Deck 17: Investment Companies

Question 1

Mutual funds pay federal income taxes on dividends they receive from their investments.​

Answer 1

False

Question 2

Mutual funds do not pay income taxes.​

Answer 2

True

Question 3

Mutual funds distribute earned income and realized capital gains.

Answer 3

True

Question 4

Investments in mutual funds reduce the systematic risk associated with investing in stocks.​

Question 5

The loading fee reduces a fund's net asset value.​

Question 6

An index fund seeks to duplicate an index of the market such as the S&P 500 stock index.

Question 7

The shares of closed-end investment companies are bought and sold in secondary markets like the NYSE.​

Question 8

When an individual wants to remove funds from a closed end investment company, that investor sells the shares back to the company.​

Question 9

A "no load" fund is a mutual fund with no fees.​

Question 10

The shares of closed-end investment companies generally sell for a premium and rarely sell for a discount from their net asset value.​

Question 11

When an individual wants to remove funds from a mutual fund, that investor sells the shares (i.e., redeems) back to the fund.​

Question 12

One of the major advantages associated with investing in mutual funds is potential diversification.​

Question 13

The shares of closed‑end investment companies sell for their net asset value.​

Question 14

An exchange-traded fund's portfolio seeks to duplicate the performance of a specified index.​

Question 15

The sales commission associated with purchasing mutual funds is called a "loading" fee.​

Question 16

The value of shares in bond funds tends to rise with an increase in interest rates.​

Question 17

The managers of mutual funds have tended to outperform the market consistently.​

Question 18

The shares of mutual funds tend to sell for a discount from their net asset value. om their net asset value.​

Question 19

A mutual fund has a fixed number of shares.​

Question 20

The shares of mutual funds cannot sell for a discount from their net asset value.​

Question 21

Realized returns by mutual funds​

A) ​tend to outperform the market
B) are usually retained to finance growth​
C) exceed realized losses​
D) are generally distributed​

Question 22

Advantages of investing in mutual funds include​

A) ​avoiding brokerage fees
B) diversification​
C) tax avoidance​
D) capital losses​

Question 23

An index fund seeks to outperform a specific stock index like the S&P 500.

Question 24

​The net asset value of a mutual fund's share increases with

A) ​an increase in loading fees
B) an increase in interest rates​
C) an increase in security prices​
D) an increase in the fund's assets​

Question 25

The shares of mutual funds are bought​

A) ​in the secondary markets
B) from closed-end investment companies​
C) from commercial banks​
D) from the mutual fund​

Question 26

Income earned by a mutual fund is​

A) ​distributed
B) retained​
C) reinvested​
D) retained and reinvested​

Question 27

Purchases of shares in mutual funds reduce systematic and unsystematic risk.​

Question 28

A closed‑end investment company​

A) ​has a fixed capital structure
B) issues new shares when an individual invests​
C) redeems its shares​
D) charges a loading fee​

Question 29

An index fund based on the S&P 500​

A) ​seeks to match the stock market
B) seeks to outperform the stock market​
C) is illustrative of a no load fund​
D) is illustrative of a closed‑end fund​

Question 30

Investments in investment companies reduce​

A) ​interest rate risk
B) market risk​
C) systematic risk​
D) unsystematic risk​

Question 31

If the shares of a closed-end investment company sell for a discount,​

A) ​the shares are undervalued
B) the price of the stock is less than the company's liabilities​
C) the net assets exceed the price of the shares​
D) the value of the assets have declined more than the price of the stock​

Question 32

U.S. mutual funds may not hold foreign securities.​

Question 33

Mutual funds​

A) ​pay federal income taxes
B) distribute earnings to receive favorable tax treatment​
C) ​pay only state and local taxes
D) pay taxes only on capital gains​

Question 34

Costs associated with investing in mutual funds include​
1) management fees
2) taxes on unrealized profits
3) brokerage commissions when the investor sells the shares
4) load charges

A)​1 and 3
B)1 and 4​
C)2 and 3​
D)2 and 4​

Question 35

The portfolios of balanced funds​

A) ​exclude American stocks
B) ​reduce systematic and purchasing power risks
C) ​are well diversified
D) generate the highest returns​

Question 36

An index fund limits its portfolio to​

A) ​high quality stock and bonds
B) stocks that respond to changes in inflation​
C) stocks of firms in a particular industry​
D) stocks included in an aggregate measure of the stock market​

Question 37

An exchange-traded fund's shares are bought and sold in the secondary markets such as the NYSE.

Question 38

An exchange-traded fund tends to sell for a large discount from its net asset value.​

Question 39

The shares of a no load fund​

A) ​sell for a discount from the fund's net asset value
B) are purchased through the secondary markets​
C) sell for the fund's net asset value​
D) sell for a premium over the fund's net asset value​

Question 40

The net asset value​

A) ​is the price of an investment company's shares
B) is reduced by the loading fee​
C) declines if the value of the fund's assets are reduced​
D) measures the quality of the fund's management​

Question 41

If an investor buys shares in a closed-end investment company for $46 and the net asset value is $53, what is the discount? If the company distributes $1, the net asset value rises to $58, and the investor sells the shares for a premium of 5 percent over the net asset value, what is the percentage earned on the investment?

Question 42

​a. An investor purchases shares in a no load mutual fund for its net asset value of $26 and during the year receives cash distributions of $1. After one year the investor redeems the shares for $32. What is the percentage return on the investment?
​
a. and
b. The net asset value of shares in a closed-end investment company is $26. An investor buys the shares for $23 in the secondary market. During the year the company distributes $1. After one year, the net asset rises to $32, and the investor sells the shares for $34 in the secondary market. What is the percentage return on the investment?
​
b., the net asset value rises from $26 to $32 and the company distributed $1. Why are the percentage returns different?
​
c. In both

Question 43

If an investor purchases shares in a no load fund for $36, receives cash distributions of $1.27 and sells the shares after one year for $41.29, what is the percentage return on the investment?​

Question 44

No load mutual funds​

A) ​have no selling fees
B) pay no cash dividends​
C) have no administrative expenses​
D) have a fixed portfolio​

Question 45

The efficient market hypothesis suggests that​
1) professional portfolio managers will outperform the individual investor
2) professional portfolio managers will not outperform the individual investor
3) professional portfolio managers will consistently outperform the market
4) professional portfolio managers will not consistently outperform the market

A)​1 and 3
B)1 and 4​
C)2 and 3​
D)2 and 4​