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Should managers of mutual funds (and other institutional investors) be prohibited from paying higher brokerage commissions in exchange for research and brokerage services? If Section 28(e) of the Securities Exchange Act of 1934 were repealed, what would be the likely effects on mutual funds and brokerage firms?

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Nestor Rutherford
Nestor RutherfordLv2
7 Nov 2018

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Related questions

Question 1

Financial investments are made in efficient markets. The existence of these markets suggests that:

a.

Investors cannot earn superior returns.
b.

Investors cannot expect to outperform the market consistently.
c.

Security prices are random.
d.

Bearing additional risk will not increase return.

2 points

Question 2

A new issue of corporate securities sold to the general public must be:

a.

Registered with the SEC.
b.

Initially sold through brokers.
c.

Offered initially to existing stockholders.

2 points

Question 3

Money market mutual funds invest in which of the following?

Commercial paper.

Repurchase agreements.

Corporate bonds.

a.

1 and 2.
b.

1 and 3.
c.

2 and 3.
d.

All of the choices are correct.

3 points

Question 4

FDIC insures:

a.

U.S. Treasury bills.
b.

Money market mutual funds.
c.

Saving accounts.
d.

Repurchase agreements.

3 points

Question 5

Which of the following does not have default risk?

a.

Money market mutual funds.
b.

Commercial paper.
c.

Negotiable certificates of deposit.
d.

U.S. Treasury bills.

2 points

Question 6

The spread is the:

a.

Difference between the bid and ask prices.
b.

Commission charged by the broker.
c.

Difference between the purchase and sale prices.
d.

Difference between the commissions charged by full-service and discount brokers.

3 points

Question 7

Securities regulations protect investors by:

a.

Requiring disclosures of information by firms.
b.

Stopping investors from buying overpriced stock.
c.

Reducing competition among brokers.
d.

Establishing commission schedules.

3 points

Question 8

If a stock is bought on margin:

a.

The full amount of the cost of the investment is borrowed.
b.

The commissions on the investment are increased.
c.

The cost of the investment is reduced.
d.

The interest on the borrowed funds is set by the SEC.

3 points

Question 9

Sarbanes-Oxley, the latest important securities law:

a.

Reduces potential conflicts between securities analysts and investment bankers.
b.

Legalizes the sale of securities by investment brokers.
c.

Requires corporate boards of directors to own stock.
d.

Mandates that security analysts file their recommendations with the SEC.

2 points

Question 10

Which of the following are true about the present value of a dollar?

It increases as the interest rate increases.

It decreases as the interest rate increases.

It increases as the time period increases.

It decreases as the time period increases.

a.

1 and 3.
b.

1 and 4.
c.

2 and 3.
d.

2 and 4.

3 points

Question 11

Time value concepts may not be used to determine:

a.

The present value of an annuity.
b.

The margin required on a stock purchase.
c.

The future value of $100 deposited in a bank.
d.

The present value of a lump sum.

2 points

Question 12

What is the marginal tax rate?

a.

The tax rate paid on investment gains from items purchased on margin.
b.

The tax rate paid on an additional dollar of taxable income.
c.

The margin required on a stock purchase.
d.

The present value of a lump sum.

2 points

Question 13

Examples of capital gains include sales of which of the following?

IRA accounts.

Stocks sold for a profit.

Real estate sold for a profit.

a.

1 and 2.
b.

1 and 3.
c.

2 and 3.
d.

All of these choices.

3 points

Question 14

With a Roth IRA, the individual:

a.

May deduct annual contributions.
b.

Earns tax-free income.
c.

Defers taxes.
d.

Avoids estate taxes.

2 points

Question 15

Sources of unsystematic risk include which of the following?

A firms financing decisions.

A firms operations.

Fluctuating market prices.

a.

1 and 2.
b.

1 and 3.
c.

2 and 3.
d.

All of these choices.

2 points

Question 16

For diversification to reduce risk:

a.

The returns on the individual securities should be highly correlated.
b.

The prices of the stocks should be stable.
c.

The returns on the individual securities should be negatively correlated.
d.

One firm should offer dividends and the other should offer capital gains.

2 points

Question 17

Which of the following are true about beta coefficients?

They are a measure of systematic risk.

They relate the return on an individual security to the return on the market.

They measure the variability of an assets return.

a.

1 and 2.
b.

1 and 3.
c.

2 and 3.
d.

All of these choices.

3 points

Question 18

Which of the following does an efficient portfolio do?

Maximizes risk for a given return.

Minimizes risk for a given return.

Maximizes return for a given level of risk.

Minimizes return for a given level of risk.

a.

1 and 3.
b.

1 and 4.
c.

2 and 3.
d.

2 and 4.

3 points

Question 19

The security market line does not:

a.

Indicate the relationship between risk and return.
b.

Relate the market return and beta to a stock's return.
c.

Identify the optimal portfolio for the investor.
d.

Use beta coefficients as a measure of risk.

3 points

Question 20

Mutual funds ____ realized capital gains and income (for example, dividends received):

a.

Retain.
b.

Reinvest.
c.

Distribute.
d.

Distribute or reinvest.

2 points

Question 21

An index fund limits its portfolio to:

a.

High quality securities.
b.

Stocks that respond to changes in the consumer price index.
c.

Stocks included in an aggregate measure of stock prices.
d.

Stocks of firms in a particular industry.

2 points

Question 22

Mutual funds with beta coefficients greater than 1.0:

a.

Have outperformed the market.
b.

Have underperformed the market.
c.

Have more systematic risk than the market.
d.

Have less systematic risk than the market.

3 points

Question 23

Which of the following will tend to cause a stock's price to fall?

The firms beta declines.

The firms beta increases.

The risk-free rate declines.

The risk-free rate increases.

a.

1 and 3.
b.

1 and 4.
c.

2 and 3.
d.

2 and 4.

2 points

Question 24

The use of P/E ratios to select stocks suggests that:

a.

High P/E stocks should be purchased.
b.

Low P/E ratio stocks are overvalued.
c.

A stock should be purchased if it is selling near its historic low P/E.
d.

A stock should be purchased if it is selling near its historic high P/E.

2 points

Question 25

What does the efficient market hypothesis require?

Financial markets to be competitive.

Prices to adjust rapidly.

Prices of undervalued securities to fall.

a.

1 and 2.
b.

1 and 3.
c.

2 and 3.
d.

All of these choices.

3 points

Question 26

Which of the following does the strong form of the efficient market hypothesis suggest?

Inside information will not lead to superior investment results.

Inside information will lead to superior investment results.

Studying financial statements will not lead to superior investment results.

Studying financial statements will lead to superior investment results.

a.

1 and 3.
b.

1 and 4.
c.

2 and 3.
d.

2 and 4.

3 points

Question 27

Which of the following is the least broad-based measure of stock prices?

a.

NASDAQ market index.
b.

Dow Jones industrial average.
c.

S&P 500 stock index.
d.

AMEX market value index.

3 points

Question 28

What is dollar-cost averaging?

a.

Periodically buying a round lot of stock.
b.

Periodically investing a specified dollar amount in a stock.
c.

A means to increase the average cost basis.
d.

A means to ensure a positive return.

2 points

Question 29

Stock dividends cause:

a.

The price of a share of stock to rise.
b.

The price of a share of stock to fall.
c.

The value of the firm to rise.
d.

The value of the firm to fall.

2 points

Question 30

Which of the following occurs when a stock has a two-for-one split?

a.

The price of the stock doubles.
b.

The firm's assets increase.
c.

The firm's liabilities decrease.
d.

The par value of the stock is reduced.

3 points

Question 31

Dividend reinvestment plans offer which of the following advantages?

Deferment of federal income taxes.

A convenient means to accumulate shares.

Dollar-cost averaging.

a.

1 and 2.
b.

1 and 3.
c.

2 and 3.
d.

2.

3 points

Question 32

When the Federal Reserve seeks to expand the money supply, it:

a.

Sells securities.
b.

Buy securities.
c.

Runs a deficit.
d.

Runs a surplus.

2 points

Question 33

The sum of cash, currency, and demand deposits is:

a.

M1.
b.

M2.
c.

M3.
d.

M4.

3 points

Question 34

If the Federal Reserve lowers the target federal funds rate:

a.

The discount rate rises.
b.

Liquidity in the banking system is increased.
c.

Security prices fall.
d.

Required reserves are also decreased.

3 points

Question 35

The anticipation of inflation suggests that the investor should:

a.

Buy bonds.
b.

Anticipate higher interest rates.
c.

Avoid real estate investments.
d.

Sell stocks of gold companies.

3 points

Question 36

The current ratio is unaffected by:

a.

Using cash to pay a dividend.
b.

The collection of an account receivable.
c.

Selling inventory for a profit.
d.

Selling bonds and using the funds to finance inventory.

2 points

Question 37

Which of the following are true as the debt ratio increases?

Fewer assets are debt financed.

More assets are debt financed.

The ratio of debt equity increases.

The ratio of debt equity decreases.

a.

1 and 3.
b.

1 and 4.
c.

2 and 3.
d.

2 and 4.

2 points

Question 38

The technical approach suggests that future stock prices are forecasted by:

a.

Past stock rates.
b.

Financial ratios.
c.

Accounting statements.
d.

Monetary policy.

2 points

Question 39

The Dogs of the Dow strategy:

a.

Forecasts the direction of the Dow Jones averages.
b.

Suggests buying the Dow stocks with the highest dividend yields.
c.

Outperforms the S&P 500.
d.

Suggests buying the lowest-priced Dow stocks.

3 points

Question 40

Behavioral finance combines aspects from which two fields in an attempt to identify human traits that affect investment decisions?

a.

Accounting and finance.
b.

Finance and psychology.
c.

Physics and finance.
d.

Finance and marketing.

Question 5

1. Which of the following does not have default risk?

a.

Money market mutual funds.

b.

Commercial paper.

c.

Negotiable certificates of deposit.

d.

U.S. Treasury bills.

2 points

Question 6

1. The spread is the:

a.

Difference between the bid and ask prices.

b.

Commission charged by the broker.

c.

Difference between the purchase and sale prices.

d.

Difference between the commissions charged by full-service and discount brokers.

3 points

Question 7

1. Securities regulations protect investors by:

a.

Requiring disclosures of information by firms.

b.

Stopping investors from buying overpriced stock.

c.

Reducing competition among brokers.

d.

Establishing commission schedules.

3 points

Question 8

1. If a stock is bought on margin:

a.

The full amount of the cost of the investment is borrowed.

b.

The commissions on the investment are increased.

c.

The cost of the investment is reduced.

d.

The interest on the borrowed funds is set by the SEC.

3 points

Question 9

1. Sarbanes-Oxley, the latest important securities law:

a.

Reduces potential conflicts between securities analysts and investment bankers.

b.

Legalizes the sale of securities by investment brokers.

c.

Requires corporate boards of directors to own stock.

d.

Mandates that security analysts file their recommendations with the SEC.

2 points

Question 10

1. Which of the following are true about the present value of a dollar?

1. It increases as the interest rate increases.

2. It decreases as the interest rate increases.

3. It increases as the time period increases.

4. It decreases as the time period increases.

a.

1 and 3.

b.

1 and 4.

c.

2 and 3.

d.

2 and 4.

3 points

Question 11

1. Time value concepts may not be used to determine:

a.

The present value of an annuity.

b.

The margin required on a stock purchase.

c.

The future value of $100 deposited in a bank.

d.

The present value of a lump sum.

2 points

Question 12

1. What is the marginal tax rate?

a.

The tax rate paid on investment gains from items purchased on margin.

b.

The tax rate paid on an additional dollar of taxable income.

c.

The margin required on a stock purchase.

d.

The present value of a lump sum.

2 points

Question 13

1. Examples of capital gains include sales of which of the following?

1. IRA accounts.

2. Stocks sold for a profit.

3. Real estate sold for a profit.

a.

1 and 2.

b.

1 and 3.

c.

2 and 3.

d.

All of these choices.

3 points

Question 14

1. With a Roth IRA, the individual:

a.

May deduct annual contributions.

b.

Earns tax-free income.

c.

Defers taxes.

d.

Avoids estate taxes.

2 points

Question 15

1. Sources of unsystematic risk include which of the following?

1. A firms financing decisions.

2. A firms operations.

3. Fluctuating market prices.

a.

1 and 2.

b.

1 and 3.

c.

2 and 3.

d.

All of these choices.

2 points

Question 16

1. For diversification to reduce risk:

a.

The returns on the individual securities should be highly correlated.

b.

The prices of the stocks should be stable.

c.

The returns on the individual securities should be negatively correlated.

d.

One firm should offer dividends and the other should offer capital gains.

2 points

Question 17

1. Which of the following are true about beta coefficients?

1. They are a measure of systematic risk.

2. They relate the return on an individual security to the return on the market.

3. They measure the variability of an assets return.

a.

1 and 2.

b.

1 and 3.

c.

2 and 3.

d.

All of these choices.

3 points

Question 18

1. Which of the following does an efficient portfolio do?

1. Maximizes risk for a given return.

2. Minimizes risk for a given return.

3. Maximizes return for a given level of risk.

4. Minimizes return for a given level of risk.

a.

1 and 3.

b.

1 and 4.

c.

2 and 3.

d.

2 and 4.

3 points

Question 19

1. The security market line does not:

a.

Indicate the relationship between risk and return.

b.

Relate the market return and beta to a stock's return.

c.

Identify the optimal portfolio for the investor.

d.

Use beta coefficients as a measure of risk.

3 points

Question 20

1. Mutual funds ____ realized capital gains and income (for example, dividends received):

a.

Retain.

b.

Reinvest.

c.

Distribute.

d.

Distribute or reinvest.

2 points

Question 21

1. An index fund limits its portfolio to:

a.

High quality securities.

b.

Stocks that respond to changes in the consumer price index.

c.

Stocks included in an aggregate measure of stock prices.

d.

Stocks of firms in a particular industry.

2 points

Question 22

1. Mutual funds with beta coefficients greater than 1.0:

a.

Have outperformed the market.

b.

Have underperformed the market.

c.

Have more systematic risk than the market.

d.

Have less systematic risk than the market.

3 points

Question 23

1. Which of the following will tend to cause a stock's price to fall?

1. The firms beta declines.

2. The firms beta increases.

3. The risk-free rate declines.

4. The risk-free rate increases.

a.

1 and 3.

b.

1 and 4.

c.

2 and 3.

d.

2 and 4.

2 points

Question 24

1. The use of P/E ratios to select stocks suggests that:

a.

High P/E stocks should be purchased.

b.

Low P/E ratio stocks are overvalued.

c.

A stock should be purchased if it is selling near its historic low P/E.

d.

A stock should be purchased if it is selling near its historic high P/E.

2 points

Question 25

1. What does the efficient market hypothesis require?

1. Financial markets to be competitive.

2. Prices to adjust rapidly.

3. Prices of undervalued securities to fall.

a.

1 and 2.

b.

1 and 3.

c.

2 and 3.

d.

All of these choices.

3 points

Question 26

1. Which of the following does the strong form of the efficient market hypothesis suggest?

1. Inside information will not lead to superior investment results.

2. Inside information will lead to superior investment results.

3. Studying financial statements will not lead to superior investment results.

4. Studying financial statements will lead to superior investment results.

a.

1 and 3.

b.

1 and 4.

c.

2 and 3.

d.

2 and 4.

3 points

Question 27

1. Which of the following is the least broad-based measure of stock prices?

a.

NASDAQ market index.

b.

Dow Jones industrial average.

c.

S&P 500 stock index.

d.

AMEX market value index.

3 points

Question 28

1. What is dollar-cost averaging?

a.

Periodically buying a round lot of stock.

b.

Periodically investing a specified dollar amount in a stock.

c.

A means to increase the average cost basis.

d.

A means to ensure a positive return.

2 points

Question 29

1. Stock dividends cause:

a.

The price of a share of stock to rise.

b.

The price of a share of stock to fall.

c.

The value of the firm to rise.

d.

The value of the firm to fall.

2 points

Question 30

1. Which of the following occurs when a stock has a two-for-one split?

a.

The price of the stock doubles.

b.

The firm's assets increase.

c.

The firm's liabilities decrease.

d.

The par value of the stock is reduced.

3 points

Question 31

1. Dividend reinvestment plans offer which of the following advantages?

1. Deferment of federal income taxes.

2. A convenient means to accumulate shares.

3. Dollar-cost averaging.

a.

1 and 2.

b.

1 and 3.

c.

2 and 3.

d.

2.

3 points

Question 32

1. When the Federal Reserve seeks to expand the money supply, it:

a.

Sells securities.

b.

Buy securities.

c.

Runs a deficit.

d.

Runs a surplus.

2 points

Question 33

1. The sum of cash, currency, and demand deposits is:

a.

M1.

b.

M2.

c.

M3.

d.

M4.

3 points

Question 34

1. If the Federal Reserve lowers the target federal funds rate:

a.

The discount rate rises.

b.

Liquidity in the banking system is increased.

c.

Security prices fall.

d.

Required reserves are also decreased.

3 points

Question 35

1. The anticipation of inflation suggests that the investor should:

a.

Buy bonds.

b.

Anticipate higher interest rates.

c.

Avoid real estate investments.

d.

Sell stocks of gold companies.

3 points

Question 36

1. The current ratio is unaffected by:

a.

Using cash to pay a dividend.

b.

The collection of an account receivable.

c.

Selling inventory for a profit.

d.

Selling bonds and using the funds to finance inventory.

2 points

Question 37

1. Which of the following are true as the debt ratio increases?

1. Fewer assets are debt financed.

2. More assets are debt financed.

3. The ratio of debt equity increases.

4. The ratio of debt equity decreases.

a.

1 and 3.

b.

1 and 4.

c.

2 and 3.

d.

2 and 4.

2 points

Question 38

1. The technical approach suggests that future stock prices are forecasted by:

a.

Past stock rates.

b.

Financial ratios.

c.

Accounting statements.

d.

Monetary policy.

2 points

Question 39

1. The Dogs of the Dow strategy:

a.

Forecasts the direction of the Dow Jones averages.

b.

Suggests buying the Dow stocks with the highest dividend yields.

c.

Outperforms the S&P 500.

d.

Suggests buying the lowest-priced Dow stocks.

3 points

Question 40

1. Behavioral finance combines aspects from which two fields in an attempt to identify human traits that affect investment decisions?

a.

Accounting and finance.

b.

Finance and psychology.

c.

Physics and finance.

d.

Finance and marketing.

Can you tell me What does this article tell us about the bond markets performance and the interest rate environment?

Long-Term Government Bonds Shine as Fed Goes Slow

Pimco, Vanguard funds with focus on long-term debt beat out other bond funds in the 1st quarter

For investors, one of the best bets of 2016 has been a wager via U.S. Treasurys on falling interest rates.

A Pimco long-term government-bond fund was the best performer among bond funds in the first quarter. Above, Pimco offices in Newport Beach, Calif. PHOTO: MIKE BLAKE/REUTERS

The $460 million Pimco Extended Duration Fund posted a total return of 11.8% in the first quarter, making it the best performer among 2,015 U.S.-based bond mutual funds, according to data from Morningstar. Total return reflects price gains plus periodic payments.

The runner-up was $1.3 billion Vanguard Extended Duration Treasury Index Fund, which returned 11.7% during the quarter, according to Morningstar.

Both funds posted their best returns since the last quarter of 2014 and have extended those gains in the early days of the second quarter. Duration refers to a fund’s exposure to interest-rate risk, meaning its prices will rise more when rates fall and fall more when rates rise.

Analysts have warned repeatedly that bets on duration are risky, given the long decline in interest rates over recent years. The gains are striking at a time when stocks and other riskier assets have rebounded from an early-year selloff that at one point left the Dow industrials down 10%. The Dow fell 20.55 points, or 0.1%, on Monday, but is up 0.8% for the year.

Advertisement

While safer securities such as U.S. Treasurys and German bunds tend to decline in price when stocks and low-rated corporate bonds rally, many analysts say the simultaneous rise of safer and riskier assets this spring is tied to the unexpectedly slow pace of policy tightening by the Federal Reserve, along with signs the global economy continues its slow healing.

MORE IN MARKETS

A Measure of Stock-Market ‘Fear’ Just Hit an All-Time High

Spreads Point to Growing Stress in Japanese Government Bond Market

By One Measure, U.S. Rates Are Already Negative

At the same time, many investors are concerned that the rally in stocks, bonds and commodities off Feb. 11 lows may have gone too far too fast.

“We are still stuck in low growth,’’ Jack Flaherty,portfolio manager at money manager GAM, which has over $119 billion in global assets under management. “It may be time to lighten up a bit and pause” on purchases of riskier assets, he said.

The uncertainty is why many investors are buying long-term U.S. government bonds, even though analysts have warned that slim yields leave bondholders vulnerable to potentially large capital losses if interest rates do rise.

The average U.S. equity mutual fund posted a total return of minus-0.4% between January and March, according to Morningstar. The average return for all U.S.-based bond funds tracked by Morningstar was 2.1% for the period. Quarter-end data for all funds are typically finalized in the early days of the following period.

“It has been a good start for bond funds,’’ said Jeff Tjornehoj, head of Americas research at Lipper. That performance “may be hard to repeat this quarter.”

Stock funds on average returned 4.4% in the fourth quarter last year, according to Morningstar. Bond funds posted a negative 0.1% return in the final quarter of 2015.

U.S. Treasury bonds overall have posted a total return of 3.6% this year through Friday, according to data from Barclays. U.S. bonds sold by lower-rated firms, or junk bonds, have returned 3.8% over the same period. S&P 500 has returned 0.8%, according to FactSet.

The Vanguard fund passively tracks an index of long-term Treasury bonds. The fund “will tend to have extreme results—both on the up and down side’’ given its focus on buying government bonds with very long-term maturity, said a representative of Vanguard in a written statement.

The Pimco fund is actively managed by three fund managers at Pacific Investment Management Co.: Stephen Rodosky, Michael Cudzil and Josh Thimons. A representative at Pimco declined to comment.

The Pimco fund attracted $19.7 million of new cash between January and February, topping the $11.9 million it obtained for the whole year of 2015, according to the latest data from fund tracker Lipper.

The Vanguard fund attracted $20.4 million of new cash during the first two months of the year, after suffering a net withdrawal of $115.7 million in 2015, according to Lipper.

The Vanguard fund posted a loss of 20.9% in 2013, according to Morningstar, when worries about the Fed reducing bond purchases rattled the bond market. The Pimco fund lost 21.2% that year.

But U.S. bond yields have largely been on a downward trend since the financial crisis. The two funds both posted an annualized return of about 17% on average over the past five years through Friday, according to Morningstar.

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