FIN 2100 EXAM QUESTIONS WITH
100% CORRECT ANSWERS
When you sell shares of a mutual fund, how do you determine the basis of the shares
held?
You must use the FIFO method.
You must use the LIFO method.
You must use the average cost method.
You may use either the specific identification or average cost method. - Answer- You
may use either the specific identification or average cost method.
An investor who wants tax free investment income would choose a (an) _______ fund
Balanced
Income
Sector
Municipal bond - Answer- Municipal bond
Payments made to a fund's shareholders that result from the sales of securities in the
fund's portfolio are called
a) Income dividends
b) Capital gains distributions (either short term or long term)
c) Tax free income
d) None of the above - Answer- b) Capital gains distributions (either short term or long
term)
ABC fund has a 4.5% front-end sales load and a net asset value of $40. You plan to
invest $20,000. How many more shares would you have received if the fund did not
have a sales load?
500.0
22.5
44.00
18.00 - Answer- 22.5
A mutual fund has a 1% operating expense ratio, and you just invested $22,000. How
much of your investment will go toward paying the operating expenses of the mutual
fund this year?
$2,200
$200
$220
$22 - Answer- 220
, You buy 100 shares of a mutual fund for $10 per share at the beginning of the year. The
fund subsequently makes a $0.75/share dividend distribution. At year-end, the fund is
worth $13 per share. What is the total return on your investment?
$800 or 80%
$800 or 44%
$575 or 57.5%
$375 or 37.5% - Answer- $375 or 37.5%
Assume the following mutual fund transactions:
Year Invest Price per share
2007 $3,000 $40
2008 $3,000 $50
2009 $3,000 $60
2010 $3,000 $53
How many shares do you now own and what is the average cost per share?
252 shares with an average cost per share of 47.62
241.6038 shares with an average cost per share of $49.67
239.5455 shares with an average cost per share of $50.09
276.6667 shares with an average cost per share of $43.37 - Answer- 241.6038 shares
with an average cost per share of $49.67
A Harvard prof. gave this problem to 400 Harvard employees (many of whom had
advanced degrees) and 250 Wharton MBAs. Most got the answer wrong, so let's see
how you do. You have $10,000 to invest in your 401-K plan. Here are your only choices:
Morgan Stanley S&P 500 Index Fund
Vanguard S&P 500 Index Fund
Schwab S&P 500 Index Fund
Fidelity S&P 500 Index Fund
All four funds have the same one year, three year and five year returns. "Life of fund
returns" for each fund are as follows:
Morgan Stanley = 12.5%
Vanguard = 11.9%
Schwab = 13.2%
Fidelity = 14.9%
100% CORRECT ANSWERS
When you sell shares of a mutual fund, how do you determine the basis of the shares
held?
You must use the FIFO method.
You must use the LIFO method.
You must use the average cost method.
You may use either the specific identification or average cost method. - Answer- You
may use either the specific identification or average cost method.
An investor who wants tax free investment income would choose a (an) _______ fund
Balanced
Income
Sector
Municipal bond - Answer- Municipal bond
Payments made to a fund's shareholders that result from the sales of securities in the
fund's portfolio are called
a) Income dividends
b) Capital gains distributions (either short term or long term)
c) Tax free income
d) None of the above - Answer- b) Capital gains distributions (either short term or long
term)
ABC fund has a 4.5% front-end sales load and a net asset value of $40. You plan to
invest $20,000. How many more shares would you have received if the fund did not
have a sales load?
500.0
22.5
44.00
18.00 - Answer- 22.5
A mutual fund has a 1% operating expense ratio, and you just invested $22,000. How
much of your investment will go toward paying the operating expenses of the mutual
fund this year?
$2,200
$200
$220
$22 - Answer- 220
, You buy 100 shares of a mutual fund for $10 per share at the beginning of the year. The
fund subsequently makes a $0.75/share dividend distribution. At year-end, the fund is
worth $13 per share. What is the total return on your investment?
$800 or 80%
$800 or 44%
$575 or 57.5%
$375 or 37.5% - Answer- $375 or 37.5%
Assume the following mutual fund transactions:
Year Invest Price per share
2007 $3,000 $40
2008 $3,000 $50
2009 $3,000 $60
2010 $3,000 $53
How many shares do you now own and what is the average cost per share?
252 shares with an average cost per share of 47.62
241.6038 shares with an average cost per share of $49.67
239.5455 shares with an average cost per share of $50.09
276.6667 shares with an average cost per share of $43.37 - Answer- 241.6038 shares
with an average cost per share of $49.67
A Harvard prof. gave this problem to 400 Harvard employees (many of whom had
advanced degrees) and 250 Wharton MBAs. Most got the answer wrong, so let's see
how you do. You have $10,000 to invest in your 401-K plan. Here are your only choices:
Morgan Stanley S&P 500 Index Fund
Vanguard S&P 500 Index Fund
Schwab S&P 500 Index Fund
Fidelity S&P 500 Index Fund
All four funds have the same one year, three year and five year returns. "Life of fund
returns" for each fund are as follows:
Morgan Stanley = 12.5%
Vanguard = 11.9%
Schwab = 13.2%
Fidelity = 14.9%
