Chapter 5 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 most recently calculated NAV plus any front-end sales charge
C. The next calculated NAV plus any front-end sales charge
D. The weighted average volume price
3. Investment companies that make an initial public offering only once are called:
A. Open-end funds
B. Closed-end funds
C. Open-end funds investing in IPOs
D. Open-end funds reopening to new investors
4. Rights of accumulation refers to an investor’s right to:
A. Reinvest her capital gains and dividends without paying a new sales charge
B. Accumulate new shares of a mutual fund before other investors who did not previously own the fund
C. Receive a lower sales charge if her existing investment appreciates past the next breakpoint
D. Combine different mutual funds from the same family when she has accumulated a minimum amount
5. When proposing mutual funds to a customer, POP enters the conversation when discussing:
A. A shares
B. B shares
C. C shares
D. All of the choices listed
6. Which of the following would be considered an advantage of investing in a mutual fund?
A. The ability to select investments within the fund
B. Tax-deferral
C. Protection of principal
D. Diversification
7. According to the Investment Company Act of 1940, for 75% of its assets, a diversified mutual fund will hav