Question 1

The value of a mutual fund's portfolio minus the mutual fund's liabilities, divided by the number of shares outstanding is called the:

Accepted Answer

A)   book value.
B)   outstanding balance.
C)   LIBOR rate.
D)   net asset value.
E)   accounting value.F) A) and B)
G) All of the above

Question 2

What percent of mutual funds within each category receive a 5-star rating from Morningstar?

Accepted Answer

A)   5
B)   10
C)   15
D)   20
E)   25F) All of the above
G) A) and B)

Question 3

Last month Nellie Jacobson's divorce became final. As part of the settlement, she received $150,000. She would like to invest in mutual funds, but since she is 62 years old, she is concerned with the safety of her "nest egg." Which of the following mutual funds would you recommend?

Accepted Answer

A)   Growth fund
B)   Small cap fund
C)   High-yield bond fund
D)   International fund
E)   Short-term U.S. bond fundF) B) and D)
G) All of the above

Question 4

A mutual fund:

Accepted Answer

A)   is a way of investing in a single stock.
B)   pools the money of many investors-its shareholders-to invest in a variety of securities.
C)   is insured by the FDIC.
D)   is a form of an indirect real estate investment.
E)   is professionally managed so investors need not monitor fund results.F) C) and D)
G) D) and E)

Question 5

Shares in an open-end fund are redeemed by the investment company at the request of the investor.

Accepted Answer

A) True 
 B)False

Question 6

Exchange-traded funds, commonly referred to as ETFs, are funds that invest in the stocks contained in the following stock or securities index(es) :

Accepted Answer

A)   midcap stocks.
B)   small-cap stocks.
C)   fixed-income securities.
D)   commodities.
E)   All of these are correct.F) D) and E)
G) A) and E)

Question 7

Martin Campbell wants to invest in mutual funds, but is also worried about diversification. Which fund would you recommend to him?

Accepted Answer

A)   Income fund
B)   Long-term corporate bond fund
C)   U.S. government bond fund
D)   Midcap fund
E)   A fund of fundsF) B) and D)
G) All of the above

Question 8

The typical expense ratio for an index fund is:

Accepted Answer

A)   0.50 percent or less.
B)   between 0.50 and 1 percent.
C)   between 1 and 2 percent.
D)   between 2 and 3 percent.
E)   over 5 percent.F) None of the above
G) A) and C)

Question 9

Which of the following is an advantage associated with purchasing a mutual fund?

Accepted Answer

A)   No fund management fees
B)   Ability to control the timing of the capital gains distributions
C)   Total elimination of market risk
D)   Switching privileges within the same fund family
E)   All of these are advantages to buying into a mutual fund.F) A) and B)
G) B) and D)

Question 10

Mutual funds charge the 12b-1 fee to offset advertising and marketing costs.

Accepted Answer

A) True 
 B)False

Question 11

The net asset value for a mutual fund share is calculated by dividing the value of the fund's portfolio by the fund's liabilities.

Accepted Answer

A) True 
 B)False

Question 12

Which one of the following statements is false?

Accepted Answer

A)   An exchange-traded fund invests in the stocks or securities contained in a stock or securities index.
B)   With an exchange-traded fund, an investor can purchase as little as one share.
C)   The return on shares in an exchange-traded fund tend to mirror the performance of the index.
D)   A passively-managed exchange-traded fund manager needs to make more decisions than an actively-managed mutual fund manager.
E)   Exchange-traded funds are increasing in popularity.F) A) and B)
G) C) and D)

Question 13

Although mutual funds are popular among individual investors, most people do not use them as part of an IRA or retirement account.

Accepted Answer

A) True 
 B)False

Question 14

Asset allocation funds invest in various asset classes including stocks, bonds, fixed-income securities, and money market instruments.

Accepted Answer

A) True 
 B)False

Question 15

Which one of the following statements is false?

Accepted Answer

A)   Investors purchase mutual funds for diversification.
B)   Investors purchase mutual funds because of their professional management.
C)   Investors who purchase mutual funds are guaranteed a higher rate of return than if they were to purchase comparable stocks and bonds directly.
D)   Professional mutual fund managers work for an investment company.
E)   Even the best portfolio managers sometimes make mistakes.F) All of the above
G) None of the above

Question 16

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

A)   Aggressive growth fund
B)   Equity income fund
C)   Global fund
D)   International fund
E)   Regional fundF) D) and E)
G) None of the above

Question 17

A load fund is a mutual fund in which investors pay a commission either when they purchase or when they redeem shares.

Accepted Answer

A) True 
 B)False

Question 18

While mutual fund income dividends are subject to taxation, capital gain distributions are not subject to taxation.

Accepted Answer

A) True 
 B)False

Question 19

Henrietta Marston plans to retire in the year 2050. She is considering a fund that will be more aggressive now and become more conservative as she approaches retirement. Which of the following funds would you recommend to her?

Accepted Answer

A)   Equity income fund
B)   Regional fund
C)   Sector fund
D)   Lifecycle fund
E)   Fund of fundsF) B) and E)
G) A) and E)

Question 20

Today, there are more closed-end funds than there are open-end funds.

Accepted Answer

A) True 
 B)False

Exam 16: Investing in Mutual Funds

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?

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Shares in an open-end fund are redeemed by the investment company at the request of the investor.

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The typical expense ratio for an index fund is:

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Which one of the following statements is false?

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Martin Campbell wants to invest in mutual funds, but is also worried about diversification. Which fund would you recommend to him?

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Although mutual funds are popular among individual investors, most people do not use them as part of an IRA or retirement account.

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Which of the following is an advantage associated with purchasing a mutual fund?

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Today, there are more closed-end funds than there are open-end funds.

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A mutual fund:

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Mutual funds charge the 12b-1 fee to offset advertising and marketing costs.

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Which one of the following statements is false?

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A load fund is a mutual fund in which investors pay a commission either when they purchase or when they redeem shares.

Correct AnswerverifiedShow Answer

The net asset value for a mutual fund share is calculated by dividing the value of the fund's portfolio by the fund's liabilities.

Correct AnswerverifiedShow Answer

While mutual fund income dividends are subject to taxation, capital gain distributions are not subject to taxation.

Correct AnswerverifiedShow Answer

What percent of mutual funds within each category receive a 5-star rating from Morningstar?

Correct AnswerverifiedShow Answer

The value of a mutual fund's portfolio minus the mutual fund's liabilities, divided by the number of shares outstanding is called the:

Correct AnswerverifiedShow Answer

Henrietta Marston plans to retire in the year 2050. She is considering a fund that will be more aggressive now and become more conservative as she approaches retirement. Which of the following funds would you recommend to her?

Correct AnswerverifiedShow Answer

Last month Nellie Jacobson's divorce became final. As part of the settlement, she received $150,000. She would like to invest in mutual funds, but since she is 62 years old, she is concerned with the safety of her "nest egg." Which of the following mutual funds would you recommend?

Correct AnswerverifiedShow Answer

Exchange-traded funds, commonly referred to as ETFs, are funds that invest in the stocks contained in the following stock or securities index(es) :

Correct AnswerverifiedShow Answer

Asset allocation funds invest in various asset classes including stocks, bonds, fixed-income securities, and money market instruments.

Correct AnswerverifiedShow Answer

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