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Question 1 of 10
1. Question
What is the effect of the loss of the custodian’s role towards portfolio securities?
Correct
The role of a custodian within an open-end investment company, or mutual fund, is to provide for the safekeeping of the securities and assets of the fund and account for cash inflows and outflows of the mutual fund. Without the existence of this valuable service, an investor would have to monitor each of his individual security holdings along with the record keeping of holdings, trade activity, and cash positions.
Incorrect
The role of a custodian within an open-end investment company, or mutual fund, is to provide for the safekeeping of the securities and assets of the fund and account for cash inflows and outflows of the mutual fund. Without the existence of this valuable service, an investor would have to monitor each of his individual security holdings along with the record keeping of holdings, trade activity, and cash positions.
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Question 2 of 10
2. Question
What is the purpose of offering exchange privileges to investors?
Correct
Many open-end investment companies, or mutual funds, offer exchange privileges to investors to entice them to keep their money within the same family of funds when the investors are looking to reallocate into a different fund.
Incorrect
Many open-end investment companies, or mutual funds, offer exchange privileges to investors to entice them to keep their money within the same family of funds when the investors are looking to reallocate into a different fund.
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Question 3 of 10
3. Question
What is the responsibility of an independent auditor?
Correct
The Investment Advisers Act of 1940 requires an open-end investment company, or mutual fund, to retain an independent auditor to certify any financial statements prior to being filed with the Securities Exchange Commission. The selection of the independent auditors depends upon whether or not the mutual fund has established an Audit Committee comprised entirely of independent directors.
Incorrect
The Investment Advisers Act of 1940 requires an open-end investment company, or mutual fund, to retain an independent auditor to certify any financial statements prior to being filed with the Securities Exchange Commission. The selection of the independent auditors depends upon whether or not the mutual fund has established an Audit Committee comprised entirely of independent directors.
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Question 4 of 10
4. Question
How can securities be purchased?
Correct
Each security could only be purchased in whole shares. Thus, the minimum amount of investable assets required to properly diversify a portfolio would be substantial. Thanks to open-end investment companies, which often maintain small minimum initial deposits, an investor can pool his money along with that of other investors and achieve access to partial shares of a number of securities, thus achieving diversification with a much smaller initial investment.
Incorrect
Each security could only be purchased in whole shares. Thus, the minimum amount of investable assets required to properly diversify a portfolio would be substantial. Thanks to open-end investment companies, which often maintain small minimum initial deposits, an investor can pool his money along with that of other investors and achieve access to partial shares of a number of securities, thus achieving diversification with a much smaller initial investment.
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Question 5 of 10
5. Question
What is the effect of the lack of automatic reinvestment of dividend income and capital gains distributions?
Correct
Many open-end investment companies, or mutual funds, provide services to investors through which any dividend income and capital gains distributions can be automatically reinvested to purchase additional fractional shares of the fund. Without this service, those dividends and distributions would typically be held in a cash or money market fund and would miss out on the earnings of the fund.
Incorrect
Many open-end investment companies, or mutual funds, provide services to investors through which any dividend income and capital gains distributions can be automatically reinvested to purchase additional fractional shares of the fund. Without this service, those dividends and distributions would typically be held in a cash or money market fund and would miss out on the earnings of the fund.
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Question 6 of 10
6. Question
Which of the following aspects is NOT one of aspects in which fund’s management team can be evaluated?
Correct
One of the most important factors when evaluating open-end investment companies is the evaluation of the fund’s management team and experience. On one hand, an investor must look at how long the management team has been in place and if the fund has seen significant turnover in recent years. If so, the investor must consider whether prior returns can be expected to continue given that it was largely a different management team who achieved the fund’s past returns. Additionally, an investor can evaluate a management team’s success in prior endeavors and with prior funds to determine whether or not they believe them to be capable of successfully executing this investment strategy.
Incorrect
One of the most important factors when evaluating open-end investment companies is the evaluation of the fund’s management team and experience. On one hand, an investor must look at how long the management team has been in place and if the fund has seen significant turnover in recent years. If so, the investor must consider whether prior returns can be expected to continue given that it was largely a different management team who achieved the fund’s past returns. Additionally, an investor can evaluate a management team’s success in prior endeavors and with prior funds to determine whether or not they believe them to be capable of successfully executing this investment strategy.
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Question 7 of 10
7. Question
Which of the following statements is true regarding annual operating expenses?
Correct
Fees can come in varying forms across different funds and different share classes, but some of the most frequent fees faced by investors are sales loads, contingent deferred sales charges, and annual operating expenses. Sales loads and contingent deferred sales charges are applied either at the time of purchase or sale and require an investor to come up with additional funds outside of the amount invested, while annual operating expenses are taken out of invested assets periodically throughout the year in the form of reduced earnings.
Incorrect
Fees can come in varying forms across different funds and different share classes, but some of the most frequent fees faced by investors are sales loads, contingent deferred sales charges, and annual operating expenses. Sales loads and contingent deferred sales charges are applied either at the time of purchase or sale and require an investor to come up with additional funds outside of the amount invested, while annual operating expenses are taken out of invested assets periodically throughout the year in the form of reduced earnings.
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Question 8 of 10
8. Question
How is a fund’s expense ratio collected?
Correct
A fund’s expense ratio is calculated as the annual dollar cost of operating the fund (including fees paid to the investment manager, custodian, etc.) divided by the average assets under management. This ratio is then collected from investors’ funds by lowering the return credited to their accounts.
Incorrect
A fund’s expense ratio is calculated as the annual dollar cost of operating the fund (including fees paid to the investment manager, custodian, etc.) divided by the average assets under management. This ratio is then collected from investors’ funds by lowering the return credited to their accounts.
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Question 9 of 10
9. Question
How is the standardized yield is calculated?
Correct
The standardized yield looks at the dividends and interest over the past 30 days less the funds expenses as compared to the funds total assets, calculated as the product of the number of shares of the fund outstanding and the maximum public offering price. This measure is widely utilized because of its standardization across funds and its consideration of expenses.
Incorrect
The standardized yield looks at the dividends and interest over the past 30 days less the funds expenses as compared to the funds total assets, calculated as the product of the number of shares of the fund outstanding and the maximum public offering price. This measure is widely utilized because of its standardization across funds and its consideration of expenses.
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Question 10 of 10
10. Question
What is the use of quantitative risk management strategy?
Correct
Many open-end investment companies, or mutual funds, use a quantitative risk management strategy to mitigate a portion of the downside risk that is inherent in the fund’s investment strategy. To achieve this risk mitigation, funds will purchase certain derivatives and option contracts that are meant to protect the firm from unexpected negative results.
Incorrect
Many open-end investment companies, or mutual funds, use a quantitative risk management strategy to mitigate a portion of the downside risk that is inherent in the fund’s investment strategy. To achieve this risk mitigation, funds will purchase certain derivatives and option contracts that are meant to protect the firm from unexpected negative results.