FIN chapter 4 PDF

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FIN chapter 4...

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1 1.) A __________ is a private investment pool open only to wealthy or institutional investors that is exempt from SEC regulation and can therefore pursue more speculative policies than mutual funds. Answer: hedge fund 2.) Advantages of investment companies to investors include all but which one of the following? Answer: guaranteed rates of return 3.) The type of mutual fund that primarily engages in market timing is called _______. Answer: an asset allocation fund 4.) Management fees for open-end and closed-end funds typically range between _____ and _____. Answer: .2%; 1.5% 5.) The primary measurement unit used for assessing the value of one's stake in an investment company is ___________________. Answer: net asset value 6.) Net asset value is defined as ________________________. Answer: market value of assets minus liabilities divided by shares outstanding 7.) The Vanguard 500 Index Fund tracks the performance of the S&P 500. To do so, the fund buys shares in each S&P 500 company __________. Answer: in proportion to the market value weight of the firm's equity in the S&P 500 8.) Which of the following funds invest specifically in stocks of fast-growing companies? Answer: growth equity funds 9.) Investors who want to liquidate their holdings in a closed-end fund may ___________________. Answer: sell their shares on the open market 10.) __________ fund is defined as one in which the fund charges a sales commission to either buy into or exit from the fund. Answer: A load 11.) Which of the following is a false statement regarding open-end mutual funds? Answer: They offer investors a guaranteed rate of return. 12.) __________ funds stand ready to redeem or issue shares at their net asset value. Answer: Open-end 13.) ______________________ are often called mutual funds. Answer: Open-end investment companies 14.) Specialized-sector funds concentrate their investments in _________________. Answer: securities issued by firms in a particular industry 15.) If a mutual fund has multiple-class shares, which class typically has a front-end load?

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2 Answer: Class A 16.) You are considering investing in one of several mutual funds. All the funds under consideration have various combinations of front-end and back-end loads and/or 12b-1 fees. The longer you plan on remaining in the fund you choose, the more likely you will prefer a fund with a __________ rather than a __________, everything else equal. Answer: front-end load; 12b-1 fee 17.) Under SEC rules, the managers of certain funds are allowed to deduct charges for advertising, brokerage commissions, and other sales expenses directly from the fund assets rather than billing investors. These fees are known as ____________. Answer: 12b-1 charges 18.) Advantages of ETFs over mutual funds include all but which one of the following? Answer: ETF values can diverge from NAV. 19.) Which of the following funds are usually most tax-efficient? Answer: ETFs 20.) Which type of fund is often priced at a significant discount to net asset value? Answer: closed-end fund 21.) The fund has not borrowed any funds, but its accrued management fee with the portfolio manager currently totals $40,000. There are 4 million shares outstanding. What is the net asset value of the fund? (Round your answer to 2 decimal places.) Answer: Net asset value $10.62 ± 1% Given that net asset value equals assets minus liabilities expressed on a per-share basis, we first add up the value of the shares to get the market value of the portfolio: Stock Value Held by Fund A $ 8,750,000 B 14,000,000 C 6,750,000 D 13,000,000 Total $ 42,500,000 Knowing that the accrued management fee, which adjusts the value of the portfolio, totals $40,000, and the number of the shares outstanding is 4,000,000, we can use the NAV equation: Net asset value = Market value of assets − Market value of liabilities Shares outstanding = $$42,500,000 − $40,000 = $10.62 4,000,000 22.) The Closed Fund is a closed-end investment company with a portfolio currently worth $315 million. It has liabilities of $5 million and 8 million shares outstanding. a. What is the NAV of the fund? (Round your answer to 2 decimal places.) b. If the fund sells for $35 per share, what is its premium or discount as a percent of NAV? (Input the amount as a positive value. Round your answer to 2 decimal places.) Answer: a. NAV $38.75 ± 1%

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