www.cfa-aficionado.cjb.net www.marbella.to/cfa-aficionado

153 Questions + Answers

of the

CFA EXAM

Level 1

Study Session : Alternative Investments

Introduction by the Author : Hi there, CFA fellows, here you are . You see , it doesnt need to be an expensive prep course to get first class preparation for the CFA exams. The following questions are original CFA AIMR questions and not just composed by prep course providers. They all come with a clear answer. In order to understand why the questions are commented by answer is correct / incorrect it is important to know that all questions have automatically been responded with the first (and only the first ) answer. Your CFA-Aficionado cfa-aficionado@softhome.net cfa-aficionado@flashmail.com Open-end funds * have shares that trade on secondary exchanges. * never charge redemption fees for share redemptions. * sometimes charge sales fees for share sales. * never charge sales fees for share sales. That answer is incorrect. Correct answer: sometimes charge sales fees for share sales. Open-end funds (also known as mutual funds) continue to sell and repurchase shares at their NAVs after their initial public offerings. Some funds (load funds) charge a sales fee for share sales that is typically 7.5 to 8% of the NAV. Load funds generally do not charge a redemption fee, but some no-load funds do charge a small one of about half a percent of NAV. ------------------------------ The variability among venture capital investments is exhibited by the fact that * approximately 75 percent of investments lose money. * about 50 percent of all gains come from about 7 percent of the investments. * about 75 percent of all gains come from about 5 percent of the investments. * about one-third of the investments are responsible for half of all gains. That answer is incorrect. Correct answer: about 50 percent of all gains come from about 7 percent of the investments. The returns of venture capital are not uniformly realized across investments, i.e., about 1 in 15 investments is responsible for half of all gains. Approximately one-third of investments lose money. ------------------------------

Money market funds * are typically load funds. * attempt to provide significant capital gains. * tend to be illiquid. * invest in short-term securities. * tend to impose a penalty for early withdrawal. That answer is incorrect. Correct answer: invest in short-term securities. Money market funds attempt to provide current income, liquidity, and principal safety though investing in short-term securities such as T-bills, banker certificates of deposits, and commercial paper. They generally allow holders to write checks against their accounts. ------------------------------ Most mutual funds compared to the (Dow Jones Industrial Average) DJIA _______. * are less risky * achieved lower net returns * show similar returns * achieved greater net returns That answer is incorrect. Correct answer: achieved lower net returns Most mutual funds compared to the (Dow Jones Industrial Average) DJIA achieved lower net returns, after deducting operating expenses. ------------------------------ Which of the following is categorized under speculative property and not income property? * Land * Office buildings * Factories * Single family properties * Multi-family properties * Warehouses That answer is correct! Income property includes single and multi-family properties, office buildings, factories, and warehouses. Speculative property includes raw land. ------------------------------ Which type of investment company may charge a redemption fee?

* none of these answers * both of these answers * open-end investment company * closed-end investment company That answer is incorrect. Correct answer: open-end investment company An open-end investment company (mutual fund) sells shares with or without a sales charge (load) and redeems shares with or without redemption fees. ------------------------------ Low-load open-end funds * never charge sales or redemption fees. * never charge sales fees. * charge sales fees of about 0.5 to 1% of NAV. * charge sales fees of about 3% of NAV. * charge sales fees of about 5 to 6% of NAV That answer is incorrect. Correct answer: charge sales fees of about 3% of NAV. Low-load open-end funds typically charge front-end sales fees in the 3% range (rather than 7 to 8%) when the fund is bought. These funds typically are used for bond funds or equity funds offered by management companies that also offer no-load funds. ------------------------------ The majority of empirical evidence indicates that * the gross returns on mutual funds tend to as good as or slightly better than those on buy-and-hold strategies, while the net returns on mutual funds tend to be slightly lower than those on buy-and-hold strategies. * the gross returns on mutual funds tend to as good as or slightly worse than those on buy-and-hold strategies, while the net returns on mutual funds tend to be significantly lower than those on buy-and-hold strategies. * the gross returns on mutual funds tend to be significantly better than those on buy-and-hold strategies, while the net returns on mutual funds tend to be about equal to those on buy-and-hold strategies. * the gross and net returns on mutual funds tend to be significantly higher than those on buy-and-hold strategies. * the gross and net returns on mutual funds tend to be significantly lower than those on buy-and-hold strategies. That answer is correct! Net returns (which take account for research and trading costs) have been about 1% lower on mutual funds than on buy-and-hold strategies. Because of these studies, index funds have grown in popularity. Because index funds only imitate a broad market index, they have no research costs and minimal trading expenses.

------------------------------ What is not a characteristic of an investment company? * per share value is the NAV * invests in a pool of funds * investment management company is voted and approved by the individual investors * can be classified as closed-end or open-end * an investment management company is hired by a board of directors That answer is incorrect. Correct answer: investment management company is voted and approved by the individual investors An investment advisory firm starts an investment company and selects a board of directors for the fund. Subsequently this board of directors hires the investment advisory firm as the fund's portfolio manager. ------------------------------ ________ permits funds to deduct as much as 1.25 percent of average net assets per year to cover distribution costs. * The 12b-1 Act * Rule 144a * The New Funds plan * The 12b-1 plan That answer is incorrect. Correct answer: The 12b-1 plan The 12b-1 plan permits funds to deduct as much as 1.25 percent of average net assets per year to cover distribution costs. ------------------------------ Name the type of fee charged by a fund when it is sold if is held for less than a specified time period? * 12b-1 * no-load * deferred sales load * management fees * commissions * low-load That answer is incorrect. Correct answer: deferred sales load Also known as back-end charges when the fund is sold as opposed to front-end charges when the fund is purchased.

------------------------------ ________ financing is an example of expansion financing. * Turnaround * Leveraged-buyout * Third-stage * First-stage * Start-up That answer is incorrect. Correct answer: Third-stage There are three stages of "expansion financing": 1. Second-stage financing. This capital is used for initial expansion of a company that has already been selling a product. 2. Third-stage financing. Capital provided to fund major expansion. 3. Mezzanine (bridge) financing. Capital provided for a company that expects to go public within a year or so. ------------------------------ The venture capital industry now funds investments such as * companies seeking leveraged buyouts. * none of these answers. * hedged funds. * companies in the mature stage of their life cycle. * all of these answers are correct. * companies emerging from bankruptcy. That answer is correct! Recently, the venture capital industry has begun to cover a broader range of investments including funding for: 1. Established businesses that are in the process of expanding, just prior to the IPO stage. 2. Companies in "turnaround" situations. 3. Management seeking LBOs, also referred to MBOs of their companies. ------------------------------ ________ financing is used to restructure a financially troubled company. * None of these answers * Leveraged-buyout * Bridge

* Management-buyout * Turnaround That answer is incorrect. Correct answer: Turnaround Turnaround financing is capital is used to restructure a troubled company that is at a more established stage of development. ------------------------------ Studies have found that mutual fund managers tend to have * great market timing ability. * ignored the potential of market timing. * moderate market timing ability. * little market timing ability. That answer is incorrect. Correct answer: little market timing ability. Most studies in this area have found that funds could not consistently generate superior returns through attempts at market timing. In fact, many have found that mutual funds cannot outperform passive investment strategies. ------------------------------ The primary mechanism for motivating venture capitalists is * allowing a high ownership stake in the venture. * permitting certain types of self-dealing. * to have finite life funds. * the carried interest paid to them. That answer is incorrect. Correct answer: the carried interest paid to them. Carried interest is calculated over and above some assumed base level of return to investors and the amount paid is usually approximately 20 percent of the portfolio gains. ------------------------------ The per-share value of an investment company is called ________. * the net share price * the net start-up cost * the net asset value * the net unit portfolio investment

That answer is incorrect. Correct answer: the net asset value The per-share value of an investment company is called the Net Asset Value or NAV. ------------------------------ Which of these funds typically charge a sales fee when the fund is sold? I. Funds with contingent, deferred sales loads II. Funds under 12b-1 plans III. Low-load funds IV. No-load funds V. Closed-end funds * II only * I, II & V * I & III * I only * I, II & III * III only That answer is incorrect. Correct answer: I only Funds with contingent, deferred sales load charges sales fee if the shares are sold before a certain duration, low-funds charge a small sales fee. Not all funds under the 12b-1 plan do necessary charge sales fee. Closed-end funds trade at a discount usually to the NAV. ------------------------------ The management fee of an investment management firm typically ranges from ________. * one to two percent of the total value of the fund * none of these answers * one-quarter to one-half percent of the total value of the fund * one-half to one percent of the total value of the fund That answer is incorrect. Correct answer: one-quarter to one-half percent of the total value of the fund The management fee of an investment management firm typically ranges from one-quarter to one-half percent of the total value of the fund, with a sliding scale as the size of the fund increases. ------------------------------ Which type of investment company may charge a load? * both of these answers * none of these answers * closed-end investment company

* open-end investment company That answer is incorrect. Correct answer: open-end investment company An open-end investment company (mutual fund) sells shares with or without a sales charge (load) and redeems shares with or without redemption fees. ------------------------------ Venture capital can create value to the firm by * venture capitalists figuring out how to manage a firm in a poorly managed sector and then acquiring other firms in the same sector at low prices. * providing current management with new and additional funding. * paying a premium for the firm and then proceeding to sell the firm in "pieces." * investing in additional company assets. That answer is correct! The venture capitalist believes that the managements of these acquired firms can be improved by using the same techniques that were used for the first company. The values of the acquired firms will therefore increase because of the improvement in the management. ------------------------------ Venture capitalists expect to actually realize their returns * up front, before the firm has any operating profit. * spread out evenly over the length of the investment. * only if the company becomes profitable on a consistent basis. * only when they are able to cash out. * during the first round of financing. That answer is incorrect. Correct answer: only when they are able to cash out. The objective of the venture capitalist is to earn a 40%-60% annual return on an investment, net of inflation. Venture capitalists expect to actually realize their returns only when they are able to cash out, which hopefully is less than ten years, and preferably in three to seven. ------------------------------ Which is a true statement concerning the empirical evidence of mutual fund performance? * more aggressive funds did not outperform more conservative funds * over 50 percent of the funds outperform the DJIA * risk measures increase as fund objectives become more aggressive * successful market forecasting was accomplished overall by fund managers * none of these answers * good performance is associated with high expense ratios

That answer is incorrect. Correct answer: risk measures increase as fund objectives become more aggressive There is a positive relationship between stated objectives and measure of risk, with risk measures increasing as objectives become more aggressive. ------------------------------ Which best describes venture capital? * Venture capital is typically a secondary form of financing, after bank financing. * Venture capital is in the form of equity. * Venture capital is short-term financing, usually at higher-than-market rates. * Venture capital is financing for privately held companies, typically in the form of equity and/or long-term debt. * Venture capital is equity and debt financing available to privately and publicly held companies. That answer is incorrect. Correct answer: Venture capital is financing for privately held companies, typically in the form of equity and/or long-term debt. Venture capital becomes available when financing from banks and public debt or equity markets is either unavailable or inappropriate. ------------------------------ The ________ of an investment company depends on the company's portfolio of stocks. * bond-rating * liquidity of the shares * none of these answers * value of the shares That answer is incorrect. Correct answer: value of the shares Share value derives from future dividends and capital gains on each stock within the portfolio. The type, quality and relative quantity of stocks within a portfolio affects the value of the shares of the portfolio. Portfolio composition also affects liquidity and creditworthiness (i.e. bond rating) but much less significantly. ------------------------------ ________ financing is capital provided for a company that expects to go public within a year or so. * Third-stage * Second-stage * Mezzanine * First-stage

* Leveraged-buyout That answer is incorrect. Correct answer: Mezzanine There are three stages of "expansion financing": 1. Second-stage financing. This capital is used for initial expansion of a company that has already been selling a product. 2. Third-stage financing. Capital provided to fund major expansion. 3. Mezzanine (bridge) financing. Capital provided for a company that expects to go public within a year or so. ------------------------------ What stage of venture capital investments has provided the highest mean return? * later * seed * balance * early * later and balance are identical That answer is correct! The later stage has provided a 17.7% mean return from 1981-1996, followed by the early stage (16.0%), balance stage (13.7%), and seed stage (8.3%). ------------------------------ When valuing real estate, ________ is more difficult to apply to older properties. * none of these answers * the comparative sales approach * the cost approach * the income approach That answer is incorrect. Correct answer: the cost approach The cost approach works best with new or relatively new properties. ------------------------------ ________ financing is used for product development and initial marketing for firms in business under one year and has not sold their product commercially. * Seed * First-stage

* Start-up * Third-stage * Second-stage That answer is incorrect. Correct answer: Start-up There are three early stages of financing: 1. Seed financing. This is capital (typically less than $50,000) that is provided at the "idea" stage, which goes for product development and market research. 2. Start-up financing. This capital is used in product development and initial marketing for firms in business under one year and has not sold their product commercially. 3. First-stage financing. This is capital provided to initiate commercial manufacturing and sales. ------------------------------ No-load funds have traditionally been * rare. * distributed by a sales force. * distributed by direct marketing. * distributed by brokers. That answer is incorrect. Correct answer: distributed by direct marketing. No-load funds have traditionally been distributed by direct marketing because brokers had little incentive to sell them. Distribution has been done through mail, telephone, bank wire, or office of the fund. More recently, some no-load funds have developed agreements with some brokerage firms to sell the funds in return for a fee. ------------------------------ Net returns on mutual funds have tended to be * much higher than the market return. * slightly higher than the market return. * slightly lower than the market return. * much lower than the market return. That answer is incorrect. Correct answer: slightly lower than the market return. Most funds have not provided net returns superior to a buy-and-hold strategy that tries to emulate the aggregate market. The shortfall of performance has been about 1 percent a year, which is roughly equal to the average cost of research and trading commissions for mutual funds. ------------------------------

The largest obstacle to development of venture capital in emerging markets is * the lack of capital to develop young companies. * the lack of investor interest. * the lack of a strong IPO market for fast-growing and high technology firms. * government interference. * the lack of accurate financial information of the young companies. That answer is incorrect. Correct answer: the lack of a strong IPO market for fast-growing and high technology firms. The largest obstacle to development in emerging markets is the lack of a strong IPO market for fast-growing and high technology firms. Emerging markets lack an active IPO market, which will create problems for exit strategies. ------------------------------ ________ indicates the price at which a property would sell under current market conditions. * Cost approach value * Income approach value * Market value * Appraisal * Market approach value That answer is incorrect. Correct answer: Market value Remember though, that many properties sell for prices significantly above or below their estimated market values. ------------------------------ Which of the following describes an investment company? * provides complete investment advice to clients for a fee * tracks the market price performance of a sample of U.S. mutual funds * invests in a pool of funds belonging to many individuals in a portfolio of investments * all of these answers are correct * market value of all its assets divided by shares outstanding That answer is incorrect. Correct answer: invests in a pool of funds belonging to many individuals in a portfolio of investments For example, an investment company sells 20 million shares to individuals at $10 per share for a total of $200 million. The manager then invests this money in securities (according to fund objectives). Each investor owns a percentage of the investment company's total portfolio. ------------------------------

Venture capital differs from investments from publicly held firms in that they are * illiquid in the short-term. * none of these are correct. * for newer firms with very little operating history. * difficult to value. * all of these are correct. * for small firms in which the venture capital firm and the subject company have personal involvement. That answer is incorrect. Correct answer: all of these are correct. Venture capital differs from investments from publicly held firms in that they are generally: 1. For newer companies with little operating history. 2. For smaller companies in which the venture capital firm and the entrepreneurial company have a high degree of personal involvement. 3. Illiquid in the short-term, until the company goes public or is acquired by another company, which usually takes three to seven years. 4. Difficult to value because there is no public market for these securities. 5. Going to require future rounds of financing. ------------------------------ When looking at demographics and psychographics, which one of the following four major determinant of real estate value categories are you in? * the property * none of these answers * demand * supply * the property transfer process That answer is incorrect. Correct answer: demand Demographics and psychographics are both subsets of analyzing demand. ------------------------------ Most market value appraisals, when estimating the value of real estate, are ________. * looking forward in time * both looking backward and forward in time * looking backward in time * neither looking forward nor backward in time

That answer is incorrect. Correct answer: looking backward in time Most information that is gathered by an appraiser is based on events that have already taken place, for example, sales prices of comparable properties that have closed in the past. ------------------------------ A/An ________ sells shares at their NAV. * initial offer fund * par-value fund * no-load fund * closed-end fund That answer is incorrect. Correct answer: no-load fund A no-load fund imposes no sales charges so it sells shares at their NAV, however some charge a small redemption fee of about half-percent. ------------------------------ Aggressive (growth) funds have tended to * outperform conservative funds. * have portfolio compositions very similar to conservative funds. * have returns about equal to those of conservative funds. * underperform conservative funds. That answer is correct! A study by McDonald found a positive relationship between stated objectives (growth vs. income, for example) and measures of risk. The higher risk was also found to have been positively related to higher return. The objectives of a fund were thus found to have influenced its performance. ------------------------------ Name the fee charged by a fund when the fund is bought and is typically in the 3 percent range of the NAV? * low-load * management fees * deferred sales load * no-load * commissions * 12b-1 plan That answer is correct! Between the full-load and no-load funds charges, low-load funds are used for bond or equity funds

offered by management companies that also offer no-load funds. ------------------------------ Which statement is correct concerning the correlation of venture capital? * It has a high correlation with the other assets in a portfolio. * There is a positive correlation with treasury bills. * It is negatively correlated to the large-cap stock market. * There is a small correlation with corporate and treasury bonds. * It is highly correlated with the small-cap stock market. That answer is incorrect. Correct answer: It is highly correlated with the small-cap stock market. The high correlation with small-cap stocks primarily results from the implications of exit strategies, which are fundamentally connected to the value of the market. ------------------------------ What is a characteristic of an open-end investment company? * NAV is based on current market prices * its stock trades on the regular secondary market * its market price is determined by supply and demand * the NAV is computed twice daily * it continues to repurchase and sell shares That answer is incorrect. Correct answer: it continues to repurchase and sell shares Open-end investment companies (mutual funds) sell additional shares of the fund at the NAV, with or without sales charge, or redeem shares at the NAV, with or without redemption fees. ------------------------------ The portfolio of securities of an investment company is typically managed by * the company's board of directors. * the company's analysts. * the company's CEO. * a legally separate investment management company. That answer is incorrect. Correct answer: a legally separate investment management company. The portfolio and most other administrative duties of the investment company are typically managed by a separate investment management company. In fact, that investment management company usually starts the investment company and picks its board of directors, who then hire the investment management company to manage the new investment company's portfolio.

------------------------------ Which one of the following is not one of the four major determinants of real estate value? * the property * demand * supply * the property transfer process * none of these answers That answer is incorrect. Correct answer: none of these answers Demand, supply, the property and the property transfer process all are determinants of real estate value. ------------------------------ Which is not a true statement concerning the empirical evidence of mutual fund performance? * less than 32 percent of the funds outperform the DJIA * risk measures increase as fund objectives become more aggressive * none of these answers are true * more aggressive funds outperformed more conservative funds * good performance is associated with low expense ratios * successful market forecasting was not accomplished overall by fund managers * all of these answers are true That answer is incorrect. Correct answer: all of these answers are true All of these are true as a result of research. ------------------------------ What would the offering price be if the NAV of a fund with a 7.5% load is $10.25? * 10.25 * 10.90 * 10.45 * 11.31 * 11.08 That answer is incorrect. Correct answer: 11.08 The offering (ask) price = NAV / (1.0 - percent load) $10.25 / (1 - .075) = 11.08

------------------------------ ________ refers to measurable characteristics, such as household size, age structure, occupation, gender, and marital status. * Characgraphics * Socialgraphics * Psychographics * Demographics That answer is incorrect. Correct answer: Demographics By comparing demographic and psychographic trends to the features of a property, you can judge whether it is likely to gain or lose favor among potential buyers or tenants. ------------------------------ According to the framework for real estate analysis, one determinant of value is supply. Which of following is not a subset of "supply"? * Inventorying competitors * Market structure * Sources of competition * All of these answers * None of these answers That answer is incorrect. Correct answer: None of these answers All of these answers are demand determinants of value. ------------------------------ The major duties of an investment management company are: I. handling of redemptions and dividends II. investment research and portfolio management III. recommending stocks and bonds to investors IV. arranging bank loans for fund investors * II only * I, II, III & IV * I & II * I, II & III That answer is incorrect. Correct answer: I & II The major duties of an investment management company are investment research and portfolio

management, handling of redemptions and dividends and issuing securities. ------------------------------ Open-end investment companies * will repurchase shares at their NAVs. * do not typically sell shares after their initial public offerings. * have shares that tend to be priced at a discount to their NAVs. * do not typically repurchase shares. That answer is correct! Open-end investment companies (also known as mutual funds) continue to sell and repurchase shares after their initial public offerings. They do so at the current NAVs, sometimes with sales or redemption fees. ------------------------------ The stock of a closed-end investment company ________. * trades through private brokerage firms * trades on the regular secondary market * trades via the investment management company * trades only between existing stock-holders That answer is incorrect. Correct answer: trades on the regular secondary market A close-end investment company operates like any other public firm. Its stock trades on the regular secondary market and the market price is determined by supply and demand. Closed-end typically means the company offers no further shares, thus shares can only be bought over from existing share-holders. ------------------------------ When valuing real estate, ________ should rarely be used exclusively as an approach to value. * none of these answers * the comparative sales approach * the income approach * the cost approach That answer is incorrect. Correct answer: the cost approach The cost approach works best with new or relatively new properties and is a good method to use as a check of the other approaches to value. ------------------------------

The NAV of a closed-end investment company is computed ________. * twice every day of trading * once every day of trading * once every financial year * once every financial quarter That answer is correct! The NAV of a closed-end investment company is computed twice every day of trading when there are prevailing market prices for the portfolio securities. ------------------------------ Money market funds * were first developed in 1973 when short-term interest rates were at record levels. These funds attempt to provide current income, safety of principal, and liquidity by investing in diversified portfolios of short-term securities including Treasury bills, certificates of deposit, bank acceptances, and commercial paper. * were first developed in 1981 when short-term interest rates were at record levels. These funds attempt to provide current income, safety of principal, and liquidity by investing in diversified portfolios of short and medium-term securities including Treasury bills, government agency bonds, and commercial paper. * were first developed in 1981. These funds attempt to provide current income, safety of principal, high returns, and liquidity by investing in diversified portfolios of short and medium-term securities including Treasury bills and notes, certificates of deposit, bank acceptances, and commercial paper. * were first developed in 1973 when interest rates were at record levels. These funds attempt to provide safety of principal and liquidity by investing in diversified portfolios of short-term securities including Treasury bills, municipal bonds, certificates of deposit, and commercial paper. That answer is correct! Money market accounts generally allow investors to write checks against them. Their growth rate is often associated with investor attitudes toward the stock market. When investors are bullish, they move funds from their money market accounts and invest in stocks. When they are bearish, they sell off stocks and put some of the proceeds in money market accounts. Municipal bonds are not included in this type of investment. ------------------------------ Which best describes venture capitalists? * They typically exert control over a firm so it will generate required returns. * They usually will fire the management team of the entrepreneurial firm and replace with their own management team. * They are typically passive investors and invest in a company because they like the management team. * They will only invest in a firm that will provide a return of 100%+ when they cash out. * They will structure financing to the liking of the entrepreneur so that the company has a better opportunity to grow. That answer is incorrect.

Correct answer: They are typically passive investors and invest in a company because they like the management team. Most venture capitalists, however, have no desire to control a venture. The main reason they invest in a company in the first place is because they like the management team. Venture capitalists are typically passive investors and experts in financing companies, structuring deals and advising management on important long-term decisions. ------------------------------ Mutual funds are distributed by * three major methods: through brokers, through dedicated sales forces, or through direct purchase from the fund or direct marketing. Most no-load funds have been distributed through brokers, while most load funds have been distributed through direct marketing. * two major methods: through a sales forces, or through direct purchase from the fund or direct marketing. Although most funds are currently distributed through direct marketing, there has recently been a trend toward distribution through a sales force. * three major methods: through brokers, through dedicated sales forces, or through direct purchase from the fund or direct marketing. Most no-load funds have been distributed through a sales force, while most load funds have been distributed through brokers. * two major methods: through a sales forces, or through direct purchase from the fund or direct marketing. Although most funds are currently distributed through a sales force, there has recently been a trend toward distribution through direct marketing. That answer is incorrect. Correct answer: two major methods: through a sales forces, or through direct purchase from the fund or direct marketing. Although most funds are currently distributed through a sales force, there has recently been a trend toward distribution through direct marketing. In the past, no-load funds were sold only through direct marketing because the lack of a sales fee made it difficult to compensate brokers or a dedicated sales force. More recently, some brokers have started distributing no-load funds. Currently, about 54% of funds are distributed through a sales force, while 34% are distributed through direct marketing. ------------------------------ The average discount from NAV for a closed-end investment company shares ________ over time. * remains constant * falls * rises and falls * rises That answer is incorrect. Correct answer: rises and falls The average discount from NAV for a closed-end investment company shares rises and falls over time depending on investors' sentiments. ------------------------------

A major goal of the venture capital industry has been to resolve the conflicts that arise between * investors and entrepreneurs. * venture capitalists and investment bankers. * investors and venture capitalists and between venture capitalists and entrepreneurs. * venture capitalists and stockbrokers. That answer is incorrect. Correct answer: investors and venture capitalists and between venture capitalists and entrepreneurs. When selecting venture capitalists, investors must understand exactly how both sets relationships are to be handled and whether the incentive structure is competitive. ------------------------------ ________ financing is one of the early stages of financing in venture capital. * all of these answers are correct. * Seed * First-stage * Start-up That answer is correct! There are three early stages of financing: 1. Seed financing. This is capital (typically less than $50,000) that is provided at the "idea" stage, which goes for product development and market research. 2. Start-up financing. This capital is used in product development and initial marketing for firms in business under one year and has not sold their product commercially. 3. First-stage financing. This is capital provided to initiate commercial manufacturing and sales. ------------------------------ An investment company * invests only in stocks. * borrows money from individuals and invests that money in securities. * lends money to other companies or individuals. * invests a pool of funds belonging to many individuals. That answer is incorrect. Correct answer: invests a pool of funds belonging to many individuals. An investment company sells shares in itself, and uses the proceeds to invest in a portfolio of individual investments such as stocks and bonds. If such a company sold 1 million shares for $50 dollars each, it would invest $50 million (minus commissions) into things like government bonds or speculative stocks. ------------------------------

International funds * typically have one-half of their portfolios invested in the U.S. * typically have one-fifth of their portfolios invested in the U.S. * do not invest any portion of their portfolios in the U.S. * typically have two-thirds of their portfolios invested in the U.S. * typically have one-third of their portfolios invested in the U.S. That answer is incorrect. Correct answer: do not invest any portion of their portfolios in the U.S. An International fund is a type of foreign fund that only invests in non-U.S. securities. The international investment opportunities provided by this type of fund give American investors an added level of diversification. ------------------------------ A no-load open-end fund * never charges sales or redemption fees. * usually charges sales fees. * sometimes charges sales fees. * sometimes charges redemption fees. That answer is incorrect. Correct answer: sometimes charges redemption fees. A no-load open-end fund does not charge sales fees, but rather sells shares at their NAVs. Some no-load funds do charge redemption fees of about half a percent of NAV. The popularity of no-load funds has increased substantially in recent years. ------------------------------ When valuing real estate, ________ utilizes selling prices of properties that are similar to the subject property. * the comparative sales approach * the income approach * the cost approach * none of these answers That answer is correct! If only all the questions could be this easy!! Just make sure you know that one method of valuing real estate is to compare the subject property to similar properties that have recently sold. ------------------------------ Which of the following is not classified as an income property? A leased:

* office building. * none of these answers. * condominium. * shopping center. * apartment complex. That answer is incorrect. Correct answer: none of these answers. All of the answers are income properties. ------------------------------ Global funds * invest only in established countries. * invest in any country in the world. * invest only in developing countries. * invest only outside of the U.S. That answer is incorrect. Correct answer: invest in any country in the world. A global fund is a type of foreign fund that invests in both U.S. and non-U.S. securities. The international investment opportunities provided by this type of fund give American investors an added level of diversification. ------------------------------ Name the type of fee charged by a fund to cover distribution costs? * management fees * 12b-1 * commissions * low-load * deferred sales load * no-load That answer is incorrect. Correct answer: 12b-1 The 12b-1 plan allows a fund to deduct as much as 1.25 percent of average net assets per year to cover distribution costs such as advertising, brokers' commissions and marketing expenses. ------------------------------ Which of the following approaches determines the value by finding the amount it would take to rebuild it at today's prices for land, labor and construction materials?

* Cost approach * Income approach * Current pricing approach * Comparative sales approach That answer is correct! Cost approach determines value by assessing how much it would cost to rebuild it at today's prices for land, labor and construction methods. ------------------------------ The market price of closed-end fund shares are historically ________ the NAV. * about 20 percent premium above * 5 to 10 percent discount to * very close to * none of these answers That answer is incorrect. Correct answer: none of these answers The NAV and the market price of a closed-end fund are almost never the same, because closed-end funds typically have market prices that has historically been a 5 to 20 percent discount to NAV. ------------------------------ Which of the following statements is true? * The shares of an open-end investment company usually trade at a 10 to 25% discount to its NAV, but in some relatively rare instances, the shares trade exactly at NAV. * The shares of a closed-end mutual fund almost never trade exactly at its NAV. Rather, shares typically trade at a 5 to 20% discount to the NAV. * The shares of a closed-end investment company usually trade at exactly its NAV, but in some relatively rare instances, the shares trade at a small discount or premium to the NAV. * The shares of an open-end investment company usually trade at exactly its net asset value (NAV), but in some relatively rare instances, the shares trade at a small discount or premium to the NAV. * The shares of a closed-end investment company almost never trade at exactly its NAV. Rather, shares typically trade at a 5 to 20% discount to the NAV. That answer is incorrect. Correct answer: The shares of a closed-end investment company almost never trade at exactly its NAV. Rather, shares typically trade at a 5 to 20% discount to the NAV. Open-end investment companies continue to sell and repurchase shares after their initial public offerings. They sell shares at the net asset value with or without sales charges, and repurchase shares at the net asset value with or without redemption fees. The shares of closed end investment companies, however, are rarely sold or redeemed by the funds, but typically trade on a stock market. Over the long-run, the shares tend to trade at a 5 to 20% discount to their net asset value (NAV). There is no such thing as a closed-end mutual fund. Only open-end investment companies are referred to as mutual funds.

------------------------------ Investment companies often start numerous funds to ________. * justify investment in more securities * attract many investors with different risk-return preferences * diversify the aggregate portfolio * all of these answers That answer is incorrect. Correct answer: attract many investors with different risk-return preferences Investment companies often start numerous funds to attract many investors with different risk-return preferences, which increases the total capital managed by the investment company. ------------------------------ The share price of a closed-end investment company is * generally lower than its NAV. * generally higher than its NAV. * typically equal to its NAV. * always equal to its NAV. That answer is correct! The share price of a closed-end investment company is determined by the market supply and demand for its stock. Over the long run, shares of closed-end investment companies have traded 5 to 20 percent below their NAVs. The reason for this disparity is still open to question. ------------------------------ Many different types of investment companies offer ________. * only one investment fund that pools the risks and return characteristics of the Fortune 500 companies * a wide variety of alternative instruments with a range of risk and return characteristics * arbitrage opportunities * risk-free investments That answer is incorrect. Correct answer: a wide variety of alternative instruments with a range of risk and return characteristics Investment companies typically offer investments that are portfolios of various instruments that would take an individual a lot of effort to compose via direct investment. Such fund-portfolios are created based on target risks and return characteristics. ------------------------------ Each individual owning shares in an investment company's fund ________.

* owns the right to change the fund composition * owns a percentage of the investment company's total portfolio * owns a few individual investments within the fund * owns a percentage of the investment company That answer is incorrect. Correct answer: owns a percentage of the investment company's total portfolio Because the fund is financed and owned by a pool of investors, each investor will be entitled to a portion of the earnings generated by the fund, although no one completely owns the fund. The investment company usually manages the fund composition. ------------------------------ Management fees are charged * only by low-load and 12b-1 plan open-end investment companies. * only be load open-end investment companies. * by all investment companies. * only by no-load open-end investment companies. That answer is incorrect. Correct answer: by all investment companies. All investment companies charge annual management fees to compensate the managers of the fund. These fees are typically 0.25 to 1 percent of average net assets of the fund and tend to decline with the size of the fund. ------------------------------ The majority of venture capital funds are managed by * investment companies. * corporations. * independent and private concerns. * small business investment companies. That answer is incorrect. Correct answer: independent and private concerns. In 1994, independent firms managed approximately 70 percent of the venture capital market. ------------------------------ The principle of ________ says that people do not really buy or rent real estate per se but, instead, judge properties as different sets of benefits and costs. * substitution * replacement

* equivalency * surrogation That answer is correct! Because of the principle of substitution, an analysis of supply should not limit potential competitors to geographically and physically similar properties. ------------------------------ About three-quarters of mutual funds are more than * 70 percent diversified. * 30 percent diversified. * 60 percent diversified. * 90 percent diversified. * 50 percent diversified. That answer is incorrect. Correct answer: 90 percent diversified. One of the great advantages of mutual funds is the diversification they provide. Small investors do not have the resources to acquire 100 shares of 10 or 15 different shares, but can instead receive the same diversification by purchasing a mutual fund. Typically about three-quarters of mutual funds have a correlation above 0.90 with the market, meaning that they are more than 90 percent diversified. ------------------------------ Which best describes venture capital? * Venture capitalists exert control over the entrepreneur in order to achieve high returns. * Venture capital is an extremely risky investment, whose returns are usually negative. * Venture capital is method of equity financing whereby the entrepreneur loses majority ownership of his company. * Venture capital is a method to take control over a young company. * Venture capital is more than just capital, it is a process that fuels the growth of the venture. That answer is incorrect. Correct answer: Venture capital is more than just capital, it is a process that fuels the growth of the venture. Venture capital is the process forces the entrepreneur to hire a management team. The venture capital firms have significant representation on the board of directors and play a major role in shaping the company's growth strategy. The process also forces entrepreneurs to prepare a business plan to describe their objectives and to specify their financial projections. Venture capitalists bring in a broad amount of experience to the venture, thereby improving management's available resources. Ideally, the venture capital process should develop better entrepreneurs and better managers. ------------------------------ The NAV and the market price of ________ are almost never the same.

* a low-load fund * an open-end fund * a no-load fund * a closed-end fund That answer is incorrect. Correct answer: a closed-end fund The NAV and the market price of a closed-end fund are almost never the same, because closed-end funds typically have market prices that has historically been a 5 to 20 percent discount to NAV. ------------------------------ ________ in real estate are the additions to a site, such as building, sidewalks, and various on-site amenities. * Improvements * All of these answers. * Enhancements * Betterments * None of these answers That answer is correct! Also, building size is usually measured and expressed in terms of square footage. ------------------------------ Which of the following is not an approach to real estate value, when performing an appraisal? * Market approach * Cost approach * Income approach * Property transfer approach That answer is incorrect. Correct answer: Property transfer approach Real estate appraisers look at each of these approaches, cost, comparative sales and income to arrive at the best estimate of value. ------------------------------ The primary use of venture capital is * to restructure a private firm's balance sheet debt. * to help private firms out of possible bankruptcy proceedings. * to finance production expansion. * all of these answers are correct. * for emerging growth business.

That answer is incorrect. Correct answer: for emerging growth business. Venture capital is financing for privately held companies, typically in the form of equity and/or long-term debt. Venture capital becomes available when financing from banks and public debt or equity markets is either unavailable or inappropriate. Much like mutual fund managers, venture capitalists raise capital from investors in order to manage a portfolio of privately held investments. The primary use of venture capital is for emerging growth business. ------------------------------ A/An ________ imposes a front-end sales charge when buying the fund typically in the range of 3 percent. * low-load fund * no-load fund * oversubscribed fund * closed-end fund That answer is correct! A low-load fund imposes a front-end sales charge when buying the fund typically in the range of 3 percent instead of the typical load fund charge of 7 to 8 percent. ------------------------------ Venture capital has proved to impact economic development in the following ways: * all of these are correct * job development * competitive adaptation * formation of capital * none of these is correct * technological innovation That answer is correct! Several researchers have concluded that venture capital investments are critical to the economy in terms of capital formation, local development, economic expansion, technological growth and innovation, employment growth, and competitive adaptation in global markets. Besides adding jobs, venture capital investments have resulted in development of medical diagnostic and treatment equipment, and scientific improvements. Venture capital investments have developed entrepreneurs and have contributed to innovation and competitiveness. ------------------------------ How will the dividend distribution and share prices react when a property's rent goes up in equity

REIT? * They will both stay the same. * Dividend distribution will go down, share prices go up. * They both will go up. * They both will go down. * Dividend distribution will go up, share prices go down. That answer is incorrect. Correct answer: They both will go up. With an equity REIT, when the property's rent goes up, so will the dividend distribution and normally the share prices as well. ------------------------------ The major difference between venture capital and conventional financing is that * the interest rate of venture capital is much higher than conventional financing. * venture capital is more than investing, it builds companies. * All of these answers are correct. * None of these answers. * venture capital will provide equity ownership, conventional financing will not. That answer is incorrect. Correct answer: venture capital is more than investing, it builds companies. The difference between venture capital and conventional financing is that venture capital is more than investing and more than building personal wealth, it builds companies. ------------------------------ Which of the following was not a guideline put forth by George Doriot? * All of these were Doriot's guidelines. * Be realistic. * Treat the companies like you own children. * Run the business because the entrepreneur does not have the skills. * Don't pull the plug too soon. That answer is incorrect. Correct answer: Run the business because the entrepreneur does not have the skills. George Doriot had guidelines for venture capitalists, which were: 1. Don't try to run the business. The entrepreneur knows best. 2. Treat the portfolio companies like your own children. Kick them every now and then if they need it, but be fair. 3. Be a help. Be there when needed. Be an ear, a sounding board, an alter ego, and a crying towel. Do what is necessary to allow the portfolio company the opportunity to achieve the potential you

originally thought you saw was there. Don't pull the plug too soon. 4. Be realistic. Don't get swept away. It is very easy to listen to an entrepreneur and start getting fired up. Entrepreneurs are persuasive people. ------------------------------ In valuing real estate, the most popular income approach is called ________. * retrospective value * the cost approach * none of these answers * direct capitalization * the comparative sales approach * depreciation method That answer is incorrect. Correct answer: direct capitalization The direct capitalization approach = Market Value = Annual NOI / Market Capitalization Rate ------------------------------ The NAV of an investment company equals the ________ of all its assets ________ the number of fund shares outstanding. * total market value; multiplied by * total market value; divided by * the per-share value; divided by * the per-share value; multiplied by That answer is incorrect. Correct answer: total market value; divided by Net Asset Value (NAV) = (Total market value of all assets/Number of outstanding fund shares) ------------------------------ Which is a most correct statement concerning companies that receive venture capital? * The company has little control over its own future. * The success rate is about the same for companies that receive venture capital funding and for those that do not. * None of these statements are correct. * The success rate is much higher for companies that do not receive funding because entrepreneurs do not have to deal with undue control of venture capitalists. * These companies are much more likely to succeed than companies that do not receive such funding.

That answer is incorrect. Correct answer: These companies are much more likely to succeed than companies that do not receive such funding. Companies that receive venture capital are far more likely to succeed than companies that do not receive such funding. Studies show that there is only a 10% to 20% failure rate for investments in a venture capitalist's portfolio, as compared to a 10%-20% success rate for all new companies. ------------------------------ Mutual funds have * sometimes maintained the stability of their correlation with the market. * generally maintained the stability of their correlation with the market. * rarely maintained the stability of their correlation with the market. * tended to decrease their level of diversification over time. That answer is incorrect. Correct answer: generally maintained the stability of their correlation with the market. Mutual fund managers rarely change the makeup of reasonably well diversified portfolios substantially. Studies have also found that funds tend to remain consistent in their risk class. This consistency allows investors to maintain their diversification and desired risk class. ------------------------------ Which of the following statements is true? * One-half of all mutual funds are 95% or more diversified, providing one of their most important benefits. Studies have also found that most mutual funds have maintained the stability of their correlation with the market, and of their risk-adjusted returns. * Three-quarters of all mutual funds are 90% or more diversified, providing one of their most important benefits. Studies also have found that most mutual funds have maintained the stability of their correlation with the market, and of their risk class. * Three-quarters of all mutual funds are 95% or more diversified, providing one of their most important benefits. Studies also have found that most mutual funds have maintained the stability of their correlation with the market, but not of their risk class. * Three-quarters of all mutual funds are 80% or more diversified, providing one of their most important benefits. But studies also have found that most mutual funds have not maintained the stability of their correlation with the market, or of their risk class. That answer is incorrect. Correct answer: Three-quarters of all mutual funds are 90% or more diversified, providing one of their most important benefits. Studies also have found that most mutual funds have maintained the stability of their correlation with the market, and of their risk class. Diversification is one of the main benefits of mutual funds. Most funds are highly diversified, and tend to keep their level of diversification with the market. They also tend to maintain the same risk class, if not consistent risk-adjusted returns. ------------------------------

The management of the portfolio of securities held by an investment company is usually handled by ________. * the board of directors * the CEO or the CFO * a separate investment management company * a group of elected shareholders That answer is incorrect. Correct answer: a separate investment management company The management of the portfolio of securities held by an investment company is usually handled by a separate investment management company which is hired by the board of directors. ------------------------------ What is the major difference between venture capitalists and other types of portfolio managers? * Venture capitalists only invest in start-up companies, while other types of portfolio managers do not. * Portfolio managers do not become too involved with the companies they invest in, while venture capitalists do. * Portfolio managers cannot exert control over a company in the way a venture capitalist can. * There are no major differences between the two. * Venture capitalists require a much higher rate of return over the life of the investment. That answer is incorrect. Correct answer: Portfolio managers do not become too involved with the companies they invest in, while venture capitalists do. The major difference between venture capitalists and other types of portfolio managers is that portfolio managers do not become too involved with the companies they invest in because they may have to liquidate positions quickly. This is the direct opposite of venture capitalists who must establish more personal relationships with the entrepreneurs in whom they invested over much longer time periods. ------------------------------ If the discount relative to the NAV of a closed-end investment company ________ during the holding period, the investor will likely experience ________ excess returns. * does not change; zero * increases; positive * declines; positive * declines; negative That answer is incorrect. Correct answer: declines; positive It is intuitive that if the discount increases, the share price has decreased relative to the NAV and the investor loses because he had originally bought the shares at a higher price. The analysis of these discounts remains a major question in modern finance.

------------------------------ The "family of funds" approach of investment companies ________. * promotes flexibility for the investor * improves the net risk-return exposure * all of these answers * discourages investors from switching from one fund to the other * consistently outperforms the market That answer is correct! The "family of funds" approach of investment companies promotes flexibility and increases the total capital managed by the investment firm. It allows investors to switch among funds as economic or personal conditions change. ------------------------------ ________ financing is one of the early stages of financing in venture capital. * Mezzanine * Asset-backed * Turnaround * Bridge * none of these answers. * Seed That answer is incorrect. Correct answer: Seed There are three early stages of financing: 1. Seed financing. This is capital (typically less than $50,000) that is provided at the "idea" stage, which goes for product development and market research. 2. Start-up financing. This capital is used in product development and initial marketing for firms in business under one year and has not sold their product commercially. 3. First-stage financing. This is capital provided to initiate commercial manufacturing and sales. ------------------------------ ________ are funds that continue to sell and repurchase shares after their initial public offerings. * Unrestricted public funds * Open-end investment funds * Closed-end investment funds * No-load closed-end funds That answer is incorrect. Correct answer: Open-end investment funds

Open-end investment funds or mutual funds continue to sell and repurchase shares after their initial public offering. The total number of outstanding fund shares can change with time. ------------------------------ Annual management fees compensating the professional managers typically vary from ________ of the average net assets of the fund. * two to five percent * one quarter to one percent * one to two percent * one half to one percent That answer is incorrect. Correct answer: one quarter to one percent Annual management fees compensating the professional managers typically vary from one quarter to one percent of the average net assets of the fund; with a larger (dollar value) size fund charging a lower percentage. ------------------------------ The investment management company which handles the portfolio of an investment company is hired by ________. * the investment company's board of directors * the shareholders in the investment company * none of these answers * an advisory firm That answer is correct! The investment management company which handles the portfolio of an investment company is hired by the investment company's board of directors. ------------------------------ The majority of venture capital investors are * endowments. * insurance companies. * individuals. * corporations. * pension funds. That answer is incorrect. Correct answer: pension funds. In 1994, pension funds made up approximately 45 percent of the venture capital investors.

------------------------------ Money market funds attempt to ________. I. provide current income and safety of principal II. provide liquidity III. hedge the investor's risk IV. provide long-term capital gain * I & III * I & IV * I & II * II only That answer is incorrect. Correct answer: I & II Money market funds attempt to provide current income with some safety of principal and some liquidity by investing in a diversified portfolio of short-term securities. ------------------------------ Name the fee charged by a fund that is typically .25 to 1.00 percent of the average net assets? * low-load * commissions * 12b-1 plan * deferred sales load * no-load * management fees That answer is incorrect. Correct answer: management fees The fee, to compensate professional managers, is on a sliding scale that declines with the size of the fund. ------------------------------ Which of the following type of REIT's make construction loans to real estate investors? * Equity REIT's * Equity REIT's & Hybrid REIT's * Hybrid REIT's * Mortgage REIT's & Hybrid REIT's * Mortgage REIT's That answer is incorrect. Correct answer: Mortgage REIT's & Hybrid REIT's Mortgage - these make construction loans to real estate investors.

Hybrid - these invest in both properties, construction and real estate mortgage loans. ------------------------------ Which is a characteristic of an open-end investment company? * sells shares at a discount to NAV * its stock trades on the secondary market * sells no further shares * market price of its shares is determined by supply and demand * you receive the NAV price of any share sales That answer is incorrect. Correct answer: you receive the NAV price of any share sales When buying or selling shares of an open-end fund, an investor pays or receives the net asset value price of the fund plus or minus any possible loads. ------------------------------ The total market value of stocks in an investment company's portfolio divided by total outstanding shares (with no further transactions) is ________. * 12b-1 amount * forward earnings per share * market value of an open-end investment company * market value of a closed-end fund * net asset value That answer is incorrect. Correct answer: net asset value The net asset value (NAV) equals the total market value of all the funds assets divided by the number of fund shares outstanding. ------------------------------ ________ is a position in which, if a property's return is in excess of its debt cost, the investor's return will be increased to a level well above what could have been earned from an all-cash real estate deal. * Positive leverage * None of these answers * Excess financing * Negative leverage That answer is correct! Remember that, in real estate, the use of debt financing to purchase a piece of property will affect its risk-return parameters.

------------------------------ The direct capitalization approach equals: Market Value = ________ / Market Capitalization Rate * Monthly Gross Operating Income * Annual NOI * Annual Gross Operating Income * Monthly NOI That answer is incorrect. Correct answer: Annual NOI The direct capitalization approach = Market Value = Annual NOI / Market Capitalization Rate ------------------------------ A closed-end investment company * operates like any other public firm; its stock trades on the secondary market, and the price of the stock is determined by supply and demand. Most closed-end investment companies do not offer more shares or repurchase shares after the initial public offerings. * continues to sell and repurchase shares after their initial public offerings. It sells shares at the net asset value with or without sales charges, and repurchases shares at the net asset value plus a redemption fee. * is a type of mutual fund. Most closed-end mutual funds continue to sell and repurchase shares after their initial public offerings. They sell shares at the net asset value with or without sales charges, and repurchase shares at the net asset value with or without redemption fees. * is a type of mutual fund. It operates like any other public firm; its stock trades on the secondary market, and the price of the stock is determined by supply and demand. Most closed-end investment companies do not offer more shares or repurchase shares after the initial public offerings. That answer is correct! The only way to invest in a typical closed-end investment company after its initial public offering is to purchase its shares on the secondary market. Many such companies trade their shares on the NYSE. Over the long-run, shares of closed-end investment companies tend to trade at a 5 to 20% discount to their net asset value (NAV). ------------------------------ A closed-end investment company * is a type of mutual fund. * has stock that trades on a secondary market. * typically repurchases shares on demand. * will typically offer more share issues after the initial share offering. That answer is incorrect.

Correct answer: has stock that trades on a secondary market. A mutual fund is an open-end investment company. A closed-end investment company is the other type of investment company. Its stock trades on a secondary exchange, and the stock price is determined by market supply and demand. The company's asset is the portfolio that it invests in securities. ------------------------------ If the average annual after tax cash flow was $5,101, the after tax net proceeds from sales was $89,514, the initial equity was $60,000 and n was 5, then what is the approximate yield? * 15.7% * 15.2% * 16.9% * 14.7% That answer is incorrect. Correct answer: 14.7% Approximate yield = [($5,101 + (($89,514 - $60,000) / 5)] / (($89,514 + $60,000) / 2) = 14.7% ------------------------------ The ________ for a share of a load fund equals the NAV of the share plus a sales charge. * expected price * redemption price * bid price * offering price That answer is incorrect. Correct answer: offering price A load fund is typically quoted by its NAV and an offering price, which is the NAV plus a sales charge. ------------------------------ Open-end mutual funds * sell their shares at their NAV. In contrast, closed-end investment companies typically charge a sales fee in addition to the NAV for shares at their initial public offerings. The sales fee tends to be about 10 to 11% of NAV. * sometimes sell their shares at their NAV plus a sales fee. Mutual funds that do charge sales fees are known as load open-end funds. The sales fee tends can range from 3.0 to 8.0% of NAV. * sell their shares at their net asset value (NAV). In contrast, closed-end investment companies typically charge a sales fee in addition to the NAV for shares at their initial public offerings. The sales fee tends to be about 4 to 4.5% of NAV. * almost always sell their shares at their NAV plus a sales fee. Mutual funds that do charge sales fees

are known as load open-end funds. The sales fee tends to be 4 to 4.5% of NAV. * sell their shares at their NAV. In contrast, closed-end investment companies typically charge a sales fee in addition to the NAV for shares at their initial public offerings. The sales fee tends to be about 7.5 to 8.0% of NAV. That answer is incorrect. Correct answer: sometimes sell their shares at their NAV plus a sales fee. Mutual funds that do charge sales fees are known as load open-end funds. The sales fee tends can range from 3.0 to 8.0% of NAV. Some open-end funds charge sales fees for sales shares. The fees are typically 3.0 to 8.0% of NAV. These load funds generally do not charge redemption fees. No-load funds sell shares at their NAV, but some of them have small redemption fees of about 0.5% of NAV. ------------------------------ When investors are bullish about the stock market, * money market funds tend to loose popularity. * money market funds tend to grow in popularity. * money market fund volatility decreases. * returns on money market funds tend to decrease. That answer is correct! When investors are bullish about the stock market, they tend to withdraw funds from money market funds in order to invest in stocks or stock funds. When investors are cautious about the stock market, they tend to shift funds from stocks into safer money market funds. ------------------------------ What stage of venture capital investments has provided the highest standard deviation of mean returns? * balance * later and balance are identical * seed * early * later That answer is incorrect. Correct answer: early The early stage has provided a 24.3% standard deviation from 1981-1996, followed by the later stage (17.7%), seed stage (17.6%), and balance stage (14.4%). ------------------------------ Foreign funds are those that invest * only outside of the developed world. * completely or partially outside of the U.S.

* only outside of the U.S. * only in emerging markets. That answer is incorrect. Correct answer: completely or partially outside of the U.S. The two kinds of foreign funds are international funds and global funds. International funds invest only in non-U.S. securities. Global funds invest in both U.S. and non-U.S. securities. Investment in foreign funds by American investors provides them with an added degree of diversification. ------------------------------ ________ invest a pool of funds belonging to many individuals in a portfolio of individual investments such as stocks and bonds. * Public-listed companies * Partnerships * Stock exchanges * Investment companies That answer is incorrect. Correct answer: Investment companies Investment companies create a portfolio of individual market instruments such as stocks and bonds and market the shares of this portfolio to the individual investor. ------------------------------ Investment companies tend to be * corporations that are managed by separate investment management companies. About 20% of funds, however, are managed by the internal management, rather than by outside companies. * corporations that are self-managed. About 30% of funds, however, are managed by separate investment management companies that are chosen by their board of directors based on previous management experience. * corporations that are managed by separate investment management companies. The board of directors of an investment company typically choose an investment management company to manage the fund. That company is very often the owner of the investment company. * corporations that are managed by separate investment management companies. The board of directors of an investment company typically choose an independent investment management company to manage the fund. That answer is incorrect. Correct answer: corporations that are managed by separate investment management companies. The board of directors of an investment company typically choose an investment management company to manage the fund. That company is very often the owner of the investment company. Investment management companies are corporations that are managed by investment management companies that tend to be their owners. A typical scenario would involve an investment management company forming an investment company, and the board of directors of that investment company proceeding to hire the parent investment management company to manage the new firm.

------------------------------ ________ is a position in which, if a property's return below its debt cost, the investor's return will be less than from an all-cash real estate deal. * Negative leverage * Positive leverage * Excess financing * None of these answers That answer is correct! Remember that, in real estate, the use of debt financing to purchase a piece of property will affect its risk-return parameters. ------------------------------ Load open-end funds charge * sales fees of about 7.5 to 8% of NAV. * sales and redemption fees of about 1 to 2% of NAV. * sales and redemption fees of about 7.5 to 8% of NAV. * sales fees of about 10 to 15% of NAV. * sales fees of about 1 to 2% of NAV. That answer is correct! Load funds charge a sales fee for share sales that is typically 7.5 to 8% of the NAV. Share prices are quoted with a NAV and an offering price. Load funds generally do not charge a redemption fee, but some no-load funds do charge a small one of about half a percent of NAV. ------------------------------ If an investment company originally issued 0.5 million shares for $30, then issued a further 0.1 million shares for $40, and its portfolio of investments now has a market value of $27 million and a book value of $19 million, what is its net asset value (NAV)? * Not enough information * $31.67 * $27 million * $45 * $19 million That answer is incorrect. Correct answer: $45 An investment company sells shares in itself, and uses the proceeds to invest in a portfolio of individual investments such as stocks and bonds. The NAV is equal to the net value of the investment company's assets divided by the number of its shares outstanding. In this question the NAV is equal to $27 million / (500,000 + 100,000) = $45.

------------------------------ The direct capitalization approach equals: Market Value = Annual NOI / ________ * Market Capitalization Rate * Market Discount Rate * None of these answers * Subject Property Capitalization Rate * Subject Property Discount Rate That answer is correct! The direct capitalization approach = Market Value = Annual NOI / Market Capitalization Rate ------------------------------ Which is not a true statement concerning the empirical evidence of mutual fund performance? * sub-par performance is associated with low expense ratios * managers can forecast large changes in the market * all of these answers are false * most fund managers achieved gross returns lower than the DJIA * risk is not consistent with fund objectives * all of these answers are true That answer is incorrect. Correct answer: all of these answers are false All of these are false. The opposite is true in all answers. ------------------------------ Given the following: Return on Investor's Equity with 80% Financing = 50% Return on Investor's Equity with 0% Financing = 10% The investor is experiencing the effects of ________. * negative leverage * none of these answers * cannot be determined by the information given * positive leverage That answer is incorrect. Correct answer: positive leverage Remember that, in real estate, the use of debt financing to purchase a piece of property will affect its

risk-return parameters. In this case, leverage has a positive effect. ------------------------------ According to the framework for real estate analysis, one determinant of value is demand. Which of following is not a subset of "demand"? * Economic base * Target market potential * Mortgage financing conditions * Sources of competition * Tenant preferences * None of these answers That answer is incorrect. Correct answer: Sources of competition Sources of competition, along with market structure and inventorying competitors are SUPPLY determinants of value. ------------------------------ What is not a characteristic of a closed-end investment company? * its stock trades on the regular secondary market * the NAV is computed twice daily * NAV is based on current market prices * the NAV and market price are usually the same * its market price is determined by supply and demand That answer is incorrect. Correct answer: the NAV and market price are usually the same The market price is determined by the relative supply and demand for the investment company stock in the public secondary market. When trading these shares an investor will pay or receive this market price plus or minus a commission. The market price has historically been 5 to 20 percent below the NAV. ------------------------------ Market index funds * attempt to diversify out of securities. * have management costs similar to those of regular mutual funds. * attempt to outperform the market. * None of these answers. * have very high correlations with market indexes. That answer is incorrect. Correct answer: have very high correlations with market indexes.

Market index funds are closely matched in composition to specified market indexes such as the S&P 500. For this reason, a market index fund typically has correlation rates in excess of 0.99 with its chosen index. Because it only attempts to replicate the index, its management costs are very low. ------------------------------ Which of the following is not demographic figure? * Person's lifestyle * Person's age structure * Person's occupation * Person's marital status * Person's gender That answer is correct! Demographics - Age structure, occupation, gender, marital status. A person's lifestyle would be part of psychographics. ------------------------------ If an investment company issued 1 million shares for $20, and its portfolio of investments is now worth $38 million, what is its net asset value (NAV)? * Not enough information * $20 million * $38 * $38 million * $20 That answer is incorrect. Correct answer: $38 An investment company sells shares in itself, and uses the proceeds to invest in a portfolio of individual investments such as stocks and bonds. The NAV is equal to the net value of the investment company's assets divided by the number of its shares outstanding. In this question the NAV is equal to $38 million / 1 million = $38. ------------------------------ An examination of the relationship between performance and the expense ratio indicated that ________. * good performance was associated with low expense ratios * bad performance was associated with low expense ratios * good performance was associated with high expense ratios * there was no association between performance and expense ratios That answer is correct! An examination of the relationship between performance and the expense ratio indicated that good

performance was associated with low expense ratios; in one way, it is because management expense is money not invested in the portfolio of shares and/or bonds. Expense is necessary however when one needs to shift to better performing stocks according to market changes. ------------------------------ Raw land is an example of a(n) * income property. * all of these answers. * commercial property. * speculative property. That answer is incorrect. Correct answer: speculative property. A speculative property is generally raw land and real estate investment properties that are expected to provide returns primarily from appreciation in value. ------------------------------ The following has its stock traded on the regular secondary market: * investment management company * load fund * closed-end investment company * no-load fund * open-end investment company That answer is incorrect. Correct answer: closed-end investment company The market price of its shares is determined by supply and demand and typically offers no further shares and does not repurchase the shares on demand. ------------------------------ ________ pertains to those characteristics that describe people's mental dispositions, such as personality, lifestyle, and self-concept. * Characgraphics * Socialgraphics * Psychographics * Demographics That answer is incorrect. Correct answer: Psychographics By comparing demographic and psychographic trends to the features of a property, you can judge whether it is likely to gain or lose favor among potential buyers or tenants.

------------------------------ Given the following: Return on Investor's Equity with 80% Financing = -75% Return on Investor's Equity with 0% Financing = -15% The investor is experiencing the effects of ________. * cannot be determined by the information given * negative leverage * positive leverage * none of these answers That answer is incorrect. Correct answer: negative leverage Remember that, in real estate, the use of debt financing to purchase a piece of property will affect its risk-return parameters. In this case, leverage has a negative effect. ------------------------------ Balanced funds invest * in a broad market index. * in a wide variety of common stocks. * in both common stock and fixed-income securities. * primarily in bonds. That answer is incorrect. Correct answer: in both common stock and fixed-income securities. Balanced funds diversify outside the stock market by combining investments in common stock with those in fixed-income securities such as government and corporate bonds. The ratio of stocks to fixed-income securities that the fund will invest in will be stated in its prospectus. ------------------------------ The offering price for a share of a ________ equals the NAV of the share plus a sales charge. * closed-end investment company * 12b-1 plan fund * no-load fund * load fund That answer is incorrect. Correct answer: load fund The offering price for a share of a load fund equals the NAV of the share plus a sales charge, which

typically is 7.5 to 8.0 percent of the NAV. ------------------------------ Which type of environment relates to the restrictions on use that apply to nearby properties? * Socioeconomic * Fiscal * Legal * Aesthetic That answer is incorrect. Correct answer: Legal Legal environment relates to the restrictions on use that apply to nearby properties. ------------------------------ Managed investment companies are appealing alternatives to individual investing because: * few individual investors outperform the aggregate market averages * many investors are not well informed * the risk-return ratio is higher in mutual funds * they offer a risk-free rate of return That answer is correct! Efficient market studies have indicated that few investors outperform the aggregate market averages. This makes Managed investment companies a good alternative to direct investment because most of these companies offer a wide range of investment possibilities with a range of risk and return characteristics. ------------------------------ Management fees for open-end mutual funds tend to be * about 0.5 to 1.5% of NAV. The management fees tend to be larger for large funds than for small funds because of the quickly increasing bureaucratic costs associated with larger funds. This has encouraged the existence of thousands of small mutual funds. * about 1 to 2% of net asset value (NAV). The management fees are on a sliding percentage scale that increases with the size of the fund. * about 1 to 1.5% of NAV. The management fees tend to be larger for large funds than for small funds because of the quickly increasing bureaucratic costs associated with larger funds. This has encouraged the existence of thousands of small mutual funds. * about 0.4 to 1.2% of NAV. The management fees tend to be smaller for large funds than for small funds because of the substantial economies of scale that exist in managing financial assets. * about 0.25 to 1% of NAV. The management fees are on a sliding percentage scale that decline with the size of the fund. That answer is incorrect. Correct answer: about 0.25 to 1% of NAV. The management fees are on a sliding percentage scale that decline with

the size of the fund. Most management fees decline with the size of a fund. For example, a fund with assets of $500 million might charge management fees of 1%, a fund with assets of $1 billion might charge 0.75%, and a fund with assets of $6 billion might charge 0.25%. ------------------------------ One of the major benefits of mutual funds is ________. * all of these answers are major benefits * that they provide instant diversification * that they are easily bought and sold * that they have predictable returns * that they are low-risk That answer is incorrect. Correct answer: that they provide instant diversification One of the major benefits of mutual funds is that they provide instant diversification. They are not necess