FIN 310 EXAM 1 QUESTIONS AND ANSWERS SURE
A+
✔✔The rate of return of a mutual fund is - ✔✔Ending NAV minus beginning NAV plus
any income and capital gains distributions all divided by beginning NAV
✔✔The status of mutual fund taxation can best be described as ____________
___________ status. - ✔✔pass- through
✔✔Exchange-traded funds are offshoots of ______________ ____________ that allow
investors to trade index portfolios just as they do shares of stock. - ✔✔mutual funds
✔✔Poorly performing mutual fund managers are ____________ likely to repeat their
performance the next year compared to fund managers that outperform repeating their
performance - ✔✔more
✔✔12b-1 fees can be used on - ✔✔- advertising
- promotional literature
- commission to brokers who sell the fund to investors
✔✔With respect to taxes, mutual fund investors are treated as if they earned any
income or gains - ✔✔directly
✔✔A _____________ _____________ fund can be traded throughout a trading
session, while a _____________ fund can only be traded at the end of day -
✔✔exchange traded; mutual
, ✔✔Poorly performing mutual fund managers are ____________ likely to repeat their
preformance the next year compared to fund managers that outperform repeating thier -
✔✔
✔✔Holding Period Return (HPR) - ✔✔(ending value-beginning value) / beginning value
✔✔How is income received from stocks? - ✔✔the income will be received in the form of
dividends if they are paid
✔✔How is income received for bonds? - ✔✔the income will be paid as coupons
✔✔What is the HPR for a share of stock that was purchased for $25, sold for $27, and
distributed $1.25 in dividends? - ✔✔27- 25 + 1.
= 13%
✔✔primary methods for analyzing returns in a multi-period setting - ✔✔1) arithmetic
average return
2) geometric average return
3) dollar-weighted average return
✔✔arithmetic average returns (aar) - ✔✔- sum of returns in each period divided by total
number of periods
✔✔what is the strength of using arithmetic average return - ✔✔- unbiased measure of
future expected return performance
✔✔what is the weakness of using arithmetic average return - ✔✔- ignores the effect of
compounding on returns
✔✔geometric average return (GAR) or time-weighted avg - ✔✔- single per-period
return; gives same compounded performance as sequence of actual returns over the
past period
✔✔What is the strength of using geometric average return? - ✔✔- excellent measure of
past performance since it takes into account the non-independence of returns over time
preformance
✔✔What is a weakness of using geometric average return? - ✔✔- bad returns affect the
geometric return, causing it to be lower than the arithmetic returns
✔✔dollar-weighted average return - ✔✔- the internal rate of return on an investment
A+
✔✔The rate of return of a mutual fund is - ✔✔Ending NAV minus beginning NAV plus
any income and capital gains distributions all divided by beginning NAV
✔✔The status of mutual fund taxation can best be described as ____________
___________ status. - ✔✔pass- through
✔✔Exchange-traded funds are offshoots of ______________ ____________ that allow
investors to trade index portfolios just as they do shares of stock. - ✔✔mutual funds
✔✔Poorly performing mutual fund managers are ____________ likely to repeat their
performance the next year compared to fund managers that outperform repeating their
performance - ✔✔more
✔✔12b-1 fees can be used on - ✔✔- advertising
- promotional literature
- commission to brokers who sell the fund to investors
✔✔With respect to taxes, mutual fund investors are treated as if they earned any
income or gains - ✔✔directly
✔✔A _____________ _____________ fund can be traded throughout a trading
session, while a _____________ fund can only be traded at the end of day -
✔✔exchange traded; mutual
, ✔✔Poorly performing mutual fund managers are ____________ likely to repeat their
preformance the next year compared to fund managers that outperform repeating thier -
✔✔
✔✔Holding Period Return (HPR) - ✔✔(ending value-beginning value) / beginning value
✔✔How is income received from stocks? - ✔✔the income will be received in the form of
dividends if they are paid
✔✔How is income received for bonds? - ✔✔the income will be paid as coupons
✔✔What is the HPR for a share of stock that was purchased for $25, sold for $27, and
distributed $1.25 in dividends? - ✔✔27- 25 + 1.
= 13%
✔✔primary methods for analyzing returns in a multi-period setting - ✔✔1) arithmetic
average return
2) geometric average return
3) dollar-weighted average return
✔✔arithmetic average returns (aar) - ✔✔- sum of returns in each period divided by total
number of periods
✔✔what is the strength of using arithmetic average return - ✔✔- unbiased measure of
future expected return performance
✔✔what is the weakness of using arithmetic average return - ✔✔- ignores the effect of
compounding on returns
✔✔geometric average return (GAR) or time-weighted avg - ✔✔- single per-period
return; gives same compounded performance as sequence of actual returns over the
past period
✔✔What is the strength of using geometric average return? - ✔✔- excellent measure of
past performance since it takes into account the non-independence of returns over time
preformance
✔✔What is a weakness of using geometric average return? - ✔✔- bad returns affect the
geometric return, causing it to be lower than the arithmetic returns
✔✔dollar-weighted average return - ✔✔- the internal rate of return on an investment
