Question 1

Mutual funds initially took the form of&#10;A) Money market funds&#10;B) Equity funds&#10;C) Corporate bond funds&#10;D) None of the above

Accepted Answer

Equity funds&#10;

Question 2

Investors have sought mutual funds primarily for&#10;A) Achieving diversification&#10;B) Achieving higher yield&#10;C) Convenient access to their funds&#10;D) Safety of their investments

Accepted Answer

Achieving diversification is the primary reason investors seek mutual funds. Mutual funds provide a diversified portfolio of investments, which helps to reduce risk.

Question 3

Mutual funds got their start in&#10;A) The United Kingdom&#10;B) Japan&#10;C) Brazil&#10;D) The United States

Accepted Answer

Mutual funds originated in the United States in the 1920s.

Question 4

With a closed-end mutual fund&#10;A) The number of shares expands and contracts with investor demand&#10;B) The number of shares is fixed and the price per share rises and falls with investor demand&#10;C) The composition of the fund's portfolio is constantly changing&#10;D) They are no longer permitted in the United States

Accepted Answer

Closed-end mutual funds have a fixed number of shares, and their price per share fluctuates based on investor demand, unlike open-end funds, which issue new shares or redeem existing shares as investor demand changes.

Question 5

Investors favor exchange-traded funds (ETFs) over open-end funds because&#10;A) The way in which shares are priced is more transparent&#10;B) There is more variety of investments&#10;C) Trades can be completed any time during the business day instead of only at the end of the day&#10;D) They are more fashionable these days

Accepted Answer

Trades can be completed any time during the business day instead of only at the end of the day

Question 6

Target funds&#10;A) Focus on specific sectors of the economy&#10;B) Are aimed at investors planning for retirement in the target year&#10;C) Avoid SEC regulation&#10;D) Focus on maximum diversification

Accepted Answer

Target funds, also known as target-date funds, are designed to automatically adjust their asset allocation mix (e.g., stocks, bonds, cash) according to a selected time frame that is most often related to the investor's expected retirement year. They do not specifically focus on sectors, avoid SEC regulation, or prioritize maximum diversification above their strategic asset allocation adjustments over time.

Question 7

An investor seeking a high degree of diversification would tend to select&#10;A) Money market mutual funds&#10;B) Stock index funds&#10;C) Sector funds&#10;D) Hybrid funds

Accepted Answer

The answer of An investor seeking a high degree of...

Question 8

Net asset value represents&#10;A) The price an investor in open funds receives for shares sold or pays for shares bought&#10;B) The price paid or received on an ETF&#10;C) The notional price of a share in an open-end fund that is tracked during the day&#10;D) The base for determining the compensation of investment managers

Accepted Answer

Net asset value (NAV) is the price at which investors buy or sell shares of an open-end mutual fund. It is calculated at the end of each trading day based on the fund's total assets minus its liabilities, divided by the number of shares outstanding.

Question 9

Shares in money market mutual funds are priced on the basis of&#10;A) Net asset value&#10;B) Amortized cost&#10;C) Real-time values&#10;D) The yield on 91-day Treasury bills

Accepted Answer

Money market mutual funds typically use the amortized cost method to maintain a stable net asset value, usually $1 per share, which simplifies accounting and provides liquidity.

Question 10

&#34;Breaking the buck&#34; refers to&#10;A) A drop in the price of shares in an equity fund&#10;B) A drop in the price of shares in a bond fund&#10;C) The price of a share in a money fund dropping below one dollar&#10;D) The failure of a mutual fund complex

Accepted Answer

"Breaking the buck" specifically refers to a situation where the net asset value (NAV) of a money market fund falls below $1.00 per share. This is significant because money market funds aim to maintain a stable NAV of $1.00 per share, and a drop below this level indicates a loss of principal, which is rare and considered a significant event in the financial industry.

Question 11

Compared with open-end funds, closed-end funds&#10;A) Tend to invest in less liquid assets&#10;B) Tend to invest in foreign assets&#10;C) Tend to invest in Treasury securities&#10;D) Are actively managed to seek a target return

Accepted Answer

The answer of Compared with open-end funds, closed-end funds&#10;A) Tend...

Deck 18: Mutual Funds