Deck 13: Investing in Mutual Funds

Question 1

For a load fund, the average commission usually ranges between 1 and 3 percent of the purchase price for investments under $10,000.

Answer 1

False

Question 2

Index funds are bought at beginning-of-day prices.

Answer 2

False

Question 3

The managers of mutual funds tailor their investment portfolios to the investment objectives of their customers.

Answer 3

True

Question 4

For many individuals, mutual funds are not a good choice.

Question 5

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

Question 6

In an open-end fund, investors pay a commission (as high as 8.5 percent) every time they purchase or sell shares.

Question 7

The diversification of mutual funds spells safety, because an occasional loss incurred with one investment is usually offset by gains from other investments.

Question 8

A closed-end fund is a mutual fund in which shares are issued only when the fund is organized.

Question 9

A redemption fee is a 1 to 6 percent charge that shareholders pay when they withdraw their investment from a mutual fund.

Question 10

A mutual fund that is eligible for tax credits is referred to as a labour sustenance venture capital corporation.

Question 11

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

Question 12

Shares in a close-end fund are redeemed by the investment company at the request of the investor.

Question 13

Exchange traded funds can be traded throughout the day at changing market prices.

Question 14

A load fund is a mutual fund in which investors pay a commission every time they sell or redeem shares.

Question 15

The net asset value for a mutual fund share is calculated by dividing the value of the fund's portfolio by the fund's liabilities.

Question 16

For a mutual fund, the typical yearly management fee ranges from 2.5 to 5 percent of total dollar amount invested.

Question 17

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

Question 18

Mutual funds that apportion their investments among common stocks and bonds are referred to as segregated funds.

Question 19

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

Question 20

A no-load fund is a mutual fund in which no sales charge is paid by the individual investor to purchase shares.

Question 21

In a newspaper quotation, NAV stands for "not accessible value."

Question 22

The net asset value per mutual fund share is the current market value of the securities contained in the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding.

Question 23

Even though they are under professional management, the individual investor to should evaluate a mutual fund investment.

Question 24

In order to sell shares in a closed-end fund, an investor must wait until the investment company is ready to repurchase the investor's shares.

Question 25

All mutual funds charge a management expense ratio (MER).

Question 26

For a load fund, the average commission usually ranges between 3 and 5 percent of the purchase price for investments under $10,000.

Question 27

Exchange traded funds can be traded at beginning of the day prices.

Question 28

Index funds are bought at end-of-day prices.

Question 29

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

Question 30

An investment company sponsoring a mutual fund must furnish shareholders a prospectus each year.

Question 31

In a newspaper quotation, the letter "N" means no load.

Question 32

Typically, you must invest at least $250 to open a mutual fund account.

Question 33

Typically, you must invest at least $1,000 to open a mutual fund account.

Question 34

To purchase shares in an open-end fund, you may use four options: regular accounts, voluntary savings plans, contractual savings plans and reinvestment plans.

Question 35

Income dividends are the earnings a fund pays to shareholders after it has deducted expenses from its dividend and interest income.

Question 36

Tax information for mutual funds is reported as part of the year-end statement sent out by investment companies.

Question 37

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

Question 38

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

Question 39

A load fund is a mutual fund in which investors pay a commission every time they sell or buy shares.

Question 40

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

Question 41

Which of the following statements is false?

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

Question 42

When Peter Mills went to withdraw $8,000 from the Lowe Fidelity Mutual fund, he was informed that the fund would charge 3 percent of the amount withdrawn.What is the dollar amount of the withdrawal charge?

A)$2,400
B)$500
C)$240
D)$24
E)It is impossible to calculate the withdrawal charge with this information.

Question 43

The Jeremiah Wazan Enterprise Mutual Fund's portfolio is valued at $125,000,000.The fund has liabilities of $5,000,000, and the investment company sponsoring the fund has issued 2,000,000 shares.What is the fund's net asset value?

A)$125
B)$58
C)$50
D)$25
E)$60

Question 44

Marisa Callaghan just purchased 100 shares in the All-Inclusive Fidelity Fund.The purchase cost for each share was $30.If this fund charges a 6 percent load, what is the total amount of commission she will pay the investment company?

A)$3,000
B)$1,800
C)$180
D)$2,000
E)It is impossible to calculate Ms.Callaghan's total investment with this information

Question 45

For most mutual funds, the net asset value is calculated:

A)daily.
B)quarterly.
C)weekly.
D)yearly.
E)whenever an investor calls and requests a price quote.

Question 46

The value of the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding is called the:

A)net asset value.
B)outstanding balance.
C)per share value.
D)book value.
E)accounting value.

Question 47

A 1 to 6 percent fee that investors pay when they withdraw their investment from a mutual fund is called a(n)

A)contingent deferred sales load.
B)sales fee.
C)withdrawal fee.
D)unload fee.
E)load fee.

Question 48

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

A)bare bones
B)end state
C)bare back
D)back-end
E)pay later

Question 49

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 fund.

Question 50

The Capitalist Mutual Fund's portfolio is valued at $55 million.The fund has liabilities of $4 million, and the investment company sponsoring the fund has issued 2,400,000 shares.What is the fund's net asset value?

A)$100
B)$21.25
C)$22.91
D)$24.58
E)$1

Question 51

Which of these is not a true statement?

A)ETFs can be purchased through a broker.
B)ETFs can be purchased on margin.
C)ETFs can be sold short.
D)ETFs have lower management expenses than conventional mutual funds.
E)ETFs cannot be purchased through a broker, on margin, sold short, and have lower management expenses than conventional mutual funds.

Question 52

Larry Bander purchased 280 shares of the New Horizons Growth Fund.The net asset value for each share at the time of purchase was $27.If this fund charges a 3.5 percent load, what is the commission amount he will pay the investment company?

A)$27.00
B)$9.80
C)$264.60
D)$100
E)$280.00

Question 53

Which of the following statements is true?

A)Real estate funds offered by insurance companies as an alternative to conventional mutual funds.
B)Bond funds seek to achieve a high level of income and liquidity.
C)Mortgage funds have a higher risk then bond funds.
D)Ethical funds are typically guided by moral criteria.
E)Segregated funds are often considered a subset of specialty funds.

Question 54

A mutual fund is:

A)recommended for expert investors only.
B)used exclusively for retirement accounts.
C)an investment chosen by people who pool their money to buy financial securities
D)risk-averse investors.
E)a risk-free investment.

Question 55

The commission charge for purchasing shares of a load fund that imposes an up-front commission charge can be as high as 8.5 percent.This fee:

A)is sometimes referred to as the sales fee
B)is paid every time investors buy (front-end load)
C)is paid every time investors sell (back-end load)
D)is sometimes referred to as the sales fee and is paid every time investors buy (front-end load) are correct
E)is sometimes referred to as the sales fee, is paid every time investors buy (front-end load) and is paid every time investors sell (back-end load) are correct

Question 56

Capital gain distributions are the payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio.

Question 57

A mutual fund in which investors pay a commission every time they purchase shares is called a(n) ____________ fund.

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

Question 58

A mutual fund in which shares are issued only when the fund is organized is called a(n) ____________ fund.

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

Question 59

The management fee for most mutual funds ranges between ____________ percent.

A)0.5 to 4
B)1 to 2
C)2 to 4
D)5 to 6 1/2
E)7 to 8 1/2

Question 60

A mutual fund in which new shares are issued and redeemed by the investment company at the request of investors is called a(n) ____________ fund.

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

Question 61

A mutual fund that aims for capital gains is:

A)a balanced asset allocation fund
B)a bond fund
C)an equity or common stock fund
D)a specialty fund
E)an ethical fund

Question 62

In a newspaper quotation, which of the following letters would indicate if a mutual fund is a no load fund?

A)N
B)R
C)FR
D)B
E)It is impossible to tell if a mutual fund is a no load fund by looking in the newspaper.

Question 63

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

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

Question 64

Last month Nissa 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)dividend fund
C)money market fund
D)international fund
E)bond fund

Question 65

In a newspaper quotation, which of the following letters would indicate if a mutual fund has a redemption charge?

A)N
B)R
C)FR
D)B
E)Z.

Question 66

Which of the following statements is false?

A)The purpose of investing in a closed-end or open-end mutual fund is to earn a financial return.
B)Income dividends are the earnings that a fund pays to shareholders after it has deducted expenses from its dividend and interest income.
C)Capital gain distributions are the payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio.
D)It is possible to make money on a mutual fund by purchasing shares at a high price and then selling them at a low price at a later date.
E)Real estate funds aim for long term growth

Question 67

As a shareholder in a mutual fund, you should receive a(n)

A)annual report.
B)quarterly report.
C)redemption fee sheet.
D)letter from the president of the investment company that details what the fund's objectives are.
E)copy of the annual mutual funds evaluation provided by Changing Times magazine.

Question 68

An investment company sponsoring a mutual fund must give potential investors a

A)analytical purchase report.
B)prospectus.
C)disclosure/evaluation form.
D)redemption fee sheet.
E)copy of the annual mutual funds evaluation provided by Changing Times magazine.

Question 69

An individual who helps investors decide when to switch their investment from one fund to another fund is called a(n)

A)financial planner
B)fund evaluator.
C)opportunity timer.
D)market timer.
E)fund consultant.

Question 70

Which of the following statements is false?

A)Market timers charge 1 1/2 percent to 3 percent of the dollar value of the funds they manage.
B)Early research indicates that market timers must be evaluated as a group.
C)Since market timers offer a relatively new service, it is hard to evaluate long-term performance.
D)The true test of market timers is the ability to increase the investor's return during good times and keep that return during bad times.
E)A market timer helps investors decide when to switch from one fund to another.

Question 71

A mutual fund that invests in common stocks and bonds with the primary objective of earning tax-advantaged income is called a(n) ____________ fund.

A)balanced
B)capital growth
C)dividend
D)income
E)money market

Question 72

A mutual fund that invests in the common stocks of companies in the same industry is called a(n) ____________ fund.

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

Question 73

Which of the following publications does not provide readers with an annual survey of mutual funds?

A)Canadian Business
B)Report on Business
C)Canada's Guide to Quality Mutual Funds
D)IE: Money
E)The Economist

Question 74

Which 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)Although investing in mutual funds provides professional management, individual investors should continually evaluate their mutual fund investments.
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 75

Which of the following is not a true statement?

A)Many investors have found a wealth of information about mutual fund investments on the Internet.
B)It is possible to obtain market quotes for a mutual fund by using the Internet.
C)Most investment companies that sponsor mutual funds have a Web page.
D)It is impossible to obtain online information about a mutual fund by accessing the Web page for one of the professional advisory services.
E)A mutual fund's Web site will provide information about how to open an account, current market quotes, and other important information about a specific fund.

Question 76

Which of the following statements is false?

A)Most investors in mutual funds will tell you that the most important consideration in evaluating a mutual fund is long-term performance.
B)It is possible to compare a fund's long-term performance with the performance of the TSE 300 stock index.
C)The length of time a fund's manager has been managing a fund should not be considered when evaluating a fund because the investment company has the right to replace a fund manager.
D)Long-term performance should not be the only factor that you consider in evaluating a mutual fund.
E)Information on a fund's long-term performance is available in its prospectus and in other sources of financial information.

Question 77

Which of the following factors would not affect the relationship between an individual's investment goals and the goals of a mutual fund?

A)the investor's age
B)the investor's family situation
C)the investor's income
D)the investor's future earning power
E)the investor's age, the investor's family situation, the investor's income, and the investor's future earning power would affect the relationship between an investor's investment goals and the goals of a mutual fund.

Question 78

A mutual fund that invests almost entirely in common stocks and aims for capital gains is called a(n) ____________ fund.

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

Question 79

In a newspaper quotation, which of the following letters would indicate if a mutual fund has a front-end and a back-end fee?

A)N
B)R
C)FR
D)B
E)It is impossible to tell if there is a front-end and a back-end fee by looking in the newspaper.

Question 80

A mutual fund that invests in investment grade corporate and government debt is called a(n) ____________ fund.

A)balanced
B)equity
C)segregated
D)income
E)bond