Deck 12: Mutual Funds

Question 1

_________________ 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 1

Russell 2000

Question 2

A closed-end mutual fund _________________.

A) Allows investors to add new money at any time
B) Has a fixed number of shares
C) Is priced based on the return of a one-year Treasury bill
D) Has no commission

Answer 2

Has a fixed number of shares

Question 3

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

Answer 3

The total value of all the assets in the mutual fund minus cost,divided by the number of shares outstanding

Question 4

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 5

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 6

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 7

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 8

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 9

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 10

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 11

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 12

The NAV is commonly referred to as the _________________ of the mutual fund.

A) Net asset value
B) Share price
C) Cost
D) Overhead

Question 13

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

Question 14

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 15

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 16

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 17

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

Question 18

_________________ 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 19

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 20

Mutual funds are now regulated by the _________________.

A) Investment Company Act of 1940
B) Treasury Department
C) FDIC
D) NCUI

Question 21

_________________ are funds that invest in companies from foreign countries.

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

Question 22

_________________ 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 23

_________________ 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 24

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

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

Question 25

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 26

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 27

_________________ are funds that invest in international and domestic companies.

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

Question 28

What does a high turnover rate indicate?

A) The managers are most likely buying and selling stocks quickly
B) There has been a rapid change in prices
C) Great movement on the market
D) Inflation

Question 29

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 30

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 31

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 32

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

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

Question 33

A _________________ 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 34

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 35

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 36

When are mutual fund buy and sell 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 37

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 38

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 39

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 40

_________________ 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 41

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 42

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

Question 43

List how an actively managed fund differs from an index fund.

Question 44

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 45

Explain how a closed-end fund differs from an open-end fund?

Question 46

_________________ 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 47

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

Question 48

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 49

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%

Question 50

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

Question 51

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

Question 52

Explain how mutual funds are classified.

Question 53

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

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

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

Question 56

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 57

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 58

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 59

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 60

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 61

List three places where you can buy mutual funds and the benefits and drawbacks of each.

Question 62

List the benefits of mutual funds.

Question 63

List the characteristic of a money market fund.

Question 64

Describe how dividends and capital gains are distributed in a mutual fund.