FIN 310 exam 2 UPDATED ACTUAL Exam
Questions and CORRECT Answers
Investment companies are _______________ ______________ that collect funds from
individual investors and invest these funds in a potentially wide range of securities or other
assets - CORRECT ANSWER - financial intermediaries
Because they trade large blocks of securities, investment companies can achieve ___________
______________ _________________. - CORRECT ANSWER - lower transaction costs
For investment companies, the value of each share is called ______________ ____________
_____________. - CORRECT ANSWER - net asset value
If a mutual fund that manages a portfolio of securities is worth $150 million, and the fund owes
$9 million to its investment advisers and owes another $1 million for rent, wages due and
miscellaneous expenses, and has 5 million shares, what is the net asset value (or cost per share)?
- CORRECT ANSWER - 150-(9+1)/5
= $28 pershare
True or false:
Money pooled from many investors that is invested in a fixed portfolio of securities for the life
of the fund is called a unit investment trust. - CORRECT ANSWER - true
securities are not actively traded
__________ _____ _________ in an investment company allows small investors to obtain the
benefits of large-scale investing - CORRECT ANSWER - pooling of assets
In a unit investment trust all income and payments of principal from the portfolio are paid out by
the fund's ________ to the _____________. - CORRECT ANSWER - trustees
,to the
shareholders
functions preformed by investment companies - CORRECT ANSWER - - record keeping
and administration
- diversification divisibility
- professional management
- lower transaction costs
describe a closed end fund - CORRECT ANSWER - - the funds board of directors hires
management company to manage the portfolio for an annual fee
- shares are traded on organized exchanges and can be produced through brokers
- investors who wish to cash out must sell their shares to other investors
What is the net asset value equal to? - CORRECT ANSWER - It equals assets minus
liabilities expressed on a per-share basis.
ASSETS - LIABILITIES / # OF SHARES
What are some financial intermediaries that are not formally organized or regulated as
investment companies but serve similar functions? - CORRECT ANSWER - - commingled
funds
, - real estate investment trusts
- hedge funds
Suppose an investment company's assets have a market value of $500 million but hold liabilities
of $50 million. If there are 2.5 million shares outstanding, then the NAV equals - CORRECT
ANSWER - 500 - .5
= $180
Real Estate Investment Trusts (REITs) are best described as? - CORRECT ANSWER -
REITs are similar to a closed-end mutual funds, and invest in real estate or loans secured by real
estate.
Units sold from a unit investment trust are typically referred to as - CORRECT
ANSWER - redeemable trust certificates
To form a unit investment trust, a brokerage firm buys a portfolio of securities which are
deposited into a trust. The brokerage firm then sells to the public shares, or "units" in the trust,
called - CORRECT ANSWER - redeemable trust certifacte
describe an open end fund - CORRECT ANSWER - - The fund's board of directors hires a
management company to manage the portfolio.
- When investors want to "cash out" their shares, they sell them back to the fund at net asset
value.
- Stands ready to redeem or issue shares at their net asset value
What is the only method for exiting an open-end fund? - CORRECT ANSWER - "cash
out"
Questions and CORRECT Answers
Investment companies are _______________ ______________ that collect funds from
individual investors and invest these funds in a potentially wide range of securities or other
assets - CORRECT ANSWER - financial intermediaries
Because they trade large blocks of securities, investment companies can achieve ___________
______________ _________________. - CORRECT ANSWER - lower transaction costs
For investment companies, the value of each share is called ______________ ____________
_____________. - CORRECT ANSWER - net asset value
If a mutual fund that manages a portfolio of securities is worth $150 million, and the fund owes
$9 million to its investment advisers and owes another $1 million for rent, wages due and
miscellaneous expenses, and has 5 million shares, what is the net asset value (or cost per share)?
- CORRECT ANSWER - 150-(9+1)/5
= $28 pershare
True or false:
Money pooled from many investors that is invested in a fixed portfolio of securities for the life
of the fund is called a unit investment trust. - CORRECT ANSWER - true
securities are not actively traded
__________ _____ _________ in an investment company allows small investors to obtain the
benefits of large-scale investing - CORRECT ANSWER - pooling of assets
In a unit investment trust all income and payments of principal from the portfolio are paid out by
the fund's ________ to the _____________. - CORRECT ANSWER - trustees
,to the
shareholders
functions preformed by investment companies - CORRECT ANSWER - - record keeping
and administration
- diversification divisibility
- professional management
- lower transaction costs
describe a closed end fund - CORRECT ANSWER - - the funds board of directors hires
management company to manage the portfolio for an annual fee
- shares are traded on organized exchanges and can be produced through brokers
- investors who wish to cash out must sell their shares to other investors
What is the net asset value equal to? - CORRECT ANSWER - It equals assets minus
liabilities expressed on a per-share basis.
ASSETS - LIABILITIES / # OF SHARES
What are some financial intermediaries that are not formally organized or regulated as
investment companies but serve similar functions? - CORRECT ANSWER - - commingled
funds
, - real estate investment trusts
- hedge funds
Suppose an investment company's assets have a market value of $500 million but hold liabilities
of $50 million. If there are 2.5 million shares outstanding, then the NAV equals - CORRECT
ANSWER - 500 - .5
= $180
Real Estate Investment Trusts (REITs) are best described as? - CORRECT ANSWER -
REITs are similar to a closed-end mutual funds, and invest in real estate or loans secured by real
estate.
Units sold from a unit investment trust are typically referred to as - CORRECT
ANSWER - redeemable trust certificates
To form a unit investment trust, a brokerage firm buys a portfolio of securities which are
deposited into a trust. The brokerage firm then sells to the public shares, or "units" in the trust,
called - CORRECT ANSWER - redeemable trust certifacte
describe an open end fund - CORRECT ANSWER - - The fund's board of directors hires a
management company to manage the portfolio.
- When investors want to "cash out" their shares, they sell them back to the fund at net asset
value.
- Stands ready to redeem or issue shares at their net asset value
What is the only method for exiting an open-end fund? - CORRECT ANSWER - "cash
out"
