multiple choice quizes mcgraw hill

Results ReporterOut 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 .

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

A)they sell their mutual fund shares at a gain

B)the mutual fund sells stock in its portfolio at a gain

C)

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

D)all of the above

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

A)12b-1 charges

B)front-end load

C)management fee

D)operating expenses

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?

A)

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

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B)

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.

C)

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

D)ETF prices can not deviate from net asset value.

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

A)specialized sector fund

B)index fund

C)asset allocation fund

D)balanced fund

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

A)

open-end mutual fund that invests primarily in mortgage and construction loans

B)closed-end mutual fund that invests directly in real estate

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

D)none of the above

6 UNANSWERED A mutual fund with a relatively high portfolio turnover rate is generally

regarded as ________________.

A)

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

B)tax inefficient because frequent trading results in high transaction costs

C)

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

D)

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

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7 INCORRECTA 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?

A)$25.00

B)$27.23

C)$27.25

D)$27.50

8 CORRECTShares of a closed–end fund ________________.

A)

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

B)

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

C)

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

D)

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

9 INCORRECTA 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?

A)12.0%

B)15.0%

C)18.0%

D)30.0%

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?

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A)$20.88

B)$20.29

C)$20.59

D)$29.17

11 CORRECTWhich of the following statements is true about hedge funds?

A)

Hedge funds are mutual funds that specialize in derivative investments designed primarily for hedging purposes.

B)

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

C)

The term hedge fund derives from a common hedge fund strategy based on anticipated changes in relative valuations in two market sectors.

D)

Investments in hedge funds are very liquid, which means that investors in a hedge fund can withdraw their investments at any time without risk of loss in market value.

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?

A)-1.47%

B)3.46%

C)3.90%

D)8.90%

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

A)

buying or selling exchange-traded funds after the NYSE closes; this practice violates securities laws

B)

exploiting time zone difference on trades in international mutual funds; this practice does not violate securities laws

C)

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

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D)

buying and simultaneously selling exchange-traded funds in different markets at different prices; this practice does not violate securities laws

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?

A)$13.96

B)$12.86

C)$13.94

D)$12.88

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?

A)$5,852.86

B)$7,298.12

C)$7,848.68

D)$8,229.80




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

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A)underpriced or overpriced securities

B)financial intermediaries

C)commissions or other transaction costs

D)taxes

2 CORRECTAn ownership interest in a corporation is represented by a ________________.

A)bond

B)share of preferred stock

C)share of common stock

D)All of the above represent ownership

3 CORRECTThe Sarbanes-Oxley Act does not require ________________.

A)

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

B)

establishment of an accounting oversight board to oversee audits of public companies

C)auditors to provide other services to the companies they audit

D)corporations to have more independent directors

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

A)security analysis

B)top-down portfolio construction

C)asset allocation

D)security selection

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

A)allocation of capital resources

B)consumption timing, allowing investors to shift their consumption over time

C)

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

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

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

A)Derivatives are frequently used to hedge risks.

B)

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

C)

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

D)All of the above statements about derivatives are true.

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

A)money market securities, long-term debt and equity

B)debt, equity and derivatives

C)debt, equity and money market securities

D)corporate securities, derivatives and equity

8 INCORRECT One of the implications of the "risk-return tradeoff" in the financial markets is the

fact that ____________.

A)

relatively high-risk assets sell at relatively high prices, resulting in high returns to investors

B)

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

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C)

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

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

9 CORRECTIn the financial markets, financial intermediaries ____________.

A)are considered "major players" who are net lenders

B)are considered "major players" who are net borrowers

C)bring lenders and borrowers together

D)raise funds by borrowing in order to invest in real assets

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

______________.

A)

holding a diversified portfolio without expending effort to improve performance

B)selecting mispriced securities in order to improve performance

C)using a "bottom-up" strategy

D)emphasizing asset allocation and security selection

11 INCORRECT Agency problems within a corporation are _______________.

A)conflicts among stockholders with differing objectives

B)conflicts between stockholders and financial intermediaries

C)conflicts among managers with competing interests

D)conflicts between managers and stockholders

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

foreign investment opportunities?

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A)Purchase foreign securities using American Depository Receipts.

B)Invest in mutual funds that purchase securities in international markets.

C)Invest in World Equity Benchmark Shares.

D)Purchase pass-through securities.

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

A)Credit unions

B)Insurance companies

C)Mutual funds

D)Investment bankers

14 CORRECT Financial intermediaries which pool and manage the money of many investors

are called _________________.

A)financial engineers

B)investment bankers

C)investment companies

D)credit unions

15 CORRECT In the past 35 years, securitization has allowed investors to expand their

investment alternatives to include investments in ____________.

A)World Equity Benchmark Shares

B)foreign currencies

C)mortgages

D)composite securities with features of more than one security

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

A)they sell their mutual fund shares at a gain

B)the mutual fund sells stock in its portfolio at a gain

C)

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

D)all of the above

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

A)12b-1 charges

B)front-end load

C)management fee

D)operating expenses

3 CORRECTWhich 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.

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A)

B)

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.

C)

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

D)ETF prices can not deviate from net asset value.

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

A)specialized sector fund

B)index fund

C)asset allocation fund

D)balanced fund

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

A)

open-end mutual fund that invests primarily in mortgage and construction loans

B)closed-end mutual fund that invests directly in real estate

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

D)none of the above

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

A)

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

B)tax inefficient because frequent trading results in high transaction costs

C)

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

D)

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

4 4

5 4

6 4

7 4

7 INCORRECTA 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?

A)$25.00

B)$27.23

C)$27.25

D)$27.50

8 CORRECTShares of a closed–end fund ________________.

A)

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

B)

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

C)

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

D)

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

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?

A)12.0%

B)15.0%

C)18.0%

D)30.0%

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?

8 4

9 4

10 4

A)$20.88

B)$20.29

C)$20.59

D)$29.17

11 CORRECTWhich of the following statements is true about hedge funds?

A)

Hedge funds are mutual funds that specialize in derivative investments designed primarily for hedging purposes.

B)

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

C)

The term hedge fund derives from a common hedge fund strategy based on anticipated changes in relative valuations in two market sectors.

D)

Investments in hedge funds are very liquid, which means that investors in a hedge fund can withdraw their investments at any time without risk of loss in market value.

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?

A)-1.47%

B)3.46%

C)3.90%

D)8.90%

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

A)

buying or selling exchange-traded funds after the NYSE closes; this practice violates securities laws

B)

exploiting time zone difference on trades in international mutual funds; this practice does not violate securities laws

C)

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

11 4

12 4

13 4

D)

buying and simultaneously selling exchange-traded funds in different markets at different prices; this practice does not violate securities laws

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?

A)$13.96

B)$12.86

C)$13.94

D)$12.88

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?

A)$5,852.86

B)$7,298.12

C)$7,848.68

D)$8,229.80




1 CORRECT

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Multiple Choice Q no Risk and Return: 5 1952762 1

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

A)large company U.S. stocks

B)a world equity portfolio

C)long-term U.S. Treasury bonds

D)small company U.S. stocks

2 INCORRECT The geometric average rate of return is ____________.

A)also called the time-weighted average return

B)also called the dollar-weighted average return

C)equivalent to the internal rate of return

D)an uncompounded rate of return

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?

A)6.00%

B)6.03%

C)6.17%

D)6.20%

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?

A)0.55

B)0.75

0.80

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C)

D)0.95

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%?

A)5.5%

B)6.0%

C)9.5%

D)10.0%

6 CORRECTYou 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 _______________.

A)5%

B)10%

C)15%

D)20%

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

A)0%

B)-4.96%

C)-1.26%

D)0.95%

8 INCORRECT A stock portfolio with normally distributed returns has an annual expected rate of

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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%?

A)68.26%

B)95.44%

C)99.74%

D)100.00%

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

A)5.75%

B)18.8%

C)21.7%

D)37.6%

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?

A)-7.0%

B)9.5%

C)8.3%

D)6.5%

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?

A)100%

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B)60%

C)40%

D)12%

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.

A)14.4%; 20.0%

B)18.4%; 20.8%

C)15.2%; 20.0%

D)15.2%; 44.7%

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

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

B)

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

C)

The CAL represents the risk-return combinations resulting from varying asset allocation.

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

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

____________.

A)returns on Treasury securities are adjusted for inflation

B)interest on Treasury securities is not subject to federal income taxes

C)

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

Treasury securities are free of default risk

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D)

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

A)investors are highly risk averse

B)securities are normally undervalued or overvalued

C)securities are fairly priced

D)the most important part of portfolio construction is security selection

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multiple choice quizes mcgraw hill