Question 1

Phyllis Payne is buying shares in a mutual fund that invests in companies with a long history of paying a dividend whose objective is to provide income to shareholders.What type of mutual fund is she buying?

Accepted Answer

Equity income funds focus on investing in companies that pay regular dividends, aiming to provide income to their shareholders, which aligns with Phyllis Payne's investment objective.

Question 2

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

Accepted Answer

A contractual savings plan is a type of mutual fund that requires investors to commit to making regular purchases of shares over a specified period of time, ensuring a disciplined approach to saving and investing.

Question 3

Noelle Simon is buying shares in a mutual fund that only invests in companies located in the Latin America area.What type of mutual fund is this?

Accepted Answer

A regional fund focuses on investments in a specific geographic area, in this case, Latin America.

Question 4

Because of front-end commission charges,many financial experts and government regulatory agencies are critical of:

Accepted Answer

Contractual savings plans often come with front-end commission charges, which can be a significant expense for the investor. These charges are fees paid when an investment is made, typically going to the brokers or salespersons who sell the product. Because these fees can reduce the effective return on investment, especially in the early years of the investment, many financial experts and government regulatory agencies criticize these plans for their lack of transparency and potential to disadvantage investors.

Question 5

Tiffany Scott puts $8,000 into a load mutual fund.She knows that her up-front sales charge is 5%.How much of her money actually goes to buy shares in the mutual fund?

Accepted Answer

The up-front sales charge of 5% on $8,000 is $400 ($8,000 * 0.05), so the amount actually used to buy shares is $8,000 - $400 = $7,600.

Question 6

Joseph Carter is buying shares in a mutual fund that is investing in stocks throughout the world,including the United States.What type of mutual fund is this?

Accepted Answer

A global stock fund invests in stocks from around the world, including the investor's home country, which in this case includes the United States.

Question 7

Many investors will access a fund's ________ by using the internet.It includes a letter from the fund's independent auditors that provides an opinion as to the accuracy of the fund's financial statements.

Accepted Answer

The correct answer is A) annual report. An annual report for a fund typically includes a letter from the fund's independent auditors that provides an opinion on the accuracy of the fund's financial statements, among other comprehensive financial information and analyses.

Question 8

Sloan Richards is buying shares in a mutual fund that invests in companies with a total capitalization of less than $2 billion.What type of mutual fund is this?

Accepted Answer

Small cap funds specifically invest in companies with a small market capitalization, typically defined as less than $2 billion.

Question 9

Christopher Fishbone is buying shares in a mutual fund that invests in companies that are all in the natural resources industry.What type of mutual fund is he buying?

Accepted Answer

Sector funds specialize in a particular segment of the economy, such as natural resources, technology, healthcare, etc. Since Christopher Fishbone is investing in a mutual fund that focuses on companies within the natural resources industry, it is classified as a sector fund.

Question 10

Which one of the following publications does not provide readers with information about mutual funds and investing?

Accepted Answer

Current Business Survey is primarily focused on providing economic statistics and analyses rather than information on mutual funds and investing, which is the focus of the other publications listed.

Question 11

Which of the following is an advantage of an exchange-traded fund?

Accepted Answer

Exchange-Traded Funds (ETFs) offer several advantages, including no minimum investment amount, the ability to buy and sell shares through a securities exchange at any time during the business day, generally lower management fees compared to closed-end or open-end funds, and the option to use limit orders for buying and selling. These features contribute to the flexibility, cost-effectiveness, and accessibility of ETFs for investors.

Question 12

Norma Rose is buying shares in a mutual fund that invests in foreign stocks sold in securities markets throughout the world,excluding the United States.What type of mutual fund is she buying?

Accepted Answer

Norma Rose is buying an International fund because this type of mutual fund invests in foreign stocks outside of the investor's country of residence, excluding the United States in this context.

Question 13

Which one of the following is not a withdrawal option for a mutual fund owner,who has a minimum NAV of $5,000?

Accepted Answer

Mutual funds typically do not offer the option to withdraw a stated amount and treat it as a short-term loan. Withdrawal options usually involve liquidating part of the investment or setting up systematic withdrawals, but not borrowing against the investment.

Question 14

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

Accepted Answer

A regular account transaction is the most straightforward and common way to purchase shares in an open-end mutual fund, as it involves buying shares directly without any additional contractual obligations or plans.

Question 15

During 2017,Lincoln Masters received income dividends of $850 and capital gain distributions of $540.Based on this information:

Accepted Answer

Both income dividends and capital gain distributions must be included as taxable income on an individual's tax return. Income dividends are paid out from the earnings of a mutual fund or stock, and capital gain distributions are the profits from the sale of securities within a mutual fund. Both are considered income by the IRS and are therefore taxable.

Question 16

If an investor uses a reinvestment plan to invest income dividends and capital-gain distributions:

Accepted Answer

Reinvestment plans do not change the tax status of income dividends and capital-gain distributions; both are subject to current taxation regardless of whether they are reinvested or taken as cash.

Question 17

Conrad Maestro is buying shares in a mutual fund that seeks rapid price appreciation by purchasing stocks whose prices are expected to increase dramatically in a short period of time.What type of mutual fund is he purchasing?

Accepted Answer

Aggressive growth funds focus on achieving rapid price appreciation by investing in stocks that are expected to experience significant price increases in a short period of time. This matches the description of the mutual fund Conrad Maestro is purchasing.

Question 18

Which of the following statements is false?

Accepted Answer

Mutual funds can provide returns to investors in several ways, not just through selling shares at a higher price. These include income dividends and capital gain distributions, which can also contribute to an investor's overall return, making statement D false.

Question 19

Income dividends and capital gain distributions are:

Accepted Answer

Income dividends and capital gain distributions are subject to federal taxation without a threshold exemption, meaning they are taxed from the first dollar earned.

Question 20

Tisha Elmwood is buying shares in a mutual fund that avoids companies that do harm to people,animals,and the environment.What type of mutual fund is this?

Accepted Answer

Socially responsible funds, also known as ethical or green funds, specifically select investments based on certain ethical guidelines, avoiding companies that harm people, animals, or the environment.

Quiz 16: Investing in Mutual Funds