asset value.

D)

4 4

4 INCORRECT
A type of mutual fund that maintains relatively stable proportions of its funds
invested in equities and in fixed-income securities is called a
_______________.

specialized sector fund

A)

index fund
B)

asset allocation fund

C)
balanced fund
 D)

5 4

5 INCORRECT
A real estate investment trust is a(n) _________________.

open-end mutual fund that invests primarily in mortgage and

construction loans
A)

closed-end mutual fund that invests directly in real estate

B)

hedge fund that invests in real estate or loans secured by real estate
C)

none of the above

D)

6 4

6
UNANSWERED A mutual fund with a relatively high portfolio turnover rate is generally
regarded as ________________.

tax inefficient because frequent trading creates capital gains and losses
that affect investors' income taxes
A)

tax inefficient because frequent trading results in high transaction costs

B)

tax efficient because capital gains and capital losses can be offset
against each other by the investor
C)

tax efficient because investors tend to earn high after-tax returns when
a fund has a high turnover rate
D)

7 4

7 INCORRECT
A mutual fund has $500 million in assets at the beginning of the year and 20
million shares outstanding throughout the year. The assets in the fund
increase in price by 10%. The fund charges 12b-1 fees of 1%. This fee is
imposed on year-end asset values. There are no capital gains distributions
from the fund during the year. What is the end of year net asset value for
the fund?
 $25.00
A)

$27.23
B)

$27.25
C)

$27.50
D)

8 4

8 CORRECT
Shares of a closed–end fund ________________.

always trade at net asset value, because large investors can redeem
their shares in the fund for a portfolio of stocks
A)

always trade at net asset value, because all investors can redeem their
shares in the fund for net asset value
B)

can trade at a substantial discount from net asset value, although such a
discount tends to dissipate over time
C)

can trade at a substantial discount from net asset value but can not
trade at a premium above net asset value
D)

9 4

9 INCORRECT
A mutual fund had average daily assets of $500 million in the past year.
During the year, the fund sold $60 million of Stock X and purchased $90
million of Stock Y. What was the fund's turnover ratio?

12.0%
A)

15.0%
B)

18.0%
C)
 30.0%
D)

10 4

10
INCORRECT A closed-end fund has a portfolio currently worth $350 million. The fund has
liabilities of $5 million and 17 million shares outstanding. What is the net
asset value of the fund?

$20.88
A)

$20.29
B)

$20.59
C)

$29.17
D)

11 4

11 CORRECT
Which of the following statements is true about hedge funds?

Hedge funds are mutual funds that specialize in derivative investments

designed primarily for hedging purposes.
A)

Because of their large size and varied investments, hedge funds are
closely regulated by both the SEC and the CFTC.
B)

The term hedge fund derives from a common hedge fund strategy based
on anticipated changes in relative valuations in two market sectors.
C)
Investments in hedge funds are very liquid, which means that investors
in a hedge fund can withdraw their investments at any time without risk
D) of loss in market value.

12 4

12
INCORRECT You purchased 2,000 shares of the Lambert Fund, which had a net asset
value of $10.00 per share at the beginning of the year. The fund deducted a
front-end load of 5%. The securities in the fund increased in value by 10%
 during the year. The fund's expense ratio is 1.1%. What is your rate of
return on the fund if you sell your shares at the end of the year?

-1.47%
A)

3.46%
B)

3.90%
C)

8.90%
D)

13 4

13 CORRECT
"Late trading" is the practice of _______________.

buying or selling exchange-traded funds after the NYSE closes; this

practice violates securities laws
A)

exploiting time zone difference on trades in international mutual funds;

this practice does not violate securities laws
B)

buying or selling mutual funds at net asset value after 4:00 PM New York
time; this practice violates securities laws
C)

buying and simultaneously selling exchange-traded funds in different

markets at different prices; this practice does not violate securities laws
D)

14 4

14
INCORRECT An open-end fund has a net asset value of $13.40 per share. The fund is sold
with a front-end load of 4%. What is the offering price?

$13.96
A)

$12.86
B)

$13.94
C)
 $12.88
D)

15 4

15
INCORRECT You are considering an investment of $5,000 in a mutual fund with a 6%
load and an annual expense ratio of 0.8%. You plan to invest for five years.
Assume the portfolio rate of return net of operating expenses is 10%
annually. What is the value of your portfolio after five years?

$5,852.86
A)

$7,298.12
B)

$7,848.68
C)

$8,229.80
D)

Bottom of Form

Results Reporter
Out of 15 questions, you answered 6 correctly with a final grade of 40%

6 correct
(40%)
9 incorrect
(60%)
0
unanswered
(0%)

Your Results:

The correct answer for each question is indicated by a .

Top of Form
 Multiple Choice Q no Investments: Bac 1 1952758 1

0073405175

1 4

1
INCORRECT In an efficient financial market, there would not be any ________________.

underpriced or overpriced securities

A)

financial intermediaries
B)

commissions or other transaction costs

C)

taxes
D)

2 4

2 CORRECT
An ownership interest in a corporation is represented by a ________________.

bond
A)

share of preferred stock

B)

share of common stock

C)

All of the above represent ownership

D)

3 4

3 CORRECT
The Sarbanes-Oxley Act does not require ________________.

that a company's CFO personally vouch for the company's financial

statements
A)
 establishment of an accounting oversight board to oversee audits of public
companies
B)

auditors to provide other services to the companies they audit

C)

corporations to have more independent directors

D)

4 4

4 CORRECT
The process of investing a portfolio across broad asset classes is called
________________.

security analysis
A)

top-down portfolio construction

B)

asset allocation
C)

security selection
D)

5 4

5
INCORRECT Financial assets and markets play an important role in ________________.

allocation of capital resources

A)

consumption timing, allowing investors to shift their consumption over time

B)

allocation of investment risk, so that risk is borne by those investors willing

to do so
C)

All of the above are important roles of financial assets and markets
D)
 6 4

6
INCORRECT Which of the following statements is true about derivative securities?

Derivatives are frequently used to hedge risks.

A)

The term "derivatives" stems from the fact that related securities derive
their value from options and futures contracts.
B)

Since the buyers of derivatives use these securities to hedge risks, only
sellers of derivatives take speculative positions in the underlying assets.
C)

All of the above statements about derivatives are true.

D)

7 4

7
INCORRECT The three broad categories of financial assets are ____________.

money market securities, long-term debt and equity

A)

debt, equity and derivatives

B)

debt, equity and money market securities

C)

corporate securities, derivatives and equity

D)

8 4

8
INCORRECT One of the implications of the "risk-return tradeoff" in the financial markets is
the fact that ____________.

relatively high-risk assets sell at relatively high prices, resulting in high

returns to investors
A)

relatively high-risk assets sell at relatively low prices, resulting in high

returns to investors
B)
 relatively low-risk assets sell at relatively low prices, resulting in high
returns to investors
C)

None of the above is an implication of the risk-return tradeoff

D)

9 4

9 CORRECT
In the financial markets, financial intermediaries ____________.

are considered "major players" who are net lenders

A)

are considered "major players" who are net borrowers

B)

bring lenders and borrowers together

C)

raise funds by borrowing in order to invest in real assets

D)

10 4

10
INCORRECT A portfolio manager with a passive investment strategy manages a portfolio by
______________.

holding a diversified portfolio without expending effort to improve

performance
A)

selecting mispriced securities in order to improve performance

B)

using a "bottom-up" strategy

C)

emphasizing asset allocation and security selection

D)

11 4
11
INCORRECT Agency problems within a corporation are _______________.

conflicts among stockholders with differing objectives

A)

conflicts between stockholders and financial intermediaries

B)

conflicts among managers with competing interests

C)

conflicts between managers and stockholders

D)

12 4

12
INCORRECT Which of the following is not a mechanism for U.S. investors to participate in
foreign investment opportunities?

Purchase foreign securities using American Depository Receipts.

A)

Invest in mutual funds that purchase securities in international markets.

B)

Invest in World Equity Benchmark Shares.

C)

Purchase pass-through securities.

D)

13 4

13
INCORRECT Which of the following is not a financial intermediary?

Credit unions
A)

Insurance companies
B)

Mutual funds
C)
 Investment bankers
D)

14 4

14
CORRECT Financial intermediaries which pool and manage the money of many investors
are called _________________.

financial engineers
A)

investment bankers
B)

investment companies
C)

credit unions
D)

15 4

15
CORRECT In the past 35 years, securitization has allowed investors to expand their
investment alternatives to include investments in ____________.

World Equity Benchmark Shares

A)

foreign currencies
B)

mortgages
C)

composite securities with features of more than one security

D)

Results Reporter
Out of 15 questions, you answered 4 correctly with a final grade of 27%
 4 correct
(27%)
10 incorrect
(67%)
1
unanswered
(7%)

Your Results:

The correct answer for each question is indicated by a .

Top of Form
Multiple Choice Q no Mutual Funds and 4 1952761 1

0073405175

1 4

1 INCORRECT
Investors in a common stock mutual fund incur an income tax liability when
_______________.

they sell their mutual fund shares at a gain

A)

the mutual fund sells stock in its portfolio at a gain

B)

the mutual fund receives dividends on the stock owned by the mutual
fund
C)

all of the above

D)

2 4

2 INCORRECT
Cost incurred by a mutual fund in managing the fund, including
administrative expenses and advisory fees, are referred to as the fund's
______________.

12b-1 charges
A)

front-end load
B)
management fee
 C)

operating expenses
D)

3 4

3 CORRECT
Which of the following is an advantage to investors of exchange traded funds
(ETFs) that is not available to investors in open-end mutual funds?

ETFs allow investors to invest in broad U.S. market indexes as well as

international indexes.
A)

Investors can avoid incurring an expense in the form of a bid-ask spread

by purchasing an ETF rather than investing in an open-end mutual fund.
B)

ETFs offer a potential tax advantage to investors who incur capital gains
taxes only when they sell ETF shares.
C)

ETF prices can not deviate from net asset value.

D)

4 4

4 INCORRECT
A type of mutual fund that maintains relatively stable proportions of its funds
invested in equities and in fixed-income securities is called a
_______________.

specialized sector fund

A)

index fund
B)

asset allocation fund

C)

balanced fund
D)

5 4

5 INCORRECT
A real estate investment trust is a(n) _________________.
 open-end mutual fund that invests primarily in mortgage and
construction loans
A)

closed-end mutual fund that invests directly in real estate

B)

hedge fund that invests in real estate or loans secured by real estate
C)

none of the above

D)

6 4

6 INCORRECT
A mutual fund with a relatively high portfolio turnover rate is generally
regarded as ________________.

tax inefficient because frequent trading creates capital gains and losses
that affect investors' income taxes
A)

tax inefficient because frequent trading results in high transaction costs

B)

tax efficient because capital gains and capital losses can be offset
against each other by the investor
C)

tax efficient because investors tend to earn high after-tax returns when
a fund has a high turnover rate
D)

7 4

7 INCORRECT
A mutual fund has $500 million in assets at the beginning of the year and 20
million shares outstanding throughout the year. The assets in the fund
increase in price by 10%. The fund charges 12b-1 fees of 1%. This fee is
imposed on year-end asset values. There are no capital gains distributions
from the fund during the year. What is the end of year net asset value for
the fund?

$25.00
A)

$27.23
B)
 $27.25
C)

$27.50
D)

8 4

8 CORRECT
Shares of a closed–end fund ________________.

always trade at net asset value, because large investors can redeem
their shares in the fund for a portfolio of stocks
A)

always trade at net asset value, because all investors can redeem their
shares in the fund for net asset value
B)

can trade at a substantial discount from net asset value, although such a
discount tends to dissipate over time
C)

can trade at a substantial discount from net asset value but can not
trade at a premium above net asset value
D)

9 4

9
UNANSWERED A mutual fund had average daily assets of $500 million in the past year.
During the year, the fund sold $60 million of Stock X and purchased $90
million of Stock Y. What was the fund's turnover ratio?

12.0%
A)

15.0%
B)

18.0%
C)

30.0%
D)

10 4
10
INCORRECT A closed-end fund has a portfolio currently worth $350 million. The fund has
liabilities of $5 million and 17 million shares outstanding. What is the net
asset value of the fund?

$20.88
A)

$20.29
B)

$20.59
C)

$29.17
D)

11 4

11 CORRECT
Which of the following statements is true about hedge funds?

Hedge funds are mutual funds that specialize in derivative investments

designed primarily for hedging purposes.
A)

Because of their large size and varied investments, hedge funds are
closely regulated by both the SEC and the CFTC.
B)

The term hedge fund derives from a common hedge fund strategy based
on anticipated changes in relative valuations in two market sectors.
C)
Investments in hedge funds are very liquid, which means that investors
in a hedge fund can withdraw their investments at any time without risk
D) of loss in market value.

12 4

12
INCORRECT You purchased 2,000 shares of the Lambert Fund, which had a net asset
value of $10.00 per share at the beginning of the year. The fund deducted a
front-end load of 5%. The securities in the fund increased in value by 10%
during the year. The fund's expense ratio is 1.1%. What is your rate of
return on the fund if you sell your shares at the end of the year?

-1.47%
A)
3.46%
 B)

3.90%
C)

8.90%
D)

13 4

13 CORRECT
"Late trading" is the practice of _______________.

buying or selling exchange-traded funds after the NYSE closes; this

practice violates securities laws
A)

exploiting time zone difference on trades in international mutual funds;

this practice does not violate securities laws
B)

buying or selling mutual funds at net asset value after 4:00 PM New York
time; this practice violates securities laws
C)

buying and simultaneously selling exchange-traded funds in different

markets at different prices; this practice does not violate securities laws
D)

14 4

14
INCORRECT An open-end fund has a net asset value of $13.40 per share. The fund is sold
with a front-end load of 4%. What is the offering price?

$13.96
A)

$12.86
B)

$13.94
C)

$12.88
D)

15 4
15
INCORRECT You are considering an investment of $5,000 in a mutual fund with a 6%
load and an annual expense ratio of 0.8%. You plan to invest for five years.
Assume the portfolio rate of return net of operating expenses is 10%
annually. What is the value of your portfolio after five years?

$5,852.86
A)

$7,298.12
B)

$7,848.68
C)

$8,229.80
D)

Results Reporter
Out of 15 questions, you answered 6 correctly with a final grade of 40%

6 correct
(40%)
9 incorrect
(60%)
0
unanswered
(0%)

Your Results:

The correct answer for each question is indicated by a .

Top of Form
Multiple Choice Q no Risk and Return: 5 1952762 1

0073405175

1 4

1 CORRECT
Historically, the asset class with the lowest risk premium over Treasury bills has
been ____________.

large company U.S. stocks

A)
 a world equity portfolio
B)

long-term U.S. Treasury bonds

C)

small company U.S. stocks

D)

2 4

2
INCORRECT The geometric average rate of return is ____________.

also called the time-weighted average return

A)

also called the dollar-weighted average return

B)

equivalent to the internal rate of return

C)

an uncompounded rate of return

D)

3 4

3
INCORRECT Suppose you pay $9,950 for a Treasury bill with a $10,000 face value that
matures in one month. What is the effective rate of return for this investment?

6.00%
A)

6.03%
B)

6.17%
C)

6.20%
D)
 4 4

4
INCORRECT A risky portfolio has an expected rate of return of 15% and a standard deviation
of 20%. The Treasury bill rate is 4%. What is the reward-to-volatility ratio for
the portfolio?

0.55
A)

0.75
B)

0.80
C)

0.95
D)

5 4

5
INCORRECT What is the real rate of return for an investment that has an expected nominal
rate of return of 15% while the expected rate of inflation is 9%?

5.5%
A)

6.0%
B)

9.5%
C)

10.0%
D)

6 4

6 CORRECT
You purchased 100 shares of ABC stock for $20 per share. One year later you
received cash dividends of $1 per share and sold the stock for $22 per share.
Your holding-period return was _______________.

5%
A)
 10%
B)

15%
C)

20%
D)

7 4

7 CORRECT
Compute the geometric average of the following rates of return:10%, -20%,
-10%, and 20%

0%
A)

-4.96%
B)

-1.26%
C)

0.95%
D)

8 4

8
INCORRECT A stock portfolio with normally distributed returns has an annual expected rate
of return of 15% and standard deviation of returns of 20%. What is the
probability that, in any one year, the rate of return for this portfolio will be
between -25% and 55%?

68.26%
A)

95.44%
B)

99.74%
C)

100.00%
D)
 9 4

9 CORRECT
Compute the sample standard deviation of the following historical rates of
return:18%, -15%, -10% and 30%

5.75%
A)

18.8%
B)

21.7%
C)

37.6%
D)

10 4

10
INCORRECT An investment has a 10% probability of earning a 20% rate of return, a 60%
probability of earning a 10% rate of return and a 30% probability of losing 5%.
What is the expected rate of return for this investment?

-7.0%
A)

9.5%
B)

8.3%
C)

6.5%
D)

11 4

11
INCORRECT A complete portfolio is composed of a risky portfolio with an expected rate of
return of 14% and a standard deviation of 20%, and Treasury bills with a rate of
return of 5%. The complete portfolio has a standard deviation of 12%. What
proportion of the complete portfolio is invested in the risky portfolio?
100%
 A)

60%
B)

40%
C)

12%
D)

12 4

12
CORRECT An investor invests 80% of her portfolio in a risky asset with an expected rate of
return of 18% and a standard deviation of 25%. The investor invests the
remaining 20% of her portfolio in a Treasury bill with a 4% rate of return. Her
portfolio's expected rate of return and standard deviation are ____________
and ____________, respectively.

14.4%; 20.0%
A)

18.4%; 20.8%
B)

15.2%; 20.0%
C)

15.2%; 44.7%
D)

13 4

13
INCORRECT Which of the following statements is true about the Capital Allocation Line
(CAL)?

The slope of the CAL is the same as the reward-to-volatility ratio.

A)

The slope of the CAL equals the increase in expected return per unit of
additional standard deviation.
B)

The CAL represents the risk-return combinations resulting from varying

asset allocation.
C)
 All of the above are true statements about the CAL.
D)

14 4

14
INCORRECT Treasury securities are commonly regarded as risk-free assets because
____________.

returns on Treasury securities are adjusted for inflation

A)

interest on Treasury securities is not subject to federal income taxes

B)

investors can match their desired holding periods with the maturity of a
Treasury security
C)

Treasury securities are free of default risk

D)

15 4

15
CORRECT A passive investment strategy is based on the premise that ____________.

investors are highly risk averse

A)

securities are normally undervalued or overvalued

B)

securities are fairly priced

C)

the most important part of portfolio construction is security selection

D)
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