Question 1

Mutual funds charge high sales loads because their potential returns are much higher than the returns for individual stocks.

Accepted Answer

Mutual funds charge sales loads as a way to cover the costs of distribution and marketing, not because their potential returns are higher than individual stocks. In fact, many studies have shown that passive investing in low-cost index funds often outperforms actively managed mutual funds with sales loads.

Question 2

Which of the following are passed on to fund share holders through 12b-1 fees?
A) Commissions
B) Advertising expenses
C) Promotional fees
D) Only B and C
E) All of the above

Accepted Answer

Only advertising expenses and promotional fees are passed on to fund shareholders through 12b-1 fees. Commissions are typically charged when buying or selling a fund or security, but are not included in 12b-1 fees.

Question 3

When you own shares of a mutual fund,you can choose to have the dividend and capital gains distributions paid directly to you in the form of cash or you can choose to have them reinvested into additional shares of the fund itself.

Accepted Answer

This statement is true. When you own shares of a mutual fund, you can choose to reinvest the dividends and capital gains distributions back into the fund by purchasing additional shares, or receive the distributions as cash payments.

Question 4

Sometimes,when you purchase shares directly from the mutual fund company itself,there will not be a sales load.

Accepted Answer

When you purchase shares directly from the mutual fund company, there is no need for a broker, and hence there is no sales load.

Question 5

The ________ is the value of the mutual fund's holdings,minus any debt,divided by the number of shares outstanding.
A) net worth
B) market value
C) tangible value
D) net asset value
E) none of the above

Accepted Answer

The net asset value (NAV) is the value of the mutual fund's holdings, minus any debt, divided by the number of shares outstanding. This calculation gives the per-share value of the mutual fund. Option A (net worth) and option B (market value) are not accurate descriptions of the NAV. Option C (tangible value) is a general term that includes physical assets, but does not accurately describe the value of a mutual fund. Therefore, the correct answer is D.

Question 6

A mutual fund that does not charge a commission to own its shares is called a
A) free issue fund.
B) market fund.
C) no-load fund.
D) no-charge fund.
E) free-load fund.

Accepted Answer

A mutual fund that does not charge a commission to own its shares is called a no-load fund. This means that the investor can buy and sell shares of the fund without incurring any additional fees, making it a more cost-effective option.

Question 7

Which of the following will affect your capital gains liability?
A) Turnover ratio
B) Changes in net asset value
C) Expense ratio
D) All of the above are correct.
E) Only A and B are correct.

Accepted Answer

The turnover ratio and changes in net asset value are both factors that can impact your capital gains liability. The turnover ratio is a measure of how frequently a fund buys and sells securities within its portfolio, which can result in capital gains if those securities have appreciated in value. Changes in net asset value can also impact your capital gains liability, as gains or losses in the value of the fund can result in gains or losses for investors when they sell their shares. The expense ratio, on the other hand, does not directly impact your capital gains liability.

Question 8

Which of the following statements is true regarding mutual fund load charges?
A) Load funds perform better than no-load funds.
B) Back-end load funds perform better than no-load funds.
C) Load funds perform more poorly than back-end load funds.
D) No-load funds perform just as well as load funds.
E) None of the above

Accepted Answer

No-load funds perform just as well as load funds. Studies and financial analyses have shown that the presence or absence of load charges (front-end, back-end, or otherwise) does not inherently affect the performance of mutual funds. The performance is more closely related to the fund's management, investment strategy, and market conditions. Load charges are fees and do not contribute to the investment's value or performance.

Question 9

Net asset value is determined by taking the total market value of all the securities held by the mutual fund,subtracting out any liabilities,and dividing the result by the number of shares outstanding.

Accepted Answer

This is the correct definition of net asset value (NAV) for a mutual fund. NAV is essentially the price per share of a mutual fund and is calculated daily based on the value of the fund's underlying assets minus any liabilities, divided by the number of shares outstanding.

Question 10

Tabitha is just beginning to develop her financial portfolio.She does not want to pay commissions to purchase shares in mutual funds,as her friend you would advise her to invest her dollars in ________ funds.
A) load
B) front-load
C) back-load
D) no-load
E) side-load

Accepted Answer

No-load funds do not charge commission fees when purchasing shares, making them the best choice for Tabitha who wants to avoid paying commissions.

Question 11

When comparing which mutual fund to invest in,which of the following would be important to consider?
A) Load
B) Net asset value
C) Expense ratio
D) All of the above are correct.
E) Only A and C are correct.

Accepted Answer

All of the options (A, B, and C) are important to consider when comparing mutual funds. The load is a fee charged for buying or selling the fund, net asset value is the price per share of the fund, and expense ratio is the percentage of the fund's assets that are used to cover operating expenses. All of these factors can have an impact on the overall returns of the fund and should be carefully evaluated before making an investment decision.

Question 12

12b-1 fees are marketing expenses for the mutual fund that are passed on to the fund shareholders.

Accepted Answer

12b-1 fees are a type of fee charged by mutual funds to cover marketing and distribution expenses, and they are typically passed on to the fund's shareholders. These fees are an ongoing expense, typically charged as a percentage of the fund's assets under management.

Question 13

A mutual fund that does not charge a commission on your ownership shares is referred to as a load fund.

Accepted Answer

A mutual fund that does not charge a commission on your ownership shares is referred to as a no-load fund.

Question 14

Mutual fund fees and expenses will negatively affect the return you receive on your investment.

Accepted Answer

Mutual fund fees and expenses, such as management fees and operating expenses, are deducted from the fund's net asset value and can significantly reduce the return on investment.

Question 15

"Classes" of mutual funds have different fee arrangements attached to them.

Accepted Answer

This is true. Different classes of mutual funds have different fee structures and expense ratios, which can impact the overall return for investors. Some common classes include A, B, C, and institutional shares. It is important for investors to understand the fee structure of a mutual fund before investing to ensure they are getting the most out of their investment.

Question 16

A mutual fund's expense ratio compares the fund's expenses to its total assets.

Accepted Answer

A mutual fund's expense ratio is calculated by dividing the fund's total expenses by its total assets. It is expressed as a percentage and reflects the cost of running the fund, including management fees, administrative expenses, and other operating costs. A lower expense ratio is generally better for investors as it means more of their investment goes towards actual returns rather than expenses.

Question 17

All distributions from a mutual fund,whether paid out or reinvested,are taxable in the year in which they occur.

Accepted Answer

All distributions from a mutual fund, whether they are paid out or reinvested, are considered taxable income in the year when they occur. This includes dividends, capital gains, and interest earned within the fund. Exceptions may apply if the mutual fund is held within a tax-advantaged account like an IRA or 401(k).

Question 18

In what ways do unit investment trusts and real estate investment trusts resemble mutual funds?

Accepted Answer

The answer of In what ways do unit investment trusts...

Question 19

Back-end load mutual funds charge a commission when the investor sells the mutual fund.

Accepted Answer

Back-end load mutual funds, also known as deferred sales charge funds, typically charge a commission, also known as a contingent deferred sales charge, when the investor sells the mutual fund. This fee is usually a percentage of the value of the investment, and it is designed to discourage investors from selling their shares before a specified time period, often several years, has elapsed.

Question 20

Compare and contrast open-end and closed-end mutual funds.

Accepted Answer

The answer of Compare and contrast open-end and closed-end mutual...

Quiz 14: Mutual Funds: An Easy Way to Diversify

Mutual funds charge high sales loads because their potential returns are much higher than the returns for individual stocks.

Which of the following are passed on to fund share holders through 12b-1 fees?

When you own shares of a mutual fund,you can choose to have the dividend and capital gains distributions paid directly to you in the form of cash or you can choose to have them reinvested into additional shares of the fund itself.

Sometimes,when you purchase shares directly from the mutual fund company itself,there will not be a sales load.

The ________ is the value of the mutual fund's holdings,minus any debt,divided by the number of shares outstanding.

A mutual fund that does not charge a commission to own its shares is called a

Which of the following will affect your capital gains liability?

Which of the following statements is true regarding mutual fund load charges?