Question 1

Pierre buys a call option on a stock. What is the implication of this transaction?

Options :

A : Pierre has the right to buy the stock if he exercises the option.

B : Pierre is obligated to sell the stock if the option is exercised.

C : Pierre has the right to sell the stock if he exercises the option.

D : Pierre is obligated to buy the stock if the option is exercised.

Answer: A

Question 2

What best describes why mortgage funds generally have less sensitivity to changes in interest rates than bond funds?

Options :

A : Many mortgage funds also hold T-bills and mortgage-backed securities, which are less volatile

B : Interest on mortgages is usually paid monthly, while interest on bonds is typically paid semi-annually

C : Mortgage funds are highly diversified, often holding over 10,000 individual mortgages

D : Most mortgages held in mortgage funds are either NHA-insured or privately insured

Answer: B

Question 3

Which of the following form part of the disclosure documents relating to mutual funds?

Options :

A : balance sheet, income and cash flow statements of the portfolio management company

B : statement of net assets, annual information form, management reports of fund performance

C : annual proxy voting record, audited financial statements, and proof of registration

D : new account information form, quarterly financial statements, and security certification

Answer: B

Question 4

A mutual fund representative meets with a young family whose net worth/level of wealth is categorized aslow, but they have the potential to become wealthy. In general, the family seems susceptible to believing thatmarket events are predictable. Also, the family has a stronger impulse to avoid losses than earn gains. Howmight the mutual fund representative effectively address each of the two biases, respectively?

Options :

A : Moderate the first bias and adapt to the second.

B : Conform to the first bias and moderate the second.

C : Conform to both biases identified.

D : Moderate both biases identified.

Answer: A

Question 5

Megan purchases a treasury bill for $98,200. When it matures for $100,000, how does Megan treat the $1,800 difference?

Options :

A : as interest income

B : as a capital gain

C : as a dividend

D : as return of capital

Answer: A

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