Question 1

A load fund differs from a no-load fund in that the load fund often borrows to buy securities while a no-load does not.

Accepted Answer

A load fund and a no-load fund both have the ability to borrow to buy securities. The difference between the two is that a load fund charges a sales commission (or load) to investors, while a no-load fund does not.

Question 2

The best strategy for selecting mutual funds in the 401(k)plan is to
A)pick an index fund.
B)pick an aggressive growth fund,using last year's performance as a guide.
C)select a number of funds to achieve broad diversification.
D)pick a money market fund to avoid risk.

Accepted Answer

The best strategy for selecting mutual funds in a 401(k) plan is to select a number of funds to achieve broad diversification. This allows for spreading risk across multiple asset classes and investment styles. Picking just one index fund or an aggressive growth fund based on last year's performance may not provide adequate diversification and could expose the investor to unnecessary risk. Choosing a money market fund would provide very low risk but also very low returns, which may not be sufficient for long-term retirement savings goals.

Question 3

An investment vehicle that shifts asset weights over time is
A)an asset allocation fund.
B)a market timing limited partnership.
C)cyclical stock.
D)a return-indexed insurance policy.

Accepted Answer

An asset allocation fund is an investment vehicle that shifts asset weights over time to maintain a predetermined asset allocation strategy. This approach involves diversification across asset classes and enables investors to benefit from different market conditions while reducing overall portfolio risk. Market timing limited partnerships, cyclical stocks, and return-indexed insurance policies do not necessarily involve shifting asset weights over time.

Question 4

A portfolio plan should
A)seek to maximize the portfolio's value,regardless of risk.
B)consider the investor's goals and risk-tolerance level.
C)try to make the most possible money in the shortest possible time.
D)specify general,rather than concrete,objectives.

Accepted Answer

A portfolio plan should consider the investor's goals and risk-tolerance level by balancing risk and return. Maximizing portfolio value without taking into account an investor's tolerance for risk could result in significant losses and does not align with the investor's goals. Attempting to make the most money in the shortest time also increases risk and volatility, which may not be suitable for all investors. Specific, concrete objectives are essential for effective portfolio planning.

Question 5

A constant ratio plan adjusts a portfolio by
A)investing a constant amount of money each period.
B)maintaining a constant dividend yield.
C)adjusting asset holdings to restore the initial target weights.
D)maintaining a constant ratio of assets to the owner's wealth.

Accepted Answer

A constant ratio plan involves rebalancing the portfolio to maintain the initial target weights of different asset classes.

Question 6

Consider the following assets: I.Treasury Strips,II.Coupon Treasury bonds,III.growth stocks,and IV.medium quality corporate bonds.An aggressive investor without high- priority future goals would prefer
A)I.
B)II.
C)III.
D)IV.

Accepted Answer

An aggressive investor without high-priority future goals would prefer growth stocks as they have the potential for higher returns but also carry higher risk. Treasury Strips (I) and Coupon Treasury bonds (II) are more conservative investments, whereas medium quality corporate bonds (IV) may not offer enough return potential for an aggressive investor.

Question 7

Choosing not to participate in a 401(k)retirement plan in which the employer matches the employee contributions
A)is usually a good idea if you use your contributions to invest on your own.
B)means that you give up an opportunity to double your money immediately.
C)is a good idea if you are in a high tax bracket.
D)is a good idea because most employers provide retirement plans anyway.

Accepted Answer

By choosing not to participate in a 401(k) retirement plan in which the employer matches the employee contributions, you are giving up the opportunity to double your money immediately. This means that you would miss out on free money that your employer is willing to give you for investing in your future.

Question 8

The net asset value (NAV)of a mutual fund is the total value of the securities it owns (minus any liabilities)divided by the number of shares issued by the fund.

Accepted Answer

This is the correct definition of NAV for a mutual fund. It represents the value of each share in the fund based on its underlying investments.

Question 9

Which item below is not a characteristic of investment clubs?
A)Small monthly dues,in the $25 range
B)Reinvestment of dividends and capital gains
C)Reliance upon stockbrokers for research and advice
D)An opportunity for diversification

Accepted Answer

Investment clubs typically rely on their members to conduct research and make investment decisions, rather than solely relying on stockbrokers for advice.

Question 10

The 1986 Tax Reform Act
A)increased the appeal of real estate limited partnerships.
B)required that all limited partnerships become public syndicates.
C)eliminated many tax advantages previously associated with limited partnerships.
D)made real estate limited partnerships illegal.

Accepted Answer

The 1986 Tax Reform Act eliminated many tax advantages previously associated with limited partnerships, including those in the real estate industry. This made investing in limited partnerships less appealing for tax purposes.

Question 11

The Redux Fund has issued 500,000 shares to its investors,and it holds 100,000 shares of various companies worth $3 million.Therefore,the fund's NAV is $30 a share.

Accepted Answer

The Net Asset Value (NAV) is calculated by dividing the total value of the fund's assets by the number of shares issued. In this case, the total assets are worth $3 million, and there are 500,000 shares issued. Therefore, the NAV is $3 million / 500,000 shares = $6 per share, not $30.

Question 12

Consider the following assets: I.Treasury Strips,II.Coupon Treasury bonds,III.growth stocks,and IV.medium quality corporate bonds.An aggressive investor seeking high current income would prefer
A)I.
B)II.
C)III.
D)IV.

Accepted Answer

Medium quality corporate bonds are known to offer higher yields and therefore higher current income compared to the other asset types mentioned. Growth stocks and Treasury assets are not typically used for income generation, and coupon Treasury bonds may offer lower yields compared to corporate bonds.

Question 13

Coordinating investments in a 401(k)plan with investments outside the plan usually
A)involves selecting high current-return assets in plan with growth assets outside.
B)involves selecting growth assets in plan with high current return assets outside.
C)dictates the same proportion of growth assets to high-income assets,both in and out of plan.
D)means having sufficient liquidity both in and out of plan.

Accepted Answer

The answer of Coordinating investments in a 401(k)plan with investments...

Question 14

Consider the following assets: I.Treasury Strips,II.Coupon Treasury bonds,III.growth stocks,and IV.medium quality corporate bonds.A cautious investor with high-priority future goals,but who does not need current income,would prefer
A)I.
B)II.
C)III.
D)IV.

Accepted Answer

Treasury Strips are zero-coupon bonds that are backed by the US government, making them one of the safest investment options. Since the cautious investor does not need current income and has high-priority future goals, Treasury Strips would be the best choice as they offer a guaranteed return at a later time. Coupon Treasury bonds pay interest regularly and would not fit the cautious investor's preference for a low-risk investment. Growth stocks and medium quality corporate bonds are riskier investments that may offer higher returns, but do not meet the criteria for a cautious investor.

Question 15

Since there are no tax consequences arising from trades in a 401(k)plan,it makes sense
A)to trade often in an attempt to time the markets.
B)to ignore this feature and stick to a sound investment approach.
C)not to participate in the plan since you can't write off tax losses.
D)to trade aggressively if you are young and have a long investment horizon,but to be more conservative if you are nearing retirement.

Accepted Answer

Since there are no tax consequences arising from trades in a 401(k) plan, it is wise to focus on a sound investment approach rather than trying to time the markets or be aggressive with trading. Stick to a diversified portfolio and review your investments periodically to ensure they align with your long-term financial goals.

Question 16

Load fund have generally not outperformed no-load funds.

Accepted Answer

Studies have consistently shown that load funds, which charge a sales commission, do not outperform no-load funds, which do not have a sales charge. In fact, because of the extra fees associated with load funds, they may even have lower returns than comparable no-load funds over time.

Question 17

A variable ratio plan adjusts a portfolio by
A)holding asset weights constant.
B)increasing or decreasing all asset weights in response to income changes.
C)increasing the weight of assets that have performed well in the recent past.
D)increasing the weight of assets that have performed poorly in the recent past.

Accepted Answer

The answer of A variable ratio plan adjusts a portfolio...

Question 18

Which statement below is false with respect to your investment style in a 401(k)plan?
A)Be ultra-conservative,select fixed-income annuities.
B)Be conservative,select money market funds.
C)Be somewhat aggressive,particularly if you are a young person with a long investment horizon.
D)Be ultra-aggressive,select risky investments and frequently time the markets.

Accepted Answer

The answer of Which statement below is false with respect...

Question 19

If you follow a variable ratio plan,it is assumed that you
A)cannot forecast future asset values.
B)are engaging in a form of market timing.
C)are planning for your future retirement.
D)are trying to offset capital gains with capital losses.

Accepted Answer

A variable ratio plan is a type of investment strategy where the investor adjusts the amount they invest based on the performance of the asset or market. This type of strategy is often associated with market timing, as the investor is making adjustments based on short-term market movements. It does not necessarily relate to forecasting future asset values, planning for retirement, or offsetting capital gains with losses.

Question 20

An open-end fund differs from a closed-end fund in that the open-end fund does not limit the kinds of securities it buys.

Accepted Answer

A closed-end fund does not limit the kinds of securities it buys, while an open-end fund is required to invest in a specific type of security, such as stocks, bonds, or money market instruments.

Quiz 12: Mutual Fundsother Pooling Arrangements: Simplifying, Maybe Improving Investment Performance

A load fund differs from a no-load fund in that the load fund often borrows to buy securities while a no-load does not.

The best strategy for selecting mutual funds in the 401(k) plan is to

An investment vehicle that shifts asset weights over time is

A portfolio plan should

A constant ratio plan adjusts a portfolio by

Consider the following assets: I.Treasury Strips,II.Coupon Treasury bonds,III.growth stocks,and IV.medium quality corporate bonds.An aggressive investor without high- priority future goals would prefer

Choosing not to participate in a 401(k) retirement plan in which the employer matches the employee contributions

The net asset value (NAV)of a mutual fund is the total value of the securities it owns (minus any liabilities)divided by the number of shares issued by the fund.

Which item below is not a characteristic of investment clubs?

The 1986 Tax Reform Act

The Redux Fund has issued 500,000 shares to its investors,and it holds 100,000 shares of various companies worth $3 million.Therefore,the fund's NAV is $30 a share.

Consider the following assets: I.Treasury Strips,II.Coupon Treasury bonds,III.growth stocks,and IV.medium quality corporate bonds.An aggressive investor seeking high current income would prefer

Coordinating investments in a 401(k) plan with investments outside the plan usually

Consider the following assets: I.Treasury Strips,II.Coupon Treasury bonds,III.growth stocks,and IV.medium quality corporate bonds.A cautious investor with high-priority future goals,but who does not need current income,would prefer

Since there are no tax consequences arising from trades in a 401(k) plan,it makes sense

Load fund have generally not outperformed no-load funds.

A variable ratio plan adjusts a portfolio by

Which statement below is false with respect to your investment style in a 401(k) plan?

If you follow a variable ratio plan,it is assumed that you

An open-end fund differs from a closed-end fund in that the open-end fund does not limit the kinds of securities it buys.