Question 1

Under dollar-cost averaging,the investor buys a:

Accepted Answer

Under dollar-cost averaging, the investor buys a fixed dollar's worth of a given security regardless of the security's price or the current market outlook. This strategy helps to reduce the impact of volatility in the market because the investor is buying at regular intervals, regardless of the market conditions. It can also help to take advantage of market downturns by allowing the investor to buy more shares at a lower price.

Question 2

Exchange-Traded Funds offer the investor many advantages over open-end and closed-end mutual funds.Which of the following are comparative advantages?

Accepted Answer

One advantage of ETFs is that the assets in the portfolios are marked to market continuously, and you can trade them all day long at a price that is almost exactly the net asset value of the stocks in the index.

Question 3

A fund is set up to charge a load.Its net asset value is $17.70 and its offer price is $18.60.What percentage of the net asset value does the load represent?

Accepted Answer

The load is the difference between the offer price and the net asset value, which is $18.60 - $17.70 = $0.90. 
To find the percentage of the net asset value that the load represents, we divide the load by the net asset value and multiply by 100: 
$0.90 ÷ $17.70 x 100% = 5.08%
Therefore, the answer is choice B, 5.08%.

Question 4

Characteristics of mutual funds with a goal of investing in growth companies include everything except:

Accepted Answer

Mutual funds with a goal of investing in growth companies typically seek to invest in companies that are expected to experience rapid earnings growth, which may not necessarily be stable and may not pay strong dividends. T-bills are also not typically included in such mutual funds, as they do not align with the objective of investing in growth companies. Choice A and D are correct characteristics of mutual funds with a growth-focused investment strategy.

Question 5

Which of the following is not a disadvantage of investing in mutual funds?

Accepted Answer

This statement is not a disadvantage, but rather an advantage of investing in mutual funds. Mutual funds provide more diversification than investing in individual securities. A) is a disadvantage as not all mutual funds outperform the market. B) is a disadvantage as some mutual funds may have high fees, making them expensive to purchase. D) is a disadvantage as having a large selection of funds can make it difficult to choose the right one.

Question 6

The Hirt & Block mutual fund has assets of $147 million,liabilities of $7 million and 7 million shares outstanding.The shares trade at $21.60 per share.What is the percentage load fee?

Accepted Answer

To calculate the load fee, we need to use the formula:
Load fee = (Ask price - NAV) / Ask price

Ask price = $21.60
NAV = (Assets - Liabilities) / Shares outstanding
NAV = ($147 million - $7 million) / 7 million
NAV = $20.00

Load fee = ($21.60 - $20.00) / $21.60
Load fee = 7.41%

Therefore, the percentage load fee is 7.41%, which corresponds to choice (C).

Question 7

When a mutual fund you own buys and sells securities in its portfolio,

Accepted Answer

When a mutual fund buys and sells securities, the net gains are passed on to the shareholders, who are responsible for paying taxes on these gains.

Question 8

One disadvantage of investing through mutual funds is

Accepted Answer

With more than 8,100 mutual funds from which to choose, an investor has as much of a problem in selecting a mutual fund as a stock.

Question 9

The following are all characteristics of money market funds,except:

Accepted Answer

Money market funds do not require minimum deposits.

Question 10

Mutual funds have several disadvantages.Which of the following would apply?

Accepted Answer

Studies have shown that, on average, mutual funds do not outperform the market, and their fees and expenses can significantly reduce an investor's return. A and B are advantages of mutual funds, and D is not a disadvantage but rather a benefit of using no-load funds to reduce fees.

Question 11

A fund is set up to charge a load.Its net asset value is $17.70 and its offer price is $18.60.What percentage of the offer price does the load represent?

Accepted Answer

The load is the difference between the offer price and the net asset value, which is $18.60 - $17.70 = $0.90. The percentage of the load relative to the offer price is ($0.90 / $18.60) * 100 = 4.84%.

Question 12

A fund is set up to charge a load.Its net asset value is $17.70 and its offer price is $18.60.What is the dollar value of the load (commission)?

Accepted Answer

The load (commission) is the difference between the offer price and the net asset value. Thus, it is $18.60 - $17.70 = $0.90.

Question 13

A characteristic of a closed-end fund is that:

Accepted Answer

A closed-end fund's shares are purchased and sold on the stock exchange or over-the-counter market, unlike open-end funds which are bought and sold directly with the mutual fund company. A closed-end fund may trade at a premium or discount to its net asset value, and the fund does not typically issue new shares or redeem existing ones directly with shareholders.

Question 14

When you buy a mutual fund,you:

Accepted Answer

When you buy a mutual fund, you may be purchasing a fund that has unrealized capital gains on stocks held in the portfolio. If the fund sells those shares, you could be liable for the taxes on those gains. Therefore, it is important to consider the tax implications of a mutual fund before investing. Choice B is incorrect because if the fund has unrealized capital losses, it would not result in tax liability for the investor. Choice C is incorrect because there could be tax consequences on assets owned by the fund before the investor purchased the mutual fund.

Question 15

The Hirt & Block mutual fund has assets of $147 million,liabilities of $7 million and 7 million shares outstanding.What is the net asset value per share?

Accepted Answer

The answer of The Hirt & Block mutual fund has...

Question 16

The growth fund category of funds would include:

Accepted Answer

The growth fund category includes funds that invest in companies with strong growth potential, such as equity growth funds and aggressive growth funds. Dividend-paying equities with growing dividends and convertible securities may also have growth potential, but they are not necessarily classified as growth funds. Funds that specialize in a high growth industry, such as technology, may also be classified as growth funds, but this is not always the case. Therefore, A is the best choice.

Question 17

The difference between a load fund and a no-load fund is that:

Accepted Answer

No-load funds do not charge commissions and are sold directly by the investment company. Load funds, on the other hand, charge a commission fee, which is typically a percentage of the total investment amount. Therefore, choosing a no-load fund can potentially save you money on commission fees.

Quiz 4: Investment Companies: Mutual Funds, exchange-Traded Funds, closed-End Funds, and Unit Investment Trusts