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Question 1 of 10
1. Question
Which of the following statements is true regarding small caps?
Correct
Each fund is classified by the size of the companies in whose securities it typically invests. Opinions vary, but small caps are typically considered to be less than $2 billion in total market capitalization.
Incorrect
Each fund is classified by the size of the companies in whose securities it typically invests. Opinions vary, but small caps are typically considered to be less than $2 billion in total market capitalization.
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Question 2 of 10
2. Question
How is the after-tax return calculated?
Correct
While the total return of the fund is important, an investor will ultimately only receive the after-tax return. To calculate the after-tax return, multiply the pre-tax total return by one minus the investor’s marginal income tax rate.
Incorrect
While the total return of the fund is important, an investor will ultimately only receive the after-tax return. To calculate the after-tax return, multiply the pre-tax total return by one minus the investor’s marginal income tax rate.
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Question 3 of 10
3. Question
Which fund seeks to provide tax-exempt current income by investing in municipal bonds?
Correct
Tax-exempt income funds seek to provide tax-exempt current income by investing in municipal bonds, which are exempt from federal income taxes and also frequently from state and local income taxes.
Incorrect
Tax-exempt income funds seek to provide tax-exempt current income by investing in municipal bonds, which are exempt from federal income taxes and also frequently from state and local income taxes.
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Question 4 of 10
4. Question
Which of the following statements is true regarding high yield bonds?
Correct
High yield bonds seek to provide greater current income levels to investors by investing in the fixed income securities of companies who may be at a greater risk of default. High yield bonds are appealing to investors who are seeking to earn current income but seek a higher return than that offered through traditional corporate bonds.
Incorrect
High yield bonds seek to provide greater current income levels to investors by investing in the fixed income securities of companies who may be at a greater risk of default. High yield bonds are appealing to investors who are seeking to earn current income but seek a higher return than that offered through traditional corporate bonds.
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Question 5 of 10
5. Question
What does the statement: “A …. seeks to provide investors with a given asset allocation, often determined by level of risk” refer to?
Correct
An asset allocation fund seeks to provide investors with a given asset allocation, often determined by level of risk (i.e., conservative or aggressive). These funds are attractive to investors who want a diversified portfolio with a given level of risk, but would prefer to turn over the selection of individual securities to a professional.
Incorrect
An asset allocation fund seeks to provide investors with a given asset allocation, often determined by level of risk (i.e., conservative or aggressive). These funds are attractive to investors who want a diversified portfolio with a given level of risk, but would prefer to turn over the selection of individual securities to a professional.
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Question 6 of 10
6. Question
What is a global fund?
Correct
An international fund, for an investor in the United States, would invest primarily in securities issued by companies outside of the United States. This is not to be confused with a global fund, which would invest across international and domestic companies in proportion to their share of the world markets.
Incorrect
An international fund, for an investor in the United States, would invest primarily in securities issued by companies outside of the United States. This is not to be confused with a global fund, which would invest across international and domestic companies in proportion to their share of the world markets.
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Question 7 of 10
7. Question
Which of the following statements is NOT true regarding mortgage backed securities?
Correct
A mortgage backed securities fund will invest in a pool of underlying mortgages, and the payments from the fund to investors represent a pass through of mortgage interest and principal repayments. The higher credit quality of the fund, the lower the rates that will be offered. Additionally, mortgage backed securities can be further divided into more specific funds, such as agency mortgage backed securities and commercial mortgage backed securities.
Incorrect
A mortgage backed securities fund will invest in a pool of underlying mortgages, and the payments from the fund to investors represent a pass through of mortgage interest and principal repayments. The higher credit quality of the fund, the lower the rates that will be offered. Additionally, mortgage backed securities can be further divided into more specific funds, such as agency mortgage backed securities and commercial mortgage backed securities.
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Question 8 of 10
8. Question
Which of the following statements is true regarding principal-protected funds?
Correct
Principal-protected funds seek to invest in underlying debt and equity securities while offering a guarantee of your initial investment principal through an arrangement with an insurance company. These funds often have lengthy lock-up periods where you cannot access your funds without penalty and often have high fees. An investor ends up paying for the guarantee of principal protection.
Incorrect
Principal-protected funds seek to invest in underlying debt and equity securities while offering a guarantee of your initial investment principal through an arrangement with an insurance company. These funds often have lengthy lock-up periods where you cannot access your funds without penalty and often have high fees. An investor ends up paying for the guarantee of principal protection.
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Question 9 of 10
9. Question
What does the statement “a newer type of security that seeks to replicate the performance of a given index or commodity” refer to?
Correct
An exchange-traded fund (ETF) is a relatively newer type of security that seeks to replicate the performance of a given index or commodity. ETFs are valued throughout the day just as any other security would be and typically have very low fees as the investor is not paying for active management as he would be with most mutual fund investments.
Incorrect
An exchange-traded fund (ETF) is a relatively newer type of security that seeks to replicate the performance of a given index or commodity. ETFs are valued throughout the day just as any other security would be and typically have very low fees as the investor is not paying for active management as he would be with most mutual fund investments.
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Question 10 of 10
10. Question
Which of the following statements is true regarding a hedge fund?
Correct
A hedge fund is quite the opposite. Hedge funds seek unconventional sources of outperformance by picking individual stocks or market movements to exploit. Unlike an ETF, which is valued throughout each day and allows an investor to buy as little as one share, hedge funds are valued much less frequently, often monthly, and typically require substantial minimum investments.
Incorrect
A hedge fund is quite the opposite. Hedge funds seek unconventional sources of outperformance by picking individual stocks or market movements to exploit. Unlike an ETF, which is valued throughout each day and allows an investor to buy as little as one share, hedge funds are valued much less frequently, often monthly, and typically require substantial minimum investments.