Fundamentals of Indirect Investing

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Chapter 3

Multiple Choice Questions

Investing Indirectly

1.Which of the following is not a characteristic of investments companies?

a.pooled investing
c.managed portfolios
d.reduced expenses

2.In order to avoid paying income taxes, an investment company must:

a. be classified as a non-profit organization
b. invest only in municipal bonds.
c. pass on interest, dividends, and capital gains to the stockholders. d. be registered as a closed-end investment company.

3.Investment companies must register with the SEC under the provisions of the:

a. Securities Act of 1933
b. Securities Exchange Act of 1934
c. Maloney Act of 1938
d. Investment Company Act of 1940

Types of Investment Companies

4.The most popular type of investment company is a:

a. unit investment trust.
b. mutual fund.
c. closed-end investment company
d. real estate investment trust.

5.An unmanaged fixed income security portfolio handled by an independent trustee is known as a:

a. junk bond fund
b. closed-end investment company.
c. unit investment trust.
d. hedge fund.

6.Which of the following is a major objective of unit investment trusts? preservation gains
c.current income deferment

7.A major difference between a closed-end investment company and an open-end investment company is that:

a. closed-end investment companies are generally much riskier. b. their security portfolios are substantially different. c. closed-end investment companies are passive investments and open-ends are not. d. closed-end companies have a more fixed capitalization.

8.. Which of the following generally trade on stock exchanges?

a. unit investment trusts
b. closed-end investment companies
c. open-end investment companies
d. All trade on stock exchanges.

9.Which of the following statements concerning the trend in investment company growth is true?

a. The recent trend shows more growth in closed-end investment companies. b. The recent trend shows more growth in unit investment trusts. c. The recent trend shows more growth in open-end investment companies. d. All investment companies have been growing at an equal rate.

10.Which of the following is not one of the characteristics of exchange traded funds (ETFs)?

a.They are passive portfolios.
b.They are managed investments.
c.They often track a particular sector of the market. d.All of the above are characteristics of ETFs.

11.It is not important to have a secondary market for mutual funds because:

a. investors hold the securities till maturity.
b. investors trade between themselves.
c. investors sell their shares back to the company.
d. banks will cash their shares as long as they have accounts at the bank.

12.Which of the following is not an ETF (exchange traded fund)?


13.Which of the following is true regarding ETFs?

a.They trade on exchanges like individual stocks.
b.They can be bought on margin or sold short.
c.They have management fees higher than other mutual funds. d.All of the above are true regarding ETFs.

Types of Mutual Funds

14.A group of mutual funds with a common management are known as:

a. fund syndicates.
b. fund conglomerates.
c. fund families.
d. fund complexes.

15.Which of the following is not true regarding money market funds?

a.They charge no sales charge, redemption fee or...
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