Question 1

Mutual funds charge high sales loads because their potential returns are much higher than the returns for individual stocks.

Accepted Answer

Mutual funds charge sales loads to cover the cost of marketing and selling the funds to investors. The potential returns of mutual funds are not necessarily higher than individual stocks, as both investments carry varying degrees of risk and potential returns. It is important for investors to consider the fees and past performance of any investment before making a decision.

Question 2

12b-1 fees are marketing expenses for the mutual fund that are passed on to the fund shareholders.

Accepted Answer

12b-1 fees are a type of fee charged by mutual funds to cover marketing and distribution expenses. These fees are typically paid out of the fund's assets and can be passed on to the fund's shareholders in the form of lower returns or higher expenses. Therefore, 12b-1 fees are indeed marketing expenses for the mutual fund that are passed on to the fund shareholders.

Question 3

Compare and contrast open-end and closed-end mutual funds.

Accepted Answer

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Question 4

Sometimes,when you purchase shares directly from the mutual fund company itself,there will not be a sales load.

Accepted Answer

When purchasing shares directly from the mutual fund company, there may not be a sales load as the investor is not going through a broker. However, some mutual fund companies may still charge fees or expenses such as management fees or account maintenance fees.

Question 5

When you own shares of a mutual fund,you can choose to have the dividend and capital gains distributions paid directly to you in the form of cash or you can choose to have them reinvested into additional shares of the fund itself.

Accepted Answer

This statement is true. When you own shares of a mutual fund, you typically have the option to receive distributions in cash or reinvest them in the form of additional shares of the fund.

Question 6

When comparing which mutual fund to invest in,which of the following would be important to consider?
A)Load
B)Net asset value
C)Expense ratio
D)All of the above are correct.
E)Only A and C are correct.

Accepted Answer

When comparing mutual funds, it is important to consider all three factors: load, net asset value, and expense ratio. The load is the fee charged by the fund for buying or selling shares, the net asset value represents the value of a single share in the fund, and the expense ratio is the annual fee charged by the fund for managing the investments. By considering all these factors, an investor can make an informed decision about which mutual fund is best for their investment goals and preferences.

Question 7

Why are Exchange Traded Funds (ETF's)considered a hybrid between mutual funds and stocks?

Accepted Answer

The answer of Why are Exchange Traded Funds (ETF's)considered a...

Question 8

In what ways do unit investment trusts and real estate investment trusts resemble mutual funds?

Accepted Answer

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Question 9

All distributions from a mutual fund,whether paid out or reinvested,are taxable in the year in which they occur.

Accepted Answer

This is because mutual funds are considered as pass-through entities for tax purposes, meaning any gains or income earned by the fund is passed on to the shareholders and is taxed as if the shareholders earned the income themselves. Therefore, any distributions from the mutual fund, whether it is in the form of a payout or reinvestment, is considered as taxable income in the year it occurs.

Question 10

A mutual fund that does not charge a commission to own its shares is called a
A)free issue fund.
B)market fund.
C)no-load fund.
D)no-charge fund.
E)free-load fund.

Accepted Answer

A mutual fund that does not charge a commission to own its shares is called a no-load fund.

Question 11

A mutual fund's holdings are determined to be $1,500,000,000 with $250,000,000 in liabilities and 100,000,000 shares outstanding.What is the funds' NAV?
A)$125.00
B)$15.00
C)$12.50
D)$150.00

Accepted Answer

The formula for calculating NAV is:
NAV = (total assets - total liabilities) / number of shares outstanding
Plugging in the given values:
NAV = ($1,500,000,000 - $250,000,000) / 100,000,000
NAV = $12.50

Question 12

A mutual fund's expense ratio compares the fund's expenses to its total assets.

Accepted Answer

This is correct. The expense ratio is calculated by dividing the fund's expenses by its total assets. It is expressed as a percentage, and reflects the costs associated with managing and operating the fund.

Question 13

Back-end load mutual funds charge a commission when the investor sells the mutual fund.

Accepted Answer

Back-end load mutual funds do charge a commission when the investor sells the mutual fund, also known as a redemption fee. This fee is typically a percentage of the amount being redeemed and is deducted from the investor's proceeds.

Question 14

Net asset value is determined by taking the total market value of all the securities held by the mutual fund,subtracting out any liabilities,and dividing the result by the number of shares outstanding.

Accepted Answer

This is the standard formula for calculating the net asset value of a mutual fund.

Question 15

Which of the following statements is true regarding mutual fund load charges?
A)Load funds perform better than no-load funds.
B)Back-end load funds perform better than no-load funds.
C)Load funds perform more poorly than back-end load funds.
D)No-load funds perform just as well as load funds.
E)None of the above

Accepted Answer

No-load funds perform just as well as load funds. Studies and financial analyses have shown that the presence or absence of load charges (front-end, back-end, or otherwise) does not inherently affect the performance of mutual funds. The performance is more closely related to the fund's management, investment strategy, and market conditions. Load charges are fees and do not contribute to the investment's value or performance.

Question 16

Tabitha is just beginning to develop her financial portfolio.She does not want to pay commissions to purchase shares in mutual funds,as her friend you would advise her to invest her dollars in ________ funds.
A)load
B)front-load
C)back-load
D)no-load
E)side-load

Accepted Answer

No-load funds do not charge a commission or sales fee when buying or selling shares. Therefore, Tabitha can invest her money without paying any extra fees.

Question 17

A mutual fund that does not charge a commission on your ownership shares is referred to as a load fund.

Accepted Answer

A mutual fund that does not charge a commission on your ownership shares is called a no-load fund. A load fund is one that charges a commission or sales charge when you buy or sell shares.

Question 18

"Classes" of mutual funds have different fee arrangements attached to them.

Accepted Answer

Different classes of mutual funds have different fee arrangements, such as front-end loads, back-end loads, and expense ratios. Investors should carefully compare the fees and terms of each class before making a decision on which class to invest in.

Question 19

Mutual fund fees and expenses will negatively affect the return you receive on your investment.

Accepted Answer

Mutual fund fees and expenses, such as management fees and operating expenses, will decrease the overall return on your investment. It's important to carefully consider these fees and choose funds with low expenses in order to maximize your returns.

Question 20

What is the dollar value held in ETF's today?
A)$500 billion
B)$5 trillion
C)$2.5 trillion
D)$100 billion

Accepted Answer

As of 2021, the dollar value held in ETFs is approximately $2.5 trillion, making option C the correct choice. Option A and D are too low, and option B is too high.

Quiz 14: Mutual Funds: an Easy Way to Diversify