Mutual Fund Investing Exam Study Guide

Transcription

1 Mutual Fund Investing Exam Study Guide This document contains all the questions that will included in the final exam, in the order that they will be asked. When you have studied the course materials, reviewed the questions in this document, and feel that you are ready to take the exam, return to the login page to take the online final exam. A Center for Continuing Education 707 Whitlock Ave, SW, Suite C-27 Marietta, GA Fax: Mutual Funds Investing Final Exam Study Guide Page 1

2 Review Questions 1. Regarding owning a piece of a company, the most basic form of ownership is. a. stock b. bonds c. brick and mortar d. collateral mortgages 2. The exchange of money in exchange for ownership units in a company happens one time and is called the. a. first public offering b. secondary public offering c. initial public offering d. blind public offering 3. There is only one time an issuer receives capital when a company goes public. This is called the? a. capital campaign b. primary market c. secondary market d. A solid bond portfolio 4. An investor that owns common shares has certain rights and privileges. Probably the most obvious is the. a. right to exchange their shares with other investors b. right to receive dividends c. right and ability to vote d. right to be first in line upon company liquidation 5. Options are simply contracts to a security at a specified price within a certain period of time? a. buy b. sell c. market d. either buy or sell Mutual Funds Investing Final Exam Study Guide Page 2

3 6. The basic form of debt security is a? a. stock b. bond c. money market d. secured loan 7. Federal government securities backed by the full faith and credit of the United States government are called? a. preferred bonds b. preferred stock c. coupon bonds d. treasuries 8. is the risk that a fixed rate of return might not be enough to outpace the rising costs of goods and services in the future. a. Inflation risk b. Interest Rate Risk c. Reinvestment Risk d. Liquidity Risk 9. Mutual funds play a key role in achieving both the long- and short-term savings goals of U.S. households. What is the major focus of purchasers of mutual funds? a. Emergency funds b. Education funds c. Retirement funds d. Medical & Long-term care funds 10. Mutual funds prices fluctuate constantly throughout the trading day so trying to specifically calculate the price of a mutual fund share during a trading day is virtually impossible. Since this is the case, mutual funds are which means your price will be calculated in the future no matter what time of day you place your order a. low water mark priced b. high water mark priced c. averaged priced d. forward priced Mutual Funds Investing Final Exam Study Guide Page 3

4 11. Closed end mutual funds shares trade in the? a. NASDAC exchange b. New York Stock Exchange c. Primary market d. secondary market 12. Mutual funds prices fluctuate constantly throughout the trading day so trying to specifically calculate the price of a mutual fund share during a trading day is virtually impossible. Since this is the case, mutual funds are which means your price will be calculated in the future no matter what time of day you place your order? a. low water mark priced b. high water mark priced c. averaged priced d. forward priced 13. An investment that has similarities to a closed end fund is an ETF which is? a. Exchange Transferred Fund b. Exchange Traded Fund c. European Transfer Fund d. Extended Trading Factor 14. These funds base their investment decisions on a specific future date for results to be achieved? a. Specialty Funds b. Hedge Funds c. Index Funds d. Target Date Funds 15. These funds invest in specific areas or categories of investments? a. Specialty Funds b. Hedge Funds c. Index Funds d. Target Date Funds Mutual Funds Investing Final Exam Study Guide Page 4

5 16. These funds attempt to achieve its investment objective primarily by investing in the securities (stocks or bonds) of companies that are included in a selected index? a. Specialty Funds b. Hedge Funds c. Index Funds d. Target Date Funds 17. These funds are a pooling of securities similar to the concept of a mutual fund? a. Specialty Funds b. Hedge Funds c. Index Funds d. Target Date Funds 18. These funds base their investment decisions on a specific future date for results to be achieved? a. Specialty Funds b. Hedge Funds c. Index Funds d. Target Date Funds 19. These funds invest anywhere in the world? a. Specialty b. Hedge c. International d. Global 20. These funds invest only outside the United States? a. Specialty b. Index c. International d. Global Mutual Funds Investing Final Exam Study Guide Page 5

6 21. Front-end load shares, which are predominantly shares, are the traditional way investors compensate financial professionals for assistance? a. Class A b. Class B c. Class C d. Class D 22. Back-end load shares, which are predominantly shares, typically do not have a front-end load? a. Class A b. Class B c. Class C d. Class D 23. Level-load shares, which are predominantly shares, generally, do not have front-end loads? a. Class A b. Class B c. Class C d. Class D 24. No-load share classes have no front-end load or CDSL, and have a fee of 0.25 percent (25 basis points) or less? a. 12a-1 b. 12b-1 c. 12c-1 d. 12d Some funds impose "shareholder fees" directly on investors whenever they buy or sell shares. Which one is NOT a shareholder fee? a. Purchase Fees b. Accountant fees c. Redemption Fees d. Exchange Fees Mutual Funds Investing Final Exam Study Guide Page 6

7 26. Mary is an executive of a large corporation. Her current income is $220,000 per year and while she is a good saver, her investment knowledge is limited. She is interested in investing, but wants to start with an investment that will provide income. Which one of the following would you not recommend? a. Corporate investment grade bonds b. Preferred stock c. Municipal securities d. Treasury bills 27. Charles has been investing for a few years and most of his investments are in blue chip stocks. He wants to expand his portfolio to provide current income. What can he do with his current investments to create income? a. Buy more shares of blue chip stock b. Buy call options on one of his current investments c. Buy put options on one of his current investment d. Sell call options on one of his current investments 28. An investor is concerned about market risk and has been keeping money in bank CDs and money market accounts. What type of risk is at play by keeping money in bank CDs and money market accounts and thereby not being able to use the money in an alternative investment? a. Call risk b. Opportunity cost risk c. Market risk d. Interest rate risk 29. A bond investor is concerned that interest rates may go up in the future while she holds a large position of low interest bonds she bought at a discount. Interest rates have been at a steady incline since she purchased the bonds. What could she do to protect the value of the portfolio? a. Sell the bonds in the current market while hoping to buy higher interest bonds later b. Buy stocks to offset her loss c. Hold the bonds to maturity and live with the lower interest rate d. Buy municipal bonds Mutual Funds Investing Final Exam Study Guide Page 7

8 30. What is the risk that US Treasury investors are least likely to have as a concern? (pick the best answer) a. Credit risk b. Market risk c. Interest rate risk d. Reinvestment risk 31. An investor living in GA is trying to compare bond issues for the highest possible net return. Her current tax bracket is 30%. She compares a 5% municipal bond, a 5.5% treasury bond and a 7% corporate bond. Which would simply provide the highest nominal yield? a. 7% corporate bond b. 5.5% treasury bond c. 5% municipal bond 32. Using the same information from question 6, what would be the best investment for the highest possible net return? a. 7% corporate bond b. 5.5% treasury bond c. 5% municipal bond 33. Of the following types of investments, which would have the potential of providing the greatest current income? a. Buying Treasury strips b. Selling options c. Buying Treasury bills d. Buying Common stock 34. Which provides the greatest security of return of principal in liquidation preference if a company fails? a. Common stock b. A secured bond even if currently in default c. A debenture d. Preferred stock Mutual Funds Investing Final Exam Study Guide Page 8

9 35. One of your high net worth clients wants to diversify his equity position into a greater stability of principal. What would be the best recommendation to maintain equity while stabilizing the portfolio from business risk? a. Sell corporate bonds to buy CDs b. Buy preferred stock c. Sell stock and purchase treasuries d. Buy corporate stock when the price decreases 36. Teaching your client how to interpret the prospectus is valuable for the client. A good best practice is to make notes in the proper sections (underline or highlight) in order that the client can refer to these sections if they have questions later. a. True b. False 37. A client wishes to be able to hedge their long term investment from market downturns. Which of these options would provide the best opportunity for a client to hedge their investment with options? a. S&P 500 index mutual fund b. S&P 500 Exchange Traded Funds (ETF) c. S&P 500 A share mutual fund d. S&P 500 B share mutual fund 38. An investor makes a purchase in a closed end mutual fund. He later calls the representative with a complaint that his investment was sold improperly because the NAV of the fund is not the same as the price that is reported on the exchange. What is the probable cause of the client s complaint? a. The client doesn t understand the pricing of closed end funds relative to the NAV b. The client simply got scared and wants out of the investment c. The representative sold a product that pays the highest commission d. Closed end funds are for sophisticated investors and the client simply did not meet the investment profile of the fund Mutual Funds Investing Final Exam Study Guide Page 9

10 39. Which type of equity investment will have price movements that closely track Treasury bond prices? a. Common stock fund b. Direct purchase of treasury bonds c. Money market fund d. Treasury bond fund 40. A client who lives in CA has a need for liquidity. She wants to keep her exposure to taxes to a minimum. What would be the best investment choice for this client? a. CA municipal bonds b. Tax free money market fund c. CA tax free money market fund d. Preferred stock 41. The secondary market is becoming a popular place for speculators. In order to trade mutual funds on the secondary market an investor would have to a. Be qualified as high net worth b. Only trade no-load funds c. Open a margin account d. Reconsider as Mutual funds do not trade in the secondary market 42. In order for a mutual fund to be classified as No-Load it must have which of the following? a. A contingent deferred sales charge of less than or equal to 2.5% b. Investment management fees of less than or equal to.25% c. 12b-1 fees less than or equal to 2.5% d. 12b-1 fees less than or equal to.25% 43. True or False: Although hedge funds are not typically recommended for every investor, one advantage is they are regulated and limited on the fees to a maximum of 9.5%. a. True b. False Mutual Funds Investing Final Exam Study Guide Page 10

11 44. True or False: An advisor should always place a client in a mutual fund with a Contingent Deferred Sales Charge. a. True b. False 45. What affects the price and declining expense ratio of a fund. a. The direct relationship of lower fund assets b. Competition in the industry c. More investors moving out of index fund investing and less interest in noload funds d. Both B and C 46. An investor has retirement goals that she wishes to implement at age 67. She is currently working, has limited investing experience and plans to work for the next 20 years. What would be the best investment option to recommend for this client? a. Target date funds based on specific retirement dates b. A variety of mutual funds to diversify risk c. A heavily weighted portfolio of stock funds since the investor has a long term time horizon d. A strategy that she can implement to move from more risky to less risky fund options as she plans to retire 47. True or False: The risk may change for target date funds as the fund moves closer to the investment target year objective. a. True b. False 48. Retirement planning has a dramatic influence on the amount of assets in mutual fund portfolio investments. As an investment professional, what is an important factor(s) when working in this market? a. The suitability of the client s investment toward their goals b. The actual time horizon for a client s retirement c. Understanding the client s needs in relation to their retirement objectives d. A, B and C Mutual Funds Investing Final Exam Study Guide Page 11

12 49. Investing in hedge funds is of primary concern to which type of investor? a. An executive wanting liquidity and to gain a 20% or higher return on investment b. An investor who wishes to take advantage of derivative investments while still maintaining the flexibility of a mutual fund c. A person who wants to protect against losses with options d. None of the above 50. A price breakpoint for a client is an advantage because a. Clients will receive a discounted 12b-1 fee b. The breakpoint will be available only for the invested assets above the breakpoint level, however they will have to qualify each year c. The client will receive a discount if they reach the breakpoint investment level within 13 months d. A breakpoint is not an advantage if the client invests in different funds within the same family of funds Mutual Funds Investing Final Exam Study Guide Page 12