Chapter 3 Practice Questions
1. Which of the following is not a difference between open-end and closed-end funds?
A. Shares of open-end funds can only be purchased through the issuer, while shares of closed-end funds can be purchased on the secondary market.
B. Supply and demand dictates the price of open-end funds but not the price of closed-end funds.
C. Shares of open-end funds are redeemable, while shares of closed-end funds are not.
D. Shares of open-end funds are priced once a day, while closed-end funds are priced continually throughout the day.
2. What price will an investor pay when he purchases shares of a mutual fund?
A. Market price
B. Next calculated NAV
C. Most recently calculated NAV
D. Weighted average volume price
3. When interest rates rise, which of the following are typically true about an open-ended bond fund?
I. The NAV of the fund will go down.
II. The NAV of the fund will remain unchanged.
III. The fund’s yield will increase in the longer term.
IV. The fund’s yield will decrease in the longer term.
A. I and III
B. II and III
C. I and IV
D. II and IV
4. David is considering an investment with the following characteristics: actively managed and invests exclusively in Asia, currently trades at a premium to the value of its underlying investments, can be bought and sold on the New York Stock Exchange, and is not redeemable. What type of security is David considering?
A. Mutual fund
B. Closed-end fund
C. Unit investment trust
D. ETF
5. ETFs and equity index mutual funds both offer all the following except:
A. Diversification
B. Low expense ratios
C. Tax efficiency
D. Flexible trading
6. Which of the following two terms are associated with open-end mutual funds?
I. Premium
II. POP
III. Accumulation units
IV. NAV
A. I and IV
B. II and IV
C. III and IV
D. II and III
7. All of the following help an investor partially lower his sales