Deck 16: Investing in Mutual Funds

Question 1

The major reasons why investors purchase mutual funds are professional management and diversification.

Answer 1

True

Question 2

A mutual fund that provides tax-free interest income is referred to as a long-term U.S.bond fund.

Answer 2

False

Question 3

Class C shares,with their ongoing higher 12b-1 fees,may be more expensive than Class A shares over a period of years.

Answer 3

True

Question 4

A load fund is a mutual fund in which investors pay a commission either when they purchase shares.

Question 5

Because of professional management,there is no need for the individual investor to evaluate a mutual fund investment.

Question 6

Investors in an open-end fund are free to buy and sell shares at the net asset value.

Question 7

For a mutual fund,the annual management fee is a fixed percentage of the fund's total liabilities.

Question 8

You should consider your tolerance for risk before investing in mutual funds.

Question 9

When you invest in Class A shares,you pay a sales charge when you sell your mutual fund shares.

Question 10

Today,there are more investment companies that offer closed-end funds than there are that offer open-end funds.

Question 11

Investors 72 years or older are less likely to invest in mutual funds than any other age group.

Question 12

Mutual funds that invest in smaller,lesser-known companies that offer higher growth potential are referred to as sector funds.

Question 13

At the beginning of 2018,there were almost 12,000 investment companies sponsoring mutual funds.

Question 14

High-yield bond funds are sometimes referred to as junk-bond funds.

Question 15

Mutual funds have been around for a long time and became popular in the U.S.before the Great Depression in 1929.

Question 16

The potential return on any investment should be indirectly related to the risk the investor assumes.

Question 17

There are more investment companies that offer exchange-traded funds than there are that offer open-end mutual funds.

Question 18

Mutual funds that allocate their investments among common stocks and bonds are referred to as small cap funds.

Question 19

If you need your money in a short period of time,you should consider conservative investments with less risk.

Question 20

All details related to management fees,sales fees,12b-1 fees,and other expenses are contained in a mutual fund's prospectus.

Question 21

Over many years,the majority of managed mutual funds outperform the Standard & Poor's 500 stock index.

Question 22

Income dividends are the earnings a fund pays to shareholders from its dividend and interest income.

Question 23

The fund manager is ultimately responsible for a fund's success,because he/she decides when to buy or sell securities in the fund.

Question 24

To purchase shares in an open-end mutual fund from an investment company,you may use four options: regular account transactions,voluntary savings plans,contractual savings plans,and reinvestment plans.

Question 25

Tax information for mutual funds is reported as part of the year-end statement and on an IRS Form 1099 DIV.

Question 26

Investors in closed-end funds,exchange-traded funds,and open-end funds can make money by purchasing shares at a low price and then selling them at a higher price.

Question 27

When you decide to redeem shares in an open-end mutual fund,the only option is to sell off a specific number of shares.

Question 28

While advisory services provide detailed information on common and preferred stocks,there are no advisory services that provide information on mutual funds.

Question 29

Capital gain distributions result when you decide to sell shares in a mutual fund at a price higher than you paid.

Question 30

Typically,you must invest at least $15,000 to open a mutual fund account.

Question 31

Asset allocation funds invest in various asset classes including stocks,bonds,fixed-income securities,and money market instruments.

Question 32

There are about ________ investment companies that offer exchange-traded funds.

A)25
B)50
C)150
D)1,900
E)10,000

Question 33

Because an index mutual fund is a mirror image of a specific index,the dollar value of a share in an index fund increases when the index increases.

Question 34

While mutual fund income dividends are subject to taxation,capital gain distributions are not subject to taxation.

Question 35

An investment company sponsoring a mutual fund must give existing shareholders a prospectus.

Question 36

Which one of the following statements is false?

A)Investors purchase mutual funds for diversification.
B)Investors purchase mutual funds because of their professional management.
C)Investors who purchase mutual funds are guaranteed a higher rate of return than if they were to purchase comparable stocks and bonds directly.
D)Professional fund managers work for an investment company.
E)Even the best portfolio managers sometimes make mistakes.

Question 37

The family of funds concept makes it convenient for shareholders to switch their investments among funds as different funds offer more potential,financial reward,or security.

Question 38

Over ________ investment companies offer open-end funds.

A)100
B)1,000
C)3,000
D)6,000
E)9,000

Question 39

Which one of the following statements is false regarding exchange-traded funds?

A)An exchange-traded fund generally invests in the stocks or securities contained in a specific stock or securities index.
B)With an exchange-traded fund,an investor can purchase as little as one share.
C)The majority of exchange-traded funds tend to mirror the performance of the index.
D)A passively managed exchange-traded fund manager needs to make more decisions than an actively-managed mutual fund manager.
E)No minimum dollar investment amount is required for exchange-traded funds.

Question 40

Although mutual funds are popular among individual investors,most people do not use them as part of an IRA or retirement account.

Question 41

The average management fee for mutual funds ranges between ________ percent of the fund's assets.

A)0.50 and 2
B)1.5 and 3
C)3 and 4
D)5 and 6 1/2
E)7 and 8 1/2

Question 42

For most mutual funds,the net asset value is calculated at the close of trading each:

A)year.
B)quarter.
C)week.
D)day.
E)hour.

Question 43

A mutual fund in which no sales charge is paid by the individual investor is called a(n)________ fund.

A)closed-end
B)open-end
C)load
D)no-load
E)convertible

Question 44

A mutual fund in which shares are issued only when the fund is organized is called a ________ fund.

A)closed-end
B)open-end
C)load
D)no-load
E)convertible

Question 45

A mutual fund in which investors pay a commission every time they purchase shares is called a ________ fund.

A)closed-end
B)open-end
C)load
D)no-load
E)convertible

Question 46

Another name for a mutual fund that doesn't levy a sales charge,but does charge an ongoing higher 12b-1 fee is a class ________ fund.

A)A
B)B
C)C
D)D
E)E

Question 47

The current market value of a mutual fund's portfolio minus the mutual fund's liabilities equals a figure,that when divided by the number of shares outstanding,results in the:

A)book value.
B)outstanding balance.
C)LIBOR rate.
D)net asset value.
E)accounting value.

Question 48

Bob Newsome purchased 250 shares of the Northern Lights Growth Fund.The purchase cost was $20 per share and the total commission was $250.What is the load being charged by the fund?

A)8.5 percent
B)5 percent
C)4.5 percent
D)3 percent
E)2.5 percent

Question 49

A fee that investors pay when they withdraw their investment from a mutual fund is called a:

A)withdrawal fee.
B)12b.
C)contingent deferred sales load.
D)front-end load.
E)management fee.

Question 50

Another name for a mutual fund that charges a contingent deferred sales load is a(n)________ fund.

A)A
B)B
C)C
D)D
E)E

Question 51

When Pete Mills went to withdraw $3,000 from the Nationwide Fidelity Mutual fund,he was informed that the fund would charge 4 percent of the amount withdrawn.What is the dollar amount of the withdrawal charge?

A)$400
B)$300
C)$120
D)$40
E)$30

Question 52

The sales charge for purchasing shares in a load fund is ________ percent of the purchase price.

A)an average of 0.50 to 1
B)an average of 1 to 2
C)an average of 2 to 4
D)an average of 5 to 9 1/2
E)as high as 8 1/2

Question 53

The Capitalist Mutual Fund's portfolio is valued at $40 million.The fund has liabilities of $2 million,and the investment company sponsoring the fund has issued 1,250,000 shares.What is the fund's net asset value?

A)$200.00
B)$30.40
C)$20.00
D)$12.50
E)$1.00

Question 54

The average management fee for all mutual funds is ________ of the fund's assets:

A)less than 0.01 percent.
B)less than 0.05 percent.
C)0.50 to 2 percent.
D)2 to 4 percent.
E)4 to 5 percent.

Question 55

The All-Star Basic Value Fund's portfolio is valued at $105 million.The fund has liabilities of $2.5 million,and the fund's net asset value is $6.25.What is the fund's number of shares outstanding?

A)2,500,000
B)5,500,000
C)6,250,000
D)16,400,000
E)38,720,000

Question 56

The New American Enterprise Mutual Fund's portfolio is valued at $60 million.The fund has liabilities of $2 million,and the investment company sponsoring the fund has issued 2,900,000 shares.What is the fund's net asset value?

A)$60
B)$58
C)$40
D)$29
E)$20

Question 57

A fee that some investment companies charge for distributing and marketing a mutual fund is called a:

A)14A-1 fee.
B)12b-1 fee.
C)18-2 fee.
D)403 fee.
E)401 fee.

Question 58

A mutual fund whose shares are issued and redeemed by the investment company at the request of investors is called a ________ fund.

A)closed-end
B)open-end
C)load
D)no-load
E)convertible

Question 59

Mary Cooper just purchased 100 shares in the All-American Fund.The purchase cost for each share was $10.If this fund charges a 3 percent load,what is the total amount of commission she will pay the investment company?

A)$30
B)$100
C)$230
D)$300
E)$500

Question 60

When an investor purchases shares in a load fund,the average load charge is between ________ percent.

A)0.5 to 2
B)1 and 2
C)3 and 5
D)4 and 6
E)5 and 7

Question 61

Which one of the following statements is true?

A)Most mutual funds are managed funds.
B)How long the present fund manager has been managing the fund is irrelevant.
C)You should ignore fees when comparing mutual funds.
D)Managed funds are usually index funds.
E)A team of managers is always better than a single fund manager.

Question 62

Which one of the following funds would be considered the safest investment?

A)Growth fund
B)Money market fund
C)Sector fund
D)Asset allocation fund
E)High-yield bond fund

Question 63

A mutual fund that invests in investment-grade corporate debt with maturities between 3 and 10 years is called a(n)________ fund.

A)long-term bond
B)growth
C)sector
D)income
E)intermediate corporate bond

Question 64

A mutual fund that invests in stocks and bonds with the primary objectives of conserving principal,providing income,and long-term growth is called a(n)________ fund.

A)balanced
B)growth
C)industry
D)income
E)money market

Question 65

Which one of the following statements is false?

A)The responsibility for choosing the right mutual fund rests with the individual investor.
B)Professional fund managers do make mistakes.
C)Investors should evaluate their investments on a regular basis.
D)There is no need to evaluate mutual fund investments,because investment companies hire the best professional managers they can to manage their funds.
E)Individual investors should be involved in choosing a mutual fund,because they know how the objectives of a mutual fund match their own investment objectives.

Question 66

An investment company sponsoring a mutual fund must give potential investors a(n):

A)12b
B)prospectus.
C)disclosure/evaluation form.
D)redemption fee sheet.
E)annual report.

Question 67

When one investment company manages a group of mutual funds,it is called a:

A)family of funds.
B)exchange fund.
C)diversification fund.
D)versatility fund.
E)asset allocation fund.

Question 68

A mutual fund that invests in companies expecting higher-than-average revenue and earnings growth is called a(n)________ fund.

A)balanced
B)growth
C)industry
D)income
E)money market

Question 69

Henrietta Marston plans to retire in the year 2050.She is considering a fund that will be more risk-oriented now and become increasingly conservative as she approaches retirement.Which of the following funds would you recommend to her?

A)Equity income fund
B)Regional fund
C)Sector fund
D)Life-cycle fund
E)Fund of funds

Question 70

Many financial planners recommend that investors choose a mutual fund with an expense ratio that is:

A)1 percent or less.
B)between 1 and 2 percent.
C)between 2 and 3 percent.
D)between 3 and 4 percent.
E)over 4 percent.

Question 71

Which one of the following statements is false regarding mutual funds and the internet?

A)Many investors have found a wealth of information about mutual fund investments on the internet.
B)It is possible to obtain current market values for a mutual fund by using the internet.
C)Most investment companies that sponsor mutual funds have a websites.
D)Professional advisory services are prohibited from discussing mutual funds on their websites.
E)The investment companies' website will provide procedures for opening an account,how much money is required to open an account,and statistical information about individual funds.

Question 72

Martin Campbell wants to invest in mutual funds,but is also worried about diversification.Which fund would you recommend to him?

A)Income fund
B)Long-term corporate bond fund
C)U)S.government bond fund
D)Midcap fund
E)A fund of funds

Question 73

The typical expense ratio for an index fund is:

A)0.50 percent or less.
B)between 0.50 and 1 percent.
C)between 1 and 2 percent.
D)between 2 and 3 percent.
E)over 5 percent.

Question 74

A mutual fund that invests in companies within the same industry is called a(n)________ fund.

A)growth-income
B)income
C)sector
D)small-cap
E)money market

Question 75

Which one of the following statements is false?

A)As an investor,you should be concerned with how long a fund manager has been managing a mutual fund.
B)The fund manager chooses when to buy and sell securities in the fund.
C)If a manager has been managing a fund for 5 or 10 years,it is time to change managers and get someone with new ideas.
D)The fund manager is responsible for choosing the securities that are contained in the fund.
E)Managed funds have higher fees than index funds.

Question 76

Together,all the different management fees,12b-1 fees,and additional operating costs for a specific fund are referred to as a(n):

A)investment ratio.
B)expense ratio.
C)financial ratio.
D)expense turnover.
E)management ratio.

Question 77

A mutual fund that only invests in companies outside the United States is called a(n)________ fund.

A)growth-income
B)income
C)international
D)industry
E)large-cap

Question 78

Last month Nellie Jacobson's divorce became final.As part of the settlement,she received $150,000.She would like to invest in mutual funds,but since she is 62 years old,she is concerned with the safety of her "nest egg." Which of the following mutual funds would you recommend?

A)Growth fund
B)Small cap fund
C)High-yield bond fund
D)International fund
E)Short-term U.S.government bond fund

Question 79

A municipal bond fund:

A)is too risky for most investors.
B)invests in municipal bond mutual funds.
C)invests in bonds that are backed by the federal government.
D)is a risk-free investment.
E)invests solely in Treasury bonds.

Question 80

A mutual fund that invests in stocks issued by companies with a long history of paying dividends is called a(n)________ fund.

A)balanced
B)equity income
C)industry
D)sector
E)money market