Question 1

The degree of risk in mutual fund investments remains nearly the same from one fund to the next.

Accepted Answer

The degree of risk in mutual fund investments can vary greatly from one fund to the next depending on their investment objectives, strategies, and underlying assets. Some mutual funds may invest in safe, stable assets such as government bonds, while others may invest in riskier stocks or foreign currencies. It is important for investors to carefully research and evaluate a mutual fund's investment strategy and portfolio before investing.

Question 2

A mutual fund that carries a load will require the investor to pay a commission, only if the fund appreciates in price.

Accepted Answer

The answer of A mutual fund that carries a load...

Question 3

Small investors can spread the risk of investing by purchasing shares of mutual funds or ETFs.

Accepted Answer

Both mutual funds and ETFs are investment vehicles that pool the money of many investors to buy a diversified portfolio of stocks, bonds, or other assets. By investing in mutual funds or ETFs, small investors can spread their risk across many different companies and industries, reducing the impact of any one individual investment on their overall portfolio.

Question 4

Most investment advisors put mutual funds high on the list of recommended investments for experienced investors, but consider them too risky for beginning investors.

Accepted Answer

Most investment advisors put mutual funds high on the list of recommended investments for beginning investors, but consider them too risky for experienced investors.

Question 5

We calculate the mutual fund's NAV (Net Asset Value) by dividing the total market value of the fund, by the number of shared outstanding.

Accepted Answer

This is the correct method of calculating a mutual fund's NAV.

Question 6

Mutual funds offer small investors an opportunity to diversify their investments.

Accepted Answer

Mutual funds pool money from many investors to invest in a diversified portfolio of stocks, bonds, or other securities, which reduces risk and offers small investors an opportunity to diversify their investments.

Question 7

Most mutual funds provide investors an opportunity to buy shares directly without using a stockbroker.

Accepted Answer

Most mutual funds offer direct purchase plans which allow investors to buy shares without a stockbroker. These plans can often be set up online or by mail, and usually have lower fees and minimum investment requirements than purchasing through a broker.

Question 8

A no-load mutual fund charges no commission fees to buy or sell its shares.

Accepted Answer

A no-load mutual fund does not charge any commission fees to buy or sell its shares.

Question 9

Rob Laws worked for several years for an aerospace manufacturer. For years he had purchased stock through his company's 401-K retirement fund. Now, upon retirement he was ready to transfer his retirement account to a financial services company and diversify the "nest egg" that currently totaled about $600,000 into more conservative investments. As a long time advocate of all things "green", he cautiously scrutinized every mutual fund that his broker suggested to make certain that it did not contain companies that left too large a carbon footprint. According to the Thinking Green box in Chapter 19, Rob is like a growing number of investors who may prefer SRIs (Socially Responsible Investments).

Accepted Answer

The passage mentions that Rob is a "long time advocate of all things 'green'" and he "cautiously scrutinized every mutual fund that his broker suggested to make certain that it did not contain companies that left too large a carbon footprint." This suggests that Rob prefers SRIs (Socially Responsible Investments).

Question 10

Index funds invest in one specific type of investment, for example, an index fund might only invest in income stocks, companies whose stocks pay dividends.

Accepted Answer

This statement is true. Index funds can invest in various types of investments including income stocks, growth stocks or a combination of both. However, each index fund is designed to track a specific market index and invests in the same stocks or securities as that index.

Question 11

On a mutual fund quotation, the Net Asset Value (NAV) = the number of persons who are investing in the fund.

Accepted Answer

The Net Asset Value (NAV) of a mutual fund is the total value of the fund's assets minus liabilities, divided by the number of shares outstanding. It represents the market value of one share in the mutual fund, not the number of persons investing in the fund.

Question 12

Exchange Traded Funds are like mutual funds because these funds permit the investor to buy shares of a collection of several stocks or shares of a collection of stocks and bonds, but, unlike mutual funds, they are traded during the day on the exchanges.

Accepted Answer

ETFs are traded during the day on exchanges, while mutual funds are not.

Question 13

U.S. investors have invested $12 trillion in mutual funds.

Accepted Answer

According to the Investment Company Institute, U.S. investors had invested $12.4 trillion in mutual funds as of December 2020.

Question 14

The Thinking Green box, titled, "Investing with Integrity" features SRIs, where mutual fund managers let you recycle your shares in a fund. If you don't like your investment, you send it back and receive shares in another fund.

Accepted Answer

The description of SRIs is incorrect. Socially Responsible Investments (SRIs) are mutual funds that invest in companies that meet certain environmental, social, and governance (ESG) criteria. They do not allow for the recycling of shares in the way described in the statement.

Question 15

Diversification involves buying several different investment alternatives to spread the risk of investing.

Accepted Answer

Diversification is a strategy of spreading risk by allocating investments among various asset categories, industries, and geographic regions. By diversifying, investors can reduce the impact of any individual investment's performance on their overall portfolio.

Question 16

From a risk standpoint, stocks are considered the riskiest investments, followed by mutual funds, preferred stock, and ETFs. Bonds represent a lower risk investment.

Accepted Answer

This statement is generally true as stocks carry higher volatility and market risk compared to other investment options. Bonds are considered less risky as they offer fixed returns and have lower market risk. However, it is important to note that there can be exceptions and individual investments within each asset class may carry different levels of risk.

Question 17

The investor always pays a fee when purchasing a share of a mutual fund.

Accepted Answer

The answer of The investor always pays a fee when...

Question 18

When comparing the investments of different mutual funds, little variation in the risk level exists.

Accepted Answer

The level of risk in mutual funds can vary greatly depending on factors such as the types of assets they invest in, their investment strategies, and the market conditions they are exposed to. Therefore, there is likely to be significant variation in the risk level between different mutual funds.

Question 19

According to the Thinking Green box, titled, "Invest with Integrity", socially responsible investment funds (SRIs) managed to prosper and grow through the recession and credit crisis of 2008.

Accepted Answer

The Thinking Green box states that socially responsible investment funds (SRIs) did indeed prosper and grow through the recession and credit crisis of 2008.

Question 20

Last year Alexis landed her first professional job after graduating from college. She also started her first investment account. Having met with several brokers before choosing someone to work with, Alexis wanted to make certain that her investment choices would provide for long-term growth, yet satisfy her concern for diversification. The person who won her business prepared an asset allocation plan that would start her account by investing in several index funds. Her adviser has offered her a sound way to combine the concern for diversification since index funds are a sensible way for Alexis to start.

Accepted Answer

The passage states that index funds are a sensible way for Alexis to start investing and satisfy her concern for diversification, therefore the statement is true.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities