BUS 410 CH17 EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026
What is the primary function of an investment company? - Answers To pool financial resources of
individuals and companies and invest them in diversified portfolios of assets.
How do open-end mutual funds operate? - Answers They sell new shares to investors and redeem
outstanding shares on demand at their fair market values.
What is the primary restriction on hedge fund investments? - Answers They are restricted to wealthy
individuals and institutional investors.
When was the first mutual fund established in the United States? - Answers In Boston in 1924.
What are money market mutual funds? - Answers Funds that invest in securities with an original
maturity of under one year.
What are institutional funds? - Answers Mutual funds that manage retirement plans for an
institution's employees.
What is the difference between target date funds and lifestyle funds? - Answers Target date funds
follow a predetermined reallocation of risk over time, while lifestyle funds maintain a predetermined
risk level.
What are the two main sectors of the mutual fund industry? - Answers Short-term funds and long-
term funds.
What is the primary risk associated with short-term mutual funds? - Answers Interest rate risk.
What types of securities are found in equity funds? - Answers Common and preferred stock
securities.
What is the main difference between interest-bearing bank deposits and money market mutual
funds? - Answers Bank deposits under $250,000 are FDIC-insured, whereas money market mutual
funds are not.
What is a mutual fund prospectus? - Answers A formal summary of a proposed investment that
specifies the fund's investment objectives.
What mandate did the SEC issue in 1998 regarding prospectuses? - Answers They must be written in
plain English rather than overly legal language.
What is an index fund? - Answers A fund where managers buy securities in proportions similar to
those included in a specified major index.
Why do index funds typically have lower fees than actively managed funds? - Answers They involve
little research or management.
How do ETFs differ from standard open-end mutual funds regarding trading? - Answers ETFs trade
intraday on a stock exchange like stocks, can be sold short, and can be purchased on margin.
What are the three sources of return for a mutual fund investor? - Answers Income/dividends from
assets, capital gains from asset sales, and capital appreciation from the fund's portfolio value.
How is the Net Asset Value (NAV) of a mutual fund calculated? - Answers Market value of the assets
in the portfolio minus liabilities, divided by the number of shares outstanding.
What is a load fund? - Answers A fund that charges an up-front, one-time sales or commission
charge.
What is the largest fee typically charged to mutual fund owners? - Answers The management fee,
used to cover operating costs like administration.
What are 12b-1 fees? - Answers Fees related to the distribution and marketing costs of mutual fund
shares.
What is the maximum limit for 12b-1 fees used for marketing and distribution? - Answers 0.75% of a
fund's average net assets per year.
What characterizes bond funds? - Answers They consist of fixed-income capital market debt
securities and carry extensive interest rate risk.
What are hybrid funds? - Answers Funds that consist of a mix of both stock and bond securities.
What is the typical investment profile of a fund-owning household? - Answers $150,000 invested
across four different mutual funds.
What are the primary characteristics of Class A mutual fund shares? - Answers They carry a front-end
load charged at purchase and an annual 12b-1 fee between 2% and 5.75%.
How do Class B mutual fund shares differ from Class A shares regarding fees? - Answers Class B
shares have no front-end load but charge an annual 12b-1 fee (usually 1%) and a back-end load.
What is the fee structure for Class C mutual fund shares? - Answers No front-end load, an annual
12b-1 fee of 0.75%-1%, and a 1% back-end load in the first year.
What is the primary function of an investment company? - Answers To pool financial resources of
individuals and companies and invest them in diversified portfolios of assets.
How do open-end mutual funds operate? - Answers They sell new shares to investors and redeem
outstanding shares on demand at their fair market values.
What is the primary restriction on hedge fund investments? - Answers They are restricted to wealthy
individuals and institutional investors.
When was the first mutual fund established in the United States? - Answers In Boston in 1924.
What are money market mutual funds? - Answers Funds that invest in securities with an original
maturity of under one year.
What are institutional funds? - Answers Mutual funds that manage retirement plans for an
institution's employees.
What is the difference between target date funds and lifestyle funds? - Answers Target date funds
follow a predetermined reallocation of risk over time, while lifestyle funds maintain a predetermined
risk level.
What are the two main sectors of the mutual fund industry? - Answers Short-term funds and long-
term funds.
What is the primary risk associated with short-term mutual funds? - Answers Interest rate risk.
What types of securities are found in equity funds? - Answers Common and preferred stock
securities.
What is the main difference between interest-bearing bank deposits and money market mutual
funds? - Answers Bank deposits under $250,000 are FDIC-insured, whereas money market mutual
funds are not.
What is a mutual fund prospectus? - Answers A formal summary of a proposed investment that
specifies the fund's investment objectives.
What mandate did the SEC issue in 1998 regarding prospectuses? - Answers They must be written in
plain English rather than overly legal language.
What is an index fund? - Answers A fund where managers buy securities in proportions similar to
those included in a specified major index.
Why do index funds typically have lower fees than actively managed funds? - Answers They involve
little research or management.
How do ETFs differ from standard open-end mutual funds regarding trading? - Answers ETFs trade
intraday on a stock exchange like stocks, can be sold short, and can be purchased on margin.
What are the three sources of return for a mutual fund investor? - Answers Income/dividends from
assets, capital gains from asset sales, and capital appreciation from the fund's portfolio value.
How is the Net Asset Value (NAV) of a mutual fund calculated? - Answers Market value of the assets
in the portfolio minus liabilities, divided by the number of shares outstanding.
What is a load fund? - Answers A fund that charges an up-front, one-time sales or commission
charge.
What is the largest fee typically charged to mutual fund owners? - Answers The management fee,
used to cover operating costs like administration.
What are 12b-1 fees? - Answers Fees related to the distribution and marketing costs of mutual fund
shares.
What is the maximum limit for 12b-1 fees used for marketing and distribution? - Answers 0.75% of a
fund's average net assets per year.
What characterizes bond funds? - Answers They consist of fixed-income capital market debt
securities and carry extensive interest rate risk.
What are hybrid funds? - Answers Funds that consist of a mix of both stock and bond securities.
What is the typical investment profile of a fund-owning household? - Answers $150,000 invested
across four different mutual funds.
What are the primary characteristics of Class A mutual fund shares? - Answers They carry a front-end
load charged at purchase and an annual 12b-1 fee between 2% and 5.75%.
How do Class B mutual fund shares differ from Class A shares regarding fees? - Answers Class B
shares have no front-end load but charge an annual 12b-1 fee (usually 1%) and a back-end load.
What is the fee structure for Class C mutual fund shares? - Answers No front-end load, an annual
12b-1 fee of 0.75%-1%, and a 1% back-end load in the first year.
