Question

You invest $12,500 in Fund VSML at the start of the year. The fund has a front-end load of 3% and an annual expense fee of 2.25% of the ending asset value at year end. You expect the fund to have a gross rate of return of 8% this year. With your investment, what is your expected value in one year?

A.        Under $12,250
B.         Between $12,250 and $12,500
C.         Between $12,500 and $12,750
D.        Between $12,750 and $13,000
E.         Over $13,000

Ans:

4.         Investor demand for the shares determines the number of shares outstanding in a(n) __________.

A.        general partnership
B.         limited partnership
C.         open-end mutual fund
D.        REIT
E.         closed-end mutual fund

5.         Fees considered “12b-1 fees” are:

A.        fees that investment companies must pay to the SEC.
B.        fees charged by some mutual funds, due to distribution and marketing costs.
C.        up-front “load” fees, charged by some mutual funds.
D.        back-end “load” fees, charged by some mutual funds.
E.         fees charged by mutual funds, to compensate the portfolio manager

Answer 1

3.) Invest $12,500 in VSML at beginning of the year.

As the fund has a front load of 3% out of $12,500, the remaining 97% will be invested which is $12,125.

Now the fund has an 8% gross return. So, the value of the fund after 8% appreciation over $12,125 will be $13,095.

Now deduct the annual charges, as it is applicable to the year ending asset value. So, deducting 2.25% from $13,095 gives us $12,800.36

Answer: D.) Between $12,750 and $13,000

4.)

General partnership: A business arrangement in which two or more individuals agree to share in all assets, profits, and financial and legal liabilities of a jointly-owned business. They have unlimited liability.

limited Partnership: The general partner oversees and runs the business while limited partners do not take part in managing the business. However, the limited partners have limited liability up to the invested amount.

open-ended mutual fund: This is a diversified portfolio of pooled investment. In which they can issue an unlimited number of shares. The fund sponsor sells shares directly to investors and redeems them as well.

REIT: A real estate investment trust (REIT) is a company that owns real estate properties.

Closed-end mutual fund: A closed-end mutual fund is a portfolio of assets that raises a fixed amount of capital through an IPO and then lists shares for trade on a stock exchange. The number of shares in this scheme remains constant.

Answer: C.) Open-end mutual fund

5.)

A 12b-1 fee is an annual marketing or distribution fee of the mutual funds. The 12b-1 fee is an operational expense. It generally ranges between 0.25% and 0.75% (the maximum allowed) of a fund's net assets.

Answer: B.) fees charged by some mutual funds, due to distribution and marketing costs.