Financial Markets and Institutions- Final Exam Questions with
Answers
Chapter 12 - correct answers Mutual Funds
LONG TERM FUNDS (capital markets) - correct answers-Equity funds (Invest only in stocks)
-Bond funds (invest in the bond market)
-Hybrid funds (invest in a combination of stocks and bonds)
-Index funds (so formulated that the mimic the performance of an index)
-Exchange-traded funds (a fund whose shares are listed on the stock exchange)
SHORT TERM FUNDS - correct answers Money Market Funds (invest only in money market securities)
commercial paper, repurchase agreements, etc.
Fund Objectives - correct answers-Growth (fund will invest only in assets that are known to experience
capital appreciate; the value is increasing)
-Extreme/Aggressive Growth (fund seeks to invest in assets that experience above market growth)
-Income (invest in assets because those assets pay periodic income; dividends, interest in bonds)
-High Income (funds with the objective to invest in assets that pays exceptional income)
-Balanced (invests in assets that will either appreciate in value or generate income)
-International (invest only in international assets; consistent with investors that wish to diversify)
Open-end funds - correct answers-number of shares outstanding is not fixed but changes when there are
new share issues and share redemptions by the mutual fund
-can only sell shares back to the mutual fund/ can only buy from mutual fund; shares not traded
Closed-end funds - correct answers-only a fixed number of shares can be issued by the mutual fund. No
share redemptions are facilitated
-if fund has already issued all its shares, you can only buy/sell to/from someone in the market place ;
traded shares
, Net Asset Value (NAV) - correct answersTotal market value of assets under management/number of
mutual funds outstanding
-computed on a daily basis, maybe multiple times in a day
-why it's so important: investors buying in and cashing out; price at the time of occurence; security prices
change everyday and multiple times within the day; NAV changes with them
Trading at a premium (closed-end mutual funds) - correct answers-when the share is trading at a greater
price than the NAV
Trading at a discount (closed-end mutual funds) - correct answers-when the share is trading at a lower
price than the NAV
Load Vs. No-load funds - correct answers> Load: fees or sales commissions usually paid to mutual fund
broker
>No-load: mutual fund without the sales commission; purchased directly from the mutual fund
Front-end load - correct answers-charged when the investment is made
Back-end load - correct answers-charged when the shares are redeemed ; may be charged on assets
ending value or average value
Fund operating expenses - correct answers12b-1 fees
-based on section 12b-1
-charged by every mutual fund (load or no-load)
Market timing - correct answers-mutual fund abuses
Answers
Chapter 12 - correct answers Mutual Funds
LONG TERM FUNDS (capital markets) - correct answers-Equity funds (Invest only in stocks)
-Bond funds (invest in the bond market)
-Hybrid funds (invest in a combination of stocks and bonds)
-Index funds (so formulated that the mimic the performance of an index)
-Exchange-traded funds (a fund whose shares are listed on the stock exchange)
SHORT TERM FUNDS - correct answers Money Market Funds (invest only in money market securities)
commercial paper, repurchase agreements, etc.
Fund Objectives - correct answers-Growth (fund will invest only in assets that are known to experience
capital appreciate; the value is increasing)
-Extreme/Aggressive Growth (fund seeks to invest in assets that experience above market growth)
-Income (invest in assets because those assets pay periodic income; dividends, interest in bonds)
-High Income (funds with the objective to invest in assets that pays exceptional income)
-Balanced (invests in assets that will either appreciate in value or generate income)
-International (invest only in international assets; consistent with investors that wish to diversify)
Open-end funds - correct answers-number of shares outstanding is not fixed but changes when there are
new share issues and share redemptions by the mutual fund
-can only sell shares back to the mutual fund/ can only buy from mutual fund; shares not traded
Closed-end funds - correct answers-only a fixed number of shares can be issued by the mutual fund. No
share redemptions are facilitated
-if fund has already issued all its shares, you can only buy/sell to/from someone in the market place ;
traded shares
, Net Asset Value (NAV) - correct answersTotal market value of assets under management/number of
mutual funds outstanding
-computed on a daily basis, maybe multiple times in a day
-why it's so important: investors buying in and cashing out; price at the time of occurence; security prices
change everyday and multiple times within the day; NAV changes with them
Trading at a premium (closed-end mutual funds) - correct answers-when the share is trading at a greater
price than the NAV
Trading at a discount (closed-end mutual funds) - correct answers-when the share is trading at a lower
price than the NAV
Load Vs. No-load funds - correct answers> Load: fees or sales commissions usually paid to mutual fund
broker
>No-load: mutual fund without the sales commission; purchased directly from the mutual fund
Front-end load - correct answers-charged when the investment is made
Back-end load - correct answers-charged when the shares are redeemed ; may be charged on assets
ending value or average value
Fund operating expenses - correct answers12b-1 fees
-based on section 12b-1
-charged by every mutual fund (load or no-load)
Market timing - correct answers-mutual fund abuses
