CFS Practice Exam 1

  1. Mutual funds incur a number of different expenses, just like another other business.Provide an example of what the fund industry categorizes as an "implicit transaction cost."
    impact costs
  2. Assume the following facts for an equity mutual fund: no upfront commission and no income tax consequences along the way 20-year annualized return of 10% (according to Morningstar) fund expenses that averaged 1.7% per yearIf a $100,000 investment in this fund grew to $497,250 after 20 years, what would it have grown to if the annual expenses were 1.0% instead of 1.7%?
  3. Describe a mutual fund.
    separate company
  4. You have just read an article that referenced a specific decade (the 1990s). How many 3-year rolling periods were there in the 1990s (or any other 10-year period)?
  5. FINRA classifies a fund as "no-load" if the fund meets certain criteria. What is one of these criteria?
    12b-1 fee is 0.25% or less
  6. What date determines whether or not a shareholder receives an income or capital gain distribution...
    The record date
  7. Between 1975 and 2010, when the S&P 500 averaged 11.8%, how many of those years were returns for the S&P 500 between 8% and 12%?
  8. Who oversees most mutual fund distribution activities?
  9. A fund is changing its marketing materials and wants to show its performance compared to an index or other benchmark.Who decides what benchmark or index is to be used?
    the mutual fund
  10. Describe the correlation in returns between equity REITs and the Barclays Capital Aggregate Bond Index.
    Often negative.
  11. You have just received a quarterly update from Morningstar showing rates of return and risk.What period of time is the standard deviation number likely to cover?
    36 months
  12. What is the turnover rate for today's typical stock fund? (note: the rate was 15% roughly 50 years ago)
  13. R-squared is sometimes used as a screening device for other measurements. Describe R-squared.
    performance correlation to an index or benchmark
  14. Your client wants to invest $125,000 to $200,000 in one mutual fund.The client wants to use your services.The client plans to stay in the fund family for 10+ years.What class of shares would you suggest (least expensive to the client)?
    A shares
  15. The biggest 25-30 mutual fund families manage what percentage of all mutual fund assets?
  16. Medium-term U.S. government bonds often post positive annual total returns.If you had to guess as to the percentage of 5-year rolling periods these bonds posted positive total returns over the past 30 years, what would be your guess?
  17. Roughly, how many mutual funds have any kind of 12b-1 fee?
  18. The stock market just experienced an unprecedented bull market that lasted over three years. What number would you most likely assign to its beta during this period? During another period, stocks experienced a steady decline, resulting in a cumulative 5-year loss of just over 26%. What would be the market's beta during this negative period?
    1.0 / 1.0
  19. Henry has been reading about how brokerage fees paid throughout the year by a mutual fund can affect the fund's performance. Where would Henry look to find out how much his favorite fund paid out in brokerage fees during the year?
    Statement of Additional Information
  20. Are mutual funds comprised of open-end funds and closed-end funds?
  21. Describe the difficulty of determining a mutual fund's upfront and ongoing costs.
    relatively easy
  22. Where can one find out about manager ownership of fund shares?
    the fund’s SAI
  23. Based on historical data, one can show the probability distribution (of returns) for a mutual fund.In the case of standard deviation, from what point is variance measured?
  24. Your client is concerned about his favorite mutual fund manager spreading herself too thin.The client thinks there is a chance this manager is managing other pools of money.Is there a way your client can find out if the manager is overseeing another mutual fund, ETF and/or hedge fund?
    yes--including hedge funds
  25. A common problem found with emerging market stocks is that some of these stocks do not frequently trade (zero volume on some days).When this happens, what do mutual fund companies use to value such securities?
    fair-value pricing
  26. A client is interested in a specific mutual fund and wants to know whether or not the fund is involved in leveraging, currency hedging, shorting and if it owns any affiliate securities.What should you or the client review in order to find out the answer to these questions?
    footnotes within the shareholder report
  27. The return potential for a stock portfolio with 20-200 individual positions is virtually identical to what other kind of stock portfolio, according to a Stanford academic study?
    a portfolio with just 1-2 stocks
  28. Fund shareholders now redeem shares at what approximate annual rate?
Card Set
CFS Practice Exam 1
Some of the harder questions of the CFS part 1 exam