Deck 13: Investing in Mutual Funds

Question 1

Mutual funds that invest in smaller,lesser known companies that offer higher growth potential are referred to as dividend funds.

Answer 1

False

Question 2

A mutual fund that is eligible for tax credits is referred to as a labour sustenance venture capital corporation.

Answer 2

False

Question 3

Exchange traded funds can be traded throughout the day at changing market prices.

Answer 3

True

Question 4

A load fund is a mutual fund in which investors pay a commission every time they sell or redeem shares.

Question 5

The managers of mutual funds tailor their investment portfolios to the investment objectives of their customers.

Question 6

With a mutual fund you can diversify your holdings by buying a mutual fund that owns stock in hundreds of different companies.

Question 7

The diversification of mutual funds spells safety,because an occasional loss incurred with one investment is usually offset by gains from other investments.

Question 8

For a mutual fund,the typical yearly management fee ranges from 2.5 to 5 percent of total dollar amount invested.

Question 9

A no-load fund is a mutual fund in which no sales charge is paid by the individual investor to purchase shares.

Question 10

A closed-end fund is a mutual fund in which shares are issued only when the fund is organized.

Question 11

Because of professional management,there is no need for the individual investor to evaluate a mutual fund investment.

Question 12

For a load fund,the average commission usually ranges between 1 and 3 percent of the purchase price for investments under $10,000.

Question 13

A redemption fee is a 1 to 6 percent charge that shareholders pay when they withdraw their investment from a mutual fund.

Question 14

In an open-end fund,investors pay a commission (as high as 8.5 percent)every time they purchase or sell shares.

Question 15

The net asset value for a mutual fund share is calculated by dividing the value of the fund's portfolio by the fund's liabilities.

Question 16

The major reasons why investors purchase mutual funds are professional management and diversification.

Question 17

Shares in a close-end fund are redeemed by the investment company at the request of the investor.

Question 18

Mutual funds that apportion their investments among common stocks and bonds are referred to as segregated funds.

Question 19

For many individuals,mutual funds are not a good choice.

Question 20

Index funds are bought at beginning-of-day prices.

Question 21

Typically,you must invest at least $1,000 to open a mutual fund account.

Question 22

An investment company sponsoring a mutual fund must furnish shareholders a prospectus each year.

Question 23

Tax information for mutual funds is reported as part of the year-end statement sent out by investment companies.

Question 24

In a newspaper quotation,the letter "N" means no load.

Question 25

The Capitalist Mutual Fund's portfolio is valued at $55 million.The fund has liabilities of $4 million,and the investment company sponsoring the fund has issued 2,400,000 shares.What is the fund's net asset value?

A) $100
B) $21.25
C) $22.91
D) $24.58
E) $1

Question 26

A mutual fund in which new shares are issued and redeemed by the investment company at the request of investors is called a(n)____________ fund.

A) closed-end
B) no-load
C) load
D) open-end
E) convertible

Question 27

A mutual fund is:

A) recommended for expert investors only.
B) used exclusively for retirement accounts.
C) an investment chosen by people who pool their money to buy financial securities
D) risk-averse investors.
E) a risk-free investment.

Question 28

In order to sell shares in a closed-end fund,an investor must wait until the investment company is ready to repurchase the investor's shares.

Question 29

Although mutual funds are popular among individual investors,most people do not use them as part of a registered retirement account.

Question 30

All mutual funds charge a management expense ratio (MER).

Question 31

Investors in both closed-end and open-end funds can make money by purchasing shares at a low price and then selling them at a higher price.

Question 32

The value of the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding is called the:

A) net asset value.
B) outstanding balance.
C) per share value.
D) book value.
E) accounting value.

Question 33

In a newspaper quotation,NAV stands for "not accessible value."

Question 34

The family of funds concept makes it convenient for shareholders to switch their investments among funds as different funds offer more potential.

Question 35

A mutual fund in which shares are issued only when the fund is organized is called a(n)____________ fund.

A) closed-end
B) open-end
C) load
D) no-load
E) convertible

Question 36

Which of the following statements is false?

A) Investors purchase mutual funds for diversification.
B) Investors purchase mutual funds because of professional management.
C) Investors who purchase mutual funds are guaranteed a higher rate of return than a comparable investment in stocks or bonds.
D) Professional mutual fund managers work for an investment company.
E) Even the best portfolio managers sometimes make mistakes.

Question 37

Income dividends are the earnings a fund pays to shareholders after it has deducted expenses from its dividend and interest income.

Question 38

While mutual fund income dividends are subject to taxation,capital gain distributions are not subject to taxation.

Question 39

Capital gain distributions result when you decide to sell shares in a mutual fund at a price higher than you paid.

Question 40

To purchase shares in an open-end fund,you may use four options: regular accounts,voluntary savings plans,contractual savings plans and reinvestment plans.

Question 41

A mutual fund that invests almost entirely in common stocks and aims for capital gains is called a(n)____________ fund.

A) balanced
B) growth
C) income
D) equity
E) money market

Question 42

Larry Bander purchased 280 shares of the New Horizons Growth Fund.The net asset value for each share at the time of purchase was $27.If this fund charges a 3.5 percent load,what is the commission amount he will pay the investment company?

A) $27.00
B) $9.80
C) $264.60
D) $100
E) $280.00

Question 43

Which of the following statements is true?

A) Real estate funds offered by insurance companies as an alternative to conventional mutual funds.
B) Bond funds seek to achieve a high level of income and liquidity.
C) Mortgage funds have a higher risk then bond funds.
D) Ethical funds are typically guided by moral criteria.
E) Segregated funds are often considered a subset of specialty funds.

Question 44

The management fee for most mutual funds ranges between ____________ percent.

A) 0.5 to 4
B) 1 to 2
C) 2 to 4
D) 5 to 6½
E) 7 to 8½

Question 45

Which of the following financial instruments have the following characteristics?

A) Equity funds and derivatives have no maturity
B) Bonds have high liquidity
C) Stock indices cannot be sold short
D) Shares have no reinvestment risk
E) Exchange-traded fund (EFT)where investors pay a commission as high as 8.5%

Question 46

The commission charge for purchasing shares of a load fund that imposes an up-front commission charge can be as high as 8.5 percent.This fee:

A) is sometimes referred to as the sales fee
B) is paid every time investors buy (front-end load)
C) is paid every time investors sell (back-end load)
D) A and B are correct
E) A,B and C are correct

Question 47

Which of these is not a true statement?

A) ETFs can be purchased through a broker.
B) ETFs can be purchased on margin.
C) ETFs can be sold short.
D) ETFs have lower management expenses than conventional mutual funds.
E) ETFs can be purchased through a broker,on margin,sold short,and have lower management expenses than conventional mutual funds.

Question 48

Marisa Callaghan just purchased 100 shares in the All-Inclusive Fidelity Fund.The purchase cost for each share was $30.If this fund charges a 6 percent load,what is the total amount of commission she will pay the investment company?

A) $3,000
B) $1800
C) $180
D) $2,000
E) It is impossible to calculate Ms.Callaghan's total investment with this information

Question 49

A mutual fund that invests in common stocks and bonds with the primary objective of earning tax-advantaged income is called a(n)____________ fund.

A) balanced
B) capital growth
C) dividend
D) income
E) money market

Question 50

A 1 to 6 percent fee that investors pay when they withdraw their investment from a mutual fund is called a(n)

A) contingent deferred sales load.
B) sales fee.
C) withdrawal fee.
D) unload fee.
E) load fee.

Question 51

A mutual fund in which investors pay a commission every time they purchase shares is called a(n)____________ fund.

A) closed-end
B) open-end
C) no-load
D) load
E) convertible

Question 52

Last month Nissa Jacobson's divorce became final.As part of the settlement,she received $150,000.She would like to invest in mutual funds,but since she is 62 years old,she is concerned with the safety of her "nest egg." Which of the following mutual funds would you recommend?

A) growth fund
B) dividend fund
C) money market fund
D) international fund
E) bond fund

Question 53

A mutual fund that invests in investment grade corporate and government debt is called a(n)____________ fund.

A) balanced
B) equity
C) segregated
D) income
E) bond

Question 54

A mutual fund that aims for capital gains is:

A) a balanced asset allocation fund
B) a bond fund
C) an equity or common stock fund
D) a specialty fund
E) an ethical fund

Question 55

When Peter Mills went to withdraw $8,000 from the Lowe Fidelity Mutual fund,he was informed that the fund would charge 3 percent of the amount withdrawn.What is the dollar amount of the withdrawal charge?

A) $2,400
B) $500
C) $240
D) $24
E) It is impossible to calculate the withdrawal charge with this information.

Question 56

A mutual fund in which no sales charge is paid by the individual investor is called a(n)____________ fund.

A) closed-end
B) open-end
C) load
D) no-load
E) convertible fund.

Question 57

Another name for a mutual fund that charges a contingent deferred sales load is a(n)____________ fund.

A) bare bones
B) end state
C) bare back
D) back-end
E) pay later

Question 58

For most mutual funds,the net asset value is calculated:

A) daily.
B) quarterly.
C) weekly.
D) yearly.
E) whenever an investor calls and requests a price quote.

Question 59

The Jeremiah Wazan Enterprise Mutual Fund's portfolio is valued at $125,000,000.The fund has liabilities of $5,000,000,and the investment company sponsoring the fund has issued 2,000,000 shares.What is the fund's net asset value?

A) $125
B) $58
C) $50
D) $25
E) $60

Question 60

A mutual fund that invests in the common stocks of companies in the same industry is called a(n)____________ fund.

A) specialty
B) income
C) growth-income
D) small-cap
E) money market

Question 61

An individual who helps investors decide when to switch their investment from one fund to another fund is called a(n)

A) financial planner
B) fund evaluator.
C) opportunity timer.
D) market timer.
E) fund consultant.

Question 62

Which of the following statements is false?

A) The responsibility for choosing the right mutual fund rests with the individual investor.
B) Professional fund managers do make mistakes.
C) Although investing in mutual funds provides professional management,individual investors should continually evaluate their mutual fund investments.
D) There is no need to evaluate mutual fund investments because investment companies hire the best professional managers they can to manage their funds.
E) Individual investors should be involved in choosing a mutual fund because they know how the objectives of a mutual fund match their own investment objectives.

Question 63

Which of the following statements is false?

A) Market timers charge 1½ percent to 3 percent of the dollar value of the funds they manage.
B) Early research indicates that market timers must be evaluated as a group.
C) Since market timers offer a relatively new service,it is hard to evaluate long-term performance.
D) The true test of market timers is the ability to increase the investor's return during good times and keep that return during bad times.
E) A market timer helps investors decide when to switch from one fund to another.

Question 64

An investment company sponsoring a mutual fund must give potential investors a

A) analytical purchase report.
B) prospectus.
C) disclosure/evaluation form.
D) redemption fee sheet.
E) copy of the annual mutual funds evaluation provided by Changing Times magazine.

Question 65

Which of the following publications does not provide readers with an annual survey of mutual funds?

A) Canadian Business
B) Report on Business
C) Canada's Guide to Quality Mutual Funds
D) IE: Money
E) The Economist

Question 66

When one investment company manages a group of mutual funds,it is called a(n):

A) exchange fund.
B) family of funds.
C) diversification fund.
D) versatility fund.
E) group of funds.

Question 67

Which of the following factors would not affect the relationship between an individual's investment goals and the goals of a mutual fund?

A) the investor's age
B) the investor's family situation
C) the investor's income
D) the investor's future earning power
E) the investor's age,the investor's family situation,the investor's income,and the investor's future earning power would affect the relationship between an investor's investment goals and the goals of a mutual fund.

Question 68

Income dividends and capital gain distributions are

A) exempt from taxation.
B) subject to federal taxation.
C) subject to federal taxation after the first $1,000.
D) subject to federal taxation after the first $2,000.
E) subject to federal taxation after the first $8,000.

Question 69

As a shareholder in a mutual fund,you should receive a(n)

A) annual report.
B) quarterly report.
C) redemption fee sheet.
D) letter from the president of the investment company that details what the fund's objectives are.
E) copy of the annual mutual funds evaluation provided by Changing Times magazine.

Question 70

In a newspaper quotation,which of the following letters would indicate if a mutual fund is a no load fund?

A) N
B) R
C) FR
D) B
E) It is impossible to tell if a mutual fund is a no load fund by looking in the newspaper.

Question 71

In a newspaper quotation,which of the following letters would indicate if a mutual fund has a front-end and a back-end fee?

A) N
B) R
C) FR
D) B
E) It is impossible to tell if there is a front-end and a back-end fee by looking in the newspaper.

Question 72

In a newspaper quotation,which of the following letters would indicate if a mutual fund has a redemption charge?

A) N
B) R
C) FR
D) B
E) Z.

Question 73

Which of the following is not a true statement?

A) Many investors have found a wealth of information about mutual fund investments on the Internet.
B) It is possible to obtain market quotes for a mutual fund by using the Internet.
C) Most investment companies that sponsor mutual funds have a Web page.
D) It is impossible to obtain online information about a mutual fund by accessing the Web page for one of the professional advisory services.
E) A mutual fund's Web site will provide information about how to open an account,current market quotes,and other important information about a specific fund.

Question 74

Which of the following statements is false?

A) The purpose of investing in a closed-end or open-end mutual fund is to earn a financial return.
B) Income dividends are the earnings that a fund pays to shareholders after it has deducted expenses from its dividend and interest income.
C) Capital gain distributions are the payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio.
D) It is possible to make money on a mutual fund by purchasing shares at a high price and then selling them at a low price at a later date.
E) Real estate funds aim for long term growth

Question 75

The most popular and least complicated method of purchasing shares in an open-end mutual fund is through a

A) regular account.
B) voluntary savings plan.
C) contractual savings plan.
D) minimum withdrawal plan.
E) free contract plan.

Question 76

Which of the following statements is false?

A) Most investors in mutual funds will tell you that the most important consideration in evaluating a mutual fund is long-term performance.
B) It is possible to compare a fund's long-term performance with the performance of the TSE 300 stock index.
C) The length of time a fund's manager has been managing a fund should not be considered when evaluating a fund because the investment company has the right to replace a fund manager.
D) Long-term performance should not be the only factor that you consider in evaluating a mutual fund.
E) Information on a fund's long-term performance is available in its prospectus and in other sources of financial information.

Question 77

A mutual fund that requires investors to make regular purchases over a specified period of time is called a

A) regular account.
B) voluntary savings plan.
C) contractual savings plan.
D) minimum withdrawal plan.
E) free contract plan.

Question 78

Because of up front charges,many financial experts and government agencies are critical of

A) regular accounts.
B) voluntary savings plans
C) contractual savings plans.
D) minimum withdrawal plans.
E) free contract plans.

Question 79

Which of the following is not a withdrawal option for a mutual fund?

A) The investor may withdraw a specified,dollar amount each investment period.
B) The investor may liquidate or "sell off" a certain number of shares each investment period.
C) The investor can withdraw a fixed percentage of asset growth.
D) The investor can withdraw all income that results from interest,dividends,and capital gains earned by the mutual fund during an investment period.
E) The investor must wait five years,and then can withdraw 10 percent of the asset growth each year until the fund is exhausted.

Question 80

During 2000,Lianne Majoro received income dividends of $850 and capital gain distributions of $540.The tax consequence is that

A) both amounts must be included as taxable income.
B) only the dividends are taxable.
C) only the capital gains are taxable.
D) both amounts are tax exempt.
E) It is impossible to determine the tax consequences for dividend income and capital gain distributions unless the shares of the mutual fund are sold to another investor.