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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