Deck 13: Investing in Mutual Funds, ETFS and Real Estate

Question 1

Open-ended mutual funds typically offer more diversification than an individual security.

Answer 1

True

Question 2

Exchange traded mutual funds (ETFs):

A)are traded throughout the day on stock exchanges.
B)are closed-end funds with a fixed number of shares outstanding.
C)always distribute their capital gains to fund holders,resulting in low taxes.
D)are actively managed by investors,resulting in high costs and high taxes.
E)fill their buy and sell orders at the closing prices at the end of the trading day.

Answer 2

A

Question 3

Dividend income,capital gains distributions received,and changes in the fund's share price are all sources of returns for a mutual fund investor.

Answer 3

True

Question 4

Mutual funds and exchange traded funds (ETFs)always provide professional investment management.

Question 5

Dividend income and capital gains distributions are taxed at identical tax rates.

Question 6

The current market value of all the securities a mutual fund owns,less any liabilities,on a pershare basis is known as the fund's:

A)compounded value.
B)par value.
C)net asset value.
D)book value.
E)liquidation value.

Question 7

Which of the following is a reason to invest in mutual funds?

A)Mutual funds are free of any hidden costs.
B)Mutual funds earn tax-free returns.
C)Mutual funds provide a guaranteed return in spite of market risks.
D)Mutual funds provide diversification of invested funds.
E)Mutual funds are always issued as no-load funds.

Question 8

Speculating in raw land is highly risky.

Question 9

For tax purposes,real estate is considered an active investment.

Question 10

Redeeming your mutual fund shares might result in a charge called the:

A)back-end load.
B)front-end load.
C)redemption tax.
D)management fee.
E)12b-1 fees.

Question 11

The individual manager of a mutual fund has little to do with the fund's success.

Question 12

Mutual funds and exchange traded funds (ETFs)earnings result solely from dividends.

Question 13

A(n)_____ sells fund shares either directly to the public or through certain authorized dealers.

A)investment advisor
B)custodian
C)transfer agent
D)distributor
E)money manager

Question 14

An annual fee charged by some mutual funds to cover marketing and selling expenses is called the:

A)management fee.
B)back-end load.
C)transaction fee.
D)12b-1 fee.
E)low-load.

Question 15

Which of the following combines some of the operating characteristics of an open-end fund with some of the trading characteristics of a closed-end fund?

A)Preferred fund
B)Common fund
C)Exchange traded fund
D)Net asset fund
E)Unit investment fund

Question 16

A(n)_____ actually runs the portfolio and makes the buy and sell decisions.

A)transfer agent
B)distributor
C)investment advisor
D)regulator
E)custodian

Question 17

An investor with a small amount of money should stick to using load funds instead of no-load funds.

Question 18

A major benefit of mutual funds to small investors is diversification.

Question 19

The most important advantage of a mutual fund is pooled diversification.

Question 20

A fund's objective must be stated in its prospectus.

Question 21

_____ funds are balanced funds that automatically change the asset allocation from more to less equity exposure as an investor ages.

A)Bond
B)Aggressive growth
C)Value
D)Life
E)Intermediate-term

Question 22

A closed-end investment company that invests in various types of income-producing properties and mortgage loans is a:

A)hybrid real estate investment trust.
B)blind pool real estate syndicate.
C)real estate general partnership.
D)hybrid limited real estate partnership.
E)mortgage real estate investment trust.

Question 23

Compared to mutual funds,exchange traded funds (ETFs):

A)are more cost-effective for investors with a short-term horizon.
B)generate higher taxable gains.
C)accommodate investors pursuing narrow market segments.
D)are more diversified.
E)have higher overhead expenses.

Question 24

A fund that invests only in a particular industry would be a _____ fund.

A)money market
B)maximum capital
C)sector
D)balanced
E)bond

Question 25

A group of funds managed by a single company which offers conversion privileges is called a:

A)management group.
B)fund family.
C)brokerage group.
D)switched fund.
E)convenience group

Question 26

General-purpose money fund is:

A)a money fund that invests in virtually any type of short-term investment vehicle.
B)a money fund that limits its investments to short term,tax-exempt municipal securities
C)a money fund that limits its investments to short-term securities of the U.S.government and its agencies.
D)a money fund that invests in stock of undervalued companies.
E)a money fund that invests only in real estate properties that generate high capital gains.

Question 27

Which of the following is true of real estate investments?

A)Real estate investments move in tandem with stocks.
B)Real estate investments are considered active investments for income tax purposes.
C)Real estate investments lead to lower taxes due to tax shelter.
D)Real estate investments have less scope for financial leverage.
E)Real estate investments cannot depreciate.

Question 28

Jenny's adjusted gross income (AGI)is $120,000 a year and she owns a real estate property that generates a rental income of $10,000 annually.If she pays a mortgage interest of $4,000 on her property per year,she can write off up to _____ in depreciation.

A)$4,000
B)$10,000
C)$6,000
D)$14,000
E)$8,000

Question 29

In the online quotes from The Wall Street Journal's listing of mutual funds,an "r" after the mutual fund name means that the particular mutual fund has a _____ associated with it.

A)front-end load
B)back-end load
C)12(b)-1 fee
D)management fee
E)distribution load

Question 30

_____ funds are highly speculative and seek large profits from capital gains.

A)Balanced
B)Growth
C)Equity income
D)Aggressive growth
E)Exchange traded

Question 31

Which of the following bond mutual funds invest in tax-exempt securities?

A)High-yield corporate bond funds
B)Municipal bond funds
C)Convertible bond funds
D)Mortgage-backed bond funds
E)Intermediate-term bond funds

Question 32

Both load and no-load funds always charge a:

A)transaction fee.
B)12(b)-1 fee.
C)management fee.
D)fee on the sale of the shares.
E)redemption fee.

Question 33

Investment in real estate is attractive to investors because:

A)it is a highly liquid investment.
B)it permits a high degree of financial leverage.
C)it is exempted from taxation.
D)it requires very low investment.
E)it is highly correlated with the stock markets.

Question 34

Which of the following real estate investment trusts (REITs)is the most attractive to income-oriented investors?

A)Equity
B)Mortgage
C)Back-end load
D)Unit trust
E)Exchange traded

Question 35

The fund that is structured to match the performance of a certain market segment is known as a(n)_____ fund.

A)balanced
B)preferred stock
C)exchange traded
D)index
E)capital

Question 36

A(n)_____ is a service offered by mutual funds that helps an investor earn compound interest on their investments.

A)retirement plan
B)deferred withdrawal plan
C)automatic reinvestment plan
D)conversion privilege
E)standard investment plan

Question 37

If you are a mutual fund investor who needs a steady income,you might take advantage of a fund's:

A)retirement plans.
B)exchange privileges.
C)automatic reinvestment plans.
D)systematic withdrawal plans.
E)conversion plans.

Question 38

Having money taken at regular intervals from your paycheck and put into a mutual fund is an example of:

A)an automatic investment plan.
B)an authorized deduction plan.
C)a systematic withdrawal plan.
D)a conversion privilege.
E)a retirement plan.

Question 39

Carlos holds a portfolio of stocks and bonds.He is planning to buy a real estate property worth $150,000.He can use financial leverage to make this purchase by:

A)paying $75,000 cash in the first installment and selling shares worth $75,000 from his portfolio to pay the second installment.
B)taking a personal loan worth $100,000 and selling bonds worth $50,000 from his portfolio.
C)selling bonds from his portfolio worth $80,000 and writing a check for $70,000.
D)selling stocks from his portfolio worth $50,000 and paying $100,000 in cash.
E)paying $150,000 in cash from his savings account.

Question 40

Leverage means:

A)using borrowed money to magnify returns.
B)paying only cash for any investment purchase.
C)investing in highly speculative securities.
D)purchasing securities at a premium price.
E)selling investments before their maturity.

Question 41

Exchange traded funds (ETFs)invest __________. ​

A)in high-tax securities
B)at no transaction cost
C)in narrow market segments
D)in a fixed number of shares only

Question 42

Exchange traded funds are investment company shares that trade __________ on stock exchanges. ​

A)at closing price
B)throughout the day
C)more than actively managed mutual funds
D)at the lowest volume of the day

Question 43

A(n)__________ real estate investment trust (REIT)would invest in income-producing properties and mortgage loans. ​

A)hybrid
B)mortgage
C)equity
D)spider

Question 44

__________ gives the property owner an allowance for the decline in the physical condition of real estate over time. ​

A)Depreciation
B)Capital gain
C)Dividend
D)Interest

Question 45

Mike has decided to purchase a real estate property that is expected to generate a net operating income (NOI)of $63,000 per year.With a 9 percent cap rate,the property would have an estimated value of _____.

A)$630,000
B)$187,000
C)$700,000
D)$965,000
E)$235,000

Question 46

RACE Mutual fund is a no-load fund that had a net asset value of $25.60 one year ago.Today,the net asset value (NAV)is $28.83.During the year,dividends of $0.72 were paid out and a capital gain distribution of $0.65 was made.Calculate the approximate yield for RACE.(Show all work.)

Question 47

The actual ownership of a mutual fund is in the hands of the __________. ​

A)management company
B)custodians
C)shareholders
D)distributors

Question 48

Tom takes a loan of $60,000 at 4 percent annual interest to purchase a property worth $100,000.He earns an annual income of $10,000 after expenses but before interest and income taxes are deducted.If the income tax rate is 30 percent,then the leveraged return on the real estate investment is _____.

A)30%
B)25%
C)10%
D)19%
E)13%