Answer-first summary for fast verification
Answer: When purchasing shares in Quadholding, a 2.0% fee will be charged to the investor; and if the shares are held for five years then subsequently sold, then the total expense ratio amortizes to about 40 basis points per year, Quadholding is heavily regulated primarily by the Securities and Exchange Commission (SEC) who does not permit the illegal practice of "late trading;" although investors can legally engage in "market timing" or "front running" the fund but only if such trades are based on publicly available information
**Best single answer: C** This question appears to contain **more than one inaccurate statement**, but **C** is the clearest false statement. - **A is true.** The geometric mean return is: \[ (1.07 \times 1.15 \times 1.20 \times 1.05 \times 1.18)^{1/5} - 1 \approx 12.8\% \] which is less than 13%. - **B is true.** Mutual funds are more regulated than hedge funds: they disclose policies, face leverage limits, compute NAV daily, and are redeemable. - **C is false.** A **back-end load** is charged when shares are **sold/redeemed**, not when they are purchased. The 2.0% load could be viewed as about **40 bps per year** over five years if amortized, but the timing in the statement is wrong. - **D is also inaccurate.** Late trading is illegal, market timing may be legal though often restricted, but **front running is not legal**. Because the item is somewhat flawed, **C is the intended false answer**, though **D also contains an error**.
Author: Manit Arora
Ultimate access to all questions.
Q-705.3 Quadholding Mutual is a mutual fund in the United States who reports the following sequence of per annum returns over the last five years: +7.0%, +15.0%, +20.0%, +5.0%, +18.0%. Quadholding Mutual charges a back-end load of 2.0%. Each of the following statements about this mutual fund is true EXCEPT which is false?
A
Quadholding's five-year geometric mean must be less than 13.0%
B
Unlike a hedge fund, Quadholding must disclose its investment policies, must limit its use of leverage, must calculate NAV daily, and must make its shares redeemable at any time
C
When purchasing shares in Quadholding, a 2.0% fee will be charged to the investor; and if the shares are held for five years then subsequently sold, then the total expense ratio amortizes to about 40 basis points per year
D
Quadholding is heavily regulated primarily by the Securities and Exchange Commission (SEC) who does not permit the illegal practice of "late trading;" although investors can legally engage in "market timing" or "front running" the fund but only if such trades are based on publicly available information
No comments yet.