Question 1

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 is she buying?

Accepted Answer

Norma Rose is buying an international fund because it invests in foreign stocks sold in securities markets throughout the world, excluding the United States. A global fund would include investments in the US market, while a regional fund focuses on a specific region of the world. Aggressive growth and equity income funds are types of investment strategies, not specific to international or foreign stocks.

Question 2

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

Accepted Answer

While Bloomberg Businessweek, Forbes, Kiplinger's Personal Finance Magazine, and Money all provide information about mutual funds and investing, Current Business Survey does not focus on this topic.

Question 3

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

Tisha Elmwood is buying shares in a socially responsible fund, which avoids companies that do harm to people, animals, and the environment.

Question 4

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. This option does not involve withdrawing funds from the mutual fund but rather treating the stated amount as a loan that needs to be repaid to the mutual fund. The other options listed are all legitimate ways to withdraw money from a mutual fund.

Question 5

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 6

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

Accepted Answer

Contractual savings plans typically involve front-end commission charges, which many financial experts and government agencies view as a disadvantage. The other options do not necessarily involve front-end commission charges and are not specifically criticized for this reason.

Question 7

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 investor's home country, which in this case includes the United States.

Question 8

Sloan Richards is buying shares in a mutual fund that invests in companies with a total capitalization of less than $1 billion.What type of mutual fund is this?

Accepted Answer

This is a small-cap fund as it invests in companies with a total capitalization of less than $1 billion.

Question 9

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 annual report is a comprehensive document that includes the fund's financial performance over the past year, along with the fund's goals and strategies for the future. It typically contains a letter from the fund's independent auditors that provides an opinion as to the accuracy of the fund's financial statements. Investors can easily access the annual report via the Internet.

Question 10

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 Lincoln Masters' tax return.

Question 11

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

10,000 F1F1F1S1F1F1F10 0.06 = 600; 10,000 F1F1F1S1F1F1F10 600 = $9,400.

Question 12

Income dividends and capital gain distributions are:

Accepted Answer

Both income dividends and capital gain distributions are typically subject to federal taxation. There is no specific exemption amount mentioned in the question. While there may be certain circumstances where these distributions are not subject to taxation, such as when held in a tax-advantaged account like a Roth IRA, the default assumption is that they are taxable. None of the given choices accurately reflect this reality, but the closest answer is B, which indicates that these distributions are indeed subject to federal taxation.

Question 13

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

Phyllis Payne is investing in an equity income fund, which focuses on companies that have a long history of paying dividends and provides income to shareholders. An aggressive growth fund focuses on capital appreciation, while global, international, and regional funds invest in companies outside of a specific geographical region.

Question 14

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 type of plan is often used for retirement savings and can help investors budget for their investments over time. Regular accounts and voluntary savings plans do not require regular, ongoing investments, while minimum withdrawal plans and free contract plans are not relevant to this type of mutual fund.

Question 15

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

Conrad Maestro is specifically looking for a mutual fund that seeks rapid price appreciation by investing in stocks with expected dramatic price increases in a short period of time. This closely aligns with the investment strategy of an aggressive growth fund, which typically invests in emerging companies with high growth potential and focuses on capital appreciation, rather than income generation.

Question 16

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

The mutual fund that Noelle Simon is buying shares in invests only in companies located in the Latin America area, which makes it a regional fund.

Question 17

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

Christopher Fishbone is buying a mutual fund that invests in companies in the natural resources industry, indicating that it is a sector fund. A sector fund is a mutual fund that invests in companies within a particular sector or industry, in this case, the natural resources sector. A socially responsible fund invests in companies that prioritize ethical and social values, a small-cap fund only invests in companies with a relatively small market capitalization, an index fund tracks the performance of a benchmark index, and a growth fund invests in companies with strong growth potential.

Question 18

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 common and straightforward method of purchasing shares in an open-end mutual fund. It involves directly buying shares through a brokerage or fund company and can be done with a lump sum or recurring investment. The other options listed (voluntary savings plan, contractual savings plan, minimum withdrawal plan, free contract plan) are less common or may be specific to certain types of investment accounts.

Question 19

Which of the following statements is false?

Accepted Answer

Mutual funds also generate returns for investors through regular income distributions, such as dividends and interest payments, which are paid out to investors throughout the year. Therefore, making money on a mutual fund does not solely depend on selling shares at a higher price.

Question 20

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

Accepted Answer

All of the choices listed are advantages of exchange traded funds (ETFs). They do not have a minimum investment amount, can be bought and sold at any time during the business day through a securities exchange, have low management fees, and can use limit orders to both buy and sell.

Quiz 16: Investing in Mutual Funds