Question 1

The Capitalist Mutual Fund's portfolio is valued at $45 million. The fund has liabilities of $3 million, and the investment company sponsoring the fund has issued 1,600,000 shares. What is the fund's net asset value?

Accepted Answer

To find the net asset value (NAV) of the fund, we subtract the liabilities from the portfolio value, giving us $42 million. Then, we divide the portfolio value by the number of shares outstanding: $42 million ÷ 1,600,000 shares = $26.25 NAV per share.

Question 2

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

Accepted Answer

An open-end fund is a type of mutual fund where new shares can be issued and existing shares can be redeemed by the investment company at the request of investors. This differs from a closed-end fund where a fixed number of shares are issued and traded on an exchange. Load and no-load refer to fees charged by the investment company, and convertible refers to a type of security that can be converted into another type of security.

Question 3

A 1 to 5 percent fee that investors pay when they withdraw their investment from a mutual fund is called a:

Accepted Answer

The 1 to 5 percent fee that investors pay when they withdraw their investment from a mutual fund is known as a contingent deferred sales load (CDSC). This is a type of back-end load that is charged when an investor sells the mutual fund shares. The purpose of the CDSC is to discourage short-term trading by investors and to compensate the fund for costs associated with selling investments to meet the redemption request. This fee is different from a front-end load, which is charged when investors buy into a mutual fund. The 12b-1 fee is an annual fee that mutual funds charge investors for marketing and distribution expenses, while the management fee is a fee charged by the fund for managing the investments in the fund.

Question 4

Bob Newsome purchased 250 shares of the Northern Lights Growth Fund. The purchase cost was $30 per share. If this fund charges a 3 percent load, what is the commission amount he will pay the investment company?

Accepted Answer

The commission amount is calculated as 3% of the total purchase cost. The total purchase cost is 250 shares * $30 = $7500. Therefore, the commission is 3% of $7500, which is $225.

Question 5

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

Accepted Answer

The answer of When an investor purchases shares in a...

Question 6

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

Accepted Answer

The definition provided is of the net asset value (NAV). This is the most commonly used measure for assessing the value of a mutual fund. It represents the value of each share of a mutual fund and is calculated by subtracting the mutual fund's liabilities from the total value of its assets and dividing the result by the number of shares outstanding. The book value refers to the value of a company's assets minus its liabilities, while the outstanding balance is a term used to describe the amount of debt that is still owed. The LIBOR rate is an interest rate benchmark that represents the rate at which banks can borrow from each other. The accounting value is not a commonly used term in finance, but it could refer to the value of a company's assets as reported in its accounting books.

Question 7

The New American Enterprise Mutual Fund's portfolio is valued at $120 million. The fund has liabilities of $4 million, and the investment company sponsoring the fund has issued 5,800,000 shares. What is the fund's net asset value?

Accepted Answer

($120 million F1F1F1S1F1F1F10 $4 million) / 5.8 million shares = $20.00.

Question 8

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

Accepted Answer

A no-load mutual fund does not charge any sales charges or commissions to individual investors, making it a cost-effective option for those looking to invest in mutual funds. Closed-end funds have a fixed number of shares and are not redeemable, while open-end funds have a variable number of shares and can be bought and sold at any time. A load fund charges a sales charge, often ranging from 1-5%, to individual investors. A convertible fund refers to a type of bond or preferred stock that can be converted into common stock.

Question 9

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

Accepted Answer

A mutual fund in which shares are issued only when the fund is organized is called a closed-end fund. This type of fund has a fixed number of shares that are traded on an exchange, unlike an open-end fund that issues new shares to meet demand. Closed-end funds often trade at a discount or premium to their net asset value (NAV), which can provide opportunities for investors. Load and no-load refer to the fees charged when buying or selling shares, and convertible refers to a type of bond that can be converted into stock.

Question 10

Mary Cooper just purchased 100 shares in the All-American Fund. The purchase cost for each share was $20. If this fund charges a 5 percent load, what is the total amount of commission she will pay the investment company?

Accepted Answer

100 shares F1F1F1S1F1F1F10 ($20 F1F1F1S1F1F1F10 0.05) = $100.

Question 11

The commission charge for purchasing fund shares that impose an up-front commission charge ____________ percent.

Accepted Answer

The commission charge for purchasing fund shares that impose an up-front commission charge may be as high as 8 1/2 percent.

Question 12

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

Accepted Answer

A load fund is a mutual fund in which investors pay a commission or sales charge every time they purchase shares.

Question 13

There are about _____ exchange-traded funds.

Accepted Answer

As of 2021, there are over 775 exchange-traded funds available for investors to trade on stock exchanges. Therefore, option D is the correct answer.

Question 14

When Pete Mills went to withdraw $5,000 from the Nationwide Fidelity Mutual fund, he was informed that the fund would charge 5 percent of the amount withdrawn. What is the dollar amount of the withdrawal charge?

Accepted Answer

5,000 F1F1F1S1F1F1F10 0.05 = $250.

Question 15

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

Accepted Answer

The 12b-1 fee is a fee that some investment companies charge for advertising and marketing a mutual fund. It is named after the SEC rule that allows it. The fee is charged to the fund's assets, which can result in lower returns for investors. The other options listed are not related to mutual fund advertising and marketing fees.

Question 16

The All-Star Basic Value Fund's portfolio is valued at $210 million. The fund has liabilities of $5 million, and the investment company sponsoring the fund has issued 16,400,000 shares. What is the fund's net asset value?

Accepted Answer

The answer of The All-Star Basic Value Fund's portfolio is...

Question 17

The average management fee for all mutual funds is:

Accepted Answer

The average management fee for all mutual funds is typically in the range of 0.50 to 1 percent. While there are some funds that charge less than 0.25 percent, they are not as common. Similarly, while there are some funds that charge more than 2.50 percent, they are typically reserved for specialized or actively managed funds with high expense ratios.

Question 18

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

Accepted Answer

Most mutual funds calculate their net asset value (NAV) daily, usually at the end of the trading day. This allows for investors to have an up-to-date understanding of the value of their investment. While some mutual funds may calculate their NAV less frequently (such as weekly or monthly), daily calculation is the most common.

Question 19

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

Accepted Answer

The management fee for most mutual funds ranges between 0.25 to 1.5 percent.

Question 20

Approximately ____________ percent of all mutual funds are open-end funds.

Accepted Answer

According to the Investment Company Institute, approximately 92% of all mutual funds are open-end funds. Therefore, option E is the correct answer.

Quiz 16: Investing in Mutual Funds