CHAPTER 24--PROFESSIONAL MONEY

MANAGEMENT, ALTERNATIVE ASSETS, AND

INDUSTRY ETHICS

Student: ___________________________________________________________________________

1. Management and advisory firms can advise clients on how to structure their own
portfolios.
True False

2. In an investment company, the invested funds belong to many individuals.

True False

3. The total market value of all assets of a mutual fund divided by the number of shares
of the fund is known as the net asset value.
True False

4. A portfolio is generally managed by the board of directors of an investment company.

True False

5. A closed-end investment company is normally referred to as a mutual fund.

True False

6. The market price of shares of a closed-end fund is typically determined by supply and
demand.
True False

7. An open-end investment company differs from a closed-end investment company by

the way they operate after the initial public offering.
True False
8. Open-end investment companies continue to sell and repurchase shares after their
initial public offering.
True False

9. A no-load fund imposes a substantial sales charge and sells shares at their NAV.
True False

10. All investment firms charge annual management fees to compensate the
professional manager of the fund.
True False

11. Hedge funds are far less liquid than mutual fund shares.
True False

12. The primary purpose of government regulations and voluntary standards in the
professional asset management industry is to ensure that managers deal with all
investors fairly and equitably and that information about investment performance is
accurately reported.
True False

13. Hedge funds have no limitations on when and how often capital can be contributed
or removed from the partnership.
True False

14. The returns received by the average individual investor on funds managed by
investment companies will probably be superior to the average results for a specific U.S.
or international market.
True False

15. An investor should be cautious when selecting a fund based solely on the manager's
past performance, since past performance may not be repeated in the future.
True False
16. Diversifying a portfolio to eliminate unsystematic risk is one of the major benefits of
investing in mutual funds.
True False

17. High Portfolio turnover lowers mutual fund costs.

True False

18. The total market value of all assets of a mutual fund divided by the number of shares
of the fund is known as the net asset value.
True False

19. Income distributions and capital gains distributions are the only source of returns for
mutual funds.
True False

20. The market price of shares of a closed-end fund is typically determined by supply and
demand.
True False

21. Closed-end investment companies never sell at discounts to their NAV.

True False

22. Market index funds attempt to match the composition and performance of a specified
market indicator series.
True False

23. Open-end and closed-end investment companies are similar in that both companies
will repurchase shares on demand.
True False

24. When securities are held in an investment company the appropriate way to value a
client's investment is by net asset value (NAV).
True False
25. An open-end investment company functions like any other public firm.
True False

26. The offering price for a share of a load fund equals the net asset value of the share.
True False

27. Fund of funds give investors access to hedge fund managers that might otherwise be
unavailable to them.
True False

28. A common hedge fund strategy known as long-short equity is a type of arbitrage
strategy.
True False

29. Convertible arbitrage hedge funds profit from disparities in the relationship between
prices for convertible bonds and fixed-income bonds.
True False

30. Which of the following is an approach to asset management?

A. Management and advisory firms
B. Investment companies
C. Strategic management
D. Choices a and b only
E. All of the above

31. An open-end investment company is commonly referred to as a(n)

A. Balanced fund.
B. Mutual fund.
C. Money market fund.
D. Accessible fund.
E. Unit trust.
32. The main difference between a closed-end fund and an open-end fund is
A. The way each is traded after the initial public offering.
B. There is no significant difference.
C. The minimum initial investment.
D. The type of allowable investments.
E. The way in which each is regulated by the SEC.

33. Net asset value (NAV) is determined by

A. The total market value of all its assets multiplied by the number of fund shares
outstanding.
B. The total market value of all its assets divided by the number of fund shares
outstanding.
C. The total market value of all its assets divided by the number of shareholders.
D. Supply and demand for the investment company stock in the secondary market.
E. Supply and demand for the investment company stock in the primary market.

34. The market price of a closed-end investment company has generally been
A. 5 to 20 percent below the NAV.
B. 25 to 35 percent below the NAV.
C. Equal to the NAV (within a 2 percent range).
D. 5 to 20 percent above the NAV.
E. 25 to 35 percent above the NAV.

35. The closed-end fund index is

A. Value weighted and based on market values.
B. Value weighted and based on NAVs.
C. Price weighted and based on market values.
D. Price weighted and based on NAVs.
E. Equally weighted and based on market values.

36. Open-end mutual funds that charge a sales fee when the fund is initially offered to
the investor are known as
A. 12b-1.
B. Americus trusts.
C. Unit investment trusts.
D. Load funds.
E. Contingency funds.
37. A 12b-1 plan allows funds to
A. Charge a redemption fee.
B. Deduct 7 to 8 percent commission at the initial offering.
C. Deduct .75 percent of the average net assets per year.
D. Charge a contingent deferred sales load.
E. Switch from closed-end to open-end.

38. When the offer price and the NAV of a mutual fund are equal it is an indication that
A. The fund's assets are in equilibrium.
B. The fund is trading at par.
C. It is strictly a coincidence.
D. The fund has no initial fee.
E. The fund is backloaded.

39. All investment companies charge an annual

A. 12b-1 fee.
B. Marketing and distribution.
C. Management fee.
D. Maintenance fee.
E. Market adjustment.

40. The offering price of a load fund equals the NAV of the fund
A. Less an initial requirement.
B. Plus a sales charge.
C. Plus a sales charge and an administrative fee.
D. Less a negotiated discount.
E. At its stated value.

41. Funds that normally contain a combination of common stock and fixed income
securities are known as
A. Section 401(k) plans.
B. Balanced funds.
C. Contractual plans.
D. Income funds.
E. Flexible funds.
42. Funds that attempt to provide current income, safety of principal and liquidity are
known as
A. Balanced funds.
B. Flexible funds.
C. Income funds.
D. Money market funds.
E. Index funds.

43. A money market fund would be likely to invest in a portfolio containing all of the
following except
A. Commercial paper.
B. Banker's acceptances.
C. U.S. Treasury bills.
D. Bank certificates of deposit.
E. U.S. Treasury notes.

44. A mutual fund typically performs all of the following functions, except
A. Provides alternative risk-return options.
B. Eliminates unsystematic risk.
C. Provides diversification.
D. Derives a risk-adjusted performance that is consistently superior to risk-adjusted net
return of the aggregate market.
E. Administers the account, keeps records and provides timely information.

45. Mutual fund performance studies have shown that most funds
A. Have risks and returns that are inconsistent with their stated objectives.
B. Have risks and returns that are consistent with their stated objectives.
C. Do not have stated objectives.
D. Have experienced risk-adjusted returns above the market.
E. Have changed their objectives over time.

46. The text offers a number of suggestions for investing in mutual funds. Which of the
following is not such a suggestion?
A. Choose only those mutual funds which are consistent with your objectives and
constraints.
B. Invest in no-load funds whenever possible.
C. Avoid investing in index funds.
D. Use a dollar cost average strategy.
E. None of the above (that is, all are valid suggestions for investing in mutual funds)
47. The gross return of closed-end investments companies has typically been
A. 10-20 percent less than their NAV.
B. 10-15 percent less than their NAV.
C. Less than the net return.
D. About the same as the net return.
E. None of the above

48. A major question in modern finance regarding closed-end investment companies is

A. Why do these funds sell at discounts?
B. Why do the discounts differ between funds?
C. What are the returns available to investors from funds that sell at a large discount?
D. Choices a and b only
E. All of the above

49. A portfolio manager should be able to perform all of the following functions, except
A. Determine risk-return preferences.
B. Eliminate systematic risk.
C. Maintain diversification ensuring a stabilized risk class.
D. Attempt to derive a risk-adjusted performance that is superior to the market.
E. Administer the account, keep records and provide timely information.

50. An investment company is

A. A corporation that handles the administrative functions for a fund.
B. A corporation that has its major assets in a portfolio of securities.
C. A corporation that invests in financial services firms.
D. a and b.
E. a and c.

51. An investment management company is

A. A corporation that handles the administrative functions for a fund.
B. A corporation that has its major assets in a portfolio of securities.
C. A corporation that invests in financial services firms.
D. a and b.
E. a and c.
52. In the case of private management firms
A. Investors deal with a fund company and do not have separate accounts tailored to
their specific needs.
B. Investors deal with a fund company and have separate accounts tailored to their
specific needs.
C. Investors deal with an asset manager and do not have separate accounts tailored to
their specific needs.
D. Investors deal with an asset manager have separate accounts tailored to their specific
needs.
E. None of the above.

53. In the case of investment companies

A. Investors deal with a fund company and do not have separate accounts tailored to
their specific needs.
B. Investors deal with a fund company and have separate accounts tailored to their
specific needs.
C. Investors deal with an asset manager and do not have separate accounts tailored to
their specific needs.
D. Investors deal with an asset manager have separate accounts tailored to their specific
needs.
E. None of the above.

54. In the case of open-end investment companies, shares of the company

A. Trade on the secondary market.
B. Can be bought from or sold to the investment company at the NAV.
C. Are determined by supply and demand.
D. a and c.
E. b and c.

55. In the case of closed-end investment companies, shares of the company

A. Trade on the secondary market.
B. Can be bought from or sold to the investment company at the NAV.
C. Are determined by supply and demand.
D. a and c.
E. b and c.
56. The following are examples of mutual fund companies
A. Common stock funds.
B. Bond funds.
C. Hedge funds.
D. a and b.
E. a, b and c

57. An example of an international fund would be one that consisted of investments in

securities from
A. The U.S., Germany, and Japan.
B. Germany, Italy, and the U.K.
C. The U.S., Korea, and Argentina.
D. All of the above.
E. None of the above.

58. The Investment Company Act of 1940

A. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
B. Regulates broker-dealers.
C. Requires federal registration of all public offerings of securities.
D. Regulates the structure and operations of mutual funds.
E. Contains a code of ethics and standards of professional conduct.

59. The Securities Act of 1933

A. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
B. Regulates broker-dealers.
C. Requires federal registration of all public offerings of securities.
D. Regulates the structure and operations of mutual funds.
E. Contains a code of ethics and standards of professional conduct.

60. The Securities Exchange Act of 1934

A. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
B. Regulates broker-dealers.
C. Requires federal registration of all public offerings of securities.
D. Regulates the structure and operations of mutual funds.
E. Contains a code of ethics and standards of professional conduct.
61. The Investment Advisors Act of 1940
A. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
B. Regulates broker-dealers.
C. Requires federal registration of all public offerings of securities.
D. Regulates the structure and operations of mutual funds.
E. Contains a code of ethics and standards of professional conduct.

62. Soft dollars are generated when

A. A manager commits to paying a higher than normal brokerage fee in exchange for
additional bundled services.
B. A manager commits to paying a higher than normal brokerage fee in exchange for
secretarial services.
C. A manager commits to paying a higher than normal brokerage fee in exchange for
office equipment.
D. All of the above.
E. None of the above.

63. Which of the following is a characteristic of hedge funds?

A. They are generally less restricted in how and where they can make investments.
B. They are more liquid than mutual fund shares.
C. They have no limitations on when and how often investment capital can be
contributed or removed.
D. All of the above.
E. None of the above.

64. In a long short-short hedge fund strategy

A. Managers take long positions in undervalued stocks and short positions in overvalued
stocks.
B. Managers take short positions in undervalued stocks and long positions in overvalued
stocks.
C. Managers take offsetting risk positions on the long and short side.
D. All of the above.
E. None of the above.
65. In a convertible arbitrage strategy hedge fund managers attempt to
A. Generate profits by taking advantage of convertible bond pricing disparities caused by
changing market events.
B. Generate profits by taking advantage of disparities in the relationship between prices
for convertible bonds and the underlying common stock.
C. Generate profits by taking advantage of disparities in the relationship between prices
for convertible bonds and the underlying common stock option.
D. All of the above.
E. None of the above.

66. Ethical conflicts may arise as a result of

A. Incentive compensation schemes.
B. Soft dollar arrangements.
C. Marketing investment management services.
D. All of the above.
E. None of the above.

67. Which of the following are guiding principles for ethical behavior in the asset
management industry as put forward by the CFA Center for Financial Market Integrity?
A. The interests of investment professional come first.
B. The preferred method for promoting fair and efficient markets is to set up a central
oversight board.
C. Financial markets in various countries should develop high-quality standards for
reporting financial information that reflect local customs.
D. Financial statements should be reported from the perspective of firm shareholders.
E. All of the above.

68. Which of the following are functions that a portfolio manager should perform for
clients?
A. Determine investment objectives and constraints, diversify the portfolio, eliminate tax
payments.
B. Determine investment objectives, diversify the portfolio, maintain ethical standards
and eliminate tax payments.
C. Determine investment objectives and constraints, diversify the portfolio, and maintain
ethical standards.
D. Determine constraints, diversify the portfolio, eliminate tax payments.
E. Determine investment objectives and constraints, diversify the portfolio, eliminate tax
payments, and achieve risk adjusted return superior to the relevant benchmark.
69. The 12b-1 plan permits funds to deduct as much as ____ percent of average net asset
per year to cover distribution costs, brokers' commissions, and general marketing
expenses.
A. 0.25
B. 0.50
C. 0.75
D. 1.00
E. 1.50

70. What type of funds are typically no-load funds that impose no penalty for early
withdrawal and generally allow holders to write checks against their account?
A. Mutual funds
B. Open-end funds
C. Closed-end funds
D. Money market funds
E. Balanced funds

71. Which of the following is not an example of an alternative asset class?

A. Hedge funds
B. Private equity
C. Real estate
D. Commodities
E. All of the above are examples of alternative asset classes.

72. When alternative assets of investors are pooled together into a single pool of assets
A. The collection of assets is formed as a limited partnership.
B. One or more general partners are responsible for running the organization.
C. The limited partners are only liable to the extent of their investments.
D. Both a and c.
E. All of the above.

73. Investing in emerging markets can be viewed as a global application of

A. Fixed-income arbitrage.
B. Convertible arbitrage.
C. Merger arbitrage.
D. Distressed opportunistic strategies.
E. Equity market neutral.
74. An investment vehicle that acts like a mutual fund of hedge funds, and allows
investors access to managers that might otherwise be unavailable is known as
A. Managed futures funds
B. Long-short equity funds
C. Fund of funds
D. Private equity funds
E. Leveraged Buyouts (LBOs)

75. Which of the following statements regarding the closed-end investment company's
net asset value (NAV) is false?
A. NAV is computed throughout the day based on prevailing market prices for the
portfolio of securities
B. The market price of the shares is determined by how they trade on the exchange
C. NAV and market price of a closed-end fund are almost never the same
D. No new investment dollars are available for the investment company unless it makes
another public sale of securities
E. All of the above are true

76. Investment companies or mutual funds that continue to sell and repurchase shares
after their initial public offerings are referred to as
A. Closed-end
B. Open-end
C. No-load
D. Load
E. None of the above

77. Funds that adjust the asset allocation weights in the portfolio to match the needs of
an investor who is nearing retirement are known as
A. Balanced funds
B. Flexible portfolio funds
C. Lifetime funds
D. Money market funds
E. Target date funds
78. Hedge funds that are organized as a limited partnership
A. Are less restricted in how they make investments than general partnership hedge
funds
B. Typically have larger abnormal returns than general partnership hedge funds
C. Are usually less correlated with traditional asset class investments than general
partnership hedge funds
D. Have less liquid investments than mutual funds
E. None of the above

79. Exhibit 24.1

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Suppose ABC Mutual fund owned only 4 stocks as follows:

Stock Shares Price

W 2500 $11
X 2100 14
Y 2700 23
Z 1900 15

Refer to Exhibit 24.1. The fund originated by selling $100,000 of stock at $10.00 per share. What is its current NAV?
A. $1.47
B. $14.75
C. $16.03
D. $27.62
E. $234.12

80. Exhibit 24.1

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Suppose ABC Mutual fund owned only 4 stocks as follows:

Stock Shares Price

W 2500 $11
X 2100 14
Y 2700 23
Z 1900 15
Refer to Exhibit 24.1. What is the offering price for the fund if the NAV is $25.25 and the load is 6 percent?
A. $26.19
B. $23.74
C. $25.25
D. $26.77
E. $24.13

81. Suppose Mega Mutual Fund owns only the 4 stocks shown below with no liabilities.

Stock Shares Price

A 1800 15
B 2200 11
C 2300 9
D 1900 18

The fund originated by selling $300,000 of stock at $30.00 per share. What is its current NAV?
A. $106.10
B. $12.94
C. $129.40
D. $10.61
E. None of the above

82. Suppose Under Mutual Fund owns only the 3 stocks shown below with no liabilities.

Stock Shares Price

A 2900 15
B 3100 14
C 3200 12

The fund originated by selling $500,000 of stock at $50.00 per share. What is its current NAV?
A. $12.53
B. $15.29
C. $152.90
D. $125.30
E. None of the above
83. Suppose you consider investing $1,000 in a load fund which charges a fee of 2%, and
you expect the fund to earn 14% over the next year. Alternatively, you could invest in a
no-load fund with similar risk that is expected to earn 9% and charges a 1/2 percent
redemption fee. Which is better and by how much?
A. Funds are equal
B. Load fund by $32.65
C. Load fund by $50.55
D. No-load fund by $64.55
E. No-load fund by $44.30

84. Suppose you consider investing $1,000 in a load fund which charges a fee of 2%, and
you expect the fund to earn 11% over the next year. Alternatively, you could invest in a
no-load fund with similar risk that is expected to earn 7% and charges a 1/2 percent
redemption fee. Which is better and by how much?
A. Funds are equal
B. No-load fund by $36.98
C. Load fund by $45.25
D. Load fund by $23.15
E. No-load fund by $15.52

85. Suppose you consider investing $15,000 in a load fund from which a fee of 5% is
deducted and you expect the fund to earn 12% over the next year. Alternatively, you
could invest in a no load fund which is expected to earn 10% and which takes a 1/2
percent redemption fee. Which is better and by how much?
A. Load fund by $318.45
B. No load fund by $457.50
C. Funds are equal
D. Load fund by $415.10
E. No load fund by $211.51

86. Suppose you consider investing $10,000 in a load fund from which a fee of 3% is
deducted and you expect the fund to earn 12% over the next year. Alternatively, you
could invest in a no load fund which is expected to earn 10% and which takes a 0
percent redemption fee. Which is better and by how much?
A. Load fund by $151
B. No load fund by $136
C. Funds are equal
D. No load fund by $421
E. Load fund by $115
87. Suppose you consider investing $5,000 in a load fund from which a fee of 8% is
deducted and you expect the fund to earn 12% over the next year. Alternatively, you
could invest in a no load fund which is expected to earn 10% and which takes a 1/2
percent redemption fee. Which is better and by how much?
A. Load fund by $320.50
B. Load fund by $575.50
C. Funds are equal
D. No load fund by $320.50
E. No load fund by $575.50

88. On January 2, 2003, you invest $10,000 in Megabucks Mutual Fund, a load fund that
charges a fee of 2%. The fund's returns were 13% in 2003, 11% in 2004, 8% in 2005. On
December 31, 2005 you redeem all your shares. The dollar value is
A. $13,600.00
B. $13,275.51
C. $13,297.67
D. $13,995.75
E. $10,000.00

89. On January 2, 2003, you invest $50,000 in the Lizbiz Mutual Fund, a load fund that
charges a fee of 5%. The fund's returns were 14.6% in 2003, -6.4% in 2004, 15.2% in
2005. On December 31, 2005 you redeem all your shares. The dollar value is
A. $66,722.27
B. $15,200.00
C. $58,695.74
D. $33,366.25
E. $10,000.00

90. On January 2, 2003, you invest $100,000 in the Jeffers Mutual Fund, a load fund that
charges a fee of 5%. The fund's returns were -14.6% in 2003, -6.4% in 2004, 35% in
2005. On December 31, 2005 you redeem all your shares. The dollar value is:
A. $95,600.57
B. $102,515.90
C. $83,297.75
D. $133,995.75
E. $100,000.00
91. On January 2, 2003, you invest $10,000 in the Tiger Fund, a load fund that charges a
fee of 6%. The fund's returns were 25% in 2003, 35% in 2004, -5% in 2005. On
December 31, 2005 you redeem all your shares of Tiger. The dollar value is
A. $5,200.89
B. $13,345.89
C. $7,931.25
D. $15,896.34
E. $8,646.91

92. On January 2, 2003, you invest $10,000 in the W.O.W. Mutual Fund, a load fund that
charges a fee of 5%. The fund's returns were 13.6% in 2003, 12.2% in 2004, 8.3% in
2005. On December 31, 2005 you redeem all your W.O.W. shares. The dollar value is
A. $13,600.00
B. $13,664.13
C. $10,000.00
D. $131,136.40
E. $13,113.64

93. On January 2, 2003, you invest $10,000 in the Dog Mutual Fund, a load fund that
charges a fee of 7%. The fund's returns were 12.8% in 2003, 13.9% in 2004, 7.9% in
2005. On December 31, 2005 you redeem all your shares. The dollar value is
A. $12,800.00
B. $12,892.50
C. $100,000.00
D. $128,925.00
E. $10,000.00

94. On January 2, 2003, you invest $50,000 in A Mutual Fund, a load fund that charges a
fee of 7%. The fund's returns were 12.8% in 2003, 13.9% in 2004, 7.9% in 2005. On
December 31, 2005 you redeem all your shares in A. The dollar value is
A. $64,462.57
B. $644,625.70
C. $50,000.00
D. $6,446.25
E. $10,000.00
95. On January 2, 2003, you invest $100,000 in Righteous, a load fund that charges a fee
of 7%. The fund's returns were 12.8% in 2003, 13.9% in 2004, 7.9% in 2005. On
December 31, 2005 you redeem all your Righteous shares. The dollar value is
A. $12,800.00
B. $12,892.50
C. $100,000.00
D. $128,925.00
E. $10,000.00

96. Consider the Defiance Bond Fund that consists of the 3 bonds shown below and has
no liabilities.

Company Current Bond Value # Bonds

Komko 980 120
Hijack 1010 150
Mitsue 1200 100

If initially the value of the fund was $250,000 and the original shares were offered to the public with a NAV of $25 per
share, what is the current NAV of the fund?
A. $25.00
B. $38.91
C. $39.81
D. $31.98
E. $39.91

97. Consider X Bond Fund which consists of the 5 bonds shown below with no liabilities.

Company Current Bond Value # Bonds

Komko 980 120
Hijack 1010 150
Mitsue 1200 100
Smitsu 800 120
Jones 600 150

If initially the value of the fund was $1,000,000 and the original shares were offered to the public with a NAV of $25
per share, what is the current NAV of the fund?
A. $25.00
B. $27.68
C. $25.68
D. $28.76
E. $26.78
98. Consider the Compliance Bond Fund that consists of the 7 bonds shown below and
has no liabilities.

Company Current Bond Value # Bonds

Komko 980 120
Hijack 1010 150
Mitsue 1200 100
Smitsu 800 120
Jones 600 150
GMM 1000 150
ATP 950 150

If initially the value of the fund was $2,500,000 and the original shares were offered to the public with a NAV of $25
per share, what is the current NAV of the fund?
A. $27.11
B. $25.00
C. $26.11
D. $21.67
E. $26.27

99. Given the following fees and expected returns for fund X, assuming an initial
investment of $1000 calculate the value of the investment at the end of 5 years.

Investment E(Return) Load 12b-1 fee Rear-end load Years

X 10% 2.5% 0.25% 0% 5 years

A. $1069.82
B. $1550.77
C. $1042.36
D. $1689.95
E. $1389.95

100. Given the following fees and expected returns for fund Y, assuming an initial
investment of $1000 calculate the value of the investment at the end of 5 years

Investment E(Return) Load 12b-1 fee Rear-end load Years

Y 8% 0% 0.50% 3% 5 years

A. $1069.82
B. $1550.77
C. $1642.36
D. $1389.95
E. $1362.59
101. Calculate the annual rate of return for a mutual fund with the following fees and
expected returns

Investment E(Return) Load 12b-1 fee Years Held

Mutual Fund 7% 4% 0.50% 7 years

A. 4.95%
B. 5.0%
C. 5.85%
D. 2.5%
E. 6.55%

102. If the Micro mutual fund was originated by selling $250,000 of stock at $10.00 per
share. Calculate its current NAV if the fund consists of the following four stocks.

Stock Shares Price

Q 9,500 $10.75
R 7,200 $13.90
S 4,500 $22.25
T 6,800 $14.75

A. $5.78
B. $10.00
C. $12.43
D. $16.11
E. $19.21

103. What is the offering price for a mutual fund with a NAV of $22.50 and a load of 5
percent?
A. $21.38
B. $21.79
C. $22.50
D. $23.63
E. $27.50
104. You are considering investing $50,000 in two mutual funds. The first fund is a load
fund with a fee of 6% and you expect the fund to earn 11% over the next year.
Alternatively, you could invest in a no load fund that is expected to earn 8% and has a
0.5 percent redemption fee. What fund has a higher return and how much more value
will it have after the first year?
A. Load fund by $1,360
B. Load fund by $580
C. No load fund by $580
D. No load fund by $1,560
E. No load fund by $1,820

105. On January 1, 2005, you invest $20,000 in Libby Mutual Fund, a load fund that
charges a fee of 2.5%. The fund's returns were 9% in 2005, 8% in 2006, 3% in 2007. If
you redeem all your shares on December 31, 2007, what is the dollar value?
A. $24,250.32
B. $24,000.32
C. $23,644.06
D. $23,195.17
E. $21,501.80

106. Suppose NBT Mutual Fund has no liabilities and owns only three stocks with the
following number of shares and respective market prices.

Stock Shares Price

X 7900 16
Y 8100 15
Z 9200 12

The fund originated by selling $500,000 of stock at $100.00 per share. What is its current NAV?
A. $0.72
B. $14.33
C. $15.21
D. $71.66
E. None of the above
107. You are considering investing $1,000 in a load fund which charges a fee of 2.5%,
with an expected return of 12% over the next year. Alternatively, you could invest in a
no-load fund with similar risk that is expected to earn 8% and charges a 1/2 percent
redemption fee. Which is better and by how much?
A. Load fund by $12.00
B. Load fund by $15.32
C. Load fund by $17.40
D. No-load fund by $6.55
E. No-load fund by $1.30

108. What is the offering price for a mutual fund with a NAV of $36.50 and a load of 4
percent?
A. $34.78
B. $35.51
C. $35.77
D. $36.50
E. $37.96
CHAPTER 24--PROFESSIONAL MONEY MANAGEMENT,
ALTERNATIVE ASSETS, AND INDUSTRY ETHICS Key

1. Management and advisory firms can advise clients on how to structure their own
portfolios.
TRUE

2. In an investment company, the invested funds belong to many individuals.

TRUE

3. The total market value of all assets of a mutual fund divided by the number of shares
of the fund is known as the net asset value.
TRUE

4. A portfolio is generally managed by the board of directors of an investment company.

FALSE

5. A closed-end investment company is normally referred to as a mutual fund.

FALSE

6. The market price of shares of a closed-end fund is typically determined by supply and
demand.
FALSE

7. An open-end investment company differs from a closed-end investment company by

the way they operate after the initial public offering.
TRUE
8. Open-end investment companies continue to sell and repurchase shares after their
initial public offering.
TRUE

9. A no-load fund imposes a substantial sales charge and sells shares at their NAV.
FALSE

10. All investment firms charge annual management fees to compensate the
professional manager of the fund.
TRUE

11. Hedge funds are far less liquid than mutual fund shares.
TRUE

12. The primary purpose of government regulations and voluntary standards in the
professional asset management industry is to ensure that managers deal with all
investors fairly and equitably and that information about investment performance is
accurately reported.
TRUE

13. Hedge funds have no limitations on when and how often capital can be contributed
or removed from the partnership.
FALSE

14. The returns received by the average individual investor on funds managed by
investment companies will probably be superior to the average results for a specific U.S.
or international market.
FALSE

15. An investor should be cautious when selecting a fund based solely on the manager's
past performance, since past performance may not be repeated in the future.
TRUE
16. Diversifying a portfolio to eliminate unsystematic risk is one of the major benefits of
investing in mutual funds.
TRUE

17. High Portfolio turnover lowers mutual fund costs.

FALSE

18. The total market value of all assets of a mutual fund divided by the number of shares
of the fund is known as the net asset value.
TRUE

19. Income distributions and capital gains distributions are the only source of returns for
mutual funds.
FALSE

20. The market price of shares of a closed-end fund is typically determined by supply and
demand.
TRUE

21. Closed-end investment companies never sell at discounts to their NAV.

FALSE

22. Market index funds attempt to match the composition and performance of a specified
market indicator series.
TRUE

23. Open-end and closed-end investment companies are similar in that both companies
will repurchase shares on demand.
FALSE

24. When securities are held in an investment company the appropriate way to value a
client's investment is by net asset value (NAV).
TRUE
25. An open-end investment company functions like any other public firm.
FALSE

26. The offering price for a share of a load fund equals the net asset value of the share.
FALSE

27. Fund of funds give investors access to hedge fund managers that might otherwise be
unavailable to them.
TRUE

28. A common hedge fund strategy known as long-short equity is a type of arbitrage
strategy.
FALSE

29. Convertible arbitrage hedge funds profit from disparities in the relationship between
prices for convertible bonds and fixed-income bonds.
FALSE

30. Which of the following is an approach to asset management?

A. Management and advisory firms
B. Investment companies
C. Strategic management
D. Choices a and b only
E. All of the above

31. An open-end investment company is commonly referred to as a(n)

A. Balanced fund.
B. Mutual fund.
C. Money market fund.
D. Accessible fund.
E. Unit trust.
32. The main difference between a closed-end fund and an open-end fund is
A. The way each is traded after the initial public offering.
B. There is no significant difference.
C. The minimum initial investment.
D. The type of allowable investments.
E. The way in which each is regulated by the SEC.

33. Net asset value (NAV) is determined by

A. The total market value of all its assets multiplied by the number of fund shares
outstanding.
B. The total market value of all its assets divided by the number of fund shares
outstanding.
C. The total market value of all its assets divided by the number of shareholders.
D. Supply and demand for the investment company stock in the secondary market.
E. Supply and demand for the investment company stock in the primary market.

34. The market price of a closed-end investment company has generally been
A. 5 to 20 percent below the NAV.
B. 25 to 35 percent below the NAV.
C. Equal to the NAV (within a 2 percent range).
D. 5 to 20 percent above the NAV.
E. 25 to 35 percent above the NAV.

35. The closed-end fund index is

A. Value weighted and based on market values.
B. Value weighted and based on NAVs.
C. Price weighted and based on market values.
D. Price weighted and based on NAVs.
E. Equally weighted and based on market values.

36. Open-end mutual funds that charge a sales fee when the fund is initially offered to
the investor are known as
A. 12b-1.
B. Americus trusts.
C. Unit investment trusts.
D. Load funds.
E. Contingency funds.
37. A 12b-1 plan allows funds to
A. Charge a redemption fee.
B. Deduct 7 to 8 percent commission at the initial offering.
C. Deduct .75 percent of the average net assets per year.
D. Charge a contingent deferred sales load.
E. Switch from closed-end to open-end.

38. When the offer price and the NAV of a mutual fund are equal it is an indication that
A. The fund's assets are in equilibrium.
B. The fund is trading at par.
C. It is strictly a coincidence.
D. The fund has no initial fee.
E. The fund is backloaded.

39. All investment companies charge an annual

A. 12b-1 fee.
B. Marketing and distribution.
C. Management fee.
D. Maintenance fee.
E. Market adjustment.

40. The offering price of a load fund equals the NAV of the fund
A. Less an initial requirement.
B. Plus a sales charge.
C. Plus a sales charge and an administrative fee.
D. Less a negotiated discount.
E. At its stated value.

41. Funds that normally contain a combination of common stock and fixed income
securities are known as
A. Section 401(k) plans.
B. Balanced funds.
C. Contractual plans.
D. Income funds.
E. Flexible funds.
42. Funds that attempt to provide current income, safety of principal and liquidity are
known as
A. Balanced funds.
B. Flexible funds.
C. Income funds.
D. Money market funds.
E. Index funds.

43. A money market fund would be likely to invest in a portfolio containing all of the
following except
A. Commercial paper.
B. Banker's acceptances.
C. U.S. Treasury bills.
D. Bank certificates of deposit.
E. U.S. Treasury notes.

44. A mutual fund typically performs all of the following functions, except
A. Provides alternative risk-return options.
B. Eliminates unsystematic risk.
C. Provides diversification.
D. Derives a risk-adjusted performance that is consistently superior to risk-adjusted net
return of the aggregate market.
E. Administers the account, keeps records and provides timely information.

45. Mutual fund performance studies have shown that most funds
A. Have risks and returns that are inconsistent with their stated objectives.
B. Have risks and returns that are consistent with their stated objectives.
C. Do not have stated objectives.
D. Have experienced risk-adjusted returns above the market.
E. Have changed their objectives over time.

46. The text offers a number of suggestions for investing in mutual funds. Which of the
following is not such a suggestion?
A. Choose only those mutual funds which are consistent with your objectives and
constraints.
B. Invest in no-load funds whenever possible.
C. Avoid investing in index funds.
D. Use a dollar cost average strategy.
E. None of the above (that is, all are valid suggestions for investing in mutual funds)
47. The gross return of closed-end investments companies has typically been
A. 10-20 percent less than their NAV.
B. 10-15 percent less than their NAV.
C. Less than the net return.
D. About the same as the net return.
E. None of the above

48. A major question in modern finance regarding closed-end investment companies is

A. Why do these funds sell at discounts?
B. Why do the discounts differ between funds?
C. What are the returns available to investors from funds that sell at a large discount?
D. Choices a and b only
E. All of the above

49. A portfolio manager should be able to perform all of the following functions, except
A. Determine risk-return preferences.
B. Eliminate systematic risk.
C. Maintain diversification ensuring a stabilized risk class.
D. Attempt to derive a risk-adjusted performance that is superior to the market.
E. Administer the account, keep records and provide timely information.

50. An investment company is

A. A corporation that handles the administrative functions for a fund.
B. A corporation that has its major assets in a portfolio of securities.
C. A corporation that invests in financial services firms.
D. a and b.
E. a and c.

51. An investment management company is

A. A corporation that handles the administrative functions for a fund.
B. A corporation that has its major assets in a portfolio of securities.
C. A corporation that invests in financial services firms.
D. a and b.
E. a and c.
52. In the case of private management firms
A. Investors deal with a fund company and do not have separate accounts tailored to
their specific needs.
B. Investors deal with a fund company and have separate accounts tailored to their
specific needs.
C. Investors deal with an asset manager and do not have separate accounts tailored to
their specific needs.
D. Investors deal with an asset manager have separate accounts tailored to their specific
needs.
E. None of the above.

53. In the case of investment companies

A. Investors deal with a fund company and do not have separate accounts tailored to
their specific needs.
B. Investors deal with a fund company and have separate accounts tailored to their
specific needs.
C. Investors deal with an asset manager and do not have separate accounts tailored to
their specific needs.
D. Investors deal with an asset manager have separate accounts tailored to their specific
needs.
E. None of the above.

54. In the case of open-end investment companies, shares of the company

A. Trade on the secondary market.
B. Can be bought from or sold to the investment company at the NAV.
C. Are determined by supply and demand.
D. a and c.
E. b and c.

55. In the case of closed-end investment companies, shares of the company

A. Trade on the secondary market.
B. Can be bought from or sold to the investment company at the NAV.
C. Are determined by supply and demand.
D. a and c.
E. b and c.
56. The following are examples of mutual fund companies
A. Common stock funds.
B. Bond funds.
C. Hedge funds.
D. a and b.
E. a, b and c

57. An example of an international fund would be one that consisted of investments in

securities from
A. The U.S., Germany, and Japan.
B. Germany, Italy, and the U.K.
C. The U.S., Korea, and Argentina.
D. All of the above.
E. None of the above.

58. The Investment Company Act of 1940

A. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
B. Regulates broker-dealers.
C. Requires federal registration of all public offerings of securities.
D. Regulates the structure and operations of mutual funds.
E. Contains a code of ethics and standards of professional conduct.

59. The Securities Act of 1933

A. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
B. Regulates broker-dealers.
C. Requires federal registration of all public offerings of securities.
D. Regulates the structure and operations of mutual funds.
E. Contains a code of ethics and standards of professional conduct.

60. The Securities Exchange Act of 1934

A. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
B. Regulates broker-dealers.
C. Requires federal registration of all public offerings of securities.
D. Regulates the structure and operations of mutual funds.
E. Contains a code of ethics and standards of professional conduct.
61. The Investment Advisors Act of 1940
A. Contains various anti-fraud provisions and record keeping and reporting requirements
for fund advisors.
B. Regulates broker-dealers.
C. Requires federal registration of all public offerings of securities.
D. Regulates the structure and operations of mutual funds.
E. Contains a code of ethics and standards of professional conduct.

62. Soft dollars are generated when

A. A manager commits to paying a higher than normal brokerage fee in exchange for
additional bundled services.
B. A manager commits to paying a higher than normal brokerage fee in exchange for
secretarial services.
C. A manager commits to paying a higher than normal brokerage fee in exchange for
office equipment.
D. All of the above.
E. None of the above.

63. Which of the following is a characteristic of hedge funds?

A. They are generally less restricted in how and where they can make investments.
B. They are more liquid than mutual fund shares.
C. They have no limitations on when and how often investment capital can be
contributed or removed.
D. All of the above.
E. None of the above.

64. In a long short-short hedge fund strategy

A. Managers take long positions in undervalued stocks and short positions in overvalued
stocks.
B. Managers take short positions in undervalued stocks and long positions in overvalued
stocks.
C. Managers take offsetting risk positions on the long and short side.
D. All of the above.
E. None of the above.
65. In a convertible arbitrage strategy hedge fund managers attempt to
A. Generate profits by taking advantage of convertible bond pricing disparities caused by
changing market events.
B. Generate profits by taking advantage of disparities in the relationship between prices
for convertible bonds and the underlying common stock.
C. Generate profits by taking advantage of disparities in the relationship between prices
for convertible bonds and the underlying common stock option.
D. All of the above.
E. None of the above.

66. Ethical conflicts may arise as a result of

A. Incentive compensation schemes.
B. Soft dollar arrangements.
C. Marketing investment management services.
D. All of the above.
E. None of the above.

67. Which of the following are guiding principles for ethical behavior in the asset
management industry as put forward by the CFA Center for Financial Market Integrity?
A. The interests of investment professional come first.
B. The preferred method for promoting fair and efficient markets is to set up a central
oversight board.
C. Financial markets in various countries should develop high-quality standards for
reporting financial information that reflect local customs.
D. Financial statements should be reported from the perspective of firm shareholders.
E. All of the above.

68. Which of the following are functions that a portfolio manager should perform for
clients?
A. Determine investment objectives and constraints, diversify the portfolio, eliminate tax
payments.
B. Determine investment objectives, diversify the portfolio, maintain ethical standards
and eliminate tax payments.
C. Determine investment objectives and constraints, diversify the portfolio, and maintain
ethical standards.
D. Determine constraints, diversify the portfolio, eliminate tax payments.
E. Determine investment objectives and constraints, diversify the portfolio, eliminate tax
payments, and achieve risk adjusted return superior to the relevant benchmark.
69. The 12b-1 plan permits funds to deduct as much as ____ percent of average net asset
per year to cover distribution costs, brokers' commissions, and general marketing
expenses.
A. 0.25
B. 0.50
C. 0.75
D. 1.00
E. 1.50

70. What type of funds are typically no-load funds that impose no penalty for early
withdrawal and generally allow holders to write checks against their account?
A. Mutual funds
B. Open-end funds
C. Closed-end funds
D. Money market funds
E. Balanced funds

71. Which of the following is not an example of an alternative asset class?

A. Hedge funds
B. Private equity
C. Real estate
D. Commodities
E. All of the above are examples of alternative asset classes.

72. When alternative assets of investors are pooled together into a single pool of assets
A. The collection of assets is formed as a limited partnership.
B. One or more general partners are responsible for running the organization.
C. The limited partners are only liable to the extent of their investments.
D. Both a and c.
E. All of the above.

73. Investing in emerging markets can be viewed as a global application of

A. Fixed-income arbitrage.
B. Convertible arbitrage.
C. Merger arbitrage.
D. Distressed opportunistic strategies.
E. Equity market neutral.
74. An investment vehicle that acts like a mutual fund of hedge funds, and allows
investors access to managers that might otherwise be unavailable is known as
A. Managed futures funds
B. Long-short equity funds
C. Fund of funds
D. Private equity funds
E. Leveraged Buyouts (LBOs)

75. Which of the following statements regarding the closed-end investment company's
net asset value (NAV) is false?
A. NAV is computed throughout the day based on prevailing market prices for the
portfolio of securities
B. The market price of the shares is determined by how they trade on the exchange
C. NAV and market price of a closed-end fund are almost never the same
D. No new investment dollars are available for the investment company unless it makes
another public sale of securities
E. All of the above are true

76. Investment companies or mutual funds that continue to sell and repurchase shares
after their initial public offerings are referred to as
A. Closed-end
B. Open-end
C. No-load
D. Load
E. None of the above

77. Funds that adjust the asset allocation weights in the portfolio to match the needs of
an investor who is nearing retirement are known as
A. Balanced funds
B. Flexible portfolio funds
C. Lifetime funds
D. Money market funds
E. Target date funds
78. Hedge funds that are organized as a limited partnership
A. Are less restricted in how they make investments than general partnership hedge
funds
B. Typically have larger abnormal returns than general partnership hedge funds
C. Are usually less correlated with traditional asset class investments than general
partnership hedge funds
D. Have less liquid investments than mutual funds
E. None of the above

79. Exhibit 24.1

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Suppose ABC Mutual fund owned only 4 stocks as follows:

Stock Shares Price

W 2500 $11
X 2100 14
Y 2700 23
Z 1900 15

Refer to Exhibit 24.1. The fund originated by selling $100,000 of stock at $10.00 per share. What is its current NAV?
A. $1.47
B. $14.75
C. $16.03
D. $27.62
E. $234.12

80. Exhibit 24.1

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Suppose ABC Mutual fund owned only 4 stocks as follows:

Stock Shares Price

W 2500 $11
X 2100 14
Y 2700 23
Z 1900 15
Refer to Exhibit 24.1. What is the offering price for the fund if the NAV is $25.25 and the load is 6 percent?
A. $26.19
B. $23.74
C. $25.25
D. $26.77
E. $24.13

81. Suppose Mega Mutual Fund owns only the 4 stocks shown below with no liabilities.

Stock Shares Price

A 1800 15
B 2200 11
C 2300 9
D 1900 18

The fund originated by selling $300,000 of stock at $30.00 per share. What is its current NAV?
A. $106.10
B. $12.94
C. $129.40
D. $10.61
E. None of the above

82. Suppose Under Mutual Fund owns only the 3 stocks shown below with no liabilities.

Stock Shares Price

A 2900 15
B 3100 14
C 3200 12

The fund originated by selling $500,000 of stock at $50.00 per share. What is its current NAV?
A. $12.53
B. $15.29
C. $152.90
D. $125.30
E. None of the above
83. Suppose you consider investing $1,000 in a load fund which charges a fee of 2%, and
you expect the fund to earn 14% over the next year. Alternatively, you could invest in a
no-load fund with similar risk that is expected to earn 9% and charges a 1/2 percent
redemption fee. Which is better and by how much?
A. Funds are equal
B. Load fund by $32.65
C. Load fund by $50.55
D. No-load fund by $64.55
E. No-load fund by $44.30

84. Suppose you consider investing $1,000 in a load fund which charges a fee of 2%, and
you expect the fund to earn 11% over the next year. Alternatively, you could invest in a
no-load fund with similar risk that is expected to earn 7% and charges a 1/2 percent
redemption fee. Which is better and by how much?
A. Funds are equal
B. No-load fund by $36.98
C. Load fund by $45.25
D. Load fund by $23.15
E. No-load fund by $15.52

85. Suppose you consider investing $15,000 in a load fund from which a fee of 5% is
deducted and you expect the fund to earn 12% over the next year. Alternatively, you
could invest in a no load fund which is expected to earn 10% and which takes a 1/2
percent redemption fee. Which is better and by how much?
A. Load fund by $318.45
B. No load fund by $457.50
C. Funds are equal
D. Load fund by $415.10
E. No load fund by $211.51

86. Suppose you consider investing $10,000 in a load fund from which a fee of 3% is
deducted and you expect the fund to earn 12% over the next year. Alternatively, you
could invest in a no load fund which is expected to earn 10% and which takes a 0
percent redemption fee. Which is better and by how much?
A. Load fund by $151
B. No load fund by $136
C. Funds are equal
D. No load fund by $421
E. Load fund by $115
87. Suppose you consider investing $5,000 in a load fund from which a fee of 8% is
deducted and you expect the fund to earn 12% over the next year. Alternatively, you
could invest in a no load fund which is expected to earn 10% and which takes a 1/2
percent redemption fee. Which is better and by how much?
A. Load fund by $320.50
B. Load fund by $575.50
C. Funds are equal
D. No load fund by $320.50
E. No load fund by $575.50

88. On January 2, 2003, you invest $10,000 in Megabucks Mutual Fund, a load fund that
charges a fee of 2%. The fund's returns were 13% in 2003, 11% in 2004, 8% in 2005. On
December 31, 2005 you redeem all your shares. The dollar value is
A. $13,600.00
B. $13,275.51
C. $13,297.67
D. $13,995.75
E. $10,000.00

89. On January 2, 2003, you invest $50,000 in the Lizbiz Mutual Fund, a load fund that
charges a fee of 5%. The fund's returns were 14.6% in 2003, -6.4% in 2004, 15.2% in
2005. On December 31, 2005 you redeem all your shares. The dollar value is
A. $66,722.27
B. $15,200.00
C. $58,695.74
D. $33,366.25
E. $10,000.00

90. On January 2, 2003, you invest $100,000 in the Jeffers Mutual Fund, a load fund that
charges a fee of 5%. The fund's returns were -14.6% in 2003, -6.4% in 2004, 35% in
2005. On December 31, 2005 you redeem all your shares. The dollar value is:
A. $95,600.57
B. $102,515.90
C. $83,297.75
D. $133,995.75
E. $100,000.00
91. On January 2, 2003, you invest $10,000 in the Tiger Fund, a load fund that charges a
fee of 6%. The fund's returns were 25% in 2003, 35% in 2004, -5% in 2005. On
December 31, 2005 you redeem all your shares of Tiger. The dollar value is
A. $5,200.89
B. $13,345.89
C. $7,931.25
D. $15,896.34
E. $8,646.91

92. On January 2, 2003, you invest $10,000 in the W.O.W. Mutual Fund, a load fund that
charges a fee of 5%. The fund's returns were 13.6% in 2003, 12.2% in 2004, 8.3% in
2005. On December 31, 2005 you redeem all your W.O.W. shares. The dollar value is
A. $13,600.00
B. $13,664.13
C. $10,000.00
D. $131,136.40
E. $13,113.64

93. On January 2, 2003, you invest $10,000 in the Dog Mutual Fund, a load fund that
charges a fee of 7%. The fund's returns were 12.8% in 2003, 13.9% in 2004, 7.9% in
2005. On December 31, 2005 you redeem all your shares. The dollar value is
A. $12,800.00
B. $12,892.50
C. $100,000.00
D. $128,925.00
E. $10,000.00

94. On January 2, 2003, you invest $50,000 in A Mutual Fund, a load fund that charges a
fee of 7%. The fund's returns were 12.8% in 2003, 13.9% in 2004, 7.9% in 2005. On
December 31, 2005 you redeem all your shares in A. The dollar value is
A. $64,462.57
B. $644,625.70
C. $50,000.00
D. $6,446.25
E. $10,000.00
95. On January 2, 2003, you invest $100,000 in Righteous, a load fund that charges a fee
of 7%. The fund's returns were 12.8% in 2003, 13.9% in 2004, 7.9% in 2005. On
December 31, 2005 you redeem all your Righteous shares. The dollar value is
A. $12,800.00
B. $12,892.50
C. $100,000.00
D. $128,925.00
E. $10,000.00

96. Consider the Defiance Bond Fund that consists of the 3 bonds shown below and has
no liabilities.

Company Current Bond Value # Bonds

Komko 980 120
Hijack 1010 150
Mitsue 1200 100

If initially the value of the fund was $250,000 and the original shares were offered to the public with a NAV of $25 per
share, what is the current NAV of the fund?
A. $25.00
B. $38.91
C. $39.81
D. $31.98
E. $39.91

97. Consider X Bond Fund which consists of the 5 bonds shown below with no liabilities.

Company Current Bond Value # Bonds

Komko 980 120
Hijack 1010 150
Mitsue 1200 100
Smitsu 800 120
Jones 600 150

If initially the value of the fund was $1,000,000 and the original shares were offered to the public with a NAV of $25
per share, what is the current NAV of the fund?
A. $25.00
B. $27.68
C. $25.68
D. $28.76
E. $26.78
98. Consider the Compliance Bond Fund that consists of the 7 bonds shown below and
has no liabilities.

Company Current Bond Value # Bonds

Komko 980 120
Hijack 1010 150
Mitsue 1200 100
Smitsu 800 120
Jones 600 150
GMM 1000 150
ATP 950 150

If initially the value of the fund was $2,500,000 and the original shares were offered to the public with a NAV of $25
per share, what is the current NAV of the fund?
A. $27.11
B. $25.00
C. $26.11
D. $21.67
E. $26.27

99. Given the following fees and expected returns for fund X, assuming an initial
investment of $1000 calculate the value of the investment at the end of 5 years.

Investment E(Return) Load 12b-1 fee Rear-end load Years

X 10% 2.5% 0.25% 0% 5 years

A. $1069.82
B. $1550.77
C. $1042.36
D. $1689.95
E. $1389.95

100. Given the following fees and expected returns for fund Y, assuming an initial
investment of $1000 calculate the value of the investment at the end of 5 years

Investment E(Return) Load 12b-1 fee Rear-end load Years

Y 8% 0% 0.50% 3% 5 years

A. $1069.82
B. $1550.77
C. $1642.36
D. $1389.95
E. $1362.59
101. Calculate the annual rate of return for a mutual fund with the following fees and
expected returns

Investment E(Return) Load 12b-1 fee Years Held

Mutual Fund 7% 4% 0.50% 7 years

A. 4.95%
B. 5.0%
C. 5.85%
D. 2.5%
E. 6.55%

102. If the Micro mutual fund was originated by selling $250,000 of stock at $10.00 per
share. Calculate its current NAV if the fund consists of the following four stocks.

Stock Shares Price

Q 9,500 $10.75
R 7,200 $13.90
S 4,500 $22.25
T 6,800 $14.75

A. $5.78
B. $10.00
C. $12.43
D. $16.11
E. $19.21

103. What is the offering price for a mutual fund with a NAV of $22.50 and a load of 5
percent?
A. $21.38
B. $21.79
C. $22.50
D. $23.63
E. $27.50
104. You are considering investing $50,000 in two mutual funds. The first fund is a load
fund with a fee of 6% and you expect the fund to earn 11% over the next year.
Alternatively, you could invest in a no load fund that is expected to earn 8% and has a
0.5 percent redemption fee. What fund has a higher return and how much more value
will it have after the first year?
A. Load fund by $1,360
B. Load fund by $580
C. No load fund by $580
D. No load fund by $1,560
E. No load fund by $1,820

105. On January 1, 2005, you invest $20,000 in Libby Mutual Fund, a load fund that
charges a fee of 2.5%. The fund's returns were 9% in 2005, 8% in 2006, 3% in 2007. If
you redeem all your shares on December 31, 2007, what is the dollar value?
A. $24,250.32
B. $24,000.32
C. $23,644.06
D. $23,195.17
E. $21,501.80

106. Suppose NBT Mutual Fund has no liabilities and owns only three stocks with the
following number of shares and respective market prices.

Stock Shares Price

X 7900 16
Y 8100 15
Z 9200 12

The fund originated by selling $500,000 of stock at $100.00 per share. What is its current NAV?
A. $0.72
B. $14.33
C. $15.21
D. $71.66
E. None of the above
107. You are considering investing $1,000 in a load fund which charges a fee of 2.5%,
with an expected return of 12% over the next year. Alternatively, you could invest in a
no-load fund with similar risk that is expected to earn 8% and charges a 1/2 percent
redemption fee. Which is better and by how much?
A. Load fund by $12.00
B. Load fund by $15.32
C. Load fund by $17.40
D. No-load fund by $6.55
E. No-load fund by $1.30

108. What is the offering price for a mutual fund with a NAV of $36.50 and a load of 4
percent?
A. $34.78
B. $35.51
C. $35.77
D. $36.50
E. $37.96