Deck 18: Mutual Funds

Question 1

Good performance by a mutual fund in the past is highly indicative of good performance in the future.

Answer 1

False

Question 2

Assuming no reinvestment,the total return on mutual fund shares is the total ending value of your shares divided by the total beginning value of your shares.

Answer 2

False

Question 3

The intent of dollar cost averaging in to avoid buying high and selling low.

Answer 3

True

Question 4

Open-end funds often sell at a discount to net asset value.

Question 5

The acceptable range for a mutual fund's total yearly expenses is from 2% to 3% of assets.

Question 6

At the end of 2005,approximately 47 percent of U.S.households owned shares in mutual funds.

Question 7

When you invest in a typical load fund with an 8.5% load,the fund must appreciate by over 10% in value for you to break even on your investment.

Question 8

Between 70% and 75% of all investment funds in the US are open ended.

Question 9

Closed-end funds have a fixed number of shares; open ended funds do not.

Question 10

Morningstar Mutual Fund Survey is considered one of the leading authorities on mutual fund performance.

Question 11

Most common stock mutual funds trade at a discount from NAV.

Question 12

The prospectus is designed to provide a broad overview of the mutual fund but is not required to disclosure its investment focus or investment style that it represents.

Question 13

Money market funds are usually load funds.

Question 14

Load funds,which charge a commission,generally perform no better than no-load funds.

Question 15

On average mutual funds tend to outperform the market over the long run.

Question 16

Money market accounts at commercial banks usually pay higher interest rates than money market mutual funds.

Question 17

Shares of a closed end fund trade on an exchange just like stock.

Question 18

Load mutual funds outperform no-load funds.

Question 19

Exchange traded funds (ETFs)are similar to index mutual funds but they traded on stock exchanges like common stock.

Question 20

The smart investor will compare the portfolio of a fund to its stated objectives.

Question 21

Actually,the term mutual fund applies specifically to open-end investment companies,although closed-end funds are sometimes loosely labeled as mutual funds as well.

Question 22

An investor in mutual funds must also be sensitive to the excessive performance claims that are sometimes made by mutual fund salespeople.

Question 23

As of 2005,no-load funds made up close to 52 percent of all mutual fund assets.

Question 24

Index funds are created to imitate a popular stock index such as the S&P 500 index.

Question 25

The chief disadvantage of front-end load funds is that the investor has less money to invest after commissions.

Question 26

Advantages of mutual funds include

A)Mutual funds outperform the market on average
B)Efficient diversification
C)Exceptionally low level of risk
D)All of the above

Question 27

An investor should expect a mutual fund to maintain its historical track record of returns.

Question 28

A prospectus contains information deemed essential by the SEC in providing some disclosure to potential investors regarding the fund's investment objectives and policies,risks,management,expenses,and current portfolio.

Question 29

A closed-end fund versus an open-end fund refers to

A)Whether there is a substantial penalty for early withdrawal
B)Maturity date of the shares
C)How the shares are distributed and redeemed
D)Limitation of upside potential and downside risk

Question 30

A closed-end fund stands ready to buy your shares back at all times.

Question 31

An important consideration with an open-end fund is whether it is a load fund or a no-load fund.

Question 32

Money market fund rates do not closely track short-term market interest rates because the maturities of assets held in money market portfolios generally range from one to six months.

Question 33

Bond mutual funds can be divided into corporate,government and municipal funds.

Question 34

Closed-end funds are very commonly used for internationally emerging market investments.

Question 35

Open-end common stock funds are much less common than closed-end funds.

Question 36

Stocks in sector funds tend to be underpriced.

Question 37

A closed-end fund might trade for less than net asset value if

A)The fund has a poor record of prior performance
B)It is a new fund trying to attract new investors
C)It is heavily invested in an unpopular industry
D)A and C

Question 38

After 5 years of ownership,most back end-load funds may be sold without a sales commission.

Question 39

Net asset value

A)Is the value of the securities minus the liabilities,divided by the number of shares outstanding
B)Is the price at which the shares of a closed-end fund trade
C)Is the value of the funds years earnings divided by the total amount invested in the fund
D)A and B

Question 40

The sale of mutual fund shares is a taxable event.

Question 41

A fund investing in T-bills,Eurodollar deposits,commercial paper,and repurchase agreements is probably a

A)Money market fund
B)Balanced fund
C)Sector fund
D)Growth fund

Question 42

Direct sources of return on a mutual fund investment include

A)Dividends distributed
B)Interest accumulated
C)Stock market appreciation
D)Two of the above

Question 43

A load is

A)A commission paid to a selling agent
B)Paid directly from investors capital
C)Typically 3% to 4% on a stock fund
D)A and B

Question 44

A closed end fund might trade at a premium due to

A)The quality of fund management
B)An upcoming dividend payable to the portfolio
C)An impending stock split in the portfolio
D)A closed end fund would never trade at a premium

Question 45

By using dollar cost averaging

A)The investor is attempting to beat the market
B)The investor buys when prices are favorable only
C)The investor invests a fixed amount at regular intervals,at current market prices
D)None of the above

Question 46

Reliable sources of information about mutual funds include all of the following except

A)Forbes
B)Lipper
C)Morningstar
D)All of the above are good sources

Question 47

Funds that invest in specific industries,such as energy,leisure,or defense are called

A)Balanced funds
B)Industry funds
C)Sector funds
D)Specialty funds

Question 48

Yields on money market funds are closely associated with

A)Short term interest rates
B)The prime rate
C)Long term interest rates
D)None of the above

Question 49

Investment company shares that trade on stock exchanges just like common stock and are essentially funds that mimic some index are

A)Open-end mutual funds
B)Exchange traded funds
C)Money market funds
D)Load funds traded on stock exchanges
E)Index mutual funds

Question 50

A mutual fund in which the portfolio is weighted exactly like the Standard and Poor's 500 index or any other market measure is called

A)A stock fund
B)A balanced fund
C)An index fund
D)Market fund

Question 51

In a closed end mutual fund,shares are traded

A)Through brokers
B)On an exchange
C)Between shareholders
D)B and C

Question 52

___________ invest entirely in short-term securities and are particularly popular during periods of high short-term interest rates.

A)Index funds
B)Balanced funds
C)Mutual stock funds
D)Money market funds

Question 53

The mutual fund prospectus provides information about

A)The fund's investment objectives
B)Shareholder services
C)The current portfolio
D)All of the above

Question 54

One can purchase shares in a closed end mutual fund

A)From shareholders
B)Directly from the fund at all times
C)Directly from the fund at inception
D)A and C

Question 55

Exchange Traded Funds (ETFs)

A)Are predominantly traded on the New York Stock Exchange
B)Create an opportunity for investors to own foreign stock markets
C)Are open-end mutual funds
D)Are load funds traded on stock exchanges

Question 56

Which is not an advantage of exchange traded funds (ETFs)?

A)Their expense ratios are lower than mutual funds
B)Because they imitate an index,there are no real research costs
C)They can be bought and sold all day long at a price that is almost exactly the net asset value of the stocks in the index
D)The assets in the portfolio are marked to market continuously
E)They are open-ended funds that have reasonably low sales expenses

Question 57

________ have a fixed supply of shares which often trade at a discount from the market value of assets held,but which make up the majority of investment funds,are more liquid.

A)Stock funds; bond funds
B)Bond funds,stock funds
C)Closed-end funds; open-end funds
D)Open-end funds; closed-end funds

Question 58

Federal income tax on investment income and capital gains of a mutual fund

A)Must always be paid by both the fund and the shareholder
B)Must be paid only by the shareholder
C)Is not required of the fund if it distributes at least 90% of its net investment income and capital gains
D)Is not required either of the fund or of its shareholders

Question 59

Mutual funds which provide tax-free income are ________ and certain types of

A)Stock funds; bond funds
B)Money market funds; balanced funds
C)Municipal bond funds; money market funds
D)None of the above

Question 60

An end load fund has

A)No charge upon purchase,but a fixed charge upon sale
B)A smaller charge on purchase,and another small charge again on sale
C)No charge upon purchase,and a declining charge based on time owned,on sale
D)Two of the above

Question 61

The growth fund category of funds would include

A)Equity growth funds and aggressive growth
B)Dividend paying equities with growing dividends
C)Convertible securities that are convertible into growth stocks
D)Funds that specialize in a high growth industry such as technology

Question 62

The difference between a load fund and a no-load fund is that:

A)No-load funds do not charge commissions and are sold directly by the investment company
B)Load funds do not charge commissions and are sold directly by the investment company
C)No-load funds charge higher commissions than load funds
D)No-load funds charge lower commissions than load funds

Question 63

When a mutual fund you own buys and sells securities in its portfolio,

A)You are responsible for paying taxes on the net gains and losses incurred
B)The mutual fund is responsible for paying the taxes before distributing your share of the net gains
C)The IRS does not levy taxes on mutual funds
D)You have a choice on whether to pay taxes on the gains during the current year or to pay the taxes over a five year period

Question 64

Mutual funds have several disadvantages.Which of the following would apply?

A)Diversification of assets reduces risk
B)Mutual funds allow an investor to choose an international portfolio with high risk
C)Mutual funds on average do not outperform the market
D)No-load funds minimize transaction costs

Question 65

Which of the following shareholder services is a taxable event

A)Safekeeping
B)Automatic reinvestment
C)Pre-authorized check plan
D)Exchange privilege

Question 66

Which of the following is not a disadvantage of investing in mutual funds?

A)They do not outperform the market as a group
B)Some mutual funds may be expensive to purchase
C)Sector funds are riskier than diversified funds
D)With 5000 funds to choose from,the selection of a fund is just as difficult as selecting an individual stock

Question 67

Under dollar-cost averaging the investor buys a

A)Fixed dollar's worth of a given security's price or the current market outlook
B)Floating dollar's worth of a given security's price or the current market outlook
C)Fixed dollar's worth of any security
D)None of the above

Question 68

Characteristics of mutual funds include everything except:

A)Different investors can pool their money
B)The money is invested in stable companies,with an objective of strong dividend income
C)Funds not included in the mutual fund are placed in short-term T-bills to earn interest
D)The money is invested in stable companies common stock

Question 69

Sector funds offer

A)Good diversification
B)High loss/reward potential
C)Stable returns
D)None of the above

Question 70

The following are all characteristics of money market funds,except:

A)They invest in short-term securities
B)Are no-load
C)Have check writing privileges
D)Do not require minimum deposits

Question 71

The Hirt & Block mutual fund has assets of $147 million,liabilities of $7 million and 7 million shares outstanding.What is the net asset value per share?

A)$20 per share
B)$21 per share
C)$22 per share
D)None of the above

Question 72

When you buy a mutual fund you

A)May be purchasing a fund that has unrealized capital gains on stocks held in the portfolio.You could be liable for the taxes if the funds sells those shares
B)May be purchasing a fund that has unrealized capital losses on stocks held in the portfolio.You could be liable for the taxes if the fund sells those shares
C)Will not have any tax consequences on assets owned by the fund before you purchased the mutual fund
D)Two of the above are correct

Question 73

One disadvantage of investing through mutual funds is that

A)They provide time savings
B)There are more than 8100 to choose from
C)Professional management
D)Too much diversification

Question 74

A fund is set up to charge a load.Its net asset value is $17.70 and its offer price is $18.60.What is the dollar value of the load (commission)?

A)$18.60
B)$17.70
C)$.95
D)$.90
E)$.50

Question 75

The Hirt & Block mutual fund has assets of $147 million,liabilities of $7 million and 7 million shares outstanding.The shares trade at $21.60 per share.What is the load fee?

A)2.85%
B)6.00%
C)7.00%
D)8.00%

Question 76

A fund is set up to charge a load.Its net asset value is $17.70 and its offer price is $18.60.What percentage of the offer price does the load represent?

A)4.84%
B)5.08%
C)16.74%
D)15.93%
E)20.67%

Question 77

Which of the following is not a characteristic of hedge funds?

A)They are generally unregulated and normally restricted to high net worth individuals
B)They are not dependent on increasing stock prices,but rather a strategy of buying,selling and executing arbitrage positions
C)Managers normally receive 20 percent of the profits generated
D)Investors are often contractually locked in for two or three years on their investment
E)They are prohibited from using derivatives in their investment strategies

Question 78

_______________ are generally unregulated and are normally restricted to high net worth individuals.

A)ETFs
B)Mutual funds
C)Closed-end funds
D)Hedge funds

Question 79

A characteristic of a closed-end fund:

A)Stands ready at all times to sell the investor new shares or buy back the old ones
B)Is that the method of purchase is the stock exchange or over-counter-market
C)Is that the closed-end fund does not deal with shareholders
D)It trades shares at the Net Asset Value

Question 80

Exchange Traded Funds offer the investor many advantages over open-end and closed-end mutual funds.Which of the following are comparative advantages?

A)There are global and international funds to choose
B)There are over 80 broad based domestic equity index funds
C)They are bought and sold like common stocks
D)All of the above are comparative advantages