FNCE 2820 Study Questions for Final Exam, All with
Verified Answers
Types of investors - ✔✔Conservative investor (50/50, 40/60 or 30/70)
Moderate investor (60/40)
Assertive investor (70/30)
Aggressive investor (80/20)
Open-ended mutual fund - ✔✔• Unlimited shares
• Investors buy and sell shares directly from the
investment advisor company
• Transactions clear at end of day, based on net asset value (NAV)
• NAV = total value of securities owed (less liabilities)
divided by the number of mutual fund shares
Money market funds - ✔✔• U.S. Treasury Bills
• U.S. Government
• Corporate
• Tax exempt
Bond mutual funds - ✔✔• Government bond funds
• Municipal bond funds
• Mortgage-backed securities funds
• Intermediate- and long-term bond funds
• Investment-grade or high-yield bond funds
• Bond index funds
• Foreign bond funds
,Equity (stock) mutual funds - ✔✔• Large-, mid- or small-cap funds
• Growth- or value-oriented funds
• Growth - invest in stocks with expected above-average
growth
• Value - invest in stocks which appear cheap by traditional
fundamental measures
Capital appreciation funds - ✔✔Invest in stocks that offer no or low dividends; expectation
that gain will be in share price appreciation
Sector funds - ✔✔• Energy sector, capital goods, etc.
• Stock indexes or index-plus funds
Foreign and Regional Funds - ✔✔• Country funds (e.g., China fund)
• Regional fund (e.g., European fund)
• Emerging markets funds
• Developing markets funds
• International index (e.g., MSCI)
• International growth or value funds
• International large- or small-cap funds
Alternative Funds - ✔✔• Real estate funds (REITs)
• Commodity funds
• Currency funds
• Alternative strategies (e.g., long-short funds)
• Managed volatility funds
,Mutual Funds:
Fees and Expenses - ✔✔Advisory Fees
Administrative Fees
• Other
Advisory Fees - ✔✔• Fee charged for fund management
• Annual advisory fees tend to range between 0.5-1.4%
(based on type of fund and size of portfolio)
Administrative Fees - ✔✔• Annual administrative fees tend to range from 0.2-0.4%
• Costs include: record keeping, shareholder services,
mailings, etc.
Other - ✔✔Transfer fees, redemption fees, exit fee
Front-end Load - ✔✔• Sales charge paid when the investor purchases the fund
• example: Investor puts $10,000 in a fund with 5% load. That results in a load of $500; $9,500
is used to purchase shares.
Deferred Load - ✔✔• Contingent Loan - fee charged when the investor redeems the shares
(may start at 5 or 6% and decline to 0% over time)
• Level-load - this is a fee that is charged over a certain number of years (e.g., 1% per year for 5
years)
Distribution Fees (12b-1) - ✔✔• 12b-1 fees cover marketing, advertising and distribution.
• Expense is typically 0.25%, although it may go up to 1.0%
, No Load Fund - ✔✔charges no sales charge;
however, it may charge a 12b-1 which is considered a marketing expense
Letter of Intent - ✔✔• Informs investment company about intention to purchase additional
shares (typically within the next 13 months)
• Signed letter entitles investor to discounted sales charge
• Failure to follow-through results in load recapture
Rights of Accumulation - ✔✔• Series of purchases are aggregated for purpose of
determining the applicable breakpoint
• Written request to link two or more accounts
• Rights of accumulation would qualify the investor for discounted sales charge
Closed-ended mutual fund - ✔✔• Fixed number of fund shares
• Offered to investors in an initial public offering, then...
• Shares trade on exchange during the day (price may represent a premium or discount to NAV)
• Trades on a stock exchange or over-the-counter
• Shares trade at bid/ask price (not necessarily the NAV)
• No need for manager to liquidate shares in order to accommodate shareholder selling
ETFs: Fees and Expenses - ✔✔Advisory and Admin Fees
Other Fees or Expenses
ETF Pros and Cons - ✔✔Adv.: Many ETFs are highly liquid
Low expense ratios
Ability to sell short and buy on
margin
Verified Answers
Types of investors - ✔✔Conservative investor (50/50, 40/60 or 30/70)
Moderate investor (60/40)
Assertive investor (70/30)
Aggressive investor (80/20)
Open-ended mutual fund - ✔✔• Unlimited shares
• Investors buy and sell shares directly from the
investment advisor company
• Transactions clear at end of day, based on net asset value (NAV)
• NAV = total value of securities owed (less liabilities)
divided by the number of mutual fund shares
Money market funds - ✔✔• U.S. Treasury Bills
• U.S. Government
• Corporate
• Tax exempt
Bond mutual funds - ✔✔• Government bond funds
• Municipal bond funds
• Mortgage-backed securities funds
• Intermediate- and long-term bond funds
• Investment-grade or high-yield bond funds
• Bond index funds
• Foreign bond funds
,Equity (stock) mutual funds - ✔✔• Large-, mid- or small-cap funds
• Growth- or value-oriented funds
• Growth - invest in stocks with expected above-average
growth
• Value - invest in stocks which appear cheap by traditional
fundamental measures
Capital appreciation funds - ✔✔Invest in stocks that offer no or low dividends; expectation
that gain will be in share price appreciation
Sector funds - ✔✔• Energy sector, capital goods, etc.
• Stock indexes or index-plus funds
Foreign and Regional Funds - ✔✔• Country funds (e.g., China fund)
• Regional fund (e.g., European fund)
• Emerging markets funds
• Developing markets funds
• International index (e.g., MSCI)
• International growth or value funds
• International large- or small-cap funds
Alternative Funds - ✔✔• Real estate funds (REITs)
• Commodity funds
• Currency funds
• Alternative strategies (e.g., long-short funds)
• Managed volatility funds
,Mutual Funds:
Fees and Expenses - ✔✔Advisory Fees
Administrative Fees
• Other
Advisory Fees - ✔✔• Fee charged for fund management
• Annual advisory fees tend to range between 0.5-1.4%
(based on type of fund and size of portfolio)
Administrative Fees - ✔✔• Annual administrative fees tend to range from 0.2-0.4%
• Costs include: record keeping, shareholder services,
mailings, etc.
Other - ✔✔Transfer fees, redemption fees, exit fee
Front-end Load - ✔✔• Sales charge paid when the investor purchases the fund
• example: Investor puts $10,000 in a fund with 5% load. That results in a load of $500; $9,500
is used to purchase shares.
Deferred Load - ✔✔• Contingent Loan - fee charged when the investor redeems the shares
(may start at 5 or 6% and decline to 0% over time)
• Level-load - this is a fee that is charged over a certain number of years (e.g., 1% per year for 5
years)
Distribution Fees (12b-1) - ✔✔• 12b-1 fees cover marketing, advertising and distribution.
• Expense is typically 0.25%, although it may go up to 1.0%
, No Load Fund - ✔✔charges no sales charge;
however, it may charge a 12b-1 which is considered a marketing expense
Letter of Intent - ✔✔• Informs investment company about intention to purchase additional
shares (typically within the next 13 months)
• Signed letter entitles investor to discounted sales charge
• Failure to follow-through results in load recapture
Rights of Accumulation - ✔✔• Series of purchases are aggregated for purpose of
determining the applicable breakpoint
• Written request to link two or more accounts
• Rights of accumulation would qualify the investor for discounted sales charge
Closed-ended mutual fund - ✔✔• Fixed number of fund shares
• Offered to investors in an initial public offering, then...
• Shares trade on exchange during the day (price may represent a premium or discount to NAV)
• Trades on a stock exchange or over-the-counter
• Shares trade at bid/ask price (not necessarily the NAV)
• No need for manager to liquidate shares in order to accommodate shareholder selling
ETFs: Fees and Expenses - ✔✔Advisory and Admin Fees
Other Fees or Expenses
ETF Pros and Cons - ✔✔Adv.: Many ETFs are highly liquid
Low expense ratios
Ability to sell short and buy on
margin
