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FINA 465 EXAM 1 REVIEW 2026
ACTUAL QUESTIONS WITH VERIFIED
ANSWERS.
1. What are the economic reasons for the existence of mutual
funds; that is, what benefits do mutual funds provide for
investors? Why do individuals rather than corporations hold
most mutual funds? - correct answer-One major economic
reason for the existence of mutual funds is the ability to
achieve diversification through risk pooling for small
investors. By pooling investments from a large number of
small investors, fund managers are able to hold well-
diversified portfolios of assets. In addition, managers can
obtain lower transaction costs because of the volume of
transactions, both in dollars and numbers, and they benefit
from research, information, and monitoring activities at
reduced costs.
2. What are the principal demographics of household owners
who own mutual funds? What are the primary reasons why
household owners invest in mutual funds? - correct answer-
As of 2018, 56.0 million (43.9 percent of) U.S. households
owned mutual funds. This was down from 56.3 million (52
percent) in 2001. Table 5-4 lists some characteristics of
household mutual fund owners as of 2018 and 1995. Most
are long-term owners, with 29 percent making their first
purchases before 1990. While mutual fund investors come
, Page | 2
from all age groups, ownership is concentrated among
individuals in their prime saving and investing years. Two-
thirds of households owning mutual funds in 2018 were
headed by individuals between the ages of 35 and 64.
Interestingly, the number of families headed by a person with
less than a college degree investing in mutual funds is 47
percent. The bull markets of the 1990s, the low transaction
costs of purchasing mutual funds shares, as well as the
diversification benefits achievable through mutual fund
investments are again the likely reasons for these trends.
The typical fund-owning household had $150,000 invested in
a median number of four mutual funds.
3. What change in regulatory guidelines occurred in 2009 that
had the primary purpose of giving investors a better
understanding of the risks and objectives of a fund? - correct
answer-In March 2009, the SEC adopted amendments to the
form used by mutual funds to register under the Investment
Company Act of 1940 and to offer their securities under the
Securities Act of 1933 in order to enhance the disclosures
that are provided to mutual fund investors. The amendments
(first proposed in November 2007) required key information
to appear in plain English in a standardized order at the front
of the mutual fund statutory prospectus. The new
amendment also included a new option for satisfying
prospectus delivery obligations with respect to mutual fund
securities under the Securities Act. Under the option, key
information is sent or given to investors in the form of a
summary prospectus and the statutory prospectus is
provided on an Internet Web site. The improved disclosure
, Page | 3
framework was intended to provide investors with information
that is easier to use and more readily accessible, while
retaining the comprehensive quality of the information that
was previously available.
4. What are the three possible components reflected in the
return an investor receives from a mutual fund? - correct
answer-The investor receives the income and dividends paid
by the companies, the capital gains from the sale of
securities by the mutual fund, and the capital appreciation of
the underlying assets.
5. How is the net asset value (NAV) of a mutual fund
determined? What is meant by the term marked-to-market
daily? - correct answer-Net Asset Value (NAV) is the market
value of each ownership share of the mutual fund. The total
market value of the fund is determined by summing the total
value of each asset in the fund. The value of each asset can
be found by multiplying the number of shares of the asset by
the corresponding price of the asset. Dividing this total fund
value by the number of shares in the mutual fund will give
the NAV for the fund.
6. The NAV is calculated at the end of each daily trading
session, and thus reflects any adjustments in value caused
by (a) changes in value of the underlying assets, (b) dividend
distributions of the companies held, or (c) changes in
, Page | 4
ownership of the fund. This process of daily recalculation of
the NAV is called marking-to-market.
7. What is the difference between open-end and closed-end
mutual funds? Which type of fund tends to be more
specialized in asset selection? How does a closed-end fund
provide another source of return from which an investor may
either gain or lose? - correct answer-Open-end funds allow
shares to be purchased and redeemed according to investor
demand. The NAV of open-ended funds is determined only
by changes in the value of the assets owned. In closed-end
funds, the number of shares of the fund is fixed. If investors
need to redeem their shares, they sell them to another
investor. Thus, the demand for the fund shares can provide
another source of return for the investors as the market price
of the fund may exceed the NAV of the fund. Closed-end
funds, such as real estate investment trusts, tend to be more
specialized.
8. What is the difference between a load fund and a no-load
fund? Is the argument that load funds are more closely
managed and therefore have higher returns supported by the
evidence presented in Table 5-6? - correct answer-A load
fund charges an up-front fee that often is called a sales
charge and is used as a commission payment for sales
representatives. These fees can be as high as 5.75 percent.
A no-load fund does not charge a sales fee, although a small
annual fee can be charged to cover certain administrative
FINA 465 EXAM 1 REVIEW 2026
ACTUAL QUESTIONS WITH VERIFIED
ANSWERS.
1. What are the economic reasons for the existence of mutual
funds; that is, what benefits do mutual funds provide for
investors? Why do individuals rather than corporations hold
most mutual funds? - correct answer-One major economic
reason for the existence of mutual funds is the ability to
achieve diversification through risk pooling for small
investors. By pooling investments from a large number of
small investors, fund managers are able to hold well-
diversified portfolios of assets. In addition, managers can
obtain lower transaction costs because of the volume of
transactions, both in dollars and numbers, and they benefit
from research, information, and monitoring activities at
reduced costs.
2. What are the principal demographics of household owners
who own mutual funds? What are the primary reasons why
household owners invest in mutual funds? - correct answer-
As of 2018, 56.0 million (43.9 percent of) U.S. households
owned mutual funds. This was down from 56.3 million (52
percent) in 2001. Table 5-4 lists some characteristics of
household mutual fund owners as of 2018 and 1995. Most
are long-term owners, with 29 percent making their first
purchases before 1990. While mutual fund investors come
, Page | 2
from all age groups, ownership is concentrated among
individuals in their prime saving and investing years. Two-
thirds of households owning mutual funds in 2018 were
headed by individuals between the ages of 35 and 64.
Interestingly, the number of families headed by a person with
less than a college degree investing in mutual funds is 47
percent. The bull markets of the 1990s, the low transaction
costs of purchasing mutual funds shares, as well as the
diversification benefits achievable through mutual fund
investments are again the likely reasons for these trends.
The typical fund-owning household had $150,000 invested in
a median number of four mutual funds.
3. What change in regulatory guidelines occurred in 2009 that
had the primary purpose of giving investors a better
understanding of the risks and objectives of a fund? - correct
answer-In March 2009, the SEC adopted amendments to the
form used by mutual funds to register under the Investment
Company Act of 1940 and to offer their securities under the
Securities Act of 1933 in order to enhance the disclosures
that are provided to mutual fund investors. The amendments
(first proposed in November 2007) required key information
to appear in plain English in a standardized order at the front
of the mutual fund statutory prospectus. The new
amendment also included a new option for satisfying
prospectus delivery obligations with respect to mutual fund
securities under the Securities Act. Under the option, key
information is sent or given to investors in the form of a
summary prospectus and the statutory prospectus is
provided on an Internet Web site. The improved disclosure
, Page | 3
framework was intended to provide investors with information
that is easier to use and more readily accessible, while
retaining the comprehensive quality of the information that
was previously available.
4. What are the three possible components reflected in the
return an investor receives from a mutual fund? - correct
answer-The investor receives the income and dividends paid
by the companies, the capital gains from the sale of
securities by the mutual fund, and the capital appreciation of
the underlying assets.
5. How is the net asset value (NAV) of a mutual fund
determined? What is meant by the term marked-to-market
daily? - correct answer-Net Asset Value (NAV) is the market
value of each ownership share of the mutual fund. The total
market value of the fund is determined by summing the total
value of each asset in the fund. The value of each asset can
be found by multiplying the number of shares of the asset by
the corresponding price of the asset. Dividing this total fund
value by the number of shares in the mutual fund will give
the NAV for the fund.
6. The NAV is calculated at the end of each daily trading
session, and thus reflects any adjustments in value caused
by (a) changes in value of the underlying assets, (b) dividend
distributions of the companies held, or (c) changes in
, Page | 4
ownership of the fund. This process of daily recalculation of
the NAV is called marking-to-market.
7. What is the difference between open-end and closed-end
mutual funds? Which type of fund tends to be more
specialized in asset selection? How does a closed-end fund
provide another source of return from which an investor may
either gain or lose? - correct answer-Open-end funds allow
shares to be purchased and redeemed according to investor
demand. The NAV of open-ended funds is determined only
by changes in the value of the assets owned. In closed-end
funds, the number of shares of the fund is fixed. If investors
need to redeem their shares, they sell them to another
investor. Thus, the demand for the fund shares can provide
another source of return for the investors as the market price
of the fund may exceed the NAV of the fund. Closed-end
funds, such as real estate investment trusts, tend to be more
specialized.
8. What is the difference between a load fund and a no-load
fund? Is the argument that load funds are more closely
managed and therefore have higher returns supported by the
evidence presented in Table 5-6? - correct answer-A load
fund charges an up-front fee that often is called a sales
charge and is used as a commission payment for sales
representatives. These fees can be as high as 5.75 percent.
A no-load fund does not charge a sales fee, although a small
annual fee can be charged to cover certain administrative
