CFA Institute CFA Institute Certifications CFA-LEVEL-1 Questions & Answers

• Question 681:

  ________ 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.

  A. Positive leverage

  B. None of these answers

  C. Excess financing

  D. Negative leverage

  Correct Answer: A

  Remember that, in real estate, the use of debt financing to purchase a piece of property will affect its risk-return parameters.

• Question 682:

  Which is a characteristic of an open-end investment company?

  A. sells shares at a discount to NAV

  B. its stock trades on the secondary market

  C. sells no further shares

  D. market price of its shares is determined by supply and demand

  E. you receive the NAV price of any share sales

  Correct Answer: E

  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.

• Question 683:

  The total market value of stocks in an investment company's portfolio divided by total outstanding shares (with no further transactions) is ________.

  A. 12b-1 amount

  B. forward earnings per share

  C. market value of an open-end investment company

  D. market value of a closed-end fund

  E. net asset value

  Correct Answer: E

  The net asset value (NAV) equals the total market value of all the funds assets divided by the number of fund shares outstanding.

• Question 684:

  Name the fee charged by a fund that is typically .25 to 1.00 percent of the average net assets?

  A. low-load

  B. commissions

  C. 12b-1 plan

  D. deferred sales load

  E. no-load

  F. management fees

  Correct Answer: F

  The fee, to compensate professional managers, is on a sliding scale that declines with the size of the fund.

• Question 685:

  Which of the following type of REIT's make construction loans to real estate investors?

  A. Equity REIT's

  B. Equity REIT's and Hybrid REIT's

  C. Hybrid REIT's

  D. Mortgage REIT's and Hybrid REIT's

  E. Mortgage REIT's

  Correct Answer: D

  Mortgage - these make construction loans to real estate investors.

  Hybrid - these invest in both properties, construction and real estate mortgage loans.

• Question 686:

  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

  A.

  I and III

  B.

  I and IV

  C.

  I and II

  D.

  II only

  Correct Answer: C

  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.

• Question 687:

  The majority of venture capital investors are

  A. endowments.

  B. insurance companies.

  C. individuals.

  D. corporations.

  E. pension funds.

  Correct Answer: E

  In 1994, pension funds made up approximately 45 percent of the venture capital investors.

• Question 688:

  The investment management company which handles the portfolio of an investment company is hired by ________.

  A. the investment company's board of directors

  B. the shareholders in the investment company

  C. none of these answers

  D. an advisory firm

  Correct Answer: A

  The investment management company which handles the portfolio of an investment company is hired by the investment company's board of directors.

• Question 689:

  Annual management fees compensating the professional managers typically vary from ________ of the average net assets of the fund.

  A. two to five percent

  B. one quarter to one percent

  C. one to two percent

  D. one half to one percent

  Correct Answer: B

  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.

• Question 690:

  ________ are funds that continue to sell and repurchase shares after their initial public offerings.

  A. Unrestricted public funds

  B. Open-end investment funds

  C. Closed-end investment funds

  D. No-load closed-end funds

  Correct Answer: B

  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.