ALLIED FIN202 MODULE 7 CHECK YOUR UNDERSTANDING

Question Points
1. Today,
bond ownership records are maintained using a process called:
a. certified
registration.
b. book entry.
c. coupon
registration.
d. general
obligation process.
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2. A
government security issued in minimum units of $100 with maturities that are
one year or less is called a:
a. Treasury bill.
b. subordinated
bond.
c. Treasury note.
d. savings bond.
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3. The
average management fee for all mutual funds is:
a. less than 0.25
percent.
b. 0.25 percent to
0.50 percent.
c. 1.25 to 2.50
percent.
d. 0.50 to 1
percent.
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4. Last
month, Nellie Jacobson’s divorce became final. As part of the settlement, she
received $150,000. She would like to invest in mutual funds, but since she is
62 years old, she is concerned with the safety of her “nest egg.”
Which of the following mutual funds would you recommend?
a. Growth fund
b. Small cap fund
c. International
fund
d. Short-term U.S.
bond fund
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5. Mary
Cooper just purchased 100 shares in the All-American Fund. The purchase cost
for each share was $20. If this fund charges a 5 percent load, what is the
total amount of commission she will pay the investment company?
a. $100
b. $1,000
c. $2,000
d. $200
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6. If
overall interest rates in the economy rise, a corporate bond with a fixed
interest rate will generally:
a. increase in
value.
b. decrease in
value.
c. remain unchanged.
d. be returned to
the corporation.
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7. You own a
$1,000 bond that pays 9.25 percent interest. What is the amount of interest you
will receive each six months?
a. $4.62
b. $9.25
c. $46.25
d. $23.13
.
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8. Which one
of the following statements is false?
a. As an investor,
you should be concerned with how long a fund manager has been managing a mutual
fund.
b. Often, a fund’s
success is tied to the manager’s ability to buy and sell securities in the
fund.
c. If a manager has
been managing a fund for 5 or 10 years, it is time to change managers and get
someone with new ideas.
d. Managed funds may
be open-end funds or closed-end funds.
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9. Which
type of bond is not registered in the investor’s name?
a. Revenue
b. General
obligation
c. Zero-coupon
d. Bearer
Hint: p. 507
10. A mutual
fund in which no sales charge is paid by the individual investor is called a(n)
____________ fund.
a. closed-end
b. open-end
c. load
d. no-load
.
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11. Assume
that you purchase a $1,000 corporate bond that pays 9.25 percent interest. What
is the amount of interest that you receive each year?
a. $1,000.00
b. $92.50
c. $92.00
d. $90.00
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12. If a bond
is quoted in the newspaper at 92, the current price of a $1,000 face value bond
is:
a. $9.20
b. $92.00
c. $920.00
d. $1,092.00
.
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13. A bond
that is repaid from the income generated by the project it is designed to
finance is called a(n):
a. Treasury bill.
b. savings bond.
c. revenue bond.
d. agency bond.
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14. The price
at which a dealer is willing to sell a government security is known as the
_________ price.
a. bid
b. asked
c. contract
d. government
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15. Joseph
Carter is buying shares in a mutual fund that is investing in stocks all over
the world, including the United States. What type of mutual fund is this?
a. Aggressive-growth
fund
b. Equity income
fund
c. Global fund
d. International
fund
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16. Bob
Newsome purchased 250 shares of the Northern Lights Growth Fund. The purchase
cost was $30 per share. If this fund charges a 3 percent load, what is the
commission amount he will pay the investment company?
a. $3
b. $30
c. $300
d. $225
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17. Which one
of the following is true with respect to closed-end funds?
a. Shares are issued
whenever an investor wants to purchase them.
b. Most of the funds
today are closed-end.
c. Shares are traded
on stock exchanges similar to stocks.
d. Investors redeem
their shares by selling them directly to the fund.
18. When an
investor purchases shares in a load fund, the average sales charge is usually
between ________ percent.
a. 0.5 to 2
b. 1 to 3
c. 3 to 5
d. 5 to 7
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19. A call
feature:
a. allows
bondholders to convert their bond to a specified number of shares of common
stock.
b. is not available
on corporate bonds.
c. allows the
corporation to buy outstanding bonds from current bondholders before the
maturity date.
d. is guaranteed by
the corporation.
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20. During
2008, Lincoln Masters received income dividends of $850 and capital gain
distributions of $540. Based on this information:
a. both amounts must
be included as taxable income.
b. only the
dividends are taxable.
c. only the capital
gains are taxable.
d. both amounts are
tax-exempt.