CHAPTER 26
MULTIPLE CHOICE PROBLEMS
(b) 1 Suppose Beta Mutual Fund owns only the 4 stocks shown below with no liabilities.
Stock Shares Price
W 2000 $12
X 2200 $15
Y 2400 $22
Z 1900 $14
The fund originated by selling $100,000 of stock at $10.00 per share. What is its current NAV?
a) $1.47
b) $13.64
c) $16.03
d) $27.62
e) $234.12
(c) 2 Suppose Kant Mutual Fund owns only the 4 stocks shown below with no liabilities.
Stock Shares Price
WWW 2000 $12
XXX 2200 $15
YYY 2500 $22
ZZZ 1800 $16
The fund originated by selling $200,000 of stock at $20.00 per share. What is its current NAV?
a) $140.80
b) $16.55
c) $14.08
d) $165.50
e) None of the above
(d) 3 Suppose Mega Mutual Fund owns only the 4 stocks shown below with no liabilities.
Stock Shares Price
A 1800 15
B 2200 11
C 2300 9
D 1900 18
The fund originated by selling $300,000 of stock at $30.00 per share. What is its current NAV?
a) $106.10
b) $12.94
c) $129.40
d) $10.61
e) None of the above
(a) 4 Suppose Under Mutual Fund owns only the 3 stocks shown below with no liabilities.
Stock Shares Price
A 2900 15
B 3100 14
C 3200 12
The fund originated by selling $500,000 of stock at $50.00 per share. What is its current NAV?
a) $12.53
b) $15.29
c) $152.90
d) $125.30
e) None of the above
(b) 5 Suppose you consider investing $1,000 in a load fund which charges a fee of 6%, and you expect the fund to earn 10% over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 9% and charges a 1/2 percent redemption fee. Which is better and by how much?
a) Funds are equal
b) No-load fund by $50.55
c) Load fund by $50.55
d) No-load fund by $64.55
e) No-load fund by $34.30
(d) 6 Suppose you consider investing $1,000 in a load fund which charges a fee of 7%, and you expect the fund to earn 11% over the next year. Alternatively, you could invest in a no-load fund with similar risk that is expected to earn 9% and charges a 1/2 percent redemption fee. Which is better and by how much?
a) Funds are equal
b) No-load fund by $36.98
c) Load fund by $25.25
d) No-load fund by $52.25
e) No-load fund by $25.52
(b) 7 Suppose you consider investing $1,000 in a load fund from which a fee of 8% is deducted and you expect the fund to earn 12% over the next year. Alternatively, you could invest in a no load fund which is expected to earn 10% and which takes a 1/2 percent redemption fee. Which is better and by how much?
a) Load fund by $11.51
b) Load fund by $115.10
c) Funds are equal
d) No load fund by $115.10
e) No load fund by $11.51
(b) 8 Suppose you consider investing $10,000 in a load fund from which a fee of 8% is deducted and you expect the fund to earn 12% over the next year. Alternatively, you could invest in a no load fund which is expected to earn 10% and which takes a 1/2 percent redemption fee. Which is better and by how much?
a) Load fund by $115.10
b) Load fund by $1151.00
c) Funds are equal
d) No load fund by $115.10
e) No load fund by $1151.00
(b) 9 Suppose you consider investing $5,000 in a load fund from which a fee of 8% is deducted and you expect the fund to earn 12% over the next year. Alternatively, you could invest in a no load fund which is expected to earn 10% and which takes a 1/2 percent redemption fee. Which is better and by how much?
a) Load fund by $57.50
b) Load fund by $575.50
c) Funds are equal
d) No load fund by $575.50
e) No load fund by $57.50
(b) 10 On January 2, 1996, you invest $10,000 in Megabucks Mutual Fund, a load fund that charges a fee of 5%. The fund’s returns were 14.6% in 1996, 6.4% in 1997, 15.2% in 1998. On December 31, 1998 you redeem all your shares. The dollar value is
a) $13,600.00
b) $13,344.50
c) $13,297.67
d) $13,995.75
e) $10,000.00
(c) 11 On January 2, 1996, you invest $50,000 in the Lizbiz Mutual Fund, a load fund that charges a fee of 5%. The fund’s returns were 14.6% in 1996, 6.4% in 1997, 15.2% in 1998. On December 31, 1998 you redeem all your shares. The dollar value is
a) $6,672.25
b) $15,200.00
c) $66,722.50
d) $33,366.25
e) $10,000.00
(b) 12 On January 2, 1996, you invest $100,000 in the Jeffers Mutual Fund, a load fund that charges a fee of 5%. The fund’s returns were 14.6% in 1996, 6.4% in 1997, 15.2% in 1998. On December 31, 1998 you redeem all your shares. The dollar value is
a) $133,600.00
b) $133,445.00
c) $133,297.67
d) $133,995.75
e) $100,000.00
(c) 13 On January 2, 1996, you invest $10,000 in the Tiger Fund, a load fund that charges a fee of 6%. The fund’s returns were 13.2% in 1996, 6.2% in 1997, 14.9% in 1998. On December 31, 1998 you redeem all your shares of Tiger. The dollar value is
a) $13,200.00
b) $13,345.89
c) $12,984.31
d) $15,896.34
e) $10,000.00
(e) 14 On January 2, 1996, you invest $10,000 in the W.O.W. Mutual Fund, a load fund that charges a fee of 5%. The fund’s returns were 13.6% in 1996, 12.2% in 1997, 8.3% in 1998. On December 31, 1998 you redeem all your W.O.W. shares. The dollar value is
a) $13,600.00
b) $13,664.13
c) $10,000.00
d) $131,136.40
e) $13,113.64
(b) 15 On January 2, 1996, you invest $10,000 in the Dog Mutual Fund, a load fund that charges a fee of 7%. The fund’s returns were 12.8% in 1996, 13.9% in 1997, 7.9% in 1998. On December 31, 1998 you redeem all your shares. The dollar value is
a) $12,800.00
b) $12,892.50
c) $100,000.00
d) $128,925.00
e) $10,000.00
(a) 16 On January 2, 1996, you invest $50,000 in A Mutual Fund, a load fund that charges a fee of 7%. The fund’s returns were 12.8% in 1996, 13.9% in 1997, 7.9% in 1998. On December 31, 1998 you redeem all your shares in A. The dollar value is
a) $64,462.57
b) $644,625.70
c) $50,000.00
d) $6,446.25
e) $10,000.00
(d) 17 On January 2, 1996, you invest $100,000 in Righteous, a load fund that charges a fee of 7%. The fund’s returns were 12.8% in 1996, 13.9% in 1997, 7.9% in 1998. On December 31, 1998 you redeem all your Righteous shares. The dollar value is
a) $12,800.00
b) $12,892.50
c) $100,000.00
d) $128,925.00
e) $10,000.00
(b) 18 Consider the Defiance Bond Fund that consists of the 3 bonds shown below and has no liabilities.
Company Current Bond Value # Bonds
Komko 980 120
Hijack 1010 150
Mitsue 1200 100
If initially the value of the fund was $250,000 and the original shares were offered to the public with a NAV of $25 per share, what is the current NAV of the fund?
a) $25.00
b) $38.91
c) $39.81
d) $31.98
e) $39.91
(d) 19 Consider X Bond Fund which consists of the 5 bonds shown below with no liabilities.
Company Current Bond Value # Bonds
Komko 980 120
Hijack 1010 150
Mitsue 1200 100
Smitsu 800 120
Jones 600 150
If initially the value of the fund was $1,000,000 and the original shares were offered to the public with a NAV of $25 per share, what is the current NAV of the fund?
a) $25.00
b) $27.68
c) $25.68
d) $28.76
e) $26.78
(a) 20 Consider the Compliance Bond Fund that consists of the 7 bonds shown below and has no liabilities.
Company Current Bond Value # Bonds
Komko 980 120
Hijack 1010 150
Mitsue 1200 100
Smitsu 800 120
Jones 600 150
GMM 1000 150
ATP 950 150
If initially the value of the fund was $2,500,000 and the original shares were offered to the public with a NAV of $25 per share, what is the current NAV of the fund?
a) $27.11
b) $25.00
c) $26.11
d) $21.67
e) $26.27
CHAPTER 25
ANSWERS TO PROBLEMS
1 Original number of shares = $100,000 ( $10 = 10,000
Stock Shares Price Market Value
W 2000 $12 24,000
X 2200 15 33,000
Y 2400 22 52,800
Z 1900 14 26,600
Total = $136,400
NAV = $136,400/10,000 = $13.64
2 Original number of shares = $200,000 ( $20 = 10,000
Stock Shares Price Market Price
W 2000 12 24,000
X 2200 15 33,000
Y 2500 22 55,000
Z 1800 16 28,800
Total = 140,800
NAV = $140,800/10,000 = $14.08
3 Original number of shares = $300,000 ( $30 = 10,000
Stock Shares Price Market Price
A 1800 15 27,000
B 2200 11 24,200
C 2300 9 20,700
D 1900 18 34,200
Total = 106,100
NAV = $106,100 ( 10,000 = $10.61
4 Original number of shares = $500,000 ( $50 = 10,000
Stock Shares Price Market Price
AA 2900 15 43,500
BB 3100 14 43,400
CC 3200 12 38,400
Total = 125,300
NAV = $125,300 ( 10,000 = $12.53
5 Load Fund: $1,000 (1.00 - 0.06) (1.10) = $1034.00
No-Load Fund: $1,000 (1.09)(1.00 - 0.005) = $1084.55
The difference is 1084.55 - 1034.00 = $50.55
No-load fund is better.
6 Load Fund: $1,000 (1.00 - 0.07) (1.11) = $1032.30
No-Load Fund: $1,000 (1.09)(1.00 - 0.005) = $1084.55
The difference is 1084.55 - 1035.30 = $52.25
No-load fund is better.
7 Load Fund $1,000 (1.00 - 0.08) (1.12) = $1209.60
No-Load Fund $1,000 (1.10) (1.00 - .005) = $1,094.50
The difference is $1209.60 - $1,030.40 = $115.10
Load fund is better.
8 Load Fund $10,000 (1.00 - 0.08) (1.12) = $12,096.00
No-Load Fund $10,000 (1.10) (1.00 - .005) = $10,945.00
The difference is $12,096.00 - $10,945.00 = $1151.00
Load fund is better.
9 Load Fund $5,000 (1.00 - 0.08) (1.12) = $6048.00
No-Load Fund $5,000 (1.10) (1.00 - .005) = $5472.50
The difference is $6048.00 - $5472.50 = $575.50
Load fund is better.
10 Dollar value = $10,000 (1.146)(1.064)(1.152)(1.00 - 0.05) = $13,344.50
11 Dollar value = $50,000 (1.146)(1.064)(1.152)(1.00 - 0.05) = $66,722.50
12 Dollar value = $100,000 (1.146)(1.064)(1.152)(1.00 - 0.05) = $133,445.00
13 Dollar value = $10,000 (1.132)(1.062)(1.149)(1.00 - 0.06) = $12,984.31
14 Dollar value = $10,000 (1.136)(1.122)(1.083)(1.00 - 0.05) = $13,113.64
15 Dollar value = $10,000 (1.128)(1.139)(1.079)(1.00 - 0.07) = $12,892.50
16 Dollar value = $50,000 (1.128)(1.139)(1.079)(1.00 - 0.07) = $64,462.51
17 Dollar value = $100,000 (1.128)(1.139)(1.079)(1.00 - 0.07) = $128,925.02
18 Original # of shares = 250,000 ( 25 = 10,000
NAV = 389,000 ( 10,000 = $38.91
19 Original # of shares = 500,000 ( 25 = 20,000
NAV = 575,100 ( 20,000 = $28.76
20 Original # of shares = 800,000 ( 25 = 32,000
NAV = 867,600 ( 32,000 = $27.11
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