Deck 13: Investing in Mutual Funds

Question 1

Stephanie wants to invest in a mutual fund that invests in companies within the same industry.She should put her money into a regional fund.

Answer 1

False

Question 2

Brenda wants to invest in a fund that will outperform most others.On average,she would be better off to invest in an index fund instead of a managed closed-end fund.

Answer 2

True

Question 3

An aggressive growth fund invests in companies with a long history of paying dividends.

Answer 3

False

Question 4

A socially responsible fund invests in companies that produce tobacco,nuclear energy,and weapons in order to influence the boards to change the companies' mission statements.

Question 5

Open-end mutual funds have managers and closed-end funds do not.

Question 6

If Ryan wants to invest in an index mutual fund,he should not expect his fund to behave differently than the underlying index.

Question 7

Most managed mutual funds outperform the Standard & Poor's 500 stock index.

Question 8

For individuals,stocks and bonds are safer choices than mutual funds because money is pooled from many investors for mutual funds.

Question 9

In 2011,investors in the United States could choose from more than 25,000 mutual funds.

Question 10

The difference between a global stock fund and an international fund is that the global stock fund invests in companies throughout the world,including the United States,whereas the international fund invests outside the United States.

Question 11

An exchange-traded fund has portfolio managers who actively research and select the stocks and other securities.

Question 12

Many people invest in mutual funds through their retirement accounts.

Question 13

Mutual funds carry a "real risk" that they can decrease in value.

Question 14

Most mutual funds are closed-end funds.

Question 15

A "good" fund manager has the ability to increase the share value when the economy is good and retain that value when the economy is bad.

Question 16

The return for an intermediate U.S.government bond fund should be higher than for a junk bond fund.

Question 17

An "A fund" mutual fund may have a commission as high as 9.5%.

Question 18

A family of funds is a grouping of funds that all invest in bonds or all invest in stocks.

Question 19

Mutual funds provide amateur management.

Question 20

Fred wants to invest in a "no-load" fund.This means that the fund has no 12b-1 fees.

Question 21

The net asset value is calculated as

A) (Liabilities - Value of portfolio) + Number of shares outstanding.
B) Number of shares outstanding/(Liabilities - Value of portfolio).
C) (Liabilities - Value of portfolio)/Number of shares outstanding.
D) (Current market value of portfolio - Liabilities)/Number of shares outstanding.
E) Number of shares outstanding/(Value of portfolio - Liabilities).

Question 22

The average load charge for mutual funds is

A) 0%.
B) 2%.
C) 3-5%.
D) 8.5%.
E) 11.5-14.5%.

Question 23

An investment company sponsoring a mutual fund must give potential investors an annual report.

Question 24

A no-load mutual fund

A) May allow investors to pay a sales charge.
B) Charges commission when you buy shares.
C) Uses salespeople to sell the funds.
D) Is available only via the Internet.
E) Can charge a 12b-1 fee of up to 0.25% of its assets.

Question 25

Which of the following is a fund that invests in stocks or securities contained in a specific stock or securities index?

A) Closed-end fund
B) Exchange-traded fund
C) Net asset value fund
D) No-load fund
E) Open-end fund

Question 26

Many mutual funds charge a commission every time they are purchased by investors.These are called

A) Load funds.
B) Closed-end funds.
C) Exchange-traded funds.
D) Net asset value funds.
E) Open-end funds.

Question 27

A load fund is allowed to collect a sales charge (commission)as high as

A) 0%.
B) 2%.
C) 3-5%.
D) 8.5%.
E) 11.5%.

Question 28

What percentage of all mutual funds are closed-end funds?

A) 6%
B) 13%
C) 36%
D) 85%
E) 93%

Question 29

Which of the following is correct for a closed-end fund?

A) It is not traded on a securities exchange.
B) The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations.
C) It is not actively managed by professional fund managers.
D) Its price is equal to the net asset value.
E) Its load cannot exceed 2%.

Question 30

A higher turnover ratio for a mutual fund can result in higher tax bills.

Question 31

Cynthia received an IRS Form 1099DIV.This form is sent at the end of each quarter to specify how much she received in dividends and capital gain distributions.

Question 32

All of the following are advantages of a mutual fund except

A) Diversification.
B) Professional management.
C) Loads of up to 8.5%.
D) Ease of buying and selling shares.
E) All of these are advantages.

Question 33

A capital gain distribution is the profit that usually results when the investors sell their shares that have increased in value.

Question 34

A newspaper will provide more complete coverage of mutual funds compared to other sources.

Question 35

The average upfront sales charge for a no-load mutual fund is

A) 0%.
B) 2%.
C) 3-5%.
D) 8.5%.
E) 11.5-14.5%.

Question 36

Many people own mutual funds as part of a 401(k)plan.

Question 37

Whose shares are issued and redeemed by the investment company at the request of investors?

A) Closed-end fund
B) Exchange-traded fund
C) Net asset value fund
D) No-load fund
E) Open-end fund

Question 38

How is an ETF similar to a closed-end fund?

A) Shares are traded on a securities exchange or in the over-the-counter market.
B) An investor can purchase as little as one share of a fund.
C) Prices are determined by supply and demand and the value of stocks and other investments contained in the portfolio.
D) Prices are determined by investor expectations.
E) All of these are correct.

Question 39

Which type of fund has the prices determined by factors of supply and demand like a stock?

A) Closed-end fund
B) SEC government fund
C) Net asset value fund
D) No-load fund
E) Open-end fund

Question 40

The only way to get reliable information about mutual funds is to pay a fee for it.

Question 41

Which of the following types of stock funds invests in stock issued by companies with a long history of paying dividends?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 42

Which class of shares charges a commission when withdrawals are made during the first five years?

A) A
B) B
C) C
D) K
E) Q

Question 43

Which class of shares does not impose a sales load or contingent deferred sales fee but charges a higher 12b-1 fee than the other classes?

A) A
B) B
C) C
D) K
E) Q

Question 44

Which class of shares charges a commission when shares are purchased?

A) A
B) B
C) C
D) K
E) Q

Question 45

Which of the following is not correct?

A) When evaluating a mutual fund, an important question to ask is this: How long has the present fund manager been managing the fund?
B) Over the years, the majority of managed mutual funds have failed to outperform the Standard & Poor's 500 stock index.
C) Managed funds may be open-end funds or closed-end funds.
D) A benchmark of a good fund manager is the ability to increase share value when the economy is good and retain that value when the economy is bad.
E) A managed fund will outperform an index fund only 60% of the time.

Question 46

Sally wants to invest in a fund that invests only in stock.Which of the following will meet her needs?

A) Asset allocation funds
B) Balance funds
C) Junk bond funds
D) Midcap funds
E) Short-term corporate bond funds

Question 47

Which of the following types of stock funds invests in stock issued by companies expecting higher-than-average revenue and earnings growth?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 48

Which of the following types of stock funds invests in stock issued by companies throughout the world outside the United States?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 49

If you start a new job and are offered the opportunity to participate in the company's 401(k)or 403(b)retirement plan,which of the following decisions can affect your financial future?

A) Participating in the retirement account as a way to reduce income taxes.
B) Participating in the retirement account to take advantage of the employer's matching contributions.
C) Choosing mutual funds from a number of different fund options for your retirement account.
D) Basing your actual choice of investments on your age, how long before you retire, and your tolerance for risk.
E) All of these decisions would have a financial impact.

Question 50

Val wants to invest in a fund whose primary objective is to conserve principal,provide income,and provide long-term growth.Which of the following will best meet her needs?

A) Cyclical funds
B) Balanced funds
C) Junk bond funds
D) Midcap funds
E) Short-term corporate bond funds

Question 51

A fee charged to defray the costs of advertising and marketing for a mutual fund is called a ____ fee.

A) 3c
B) 12b-1
C) 14c-2
D) 401(k)
E) 403(b)

Question 52

Professional advisory services provide detailed information about mutual funds.Which of the following is not a professional advisory service?

A) Dun and Moody's.
B) Lipper Analytical Services.
C) Morningstar, Inc.
D) Value Line.
E) All of these are professional advisory services that provide information about mutual funds.

Question 53

Which of the following types of stock funds invests in stock traded within one specific region of the world?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 54

An example of a lifecycle fund is a fund that

A) Assists investors with planning for retirement by a specific date.
B) Initially invests in conservative securities, then changes to invest in more risk-oriented securities as time goes by.
C) Invests in shares of other mutual funds in order to increase diversification and asset allocation.
D) Has principal protection as its main objective.
E) None of these is an example of a lifecycle fund.

Question 55

Time is an important factor when evaluating a mutual fund for which of the following?

A) The existence of the underlying index.
B) The life of the companies in the fund.
C) The length of time that the fund manager has been managing the fund.
D) The status of the economy.
E) None of these.

Question 56

Thomas wants to invest in a fund that invests in stock,bonds,and money market instruments.Which of the following will meet his needs?

A) Asset allocation funds
B) Aggressive growth funds
C) Junk bond funds
D) Midcap funds
E) Short-term corporate bond funds

Question 57

Which of the following types of stock funds invests in the same companies included in the Standard & Poor's 500 stock index?

A) Equity income funds
B) Growth funds
C) Index funds
D) International funds
E) Regional funds

Question 58

Which of the following is not correct about the 12b-1 fee?

A) It is also known as a distribution fee.
B) A no-load fund can charge a 12b-1 fee of up to 0.25% of its assets.
C) It is often an ongoing fee that is charged on an annual basis.
D) It needs to be disclosed in the annual report but not in the prospectus.
E) It is used to defray the costs of advertising and marketing a mutual fund and commissions paid to a broker who sold shares in the mutual fund.

Question 59

A contingent deferred sales load is known as all of the following except

A) Back-end load.
B) B fund.
C) Redemption fee.
D) Only two of these are correct.
E) All of these are correct.

Question 60

Which of the following is not a way one can access reliable information about mutual funds on the internet?

A) Find statistical information from the investment company's web page.
B) Obtain current market values for mutual funds by using a search engine such as http://finance.yahoo.com.
C) Review blogs from amateur investors about their favorite mutual funds.
D) Research reports for mutual funds using professional advisory services.
E) All of these are reliable sources of information about mutual funds.

Question 61

Which of the following provides some information about mutual funds for free and more detailed information at a cost?

A) Financial publications
B) Internet
C) Mutual fund annual report
D) Newspapers
E) Professional advisory services

Question 62

The Anderson Balanced mutual fund charges a sales load of 4.85%.If you invest $15,000,how much of your investment will actually be used to purchase shares in the fund?

A) $14,250.00
B) $14,272.50
C) $14,400.00
D) $14,485.00
E) $15,000.00

Question 63

The Anderson Balanced mutual fund charges a sales load of 4.85%.If you invest $15,000,how much must you pay in commissions?

A) $4.85
B) $485.00
C) $600.00
D) $727.50
E) $750.00

Question 64

A problem with mutual funds is

A) Professional management.
B) The possibility to eliminate taxes if held in a Roth individual retirement account.
C) Being required to report reinvested income dividends and capital gain distributions on your federal tax return.
D) Tax deferral if the fund is held in a retirement account like a 401(k) account.
E) The diversification offered to investors.

Question 65

Francesca withdrew $7,000 from B shares that she owned in the Already Been Counted mutual fund within one year of her purchase.If she must pay a 5% contingent deferred sales fee,what will her total fee be?

A) $0
B) $3.50
C) $35.00
D) $350.00
E) $3,500.00

Question 66

Melinda wants to withdraw some money from her mutual fund.Which of the following is not an option available?

A) Write a check
B) Sell a certain number of shares each investment period
C) Withdraw a fixed percentage of asset growth
D) Withdraw all income dividends and capital gain distributions earned each investment period
E) Withdraw all principal and leave interest dividends and capital gain distributions in the account

Question 67

Sally wants to invest in a mutual fund.The mutual fund must provide a(n)____ to her.

A) analysis from a financial publication
B) annual report
C) prospectus
D) quarterly report
E) summary report

Question 68

When you sell your shares in a mutual fund,you may receive a profit called

A) Capital gain distribution.
B) Income dividend.
C) Capital gain.
D) Mutual fund money.
E) Fund taxes.

Question 69

Which of the following is true about mutual funds and taxes?

A) Capital gain distributions are taxed when you sell your shares.
B) Income dividends are taxed quarterly.
C) Investment companies are required to send each shareholder a year-end statement that specifies how much each received in dividends and capital gain distributions.
D) Capital gains distributions are not taxed.
E) Taxes can be eliminated if you hold your mutual fund shares in your 401(k) retirement account.

Question 70

How do mutual funds provide returns to their shareholders?

A) Income dividends.
B) Capital gain distributions.
C) Capital gains.
D) All of these.
E) None of these.

Question 71

Which of the following contains a letter from the president of the investment company,detailed financial information,a schedule of investments,and a letter from the fund's independent auditors?

A) Financial publications
B) Internet
C) Mutual fund annual report
D) Newspapers
E) Professional advisory services

Question 72

Which of the following provides a good means of monitoring the value of your mutual fund investments,but not as much information as other sources of information that conduct a more complete evaluation?

A) Financial publications
B) Internet resources
C) Mutual fund annual report
D) Newspapers
E) Professional advisory services

Question 73

If you hold mutual fund shares in your Roth individual retirement account,the taxes will be

A) Deferred.
B) Eliminated.
C) Evaluated.
D) Payable immediately.
E) None of these.

Question 74

The investments in the Already Been Counted Fund have a current market value of $600 million.The fund also has liabilities that total $40 million.If this mutual fund has 25 million shares,what is the net asset value per share?

A) $1.60.
B) $22.40.
C) $24.00.
D) $25.60.
E) None of these.

Question 75

Payments to investors related to the sale of securities in the fund's portfolio are

A) Capital gain distributions.
B) Income dividends.
C) Capital gains.
D) Mutual fund money.
E) Fund taxes.

Question 76

Francesca withdrew $7,000 from B shares that she owned in the Already Been Counted mutual fund within one year of her purchase.If she must pay a 5% contingent deferred sales fee,what amount will she actually receive?

A) $350
B) $6,650
C) $7,000
D) $7,350
E) $7,500

Question 77

All of the following are valid ways to purchase mutual funds except

A) A regular account transaction.
B) A voluntary savings plan.
C) A contractual savings plan.
D) A reinvestment plan.
E) All of the ways listed are valid purchase options.

Question 78

Professional advisory services provide research on mutual funds in all of the following areas except

A) A historical profile.
B) Statistical information.
C) Performance, risk analysis, and portfolio analysis.
D) Summary of the analyst's research.
E) All of these are included by professional advisory services.

Question 79

The investments in the Alamo Basics Contingency Fund have a current market value of $800 million.The fund also has liabilities that total $60 million.If this mutual fund has 20 million shares,what is the net asset value per share?

A) $3.00
B) $37.00
C) $40.00
D) $43.00
E) $60.00

Question 80

Earnings paid to shareholders that are not related to the sale of securities in the fund's portfolio are called

A) Capital gain distribution.
B) Income dividend.
C) Capital gain.
D) Mutual fund money.
E) Fund taxes.