Deck 15: Investing Through Mutual Funds

Question 1

There are more open-end mutual funds than there are companies listed on the New York Stock Exchange.

Answer 1

True

Question 2

The NAV of a mutual fund with a market value of its assets of $100 million and 10 million shares outstanding would be $10.

Answer 2

False

Question 3

Mutual fund shares are redeemed at their net asset value (NAV)at the end of the trading day.

Answer 3

True

Question 4

It is much easier to select specific stocks and bonds than it is to select an open-end mutual fund share.

Question 5

The shares of an open-end mutual fund are sold at a discount from their net asset value.

Question 6

If the stock owned by a mutual fund increases in value,the net asset value of the fund will fall.

Question 7

Capital gains distributions represent the net gains that a fund realizes on its sale of securities from its portfolio.

Question 8

Investing in a mutual fund rather than an individual stock reduces market risk.

Question 9

More than 90 percent of all mutual funds are open-end funds.

Question 10

A mutual fund is a type of investment company.

Question 11

Similar to corporate shareholders,holders of mutual funds have a say in running the company,since they have equity interest in the pool of assets and a residual claim on the profits.

Question 12

As an owner of a mutual fund share,you receive your capital gains distributions when you sell your shares.

Question 13

Mutual fund dividends are paid out of the profits a mutual fund earns on its investments.

Question 14

The interest and dividends that a mutual fund earns on its investments are paid out to shareholders as capital gains distributions.

Question 15

Net asset value of a mutual fund is the price one pays (excluding any transaction costs)to buy a share of a mutual fund.

Question 16

A mutual fund is an investment company that pools funds obtained by selling shares to investors and makes investments to achieve the financial goal of income or growth,or both.

Question 17

A mutual fund buys and sells its shares at NAV,plus or minus any sales charges or fees.

Question 18

When you sell your share in a mutual fund,you receive the NAV of the share at its current market price.

Question 19

It is easier to achieve diversification by investing in individual stocks and bonds rather than mutual funds.

Question 20

Financial risk is reduced through mutual fund investments because the fund is able to diversify investments.

Question 21

The mutual fund company owns the investments it makes,and the mutual fund investors own the mutual fund company.

Question 22

Mutual funds are readily available to people saving for retirement through 401(k)plans and IRAs.

Question 23

Mutual funds will accept direct transfers of a portion of a worker's paycheck towards the purchase of shares in the mutual fund.

Question 24

Shares in an open-end mutual fund can be liquidated almost immediately simply by communicating with the company via phone,on-line or in writing.

Question 25

Switching between mutual funds in the same family of funds can typically be done for no fee.

Question 26

Individuals trade open-end fund shares on an organized exchange.

Question 27

You redeem your shares in an open-end mutual fund by selling them to another investor.

Question 28

Individuals trade closed-end fund shares much like the common stock of a corporation.

Question 29

Investing in mutual funds that are part of the same family of funds can simplify one's finances.

Question 30

Electronic funds transfers (EFTs)can be used to make regular investments in mutual funds from a checking or savings account.

Question 31

Closed-end mutual fund shares are actively traded like common stocks and bonds,primarily on the New York Stock Exchange.

Question 32

A beneficiary designation is automatically set up in a mutual fund account without having to complete any additional forms.

Question 33

When you buy shares in a mutual fund you are trusting that the fund's investment advisers share your investment objectives.

Question 34

Mutual funds have a low- or no-cost exchange privilege that permits mutual fund shareholders to easily swap shares on a dollar-for-dollar basis for shares in another mutual fund managed by the same mutual fund family.

Question 35

A mutual fund family is a group of individual funds under the same management company.

Question 36

A beneficiary designation enables the shareholder to name one or more beneficiaries so that at the shareholder's death the proceeds go to the beneficiaries after going through probate.

Question 37

A mutual fund can be arranged to keep its proceeds out of probate,in case of the owner's death.

Question 38

Mutual funds have distinct features that make this form of investing both unique and investor-friendly.

Question 39

A small percentage of mutual fund investors take advantage of automatic reinvestment of the current income received from their mutual fund.

Question 40

ETFs act like traditional open-end mutual funds in that they can be bought and sold directly from the mutual fund.

Question 41

A mutual fund whose objective focuses on growth in the value of the securities invests in companies expected to show average or better growth with steady or rising dividends.

Question 42

Target-date retirement funds are recommended for those who wish to actively manage their own investments.

Question 43

A primary goal of a balanced fund is to earn a well-balanced return of income and long-term capital gains.

Question 44

The typical growth fund seeks short-term capital appreciation.

Question 45

A global fund invests in growth stocks of companies listed on foreign exchanges as well as in the United States.

Question 46

International funds are the only funds that can invest in foreign securities.

Question 47

Emerging market funds are volatile because the countries the stocks are in tend to be less stable politically.

Question 48

The SEC requires each mutual fund to state its investment objectives.

Question 49

A money market mutual funds include tax-exempt funds and government securities funds.

Question 50

A money market fund will have an income rather than growth objective.

Question 51

"Fun" money is a sum of investment money that you can afford to lose without doing serious damage to your total portfolio.

Question 52

A mutual fund that has an income objective as its primary focus aims to earn regular income in dividends or interest from the investments in its portfolio.

Question 53

Bond funds are always low-risk investments.

Question 54

Socially responsible funds usually invest in firms with good records pertaining to the environment,human rights,and public safety.

Question 55

An aggressive-growth fund may employ high-risk investment techniques,such as borrowing money for leverage,short selling,hedging,and options.

Question 56

Most mutual funds are managed funds.

Question 57

Some bond funds invest only in municipal bonds so the investor receives tax-free income.

Question 58

The best way to ensure that you "beat the market" is to invest in "hot" mutual funds.

Question 59

A closed-end investment company issues a limited and fixed number of shares and does not buy them back.

Question 60

Investing in a sector fund decreases risk and return because it is more diversified than other funds.

Question 61

Mutual funds 12b-1 fees have the same effect as front-end loads in that they reduce the return received by investors.

Question 62

Stable-value funds operate much like bond funds but can only be purchased through an employer-sponsored retirement plans.

Question 63

No-load funds may have "service fees" of 0.25 percent or less.

Question 64

Mutual funds front-end loads are,in effect,trailing commissions.

Question 65

The stated commission on a load mutual fund is not an accurate depiction of the commission (load).

Question 66

Independent research has found that over five-year periods,lower-cost funds always deliver returns better than those offered by higher-cost funds.

Question 67

Front-end loads typically amount to 3 to 8.5 percent of the amount invested.

Question 68

A trailing commission is compensation paid to salespersons for months or years in the future.

Question 69

No-load mutual funds are appropriate for investors who want to buy investments through a broker or financial planner.

Question 70

Index funds are an example of managed funds.

Question 71

A 12b-1 fee is imposed if the investor redeems shares within a specified number of years after purchase.

Question 72

A single mutual fund company offers only one class of load shares to investors,such as A,B,or C.

Question 73

The return on an index fund is expected to exceed the market average.

Question 74

A 12b-1 fee is a hidden load because it increases a shareholder's earning power each year without being described as a sales commission.

Question 75

When a mutual fund has more than one class (A,B,C,for example)it means that each class has a different group of securities in its investment portfolio.

Question 76

Purchasing a stable-value fund through your employer-sponsored retirement can be a good way to reduce market risk in your retirement nest-egg.

Question 77

A redemption charge is designed to discourage frequent trading in and out of particular mutual funds.

Question 78

Deferred loads are a set percentage of the value of your portfolio.

Question 79

A 12b-1 fee is actually a perpetual sales load because it is assessed on the investment,as well as on reinvested dividends,every year forever.

Question 80

The stated commission on a load mutual fund is an accurate measure of the load being assessed.