File: ch03, Chapter 3: Indirect Investing
Multiple Choice Questions
1. Which of the following is not a characteristic of investments companies?
a. pooled investing
b. diversification
c. managed portfolios
d. reduced expenses
Ans: d
Difficulty: Moderate
Ref: Investing Indirectly
2. In order to avoid paying income taxes, an investment company must:
a. be classified as a non-profit organization
b. invest only in municipal bonds.
c. pass on interest, dividends, and capital gains to the stockholders.
d. be registered as a closed-end investment company.
Ans: c
Difficulty: Moderate
Ref: Investing Indirectly
3. Investment companies must register with the SEC under the provisions of the:
a. Securities Act of 1933
b. Securities Exchange Act of 1934
c. Maloney Act of 1938
d. Investment Company Act of 1940
Ans: d
Difficulty: Easy
Ref: What is an Investment Company?
4. The most popular type of investment company is a:
a. unit investment trust.
b. mutual fund.
c. closed-end investment company
d. real estate investment trust.
Ans: b
Difficulty: Easy
Ref: Three Major Types of Investment Companies
Chapter Three 23
Indirect Investing
,5. An unmanaged fixed income security portfolio handled by an independent trustee
is known as a:
a. junk bond fund
b. closed-end investment company.
c. unit investment trust.
d. hedge fund.
Ans: c
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
6. Which of the following is a major objective of unit investment trusts?
a. capital preservation
b. capital gains
c. current income
d. tax deferment
Ans: a
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
7. A major difference between a closed-end investment company and an
open-end investment company is that:
a. closed-end investment companies are generally much riskier.
b. their security portfolios are substantially different.
c. closed-end investment companies are passive investments and open-ends are not.
d. closed-end companies have a more fixed capitalization.
Ans: d
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
8. Which of the following generally do not trade on stock exchanges?
a. unit investment trusts
b. closed-end investment companies
c. open-end investment companies
d. exchange traded funds
Ans: c
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
Chapter Three 24
Indirect Investing
, 9. Which of the following statements concerning the trend in investment
company growth is true?
a. The recent trend shows more growth in closed-end investment companies.
b. The recent trend shows more growth in unit investment trusts.
c. The recent trend shows more growth in open-end investment companies.
d. The recent trend shows more growth in exchange traded funds.
Ans: d
Difficulty: Easy
Ref: Three Major Types of Investment Companies
10. Which of the following is not one of the characteristics of exchange traded funds
(ETFs)?
a. They are mostly passive portfolios.
b. They are sometimes managed portfolios.
c. They often track a particular sector of the market.
d. They are priced based on Net Asset Value.
Ans: b
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
11. It is not important to have a secondary market for mutual funds because:
a. investors hold the securities till maturity.
b. investors trade between themselves.
c. investors sell their shares back to the company.
d. banks will cash their shares as long as they have accounts at the bank.
Ans: c
Difficulty: Easy
Ref: Three Major Types of Investment Companies
12. Which of the following ETF’s (exchange traded fund) provides exposure to 500
U.S.large-capitalization companies?
a. Spider
b. Clubs
c. Cubes
d. Diamonds
Ans: a
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
Chapter Three 25
Indirect Investing
Multiple Choice Questions
1. Which of the following is not a characteristic of investments companies?
a. pooled investing
b. diversification
c. managed portfolios
d. reduced expenses
Ans: d
Difficulty: Moderate
Ref: Investing Indirectly
2. In order to avoid paying income taxes, an investment company must:
a. be classified as a non-profit organization
b. invest only in municipal bonds.
c. pass on interest, dividends, and capital gains to the stockholders.
d. be registered as a closed-end investment company.
Ans: c
Difficulty: Moderate
Ref: Investing Indirectly
3. Investment companies must register with the SEC under the provisions of the:
a. Securities Act of 1933
b. Securities Exchange Act of 1934
c. Maloney Act of 1938
d. Investment Company Act of 1940
Ans: d
Difficulty: Easy
Ref: What is an Investment Company?
4. The most popular type of investment company is a:
a. unit investment trust.
b. mutual fund.
c. closed-end investment company
d. real estate investment trust.
Ans: b
Difficulty: Easy
Ref: Three Major Types of Investment Companies
Chapter Three 23
Indirect Investing
,5. An unmanaged fixed income security portfolio handled by an independent trustee
is known as a:
a. junk bond fund
b. closed-end investment company.
c. unit investment trust.
d. hedge fund.
Ans: c
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
6. Which of the following is a major objective of unit investment trusts?
a. capital preservation
b. capital gains
c. current income
d. tax deferment
Ans: a
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
7. A major difference between a closed-end investment company and an
open-end investment company is that:
a. closed-end investment companies are generally much riskier.
b. their security portfolios are substantially different.
c. closed-end investment companies are passive investments and open-ends are not.
d. closed-end companies have a more fixed capitalization.
Ans: d
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
8. Which of the following generally do not trade on stock exchanges?
a. unit investment trusts
b. closed-end investment companies
c. open-end investment companies
d. exchange traded funds
Ans: c
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
Chapter Three 24
Indirect Investing
, 9. Which of the following statements concerning the trend in investment
company growth is true?
a. The recent trend shows more growth in closed-end investment companies.
b. The recent trend shows more growth in unit investment trusts.
c. The recent trend shows more growth in open-end investment companies.
d. The recent trend shows more growth in exchange traded funds.
Ans: d
Difficulty: Easy
Ref: Three Major Types of Investment Companies
10. Which of the following is not one of the characteristics of exchange traded funds
(ETFs)?
a. They are mostly passive portfolios.
b. They are sometimes managed portfolios.
c. They often track a particular sector of the market.
d. They are priced based on Net Asset Value.
Ans: b
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
11. It is not important to have a secondary market for mutual funds because:
a. investors hold the securities till maturity.
b. investors trade between themselves.
c. investors sell their shares back to the company.
d. banks will cash their shares as long as they have accounts at the bank.
Ans: c
Difficulty: Easy
Ref: Three Major Types of Investment Companies
12. Which of the following ETF’s (exchange traded fund) provides exposure to 500
U.S.large-capitalization companies?
a. Spider
b. Clubs
c. Cubes
d. Diamonds
Ans: a
Difficulty: Moderate
Ref: Three Major Types of Investment Companies
Chapter Three 25
Indirect Investing
