14 Questions
What is the major difference between open-ended and closed-end mutual funds?
Open-ended funds can sell new shares to investors and redeem outstanding shares on demand, while closed-end funds issue a fixed number of shares through an IPO and do not create new shares.
What advantage do mutual funds have in terms of transaction costs and commissions compared to individual investors buying securities directly?
Mutual funds can generate greater economies of scale by incurring lower transaction costs and commissions than individual investors.
Which statement accurately describes hedge funds?
Hedge funds are investment pools that solicit funds from wealthy individuals and other investors, investing these funds on their behalf. Their investments are restricted to more wealthy clients.
What type of investors do hedge funds primarily accept investments from?
Wealthy individuals and other investors
How do closed-end funds raise capital for their initial investments?
By issuing a fixed number of shares through a single initial public offering (IPO)
What characteristic differentiates open-ended mutual funds from closed-end mutual funds?
Open-ended mutual funds can sell new shares to investors and redeem outstanding shares on demand, while closed-end funds issue a fixed number of shares through an IPO and do not create new shares.
What type of investors do hedge funds target?
High-net-worth investors
Which type of mutual fund includes both bond and stock securities?
Hybrid funds
What type of risk is predominant for short-term funds?
Interest rate risk
What type of investors own the majority of both long- and short-term funds?
Small investors
What do money market mutual funds provide an alternative investment to?
Interest-bearing deposits at commercial banks
What does the spread earned on MMMF investments relative to deposits indicate?
Potential attractiveness of MMMFs versus deposits
What benefit do fund managers obtain by pooling investments from a large number of small investors?
Lower transaction costs and reduced research and monitoring activities
What type of risk is more systematic or market based for long-term equity funds?
Market risk
Test your knowledge about mutual funds and hedge funds, their structures, and types including open and closed mutual funds. Explore the differences between open and closed-end mutual funds.
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