Question 1

For each of the following types of fund loads, please describe the fund's front-end charge, annual sales charge, redemption charge, and 12b-1 fees characteristics.
(1) A type load.
(2) B type load.
(3) C type load.
(4) No load.

Accepted Answer

The answer of For each of the following types of...

Question 2

Which of the following is an approach that advocates purchasing stocks that have had large price movements relative to the market?

Accepted Answer

This approach is known as momentum investing, which involves buying stocks that have recently had strong price movements in the hope that the trend will continue in the near future.

Question 3

Which of the following is not a reason why the majority of actively managed mutual funds underperform the averages?

Accepted Answer

Option C states that the relative performance between categories does not differ substantially over extended periods of time. However, this is not a reason why most actively managed mutual funds underperform the averages. The other options, A, B, and D, provide valid reasons why these funds may underperform.

Question 4

A mutual fund composed of a blend of stocks and bonds can be categorized as which of the following?

Accepted Answer

A balanced fund is a mutual fund composed of a mix of stocks and bonds in order to provide investors with a balanced portfolio that seeks to provide both income and capital appreciation. Industry funds are focused on a particular industry, sector funds are focused on a particular sector, and hedge funds are typically only available to accredited investors and employ more advanced and risky investment strategies.

Question 5

What is a load fund?

Accepted Answer

A load fund is a mutual fund that provides a sales commission to the individual or brokerage firm that markets the fund. This commission is paid to the salesperson out of the investor's initial investment or out of the fund's assets. Therefore, investors should be aware of the sales commission, which can be 1% to 8.5% of the investment, and find out whether the investment is worth the cost or not.

Question 6

Capital gains taxes may be paid yearly:

Accepted Answer

Capital gains taxes may be due yearly even if the shareholder has not sold any fund shares, due to the fund itself selling securities at a gain within the portfolio, which are then passed on to the shareholders as taxable distributions.

Question 7

What are unit investment trusts?

Accepted Answer

Unit investment trusts are portfolios that are set up at a point in time, like mutual funds, but are generally unmanaged. Instead of having a team of managers making investment decisions, a unit investment trust will simply hold a fixed portfolio of securities until the predefined termination date. This can make them attractive to some investors who prefer a buy-and-hold approach, but they do not offer the same level of flexibility as actively managed mutual funds.

Question 8

List and provide a detailed explanation for nine types of bond funds.

Accepted Answer

The answer of List and provide a detailed explanation for...

Question 9

The key difference between mutual funds and separately managed accounts is that:

Accepted Answer

Mutual funds pool all investor funds in one account and are managed by a professional fund manager, while separately managed accounts involve investors owning individual stocks and bonds that are placed in their name in a segregated account, which provides more flexibility and customization.

Question 10

Sales charges that are covered under marketing fees for loan funds are:

Accepted Answer

12b-1 fees are marketing fees that cover sales charges for loan funds. The other choices are not relevant to this question.

Question 11

List and provide examples of eight types of specialized funds that concentrate in publicly traded securities.

Accepted Answer

The answer of List and provide examples of eight types...

Question 12

According to the dividend discount model, the current value of a security is equal to:

Accepted Answer

The dividend discount model (DDM) calculates the present value of a stock by dividing the annual dividend per share by the difference between the required rate of return (discount rate) and the dividend growth rate. This is accurately represented in option A.

Question 13

Why are preferred shares generally considered more risky than bonds?

Accepted Answer

Preferred shares are generally considered more risky than bonds because they have a lower priority on assets than bonds in the event of bankruptcy and they lack the assurance of a bond's contracted for return of principal. While it is true that preferred shares typically have higher yields than bonds, this does not necessarily make them more risky overall.

Quiz 16: Stocks, Bonds and Mutual Funds

For each of the following types of fund loads, please describe the fund's front-end charge, annual sales charge, redemption charge, and 12b-1 fees characteristics. (1) A type load. (2) B type load. (3) C type load. (4) No load.