Deck 17: Investing in Mutual Funds

Question 1

No-load mutual funds sell directly to investors and charge a somewhat smaller management fee than load funds.

Answer 1

False

Question 2

Of the management,advertising,and administrative fees charged by mutual funds,normally the management fee is the smallest.

Answer 2

False

Question 3

In most cases,the fees charged by load funds go to stockbrokers or other financial advisors who execute transactions for investors.

Answer 3

True

Question 4

On average,mutual funds have an expense ratio of about 3 percent.

Question 5

In general,it is prudent to purchase a no-load fund instead of a load fund.

Question 6

The net asset value (NAV)per share of a mutual fund is determined by the market value of securities owned minus liabilities divided by the number of mutual fund shares outstanding.

Question 7

Studies on mutual funds have found that load funds perform better than no-load funds.

Question 8

The price per share for a closed-end mutual fund can differ from the fund's NAV per share.

Question 9

A mutual fund is a diversified portfolio of stocks and/or bonds depending on what the manager has purchased.

Question 10

There is no limit on the number of open-end mutual fund shares that a company can offer.

Question 11

In assessing different mutual funds,the returns vary,but the expenses are fixed.

Question 12

Some mutual funds have much higher expenses or expense ratios than others,and this expense can affect your overall returns.

Question 13

Two advantages of investing in mutual funds are diversification and professional management.

Question 14

Which is not a reason for investing in mutual funds?

A)Small amount of funds needed
B)Portfolio manager expertise
C)Specific investment goals
D)Overly diversified

Question 15

Mutual funds pool money from investors to purchase portfolios of investments.

Question 16

Closed-end mutual funds have a limited number of shares that are sold when the funds are first created and are resold over the stock exchanges.

Question 17

Open-end mutual fund companies sell directly to investors and repurchase shares whenever investors wish to sell them.

Question 18

The difference between stock mutual funds and bond mutual funds lies in the percentage of stocks and bonds that each fund purchases.

Question 19

An advantage of investing in mutual funds is that they all have the objective of preserving capital.

Question 20

While not all mutual funds have loads or commissions,they all have management fees and expenses that are charged to the mutual fund shareholders.

Question 21

Which of the following characteristics are not true of closed-end funds?

A)They are not regulated
B)They do not repurchase shares from investors
C)They are bought and sold on stock exchanges
D)They may sell above or below NAV

Question 22

On the average,actively managed mutual funds have an expense ratio of about

A)1)5 percent.
B)2)5 percent.
C)3 percent.
D)5 percent.

Question 23

To calculate the NAV,the market value of the portfolio less liabilities is divided by the ________ to arrive at a per-share basis.

A)original number of shares
B)shares currently issued by the fund
C)maximum shares to be issued
D)average number of shares in comparable funds

Question 24

What would be the return on a $1,000 investment in a mutual fund whose NAV is $20? The fund has a 3 percent front-end load and during the holding period,$400 of fund distributions are reinvested at a NAV of $25 (no load applied to reinvestments).The fund is ultimately sold at a NAV of $24.(Round to the nearest tenth of a percent.)
(a)14.8 percent
(b)10.5 percent
(c)15.3 percent
(d)10.8 percent

Question 25

In calculating the net asset value,which of the following is true?

A)Dividends are subtracted and expenses added
B)Interest is subtracted and expenses are added
C)Dividends are added and expenses are subtracted
D)Interest and other expenses are not included

Question 26

Which of the following expenses is usually the highest for a mutual fund?

A)Management fees
B)Administrative fees
C)12-b-1 fees
D)Referral fees

Question 27

A mutual fund that does not charge investors a fee and sells direct to investors is a(n)________ mutual fund.

Question 28

Mutual funds,which sell shares directly to investors and repurchase shares investors want to sell,are called ________ funds.

A)open-market
B)open-end
C)closed-end
D)fair value

Question 29

Existing shares of closed-end mutual fund companies are purchased

A)from the investment company directly.
B)from the investment company through a broker.
C)from other investors in the stock market.
D)from a bank.

Question 30

The ________ is the market value of the securities that a mutual fund has purchased minus any liabilities.

A)book value
B)net asset value
C)gross asset value
D)net worth value

Question 31

The net asset value (NAV)is reported in most daily newspapers

A)for the total fund.
B)on a per-share basis.
C)in dollars and fractions of dollars.
D)on a weekly basis due to the complexity of computation.

Question 32

The price of shares in a mutual fund is referred to as the ________.

Question 33

A mutual fund has a beginning balance of $100 million,earns interest of $10 million,receives dividends of $15 million,and has expenses of $5 million.If 10 million shares are outstanding,what is the NAV?
(a)$10.50
(b)$11.00
(c)$12.00
(d)$12.50

Question 34

Regarding load and no-load mutual funds,

A)load funds usually outperform no-load funds.
B)no-load funds perform just as well as load funds when the fees are ignored.
C)the two types of funds perform about the same considering the fees.
D)load funds may be bought directly,where no-load funds must be purchased through a broker.

Question 35

Advantages of investing in mutual funds include all of the following except

A)diversification of your investment.
B)professional management.
C)meeting specific investment goals.
D)there is virtually no risk of loss.

Question 36

A family of mutual funds is

A)where all of the funds have the same objective.
B)a number of funds with different objectives operated by one investment company.
C)where a number of competing investment companies pool their resources.
D)quite rare in the mutual fund industry.

Question 37

An open-end mutual fund may do all of the following except

A)charge no fee to buy or sell shares.
B)charge a fee to buy but not sell shares.
C)charge a fee to sell but not buy shares.
D)charge a fee to both buy and sell shares.

Question 38

Which of the following is not a true statement about mutual funds:

A)All have a minimum investment required.
B)All have the same investment goals.
C)The calculation of net asset value is the same.
D)All have a management expense ratio.

Question 39

Mutual funds that are traded on stock exchanges are called ________.

Question 40

Stock brokers typically do not sell no-load funds because

A)the return is lower than load funds and they want to sell only the best funds to keep their clients.
B)they are prohibited by federal law.
C)the load is usually paid to the broker for selling the shares,therefore,no load,no fee.
D)there is no secondary market for them.

Question 41

Municipal bond funds have tax advantages over other kinds of mutual funds.

Question 42

Which of the following is a stock mutual fund?

A)Ginnie Mae
B)Balanced growth and income
C)Municipal
D)Treasury

Question 43

Capital appreciation funds are mutual funds that focus on stocks that are expected to grow at a very high rate.

Question 44

Which of the following stock funds would probably have the lowest risk and return?

A)Index
B)Capital appreciation
C)Income
D)Sector funds

Question 45

If a mutual fund's NAV is $50 and its expense ratio is 2.0 percent,what are the total expenses per share?
(a)$2
(b)$10
(c)$1
(d)$5

Question 46

An international stock mutual fund is one that owns shares in companies from the United States and other countries.

Question 47

Balanced growth and income funds contain both growth stocks and stocks that pay high dividends.

Question 48

Index mutual funds tend to have lower expenses than other types of mutual funds.

Question 49

Which of the following stock mutual funds are more established than small-cap firms,but may have less growth potential?

A)Equity income
B)Sector funds
C)Mid-size capitalization
D)Balanced growth and income

Question 50

Corporate bond funds focus on bonds issued by high-quality firms and,therefore,tend to have a low degree of default risk.

Question 51

Socially responsible mutual funds are those whose managers have taken and passed a strict financial ethics test.

Question 52

Index funds usually have lower capital gains on their investments and are,therefore,advantageous to investors in higher income tax brackets.

Question 53

A mutual fund that buys only the stocks of gold mining companies is a good example of a sector fund.

Question 54

Index stock funds always contain every company's stock that make up the particular index.

Question 55

How much money would you need to purchase 400 shares of a mutual fund with a NAV of $55 per share and a 3 percent load? (Round to the nearest dollar.)
(a)$22,000
(b)$22,680
(c)$23,200
(d)$22,660

Question 56

A small-cap fund focuses on firms that are relatively small and somewhat overlap capital appreciation funds.

Question 57

You are investing for your retirement 20 years hence.You would be most interested in a fund whose investment objective is focused on

A)long-term growth.
B)capital conservation.
C)income generation.
D)a balance of some growth but mostly high dividends.

Question 58

Capital appreciation funds tend to invest in stocks that distribute little or no dividends so that earnings can be reinvested for expansion.

Question 59

You are considering investing in a no-load mutual fund that focuses on growth stocks or in an index fund.The growth stocks had an annual return of 15 percent and expenses of 2 percent.The index fund had an annual return of 12 percent and expenses of 1 percent.Assuming equal risk,you should buy

A)the index fund.
B)the growth fund.
C)some of both.
D)neither; the expenses are too high.

Question 60

A stock mutual fund that pays higher than normal dividends is called a growth fund.

Question 61

A mutual fund that invests only in healthcare-related companies is an example of a(n)________ fund.

Question 62

Index funds incur ________ expenses and are ________ managed compared to other funds.

A)fewer; not actively
B)fewer; actively
C)more; not actively
D)more; actively

Question 63

Global funds are not usually subject to the following risk?

A)Interest rate
B)Exchange
C)Political
D)Liquidity

Question 64

Index funds also offer tax advantages because they ________ in much trading and,therefore,________ capital gains.

A)engage; generate
B)do not engage; generate
C)engage; do not generate
D)do not engage,do not generate

Question 65

High yield (junk)bond funds focus on relatively risky bonds issued by firms that are subject to

A)default risk.
B)interest rate risk.
C)exchange risk.
D)management risk.

Question 66

The difference between an international and a global fund is

A)global funds invest in U.S.firms and those of other countries too.
B)international funds invest in U.S.firms or governments while global funds do not.
C)international funds invest in Treasury securities but no U.S.firms while global funds invest in both.
D)there is no difference except in name.

Question 67

International bond funds are

A)issued by non-U.S.firms or governments.
B)offer a higher yield than U.S.bonds.
C)subject to exchange risk.
D)All of the above.

Question 68

Even bond mutual funds with little or no default risk have an interest rate risk.

Question 69

________ funds are mutual funds that attempt to mirror the movements of existing broad market indicators.

A)Internet
B)Stock
C)Index
D)International

Question 70

The possibility that the Fed may raise the discount rate is an example of

A)political risk.
B)exchange rate risk.
C)interest rate risk.
D)liquidity risk.

Question 71

Investing in which of the following funds will typically give you the least diversification?

A)Growth funds
B)Capital appreciation funds
C)Equity income funds
D)Sector funds

Question 72

A mutual fund must distribute ________ to investors in the same year as earned.

A)dividends
B)profits
C)capital gains
D)Both A and C.

Question 73

________ mutual funds invest in foreign bonds as well as U.S.bonds.

A)International bond
B)Index
C)Treasury bond
D)Global bond

Question 74

Capital gains from mutual funds can be received if the mutual fund makes a profit on the shares it sells or if an individual investor realizes a gain on the sale of mutual fund shares.

Question 75

Investors in high tax brackets will normally achieve higher performance by selecting mutual funds that generate

A)long-term dividends.
B)long-term capital gains.
C)long-term stock dividends.
D)short-term capital gains.

Question 76

Which of the following funds have the higher potential risk and return?

A)Index
B)Capital appreciation
C)Income
D)Growth

Question 77

The return on an index fund may be less than the return on the index it represents because of all of the following except

A)it may not own all the companies included in the index.
B)the load charge.
C)the expense ratio.
D)excessive commissions on frequent trades by the fund.

Question 78

Hedge funds,which are not regulated by the Securities and Exchange Commission,are only available to wealthy investors and are less risky than ordinary mutual funds.

Question 79

Mutual funds that receive dividends and capital gains must distribute these to investors in the same year.

Question 80

Which of the following is not a source of profits for owners of a stock mutual fund?

A)Dividends distributed by the mutual fund
B)Interest distributed by the mutual fund
C)Capital gains distributed by the mutual fund
D)Capital gains from the sale of your shares in the mutual fund