Question

6.         Verysmall Mutual Fund’s investment portfolio is comprised of the following: 1,000 shares of General Mills (GIS, current price is $50 per share); 3,000 shares of Bank of America Corp (BAC, current price is $30 per share); and 2,500 shares of United Airlines Holdings (UAL), current price is $90 per share). Verysmall Mutual Fund has sold a total of 15,000 of its own shares to customers. What is Verysmall Mutual Fund’s net asset value?

A.        Less than $20
B.         Between $20 and $30
C.         Between $30 and $40
D.        Between $40 and $50
E.         Over $50

7.         A no-load mutual fund:

A.        has zero operating expenses.
B.         is typically marketed directly to customers, charging no commission.
C.         is a type that no longer exists.
D.        does not invest in common stocks.
E.         has a zero or negative rate of return in the most recent year.

8.         Hedge funds differ from open-end mutual funds in the sense that ______

A.        they require a much smaller initial investment.
B.         they are open to additional investments at any time.
C.         their investors cannot sell shares back to the fund at any time they desire.
D.        they invest in very limited set of securities.
E.         they declare their investment strategies in the prospectus.

Answer 1

PT6 Value of Investment = number of shares * Price per share

Value of Investment in general Mills =1000 shares *50/shares i.e. $50000

  Value of Investment in Bank of America= 3000 shares *30/shares i.e.$90000

  Value of Investment in UAL =2500 shares *90/shares i.e.$225000

Share sold by Mutual Fund =15000 shares

Total value of Investment = $50000+ $90000+$225000 i.e.$365000

Net Asset Value = Total market value of Investment/ Number of shares issued

=365000/ 15000 i.e.$24.33

Option b is correct

Pt 7 A no load mutual fund is a fund in which shares are sold without commission i.e. shares are sold directy by the Investment company to the customer . All other option are not the feature of mutual fund.

Option b i.e. is typically marketed directly to customer, charging no commission is correct.

Pt 8

Hedge fund required larger investment then mutual fund and they provid limited information to the investor. Further in case of hedge fund new investment or redemption is not allowed unless some advance notice is given to company for the same.

Option C i.e. their investor cannot sell shares back to fund at any time they desire is correct.