Deck 12: Mutual Funds

Question 1

Net asset value is calculated by the total value of all the assets the ________.

A)fund holds
B)fund holds for the historical average for one year,divided by the number of mutual fund shares outstanding
C)fund holds,divided by the number of mutual fund shareholders
D)fund holds,divided by the number of mutual fund shares outstanding

Answer 1

fund holds,divided by the number of mutual fund shares outstanding

Question 2

________ is a market-performance measurement index.Derived from the stock of the 2,000 smallest companies on the U.S.market.

A)Standard & Poor's 500
B)Standard & Poor's 2000
C)Russell 500
D)Russell 2000

Answer 2

Russell 2000

Question 3

How do index funds keep their expense ratios low?

A)They trade stocks,often for maximum gains.
B)They maintain their holdings in the same proportion as well-known indexes.
C)They have a team of professionals watch for the best options so as to continually tune the fund's performance.
D)They hold less than 20 companies in the fund.

Answer 3

They maintain their holdings in the same proportion as well-known indexes.

Question 4

The first mutual funds were ________ mutual funds,and now the majority of mutual funds are ________.

A)closed-end; open-end
B)open-end; closed-end
C)not profitable; profitable
D)None of the options are correct.

Question 5

Mutual funds are regulated by

A)The Securities Act of 1933.
B)The Securities Exchange Act of 1934.
C)The Investment Company Act of 1940.
D)The Sarbanes-Oxley Act of 2002.

Question 6

Closed-end mutual funds ________.

A)allow investors to add new money at any time
B)have a fixed number of shares and trade based upon supply and demand
C)are priced based on the return of a one-year Treasury bill
D)have no commission

Question 7

What does NAV measure?

A)The total value of all the assets in the mutual fund minus cost,divided by the number of shares outstanding
B)The total value of all assets divided by cost over the number of shares outstanding
C)The total costs over shares multiplied by the value of assets
D)The net of all assets in the mutual fund minus cost

Question 8

Secondarily,mutual funds are categorized into ________ funds.

A)open and closed
B)load and no-load
C)profitable and unprofitable
D)mutual and exclusive

Question 9

Which factors are considered in calculating a mutual fund's expense ratio?

A)Fees paid to the fund's investment manager
B)Recordkeeping,accounting,and auditing fees
C)Custodial services,taxes,and legal fees
D)All options are correct.

Question 10

Mutual funds are first categorized into ________ funds.

A)open and closed
B)load and no-load
C)profitable and unprofitable
D)mutual and exclusive

Question 11

All open-end mutual funds ________.

A)open up for investors to add new money at the end of each quarter
B)are priced based on the net asset value (NAV)of the fund
C)became popular in the 1920s
D)do not charge a commission

Question 12

Which of the following are among the fund manager's responsibilities?

A)Buy and sell assets
B)Maximize the growth of the fund given the specific investment objective
C)Minimize the losses of the fund
D)All options are correct.

Question 13

________ is a market-performance measurement index.Derived from the stock of 500 large companies on the U.S.market,it is designed to be a leading indicator of U.S.equities and is intended to reflect the risk/return characteristics of the large-cap companies.

A)Standard & Poor's 500
B)Standard & Poor's 2000
C)Russell 500
D)Russell 2000

Question 14

How is a mutual fund's expense ratio calculated?

A)Total operating expenses
B)Total operating expenses for year/12 months
C)Total operating expenses divided by average dollar value of the fund's assets
D)Average monthly operating expenses divided by average asset value

Question 15

When you buy a mutual fund,you own ________.

A)the individual stock directly
B)shares of a fund that owns the assets
C)stock in the mutual fund company
D)stocks and bonds

Question 16

Mutual funds are now regulated by the ________.

A)Investment Company Act of 1940
B)Federal Trust and Banking Administration (FTBA)
C)FDIC
D)NCUI

Question 17

Mutual funds are valued at their ________,which is the total value of all the assets minus costs,divided by the number of shares outstanding.

A)net of assets after cost (NAC)
B)net assets shares outstanding (NASO)
C)net asset value (NAV)
D)net assets over shares (NAS)

Question 18

Which statement is not true about index funds as compared to actively managed funds?

A)They have lower expense ratios.
B)They tend to be less profitable than actively managed funds.
C)They usually have lower turnover in buying and selling assets than actively-managed funds.
D)They tend to have lower capital gains tax than actively managed assets because the assets are usually held longer before being sold.

Question 19

The NAV of an open-end fund is commonly referred to as the ________ of the mutual fund.

A)expense ratio
B)share price
C)cost
D)overhead

Question 20

Which is unlikely to be included in mutual fund fees?

A)Front load
B)Back-end load
C)No load
D)Front and back-end load

Question 21

What are the two main fees associated with a mutual fund?

A)Open- and closed-end fees
B)Front and end load fees
C)Expense ratios and loads
D)Transaction fees and taxes

Question 22

Which is not a major benefit of a mutual fund?

A)No risk
B)Low initial investment
C)Diversification
D)Dividend and capital gains reinvestment

Question 23

________ are funds that invest in companies based outside of the U.S.

A)Global funds
B)International funds
C)Exclusive funds
D)Balanced mutual funds

Question 24

The ________ is the individual holding shares in the mutual fund on the day the fund distributes dividends and capital gains.

A)owner
B)fund manager
C)person of record
D)share owner

Question 25

________ is (are)the most significant cost of a mutual fund.

A)Transaction fees
B)Price
C)Loads
D)Taxes

Question 26

When are mutual fund purchases and sale orders executed?

A)At the beginning of each business day
B)At the end of the business day
C)Upon receipt
D)Within 10 business days

Question 27

Which is not a typical disadvantage of open-end mutual funds?

A)Management fees and loads
B)Guaranteed purchase or acquisition of shares of the mutual fund
C)Market risk
D)Volatility and high risk

Question 28

________ refers to the operating expenses of the fund divided by the total assets of the fund,expressed as a percentage.

A)An expense ratio
B)A front-end load
C)An end load
D)An E/M ratio

Question 29

A(n)________ is a sales charge that can be charged when investments are made in the fund or when money is withdrawn from the fund.

A)Fund fee
B)Load
C)Expense ratio
D)Transaction fee

Question 30

A(n)________ mutual fund is a fund in which the companies market their funds online (no sales force or financial planners)and do not charge a fee.

A)front-end load
B)back-end load
C)no load
D)exclusive

Question 31

A contract(s)in which the seller of a security agrees to buy back the security at a specified time and for a specified price is called

A)commercial paper.
B)commercial agreements.
C)repurchase agreements.
D)repurchase paper.

Question 32

________ are share classes that are level-load shares and generally do not have a front-end load.

A)Class A
B)Class B
C)Class C
D)Class D

Question 33

________ are funds that invest in international and domestic companies.

A)Global funds
B)International funds
C)Exclusive funds
D)Balanced mutual funds

Question 34

When are exchange traded fund purchases and sale orders executed?

A)At the beginning of each business day
B)At the end of the business day
C)After a two-hour waiting period
D)In "real-time" during market hours

Question 35

Where can you find information about fund managers and their investment experience?

A)www.Morningstar.com
B)MFS Investment Management Annual Report
C)Securities and Exchange Commission monthly publication
D)DOW monthly journal

Question 36

The turnover rate is the ________.

A)percentage of fund managers turned over each year
B)percentage of securities bought and sold every year
C)percentage of dividends paid each year
D)percentage of funds that showed a profit in the past year

Question 37

Weighted-average maturity (WAM)is a measurement of

A)how old,on average,the assets are in a fund.
B)how long,on average,the assets are held in the fund.
C)the length of time until the average security in a fund will mature or be redeemed by its issuer.
D)the average tenure of the mutual fund's money managers.

Question 38

________ is (are)an unsecured obligation issued by a corporation to finance its short-term credit needs.

A)Commercial paper
B)Commercial agreements
C)Repurchase agreements
D)Repurchase paper

Question 39

What is the difference between dollar cost averaging and continuous automatic investing?

A)Continuous automatic investing doesn't have any stated lump sum or end date.
B)Dollar cost averaging is when you have a large amount of money to invest,and you invest specific portions of the lump sum at specific times until the entire sum is invested.
C)Both options are correct.
D)Neither option is correct.

Question 40

________ are funds with a combination of stocks,bonds,and cash.

A)Global funds
B)International funds
C)Exclusive funds
D)Balanced mutual funds

Question 41

A front-end load is the fee charged when you sell a mutual fund,which could include the commission of the financial planner or selling agent who sold you the funds.

Question 42

There are two kinds of prospectuses: (1)the statutory prospectus and (2)the summary prospectus; however,the summary version does not include information on the fund's investment objectives,its strategies for achieving the objectives,the principal risks of investing in the fund,the fund's fees and expenses,and its past performance.

Question 43

What do the axes on the Morningstar Style Box indicate?

A)The vertical axis shows whether the mutual fund holds the stocks of large,medium,or small capitalized companies.
B)The horizontal axis is based on company valuation,whether the stocks are from value-based companies (based on the price/earnings ratio),growth companies,or a blend of value and growth.
C)Both options are correct.
D)Neither option is correct.

Question 44

No-load funds often outperform load funds--especially when you consider that 100% of the investment is working for you.

Question 45

All mutual funds have an expense ratio; however,there are no-load funds as well as funds with loads.

Question 46

If you were to invest all of your money in a single company and it went bankrupt,you would not lose everything.

Question 47

The ________ the turnover,the more you will pay in transaction fees (incorporated in the expense ratio),and the more you will pay in capital gains when the assets are sold.________ turnover funds will have lower transaction costs and lower capital gains.

A)higher; low
B)lower; high
C)higher; high
D)lower; low

Question 48

Mutual funds can be purchased directly from mutual fund companies,financial planners,financial advisers,full-service brokerage houses,discount brokerage houses,insurance companies,and banks.

Question 49

Where can you find the most complete information on a mutual fund's holdings,expense ratio,and loads?

A)Google
B)The fund's annual report
C)The fund's prospectus
D)The fund manager

Question 50

Mutual funds can be fully invested in federal bonds,municipal bonds,gold,silver,stocks,bonds,or a variety of stocks,bonds,and other investments.

Question 51

All mutual funds have an expense ratio which they use to assess operating expenses to the owners of the mutual fund.

Question 52

An advantage of buying mutual funds from a full-service broker or financial planner is ________.

A)no fees or commissions
B)professional advice and help in making your investment decisions
C)knowing that all full-service brokers and financial planners do everything in the best interests of their customers
D)knowing that your returns are guaranteed

Question 53

________ investing describes an investment strategy which seeks to maximize both financial return and social good.

A)Socially responsible
B)Environmental stewardship
C)Consumer protection
D)Human rights

Question 54

Exchange-traded funds are like mutual funds in that they are often structured as an open-end investment company,but they also resemble stock as they are traded throughout the day on a stock exchange.

Question 55

The Morningstar Style Box evaluates a mutual fund based on ________.

A)the capital asset size of the companies it holds and whether the companies in the fund are value-based,growth,or a blend of value-based and growth
B)the performance of the mutual fund since the inception of the fund
C)the performance of the mutual fund,excluding the expense ratio since the inception of the fund
D)the individual performance of each stock in the fund

Question 56

Since,in most cases,their compensation is tied to the performance of their funds,fund managers are motivated to make their funds grow.

Question 57

Measuring fund performance against the S&P 500 can show the consistency of the fund's returns; only about ________ of the fund managers beat the S&P 500 consistently,and they usually have higher expense ratios than index funds.

A)5%
B)10%
C)15%
D)25%