Question 1

A taxable money market fund has an annual return of 4.62 percent.What is the equivalent aftertax yield if the tax rate is 27 percent?

Accepted Answer

Equivalent after-tax yield = 0.0462 × (1 - 0.27) = 3.37 percent

Question 2

A closed-end fund has total assets of $379 million and liabilities of $640,000.There are 36 million shares outstanding.What is the premium or discount if the shares are currently selling for $9.85 each?

Accepted Answer

NAV = ($379,000,000 - $640,000)/36,000,000 = $10.51
Premium = ($9.85 - $10.51)/$10.51 = -6.28 percent = discount

Question 3

Matt owns 724.08 shares of a fund which has a current NAV of $41.04.He has owned all of these shares for 3.3 years.The fund charges a contingent deferred sales charge which starts at 5 percent for the first year and declines by 1 percent each year.How much cash will he receive if he redeems all of his shares today?

Accepted Answer

Cash from redemption = 724.08 × $41.04 × (1 - 0.02) = $29,121.92

Question 4

Which type of investor is most apt to purchase municipal bond funds and why?

Accepted Answer

The answer of Which type of investor is most apt...

Question 5

The Stable Utility Fund has an offering price of $54.11 and an NAV of $52.48.What is the front-end load percentage?

Accepted Answer

Front-end load = ($54.11 - $52.48)/$54.11 = 3.0 percent

Question 6

You are investing $8,000 in a mutual fund that charges a 4.50 percent front-end load.The offering price is $24.70 a share.What will your investment be worth immediately after your shares are purchased?

Accepted Answer

Value of investment = $8,000 × (1 - 0.045) = $7,640

Question 7

The High Yield Money Market Fund returned 6.60 percent for the last year.Currently,you own 8,901.1 shares of this fund.If you invested in this fund one year ago,what was the amount of your original investment?

Accepted Answer

Original investment = 8,901.1/(1 + 0.066) × $1 = $8,350.00

Question 8

You want to buy 1,200 shares of a mutual fund that has an NAV of $27.80.The fund charges a 3.75 percent front-end load.How much will you have to spend to make this purchase?

Accepted Answer

Purchase cost = 1,200 × [$27.80/(1 - 0.0375)] = $34,659.74

Question 9

Alex invested $10,000 in a mutual fund two and one-half years ago when the NAV of the fund was $25.Today,the NAV has risen to $28.30.Since the time of his original investment,Alex has obtained an additional 54.36 shares by reinvesting the fund distributions.The fund charges a contingent deferred sales charge of 6 percent the first year with the charge decreasing by 1 percent each year.How much money will he receive if he redeems his shares today?

Accepted Answer

Number of shares purchased = $10,000/$25 = 400 shares
Cash from redemption = (400 + 54.36) × $28.30 × (1 - 0.04) = $12,344.05

Question 10

Six years ago,you purchased 210.20 shares of a mutual fund.Since then,you have reinvested your fund dividends and acquired an additional 36.32 shares.The fund currently has an NAV of $38.95.The fund charges a contingent deferred sales charge of 5 percent for the first 2 years after which time the charge declines by 1 percent a year.How much money will you receive if you redeem all of your shares today?

Accepted Answer

Cash from redemption = (210.20 + 36.30) × $38.95 × (1 - 0.01) = $9,505.16

Question 11

You invest $4,300 in a money market fund at the beginning of the year.The fund's assets appreciate by 3.2 percent over the year.How many shares of the fund do you own at the end of the year?

Accepted Answer

Number of shares = ($4,300/$1) × (1 + 0.032) = 4,437.60 shares

Question 12

Western States Mutual Fund sold $89.5 million of assets during the year and purchased $82 million of new assets.The average daily assets of the fund were $273 million.What is the fund's turnover rate for the year?

Accepted Answer

Turnover = $82 million/$273 million = 0.30

Question 13

A tax exempt money market fund has an annual return of 3.76 percent.What is your equivalent taxable rate if you are in a 28 percent marginal tax bracket?

Accepted Answer

Equivalent taxable rate = 0.0376/(1 - 0.28) = 5.22 percent

Question 14

One year ago,you invested $7,000 in the no-load Triple A Money Market Fund.You have neither added to this account nor received any funds from this account since that time.The fund earned a 5.2 percent rate of return for the past year.How many shares of this fund do you currently own?

Accepted Answer

Number of shares = ($7,000/$1) × (1 + 0.052) = 7,364 shares

Question 15

You want to purchase a security that tracks the S&P 500.What types of securities can you purchase to accomplish this goal?
 Which type of security would you purchase and why would you choose that security over your other options?

Accepted Answer

The answer of You want to purchase a security that...

Question 16

You invested $4,500 in a mutual fund 38 months ago when the NAV of the fund was $31.80.You have not acquired or sold any shares since that time.Today,the NAV is $30.84.The fund charges a contingent deferred sales charge of 6,5,4,3,2,2,and 1 percent if the shares are redeemed within the first 7 years,respectively.How much money will you receive if you redeem your shares today?

Accepted Answer

Number of shares purchased = $4,500/$31.80 = 141.51 shares
Cash from redemption = 141.51 × $30.84 × (1 - 0.03) = $4,233.23

Question 17

Five months ago,you purchased 200 shares of a mutual fund at an offering price of $54 a share.The fund imposes a front-end load of 4.5 percent and has total annual expenses of 1.08 percent.The NAV of the fund today is $52.40.There were no fund distributions during these five months.What is your holding period return on this investment?

Accepted Answer

Rate of return = ($52.40 - $54)/$54 = -2.96 percent

Question 18

The Exploratory Fund is a new closed-end fund which just offered its shares to the public.The fund raised $66.5 million and each share sold for $10.The fee for the fund promoter was 5.75 percent of the initial proceeds.What was the value of your initial $22,000 purchase before the shares began trading in the marketplace?

Accepted Answer

Value of shares = $22,000 × (1 - 0.0575) = $20,735

Question 19

The Aggressive Eastern Fund sold $167 million of assets during the year and purchased $162 million of new assets.The average daily assets of the fund were $248 million.What is the turnover rate?

Accepted Answer

Turnover = $162 million/$248 million = 0.65

Question 20

One year ago,Allison purchased 350 shares of a mutual fund which has a front-end load of 5.25 percent.The NAV at the time of purchase was $30.Today,the NAV is $33.The fund had total annual expenses of 1.65 percent.There were no fund distributions this past year.What is Allison's rate of return for the year?

Accepted Answer

Purchase price = $30/(1 - 0.0525) = $31.66
Rate of return = ($33 - $31.66)/$31.66 = 4.23 percent

Quiz 4: Mutual Funds and Other Investment Companies