Reading 74: Alternative Investments-LOS a 习题精选 buying, 2011, investment, companies, investor

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Session 18: Alternative Investments
Reading 74: Alternative Investments

LOS a: Differentiate between an open-end and a closed-end fund, and explain how net asset value of a fund is calculated and the nature of fees charged by investment companies.

 

 

An investor is contemplating buying a load fund versus a no load mutual fund. She is trying to figure out the actual amount she will have to spend on the load fund. The shares have a net asset value (NAV) of $34.50 and a load of 5.2%. Determine which type of fund will always have a share price equal to the NAV and the price she will pay for the load fund.

Fund

Offering Price

A) open-end $34.50

B) close-end $36.39

C) open-end $36.39

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The share price of an open-end fund will always equal the NAV, since the investment company is obligated to redeem shares at any time at current market value.

Offering price = $34.50 / (1 – 0.052) = $36.39.

[此贴子已经被作者于2011-4-2 11:25:35编辑过]

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Based on the following information, what is the net asset value (NAV) per share. There are currently no expenses and no load.

Cap Stock Sold $109,000
Price per share $10
Stock	Shares	Price	Book Value
A	1,051	$10	$5
B	2,420	$35	$29
C	1,851	$9	$8
D	900	$69	$63

A) $15.96.

B) $13.26.

C) $27.03.

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Total number of shares sold	=	$109,000	=	10,900 shares
		$10 (per shares)
Total market value	=	1,051 × 10	=	10,510
		2,420 × 35	=	84,700
		1,851 × 9	=	16,659
		900 × 69	=	62,100
				173,969
NAV	=	173,969	=	15.96 per share
		10,900

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A sales commission charged by an investment company at the time of redemption is called a:

A) back-end load.

B) 12b-1 fee.

C) front-end load.

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A front-end load is a sales commission charged at purchase. A distribution fee, also called a 12b-1 fee, is an ongoing fee, charged on an annual basis as a percentage of assets, which is used to cover any marketing expenses incurred by the management company. A charge to exit a fund is called a back-end load or a redemption fee.

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Bill Lynch, CFA, is a branch manager for a brokerage firm. He is reviewing a set of slides for a sales presentation that one of his subordinates will deliver next week. In a section that explains the nature of the various fees charged by investment companies, Lynch finds slides that state the following:

Slide 8: Fees charged by investment companies are a trade-off from the investor’s point of view. Lower fees will subtract less from the investor’s rate of return, but higher fees give portfolio managers greater incentives to achieve higher returns.

Slide 12: When choosing between a fund’s share classes, the investor should select the class with the lowest total annual fees.

Should Lynch agree or disagree with the statements on these two slides?

Slide 8

Slide 12

A) Disagree Disagree

B) Agree Disagree

C) Disagree Agree

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Lynch should disagree with both of these statements. Premiums, loads, and redemption fees are compensation for sales and marketing efforts, but they are not performance incentives for the portfolio managers. Different classes of shares can be structured with different schedules of front-end, back-end, and distribution fees. The optimal choice depends on the investor’s expected holding period and is not necessarily the one with the lowest total annual fees.

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The net asset value of a closed-end mutual fund is $11.20, and the share price is $10.00. The discount or premium is closest to:

A) 12.0% premium.

B) 12.0% discount.

C) 10.7% discount.

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(SP - NAV) / NAV =

(10.00 - 11.20) / 11.20 = ?0.107

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Jillian Best is choosing between two mutual funds. Fund A has a front-end load of 4%, a net asset value (NAV) of $60.00, and an expected return of 13.0%. Fund B has a redemption fee of 1.5%, a NAV of $27, and an expected return of 10%. Jillian will invest $50,000 in either fund. Which of the following statements is most accurate if Jillian has a 6-month holding period? The:

A) investor is better off with the front-end load fund by $120.00.

B) investor is better off with the redemption fee fund by $592.50.

C) investor is better off with the redemption fee fund by $712.50.

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Front end load fund:> >	$50,000 (1 – 0.04)(1.065)> >	= $51,120.00> >
Redemption fee fund:> >	$50,000 (1.05)(1 – 0.015)> >	= $51,712.50
Redemption fee fund advantage		$ 592.50

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Which of the following statements about investment companies is least accurate?

A) The investment company's board of directors hires an investment management company to select securities, manage the portfolio, and handle administrative duties.

B) Generally the investment advisory firm initiating the fund will also act as the fund's investment management company.

C) Investment companies are generally wholly owned subsidiaries of the investment advisory firm that creates them.

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Investment companies are owned by individual investors. For example, individuals who purchase shares in a mutual fund are the "owners" of that fund.

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You are going to invest in a closed-end mutual fund and are told that the net asset value of the fund is $20.40, and the share price is $18.20. What is the discount you would receive or the premium that you would pay?

A) -0.1209.

B) -0.1078.

C) 0.1209.

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18.20 ? 20.40	= -0.1078
20.40

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The net asset value (NAV) of an open-end fund is determined by the:

A) book value of all assets divided by the number of shares outstanding.

B) market value of assets minus liabilities divided by the number of shares outstanding.

C) supply and demand for the shares in the investment management company.

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This is the equation for the calculation of NAV.

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An investment company that stands ready to redeem investor shares at market value is classified as:

A) a closed-end investment company.

B) an open-end investment company.

C) a managed investment company.

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A closed-end investment company does not redeem investor shares; after issuance, shares trade in the secondary market. Some managed investment companies may redeem shares, but others may not. An open-end investment company always offers a redemption feature.