Deck 13: Investing in Mutual Funds

Question 1

Fred wants to invest in a "no-load" fund. This means that the fund has no 12b-1 fees.

Answer 1

False

Question 2

A "good" fund manager has the ability to increase the share value when the economy is good and retain that value when the economy is bad.

Answer 2

True

Question 3

Open-end mutual funds have managers and closed-end funds do not.

Answer 3

False

Question 4

A socially responsible fund invests in companies that produce tobacco, nuclear energy, and weapons in order to influence the boards to change the companies' mission statements.

Question 5

An exchange-traded fund is actively managed by professional fund managers and shares are traded on the floors of stock exchanges.

Question 6

Mutual funds carry a "real risk" that they can decrease in value.

Question 7

The difference between a global stock fund and an international fund is that the global stock fund invests in companies throughout the world, including the United States, whereas the international fund invests outside the United States.

Question 8

An aggressive growth fund invests in companies with a long history of paying dividends.

Question 9

A family of funds is a grouping of funds that all invest in bonds or all invest in stocks.

Question 10

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

Question 11

The only way to get reliable information about mutual funds is to pay a fee for it.

Question 12

In 2013, investors in the United States could choose from more than 15,000 mutual funds.

Question 13

Brenda wants to invest in a fund that will outperform most others over many years. On average, she would be better off to invest in an index fund instead of a managed closed-end fund.

Question 14

The majority of all mutual funds are closed-end funds offered by investment companies.

Question 15

Mutual funds provide amateur management.

Question 16

For individuals, stocks and bonds ar a better investment choice than mutual funds, because money is pooled from many investors for stocks and bonds.

Question 17

Many people can invest in mutual funds through their retirement accounts.

Question 18

If Ryan wants to invest in an index mutual fund, he should not expect his fund to behave differently than the underlying index.

Question 19

An "A fund" is a mutual fund in which investors may pay a commission as high as 9.5% of the purchase price for investments.

Question 20

Stephanie wants to invest in a mutual fund that invests in companies within the same industry. She should put her money into a regional fund.

Question 21

A higher turnover ratio for a mutual fund can result in higher income tax bills.

Question 22

A newspaper will provide more complete coverage of mutual funds compared to other sources.

Question 23

Which of the following is correct for a closed-end fund?

A) It is not traded on a securities exchange.
B) The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations.
C) It is not actively managed by professional fund managers.
D) Investors are free to buy and sell shares at the net asset value.
E) Its load cannot exceed 2%.

Question 24

What percentage of all mutual funds are closed-end funds?

A) 6%
B) 13%
C) 36%
D) 85%
E) 93%

Question 25

Which of the following are major reasons that investors purchase mutual funds

A) Diversification.
B) Professional management.
C) Loads of up to 8.5%.
D) A and B only.
E) All of the above.

Question 26

The expense ratio is the amount that investors pay for all of a mutual fund's management fees and operating costs.

Question 27

Shelby purchased 100 shares of ABCD Growth fund and had income dividends of $15, capital gain distributions of $35, and a capital gain of $120 in the year she sold her shares, which resulted in a total dollar return of $170.

Question 28

A capital gain distribution is the profit that results from an increase in value when the investors sell their shares in a fund.

Question 29

The turnover ratio is a measure of a fund's trading activity.

Question 30

Whose shares are issued and redeemed by the investment company at the request of investors?

A) Closed-end fund
B) Exchange-traded fund
C) Net asset value fund
D) No-load fund
E) Open-end fund

Question 31

A load fund is allowed to collect a sales charge (commission) as high as ___ of the purchase price for investments.

A) 0%.
B) 2%.
C) 3-5%.
D) 8.5%.
E) 11.5%.

Question 32

For many investors, mutual funds have become the investment of choice and are a part of their retirement account.

Question 33

Cynthia received an IRS Form 1099DIV. This form is sent at the end of each quarter to specify how much she received in income dividends and capital gain distributions.

Question 34

Many mutual funds charge a commission every time shares are purchased by investors. These are called

A) Load funds.
B) Closed-end funds.
C) Exchange-traded funds.
D) Net asset value funds.
E) Open-end funds.

Question 35

Which of the following is a fund that invests in the stocks or securities contained in a specific stock or securities index?

A) Closed-end fund
B) Exchange-traded fund
C) Net asset value fund
D) No-load fund
E) Open-end fund

Question 36

How is an ETF similar to a closed-end fund?

A) Shares can be traded on a securities exchange.
B) An investor can purchase as little as one share of a fund.
C) Prices for shares are determined by supply and demand, the value of stocks and other investments contained in the fund's portfolio, and by investor expectations.
D) Shares can be traded in the over-the-counter market.
E) All of these are correct.

Question 37

Which type of fund has the prices determined by factors of supply and demand like the prices of a stock?

A) Closed-end fund
B) SEC government fund
C) Net asset value fund
D) No-load fund
E) Open-end fund

Question 38

An investment company sponsoring a mutual fund must give potential investors an annual report.

Question 39

The net asset value is calculated as

A) (Liabilities - Value of portfolio) + Number of shares outstanding.
B) Number of shares outstanding/(Liabilities - Value of portfolio).
C) (Liabilities - Value of portfolio)/Number of shares outstanding.
D) (Current market value of portfolio - Liabilities)/Number of shares outstanding.
E) Number of shares outstanding/(Value of portfolio - Liabilities).

Question 40

Many exceptions exist, but the average load charge for mutual funds is

A) 0%.
B) 2%.
C) 3-5%.
D) 8.5%.
E) 11.5-14.5%.

Question 41

Thomas wants to invest in a fund that invests in stock, bonds, and money market instruments. Which of the following will meet his needs?

A) Asset allocation funds
B) Aggressive growth funds
C) Junk bond funds
D) Midcap funds
E) Short-term corporate bond funds

Question 42

A contingent deferred sales load is known as a

A) Back-end load.
B) B fund.
C) Redemption fee.
D) None of these are correct.
E) A, B, and C are all correct.

Question 43

Which of the following types of stock funds invests in stock issued by companies with a long history of paying dividends?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 44

Which of the following types of stock funds invests in stock issued by companies expecting higher-than-average revenue and earnings growth?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 45

A no-load mutual fund

A) May allow investors to pay a sales charge.
B) Charges commission when you buy shares.
C) Uses salespeople to sell the funds.
D) Is available only via the Internet.
E) Can charge a 12b-1 fee of up to 0.25% of its assets.

Question 46

Which of the following is not correct about the 12b-1 fee?

A) It is also known as a distribution fee.
B) A no-load fund can charge a 12b-1 fee of up to 0.25% of its assets.
C) It is often an ongoing fee that is charged on an annual basis.
D) It needs to be disclosed in the annual report but not in the prospectus.
E) It is used to defray the costs of advertising and marketing a mutual fund and commissions paid to a broker who sold you shares in the mutual fund.

Question 47

Which class of shares charges a commission when withdrawals are made over the first five years?

A) A
B) B
C) C
D) K
E) Q

Question 48

Time is an important factor when evaluating a managed mutual fund for which of the following?

A) The existence of the underlying index.
B) The life of the companies in the fund.
C) The length of time that the present fund manager has been managing the fund.
D) The status of the economy.
E) None of these.

Question 49

Which class of shares charges a commission (sales charge) when shares are purchased?

A) A
B) B
C) C
D) K
E) Q

Question 50

Which of the following types of stock funds invest in stock traded within one specific region of the world?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 51

Which of the following types of stock funds invests in stock issued by companies throughout the world outside the United States?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 52

Sally wants to invest in a fund that invests only in stock. Which of the following will meet her needs?

A) Asset allocation funds
B) Balance funds
C) Junk bond funds
D) Midcap funds
E) Short-term corporate bond funds

Question 53

A fee charged to defray the costs of advertising and marketing a mutual fund is called a ____ fee.

A) 3c
B) 12b-1
C) 14c-2
D) 401(k)
E) 403(b)

Question 54

Which class of shares does not impose a sales load or contingent deferred sales fee but charges a higher 12b-1 fee than the other classes?

A) A
B) B
C) C
D) K
E) Q

Question 55

If you start a new job and are offered the opportunity to participate in the company's 401(k) or 403(b) retirement plan, which of the following decisions can affect your financial future?

A) Participating in the retirement account as a way to reduce income taxes.
B) Participating in the retirement account to take advantage of the employer's matching contributions.
C) Choosing mutual funds from a number of different fund options for your retirement account.
D) Basing your actual choice of investments on your age, how long before you retire, and your tolerance for risk.
E) All of these decisions can affect your financial future.

Question 56

Val wants to invest in a fund whose primary objective is to conserve principal, provide income, and provide long-term growth. Which of the following will best meet her needs?

A) Cyclical funds
B) Balanced funds
C) Junk bond funds
D) Midcap funds
E) Short-term corporate bond funds

Question 57

Which of the following types of stock funds invests in the same companies included in the Standard & Poor's 500 stock index?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 58

Which of the following is not correct?

A) When evaluating a mutual fund, an important consideration is how long the present fund manager been managing the fund.
B) Over many years, the majority of managed mutual funds have failed to outperform the Standard & Poor's 500 stock index.
C) Managed funds may be open-end funds or closed-end funds.
D) A benchmark of a good fund manager is the ability to increase share value when the economy is good and retain that value when the economy is bad.
E) A managed fund will outperform an index fund only 60% of the time.

Question 59

The average upfront sales charge for the purchase of a no-load mutual fund is

A) 0%.
B) 2%.
C) 3-5%.
D) 8.5%.
E) 11.5-14.5%.

Question 60

An example of a lifecycle fund is a fund that

A) Assists investors with planning for retirement by a specific date.
B) Initially invests in conservative securities, then changes to invest in more risk-oriented securities as time goes by.
C) Invests in shares of other mutual funds in order to increase diversification and asset allocation.
D) Has principal protection as its main objective.
E) None of these is an example of a lifecycle fund.

Question 61

Sally wants to invest in a mutual fund. The mutual fund must provide a(n) ____ to her as a potential investor.

A) analysis from a financial publication
B) past performance report
C) prospectus
D) quarterly report
E) summary report

Question 62

Earnings paid to shareholders that are not related to the sale of securities in the fund's portfolio are called

A) Capital gain distributions.
B) Income dividends.
C) Capital gains.
D) Mutual fund money.
E) Fund taxes.

Question 63

Which of the following provides up-to-date information quickly without having to make a trip to the library?

A) Financial publications
B) Internet
C) Mutual fund annual report
D) Newspapers
E) Professional advisory services

Question 64

Professional advisory services provide detailed information about mutual funds. Which of the following is not a professional advisory service?

A) Dun and Moody's.
B) Lipper Analytical Services.
C) Morningstar, Inc.
D) Value Line.
E) All of these are professional advisory services that provide information about mutual funds.

Question 65

Which of the following is not a way one can access reliable information about mutual funds on the internet?

A) Find statistical information from the web page of the investment companies that sponsor mutual funds.
B) Obtain current market values for mutual funds by using a search engine such as http://finance.yahoo.com.
C) Review blogs from amateur investors about their favorite mutual funds.
D) Research reports for mutual funds using professional advisory services.
E) All of these are reliable sources of information about mutual funds.

Question 66

Which of the following have reduced or eliminated mutual fund coverage?

A) Financial publications
B) Internet resources
C) Mutual fund annual report
D) Newspapers
E) Professional advisory services

Question 67

Which of the following is true about mutual funds and taxes?

A) Capital gain distributions are taxed as short-term capital gains.
B) Income dividends are taxed quarterly.
C) Investment companies are required to send each shareholder a year-end statement that specifies how much each received in income dividends and capital gain distributions.
D) Capital gains distributions are not reported on your federal tax return.
E) Taxes can be eliminated if you hold your mutual fund shares in your 401(k) retirement account.

Question 68

Melinda wants to withdraw some money from her mutual fund. She has a minimum asset value of $10,000. Which of the following is not an option available for her to systematically withdraw some money?

A) Withdraw a specified, fixed dollar amount each investment period until the fund has been exhausted
B) Sell off a certain number of shares each investment period
C) Withdraw a fixed percentage of asset growth
D) Withdraw all income dividends and capital gain distributions earned in an investment period
E) Withdraw all principal and leave interest dividends and capital gain distributions in the account

Question 69

The Anderson Balanced mutual fund charges a sales load of 4.85%. If you invest $15,000, how much of your investment will actually be used to purchase shares in the fund?

A) $14,250.00
B) $14,272.50
C) $14,400.00
D) $14,485.00
E) $15,000.00

Question 70

All of the following are valid ways to purchase open-end mutual funds except

A) A regular account transaction.
B) A voluntary savings plan.
C) A contractual savings plan.
D) A reinvestment plan.
E) All of the ways listed are valid purchase options.

Question 71

When you sell your shares in a mutual fund, you may receive a profit that results from an increase in value called

A) Capital gain distribution.
B) Income dividend.
C) Capital gain.
D) Mutual fund money.
E) Fund taxes.

Question 72

If you hold mutual fund shares in your Roth individual retirement account, the taxes on reinvested income will be

A) Deferred.
B) Eliminated.
C) Evaluated.
D) Payable immediately.
E) None of these.

Question 73

Which of the following contains a letter from the president of the investment company, detailed financial information, a schedule of investments, and a letter from the fund's independent auditors?

A) Financial publications
B) Internet
C) Mutual fund annual report
D) Newspapers
E) Professional advisory services

Question 74

How do mutual funds provide returns to their shareholders?

A) Income dividends.
B) Capital gain distributions.
C) Capital gains.
D) All of these.
E) None of these.

Question 75

The investments in the Alamo Basics Contingency Fund have a current market value of $800 million. The fund also has liabilities that total $60 million. If this mutual fund has 20 million shares, what is the net asset value per share?

A) $3.00
B) $37.00
C) $40.00
D) $43.00
E) $60.00

Question 76

The investments in the Already Been Counted Fund have a current market value of $600 million. The fund also has liabilities that total $40 million. If this mutual fund has 25 million shares, what is the net asset value per share?

A) $1.60.
B) $22.40.
C) $24.00.
D) $25.60.
E) None of these.

Question 77

A problem with taxation of mutual funds is

A) Professional management.
B) The possibility to eliminate taxes if held in a Roth individual retirement account.
C) Being required to report reinvested income dividends and capital gain distributions on your federal tax return as current income.
D) Tax deferral if the fund is held in a retirement account like a 401(k) account.
E) The diversification offered to investors.

Question 78

Payments to a fund's shareholders that result from the sale of securities in the fund's portfolio are

A) Capital gain distributions.
B) Income dividends.
C) Capital gains.
D) Mutual fund money.
E) Fund taxes.

Question 79

The Anderson Balanced mutual fund charges a sales load of 4.85%. If you invest $15,000, how much must you pay in commissions?

A) $4.85
B) $485.00
C) $600.00
D) $727.50
E) $750.00

Question 80

Professional advisory services provide research on mutual funds in a report that includes all of the following areas except

A) A historical profile.
B) Statistical information.
C) Performance, risk, and portfolio analysis.
D) Summary of the analyst's research.
E) All of these are included by professional advisory services.