Question 1

SEC research suggests that about three-fourths of mutual funds let privileged shareholders engage in market timing.

Accepted Answer

According to SEC research, about three-fourths of mutual funds allow privileged shareholders to engage in market timing.

Question 2

Open-end mutual funds are more common than closed-end funds.

Accepted Answer

Open-end mutual funds are more common than closed-end funds. Open-end funds continuously issue and redeem shares based on investor demand, while closed-end funds have a fixed number of shares that are traded on an exchange. As a result, open-end funds are often more popular among investors because they are more flexible and easier to buy and sell.

Question 3

One factor explaining the rapid growth in mutual funds is that they are financial intermediaries that are not regulated by the federal government.

Accepted Answer

This statement is false. Mutual funds are regulated by the Securities and Exchange Commission (SEC) and are subject to various federal laws and regulations, including the Investment Company Act of 1940.

Question 4

Hedge funds have a minimum investment requirement of between $100,000 and $20 million,with the typical minimum investment being $1 million.

Accepted Answer

Hedge funds typically have high minimum investment requirements, with the standard minimum investment being $1 million or more.

Question 5

Describe the practices of late trading and market timing and explain how these practices harm a mutual fund's shareholders.

Accepted Answer

The answer of Describe the practices of late trading and...

Question 6

Mutual funds accounted for $5.3 trillion,or 27%,of the $19.5 trillion U.S.retirement market at the beginning of 2013.

Accepted Answer

Mutual funds accounted for 27% of the U.S. retirement market, which was worth $19.5 trillion at the beginning of 2013.

Question 7

The primary purpose of loads is to provide compensation for sales brokers.

Accepted Answer

The answer of The primary purpose of loads is to...

Question 8

Several academic research studies show that investors earn higher returns by investing in mutual funds that charge higher fees.

Accepted Answer

Several academic research studies actually show the opposite - that investors generally earn lower net returns after paying higher fees.

Question 9

How does the governance structure of mutual funds lead to asymmetric information and conflicts of interest?

Accepted Answer

The answer of How does the governance structure of mutual...

Question 10

The increase in the number of defined contribution pension funds has slowed the growth of mutual funds.

Accepted Answer

Defined contribution pension funds often invest in mutual funds, so an increase in defined contribution pension funds can actually lead to growth in mutual funds by providing them with more capital.

Question 11

How is a mutual fund's net asset value calculated?

Accepted Answer

The answer of How is a mutual fund's net asset...

Question 12

What benefits do mutual funds offer investors?

Accepted Answer

The answer of What benefits do mutual funds offer investors?...

Question 13

Mutual funds are regulated under four federal laws designed to protect investors.

Accepted Answer

Mutual funds are regulated under four federal laws - Investment Company Act of 1940, Securities Act of 1933, Securities Exchange Act of 1934, and Investment Advisers Act of 1940 - that are designed to protect investors.

Question 14

The net asset value of a mutual fund is the average market price of the stocks,bonds,and other assets the fund owns.

Accepted Answer

The net asset value (NAV) of a mutual fund is calculated by dividing the total value of all the securities and assets in the portfolio, minus any liabilities, by the number of shares outstanding. It is not an average of the market prices but a per-share value of the fund's assets.

Question 15

Whether a fund is organized as a closed- or an open-end fund,is will have the same basic organizational structure.

Accepted Answer

Both closed-end and open-end funds have a similar organizational structure, including a board of directors/trustees, investment advisor, custodian, and transfer agent. However, there are some key differences in their operations and investment strategies.

Question 16

A mutual fund's board of directors picks the securities that will be held and makes buy and sell decisions.

Accepted Answer

While a mutual fund's board of directors is responsible for overseeing the mutual fund, it typically hires an investment adviser to make investment decisions, including selecting securities to hold and making buy and sell decisions.

Question 17

Money market mutual funds originated when the brokerage firm Merrill Lynch offered its customers an account from which funds could be taken to purchase securities and into which funds could be deposited when securities were sold.

Accepted Answer

This statement accurately describes the origin of money market mutual funds.

Question 18

A deferred load is a fee charged when shares in a mutual fund are redeemed.

Accepted Answer

A deferred load, also known as a back-end load or redemption fee, is a fee charged when shares in a mutual fund are redeemed. It is usually a percentage of the amount being redeemed and is designed to encourage long-term investment in the fund. Some mutual funds may have a declining scale of deferred loads, where the percentage decreases as the holding period gets longer.

Question 19

How did money market mutual funds originate and why did they become especially popular in the late 1970s and early 1980s?

Accepted Answer

The answer of How did money market mutual funds originate...

Question 20

Among the investors in mutual funds,only about 25% cite preparing for retirement as one of their main reasons for holding shares.

Accepted Answer

A significantly higher percentage of mutual fund investors cite preparing for retirement as one of their main reasons for holding shares, often making it the top reason for investing in mutual funds.

Quiz 20: The Mutual Fund Industry