Question 1

As a shareholder in a mutual fund, you should receive a(n):

Accepted Answer

As a shareholder in a mutual fund, you should receive an annual report. This report provides information about the fund's performance, its portfolio holdings, and expenses. It is important to review this report each year to understand how your investment is doing and to make informed decisions about whether to continue investing in the fund.

Question 2

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

Accepted Answer

A mutual fund that requires investors to make regular purchases over a specified period of time is called a contractual savings plan. This plan is also known as a systematic investment plan, where investors commit to investing a certain amount of money at regular intervals. This helps them build their portfolio gradually and avoid the risks of market timing.

Question 3

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

Accepted Answer

The mutual fund that invests only in companies located in Latin America is a regional fund. A regional fund is a type of mutual fund that focuses on investing in companies located in a specific region of the world. Aggressive growth funds invest in stocks with high potential for growth, equity income funds invest in stocks that pay dividends, global funds invest in companies around the world, and international funds invest in companies outside the investor's home country.

Question 4

Because of up front commission charges, many financial experts and government agencies are critical of:

Accepted Answer

Contractual savings plans typically involve up front commission charges, which can be criticized by financial experts and government agencies. Regular accounts, voluntary savings plans, minimum withdrawal plans, and free contract plans may not necessarily involve the same types of fees or commissions upfront.

Question 5

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

This is a socially responsible fund, which focuses on investing in companies that have a positive impact on society and the environment.

Question 6

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

Accepted Answer

Conrad Maestro is purchasing a mutual fund that seeks rapid price appreciation, which is a characteristic of aggressive growth funds. These funds typically invest in high-growth potential stocks and therefore carry a higher degree of risk than other types of mutual funds.

Question 7

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

Accepted Answer

The most popular and least complicated method of purchasing shares in an open-end mutual fund is through a regular account transaction. This method involves directly purchasing shares in the mutual fund through a brokerage account or directly from the fund company. There are no ongoing contributions or contractual obligations, making it the simplest option for investors to access the benefits of mutual funds.

Question 8

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

Accepted Answer

A global fund invests in stocks from all over the world, including the United States, making it the best choice for Joseph's investment strategy. The other options do not necessarily include investments in the U.S. stock market or investments in stocks from all over the world.

Question 9

During 2008, 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 are taxable income and must be reported on the tax return.

Question 10

Which one of the following is not a withdrawal option for a mutual fund?

Accepted Answer

Withdrawing a stated amount and treating it as a short-term loan is not a withdrawal option for a mutual fund. The other options listed are typical ways to withdraw funds from a mutual fund account.

Question 11

Phyllis Payne is buying shares in a mutual fund that invests in companies with a long history of paying a dividend. What type of mutual fund is she buying?

Accepted Answer

Phyllis Payne is buying an equity income fund, which is a type of mutual fund that invests in companies with a long history of paying a dividend. The focus of this type of fund is on generating income for investors through regular dividend payments, rather than on rapid growth or speculative investments. Aggressive growth funds, global funds, international funds, and regional funds may invest in companies with varying dividend histories, but they do not specifically seek out dividend-paying companies as the primary investment strategy.

Question 12

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 13

Which of the following is an advantage of an exchange traded fund (ETF)?

Accepted Answer

All of the options listed are advantages of ETFs. They do not have a minimum investment amount, can be bought and sold through a broker at any time at the current market price, have lower management fees compared to mutual funds, and allow for the use of limit orders to both buy and sell shares.

Question 14

Which one of the following statements is false?

Accepted Answer

Professional advisory services are not prohibited from discussing mutual funds on their web pages; they often provide analysis and recommendations regarding mutual funds.

Question 15

Norma Rose is buying shares in a mutual fund that only invests in companies from countries other than the United States. What type of mutual is she buying?

Accepted Answer

An international fund invests in companies located outside the United States, as opposed to a global fund which may include US companies as well. This is the best choice as it matches the criteria described in the question.

Question 16

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

Accepted Answer

The Current Business Survey does not typically provide information about mutual funds, as it focuses more on economic trends and overall business performance. The other publications listed all commonly provide information about mutual funds for their readers.

Question 17

Which of the following statements is false?

Accepted Answer

The statement "The only way to make money on a mutual fund is by selling shares at a higher price than was initially paid for them" is false. Investors can also make money on mutual funds through income dividends and capital gain distributions, as mentioned in options B and C.

Question 18

Income dividends and capital gain distributions are:

Accepted Answer

Income dividends and capital gain distributions are subject to federal taxation.

Question 19

Tiffany Scott puts $10,000 into a load mutual fund. She knows that her up-front sales commission is 6%. How much of her money actually goes to buy shares in the mutual fund?

Accepted Answer

The up-front sales commission is 6%, which means that Tiffany will pay $600 in fees (6% of $10,000). Therefore, only $9,400 of her money will actually go towards buying shares in the mutual fund.

Question 20

An investment company sponsoring a mutual fund must give potential investors a(n):

Accepted Answer

A prospectus is a legal document that mutual fund companies are required to prepare and provide to potential investors. It contains all relevant information about the mutual fund, including the investment objectives, fees and expenses, risks, performance, and other key details. This helps investors make informed decisions about whether to invest in the mutual fund or not. Other options listed, such as the 12b-1 report, disclosure/evaluation form, redemption fee sheet, and annual report, may also be provided to investors at different points in time, but the prospectus is the main document that is required to be given to potential investors.

Quiz 16: Investing in Mutual Funds

As a shareholder in a mutual fund, you should receive a(n) :