Chapter 1 Practice Questions
1. Which of the following is not a difference between open-end and closed-end funds?
A. Shares of open-end funds are purchased through the issuer, while shares of closed-end funds are not.
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 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. An investor who purchases shares in a mutual fund is charged:
A. The market price of the shares
B. The next calculated NAV plus any front-end sales charges
C. The most recently calculated NAV plus any front-end sales charges
D. The weighted average volume price
3. When interest rates rise, which of the following are typically true about an open-end 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. Rank the following categories of mutual funds in order of volatility, from highest to lowest.
I. Growth and income
II. Balanced
III. Growth
IV. Equity income
A. I, III, II, IV
B. III, II, I, IV
C. III, I, II, IV
D. III, I, IV, II
5. According to the Investment Company Act of 1940, for the 75% of its assets invested in cash, cash equivalents, or securities, a diversified mutual fund will have:
A. No more than 5% of its assets in any one company and will own no more than 5% of any company’s outstanding shares
B. No more than 5% of its assets in any one company and will own no more than 10% of any company’s outstanding shares
C. No more than 10% of its assets in any one company and will own no more than 5% of any company’s outstanding shares
D. No more than 10%