Question 1

Which of the following statements is false?

Accepted Answer

Investors who purchase mutual funds are not guaranteed a higher rate of return compared to a comparable investment in stocks or bonds as mutual fund returns are subject to market fluctuations and the performance of the underlying securities.

Question 2

When Peter Mills went to withdraw $8,000 from the Lowe Fidelity Mutual fund, he was informed that the fund would charge 3 percent of the amount withdrawn.What is the dollar amount of the withdrawal charge?

Accepted Answer

To calculate the withdrawal charge, we need to multiply the amount withdrawn by the percentage charged, which gives us:
Withdrawal charge = $8,000 x 0.03 = $240
Therefore, the answer is C).

Question 3

The Jeremiah Wazan Enterprise Mutual Fund's portfolio is valued at $125,000,000.The fund has liabilities of $5,000,000, and the investment company sponsoring the fund has issued 2,000,000 shares.What is the fund's net asset value?

Accepted Answer

The answer of The Jeremiah Wazan Enterprise Mutual Fund's portfolio...

Question 4

Marisa Callaghan just purchased 100 shares in the All-Inclusive Fidelity Fund.The purchase cost for each share was $30.If this fund charges a 6 percent load, what is the total amount of commission she will pay the investment company?

Accepted Answer

The total amount of the purchase is $30 x 100 = $3,000.
Since the fund charges a 6% load, the commission paid is 6% x $3,000 = $180.

Question 5

For most mutual funds, the net asset value is calculated:

Accepted Answer

For most mutual funds, the net asset value (NAV) is calculated daily based on the closing prices of the securities held in the fund's portfolio. This allows investors to have an up-to-date understanding of the value of their investment.

Question 6

The value of the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding is called the:

Accepted Answer

The value of the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding is known as the net asset value (NAV). This is the price at which investors can buy and sell shares in the mutual fund.

Question 7

A 1 to 6 percent fee that investors pay when they withdraw their investment from a mutual fund is called a(n)

Accepted Answer

A 1 to 6 percent fee that investors pay when they withdraw their investment from a mutual fund is called a contingent deferred sales load (also known as a back-end load). This fee is assessed as a percentage of the amount withdrawn and is intended to deter short-term trading and encourage long-term investment in the fund.

Question 8

Another name for a mutual fund that charges a contingent deferred sales load is a(n) ____________ fund.

Accepted Answer

The correct term for a mutual fund that charges a contingent deferred sales load is a back-end fund. The load, also known as a CDSC (Contingent Deferred Sales Charge), is typically a percentage of the investor's redemption or sale proceeds and is only charged if the investor decides to sell or redeem their shares within a certain time frame, often between 1 and 6 years after purchasing the fund. The CDSC gradually decreases over time, and after the specified period, it usually disappears entirely.

Question 9

A mutual fund in which no sales charge is paid by the individual investor is called a(n) ____________ fund.

Accepted Answer

A no-load mutual fund is a fund in which no sales charge is paid by the individual investor. This means that the entire amount invested goes towards purchasing shares in the fund, as opposed to paying a fee to the broker or financial advisor who sold the fund. Therefore, a no-load fund can be a cost-effective option for investors looking to minimize fees and maximize returns.

Question 10

The Capitalist Mutual Fund's portfolio is valued at $55 million.The fund has liabilities of $4 million, and the investment company sponsoring the fund has issued 2,400,000 shares.What is the fund's net asset value?

Accepted Answer

Net Asset Value (NAV) = (Portfolio Value - Liabilities) / Number of Shares
NAV = ($55 million - $4 million) / 2,400,000
NAV = $51 million / 2,400,000
NAV = $21.25 per share.

Question 11

Which of these is not a true statement?

Accepted Answer

This statement is not true as ETFs can be purchased through a broker, on margin and can also be sold short. However, the statement that ETFs have lower management expenses than conventional mutual funds is true.

Question 12

Larry Bander purchased 280 shares of the New Horizons Growth Fund.The net asset value for each share at the time of purchase was $27.If this fund charges a 3.5 percent load, what is the commission amount he will pay the investment company?

Accepted Answer

The commission amount is calculated as 3.5% of the total investment. The total investment without the load is 280 shares * $27 = $7,560. The load (commission) is 3.5% of $7,560, which is 0.035 * $7,560 = $264.60.

Question 13

Which of the following statements is true?

Accepted Answer

Ethical funds, also known as socially responsible funds or sustainable funds, are guided by moral or ethical criteria in their investment decisions. These criteria can include environmental, social, and governance factors, as well as religious or cultural beliefs.

Question 14

A mutual fund is:

Accepted Answer

A mutual fund is an investment chosen by people who pool their money to buy financial securities. It allows investors to diversify their portfolio without the need for significant upfront capital or expertise in investing. It is not exclusive to retirement accounts and comes with varying degrees of risk depending on the type of mutual fund. It is not a risk-free investment but is suitable for both risk-averse and risk-tolerant investors.

Question 15

The commission charge for purchasing shares of a load fund that imposes an up-front commission charge can be as high as 8.5 percent.This fee:

Accepted Answer

The answer of The commission charge for purchasing shares of...

Question 16

Capital gain distributions are the payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio.

Accepted Answer

Capital gain distributions are indeed payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio.

Question 17

A mutual fund in which investors pay a commission every time they purchase shares is called a(n) ____________ fund.

Accepted Answer

A mutual fund in which investors pay a commission every time they purchase shares is called a load fund. Choice D is the correct option.

Question 18

A mutual fund in which shares are issued only when the fund is organized is called a(n) ____________ fund.

Accepted Answer

A closed-end fund issues a fixed number of shares when the fund initially goes public, which means that after that point, shares can only be bought and sold on an exchange between investors, and not directly through the mutual fund company. This is different from an open-end fund, which continuously issues new shares to meet investor demand.

Question 19

The management fee for most mutual funds ranges between ____________ percent.

Accepted Answer

The management fee for most mutual funds ranges between 0.5 to 4 percent. Choice A covers this range and is therefore the best choice. Choices B-E either do not cover the full range or include ranges outside of the typical management fee.

Question 20

A mutual fund in which new shares are issued and redeemed by the investment company at the request of investors is called a(n) ____________ fund.

Accepted Answer

The description provided in the question matches the characteristics of an open-end mutual fund. Therefore, the correct answer is D. Closed-end funds have a fixed number of shares and trade on exchanges, and no-load funds do not charge upfront fees to investors. Load funds, on the other hand, charge upfront fees known as loads. Convertible funds are a specialized type of fund that allows investors to convert from one share class to another.

Quiz 13: Investing in Mutual Funds