Chapter 13 Personal Finance: Investing In Mutual Funds

An example of a lifecycle fund is a fund that A. Assists investors with planning for retirement by a specific date. B. Initially invests in conservative securities, then changes to invest in more risk-oriented securities as time goes by. C. Invests in shares of other mutual funds in order to increase diversification and asset allocation. D. Has principal protection as its main objective. E. None of these is an example of a lifecycle fund.

a

Many mutual funds charge a commission every time they are purchased by investors. These are called A. Load funds. B. Closed-end funds. C. Exchange-traded funds. D. Net asset value funds. E. Open-end funds.

a

Payments to investors related to the sale of securities in the fund's portfolio are A. Capital gain distributions. B. Income dividends. C. Capital gains. D. Mutual fund money. E. Fund taxes.

a

Professional advisory services provide detailed information about mutual funds. Which of the following is not a professional advisory service? A. Dun and Moody's. B. Lipper Analytical Services. C. Morningstar, Inc. D. Value Line. E. All of these are professional advisory services that provide information about mutual funds.

a

The average upfront sales charge for a no-load mutual fund is A. 0%. B. 2%. C. 3-5%. D. 8.5%. E. 11.5-14.5%.

a

Thomas wants to invest in a fund that invests in stock, bonds, and money market instruments. Which of the following will meet his needs? A. Asset allocation funds B. Aggressive growth funds C. Junk bond funds D. Midcap funds E. Short-term corporate bond funds

a

What percentage of all mutual funds are closed-end funds? A. 6% B. 13% C. 36% D. 85% E. 93%

a

Which class of shares charges a commission when shares are purchased? A. A B. B C. C D. K E. Q

a

Which of the following types of stock funds invests in stock issued by companies with a long history of paying dividends? A. Equity income funds B. Growth funds C. Index funds D. International funds E. Regional funds

a

Which type of fund has the prices determined by factors of supply and demand like a stock? A. Closed-end fund B. SEC government fund C. Net asset value fund D. No-load fund E. Open-end fund

a

A fee charged to defray the costs of advertising and marketing for a mutual fund is called a ____ fee. A. 3c B. 12b-1 C. 14c-2 D. 401(k) E. 403(b)

b

Earnings paid to shareholders that are not related to the sale of securities in the fund's portfolio are called A. Capital gain distribution. B. Income dividend. C. Capital gain. D. Mutual fund money. E. Fund taxes.

b

Francesca withdrew $7,000 from B shares that she owned in the Already Been Counted mutual fund within one year of her purchase. If she must pay a 5% contingent deferred sales fee, what amount will she actually receive? A. $350 B. $6,650 C. $7,000 D. $7,350 E. $7,500

b

If you hold mutual fund shares in your Roth individual retirement account, the taxes will be A. Deferred. B. Eliminated. C. Evaluated. D. Payable immediately. E. None of these.

b

Nicholas purchased 150 shares of ABC Mutual Fund at $10.50 and sold them one year later at a price of $14.50. His total earnings were A. $400 B. $600 C. $2,025 D. $2,625 E. $4,650

b

The Anderson Balanced mutual fund charges a sales load of 4.85%. If you invest $15,000, how much of your investment will actually be used to purchase shares in the fund? A. $14,250.00 B. $14,272.50 C. $14,400.00 D. $14,485.00 E. $15,000.00

b

The investments in the Alamo Basics Contingency Fund have a current market value of $800 million. The fund also has liabilities that total $60 million. If this mutual fund has 20 million shares, what is the net asset value per share? A. $3.00 B. $37.00 C. $40.00 D. $43.00 E. $60.00

b

The investments in the Already Been Counted Fund have a current market value of $600 million. The fund also has liabilities that total $40 million. If this mutual fund has 25 million shares, what is the net asset value per share? A. $1.60. B. $22.40. C. $24.00. D. $25.60. E. None of these.

b

Val wants to invest in a fund whose primary objective is to conserve principal, provide income, and provide long-term growth. Which of the following will best meet her needs? A. Cyclical funds B. Balanced funds C. Junk bond funds D. Midcap funds E. Short-term corporate bond funds

b

Which class of shares charges a commission when withdrawals are made during the first five years? A. A B. B C. C D. K E. Q

b

Which of the following is a fund that invests in stocks or securities contained in a specific stock or securities index? A. Closed-end fund B. Exchange-traded fund C. Net asset value fund D. No-load fund E. Open-end fund

b

Which of the following is correct for a closed-end fund? A. It is not traded on a securities exchange. B. The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations. C. It is not actively managed by professional fund managers. D. Its price is equal to the net asset value. E. Its load cannot exceed 2%.

b

Which of the following types of stock funds invests in stock issued by companies expecting higher-thanaverage revenue and earnings growth? A. Equity income funds B. Growth funds C. Index funds D. International funds E. Regional funds

b

A problem with mutual funds is A. Professional management. B. The possibility to eliminate taxes if held in a Roth individual retirement account. C. Being required to report reinvested income dividends and capital gain distributions on your federal tax return. D. Tax deferral if the fund is held in a retirement account like a 401(k) account. E. The diversification offered to investors.

c

All of the following are advantages of a mutual fund except A. Diversification. B. Professional management. C. Loads of up to 8.5%. D. Ease of buying and selling shares. E. All of these are advantages.

c

Sally wants to invest in a mutual fund. The mutual fund must provide a(n) ____ to her. A. analysis from a financial publication B. annual report C. prospectus D. quarterly report E. summary report

c

The average load charge for mutual funds is A. 0%. B. 2%. C. 3-5%. D. 8.5%. E. 11.5-14.5%.

c

Time is an important factor when evaluating a mutual fund for which of the following? A. The existence of the underlying index. B. The life of the companies in the fund. C. The length of time that the fund manager has been managing the fund. D. The status of the economy. E. None of these.

c

When you sell your shares in a mutual fund, you may receive a profit called A. Capital gain distribution. B. Income dividend. C. Capital gain. D. Mutual fund money. E. Fund taxes.

c

Which class of shares does not impose a sales load or contingent deferred sales fee but charges a higher 12b-1 fee than the other classes? A. A B. B C. C D. K E. Q

c

Which of the following contains a letter from the president of the investment company, detailed financial information, a schedule of investments, and a letter from the fund's independent auditors? A. Financial publications B. Internet C. Mutual fund annual report D. Newspapers E. Professional advisory services

c

Which of the following is not a way one can access reliable information about mutual funds on the internet? A. Find statistical information from the investment company's web page. B. Obtain current market values for mutual funds by using a search engine such as http:// finance.yahoo.com. C. Review blogs from amateur investors about their favorite mutual funds. D. Research reports for mutual funds using professional advisory services. E. All of these are reliable sources of information about mutual funds.

c

Which of the following is true about mutual funds and taxes? A. Capital gain distributions are taxed when you sell your shares. B. Income dividends are taxed quarterly. C. Investment companies are required to send each shareholder a year-end statement that specifies how much each received in dividends and capital gain distributions. D. Capital gains distributions are not taxed. E. Taxes can be eliminated if you hold your mutual fund shares in your 401(k) retirement account.

c

Which of the following types of stock funds invests in the same companies included in the Standard & Poor's 500 stock index? A. Equity income funds B. Growth funds C. Index funds D. International funds E. Regional funds

c

A load fund is allowed to collect a sales charge (commission) as high as A. 0%. B. 2%. C. 3-5%. D. 8.5%. E. 11.5%.

d

Francesca withdrew $7,000 from B shares that she owned in the Already Been Counted mutual fund within one year of her purchase. If she must pay a 5% contingent deferred sales fee, what will her total fee be? A. $0 B. $3.50 C. $35.00 D. $350.00 E. $3,500.00

d

How do mutual funds provide returns to their shareholders? A. Income dividends. B. Capital gain distributions. C. Capital gains. D. All of these. E. None of these.

d

Sally wants to invest in a fund that invests only in stock. Which of the following will meet her needs? A. Asset allocation funds B. Balance funds C. Junk bond funds D. Midcap funds E. Short-term corporate bond funds

d

The Anderson Balanced mutual fund charges a sales load of 4.85%. If you invest $15,000, how much must you pay in commissions? A. $4.85 B. $485.00 C. $600.00 D. $727.50 E. $750.00

d

The net asset value is calculated as A. (Liabilities - Value of portfolio) + Number of shares outstanding. B. Number of shares outstanding/(Liabilities - Value of portfolio). C. (Liabilities - Value of portfolio)/Number of shares outstanding. D. (Current market value of portfolio - Liabilities)/Number of shares outstanding. E. Number of shares outstanding/(Value of portfolio - Liabilities).

d

Which of the following is not correct about the 12b-1 fee? A. It is also known as a distribution fee. B. A no-load fund can charge a 12b-1 fee of up to 0.25% of its assets. C. It is often an ongoing fee that is charged on an annual basis. D. It needs to be disclosed in the annual report but not in the prospectus. E. It is used to defray the costs of advertising and marketing a mutual fund and commissions paid to a broker who sold shares in the mutual fund.

d

Which of the following provides a good means of monitoring the value of your mutual fund investments, but not as much information as other sources of information that conduct a more complete evaluation? A. Financial publications B. Internet resources C. Mutual fund annual report D. Newspapers E. Professional advisory services

d

Which of the following types of stock funds invests in stock issued by companies throughout the world outside the United States? A. Equity income funds B. Growth funds C. Index funds D. International funds E. Regional funds

d

A contingent deferred sales load is known as all of the following except A. Back-end load. B. B fund. C. Redemption fee. D. Only two of these are correct. E. All of these are correct.

e

A no-load mutual fund A. May allow investors to pay a sales charge. B. Charges commission when you buy shares. C. Uses salespeople to sell the funds. D. Is available only via the Internet. E. Can charge a 12b-1 fee of up to 0.25% of its assets.

e

All of the following are valid ways to purchase mutual funds except A. A regular account transaction. B. A voluntary savings plan. C. A contractual savings plan. D. A reinvestment plan. E. All of the ways listed are valid purchase options.

e

How is an ETF similar to a closed-end fund? A. Shares are traded on a securities exchange or in the over-the-counter market. B. An investor can purchase as little as one share of a fund. C. Prices are determined by supply and demand and the value of stocks and other investments contained in the portfolio. D. Prices are determined by investor expectations. E. All of these are correct.

e

If you start a new job and are offered the opportunity to participate in the company's 401(k) or 403(b) retirement plan, which of the following decisions can affect your financial future? A. Participating in the retirement account as a way to reduce income taxes. B. Participating in the retirement account to take advantage of the employer's matching contributions. C. Choosing mutual funds from a number of different fund options for your retirement account. D. Basing your actual choice of investments on your age, how long before you retire, and your tolerance for risk. E. All of these decisions would have a financial impact.

e

Melinda wants to withdraw some money from her mutual fund. Which of the following is not an option available? A. Write a check B. Sell a certain number of shares each investment period C. Withdraw a fixed percentage of asset growth D. Withdraw all income dividends and capital gain distributions earned each investment period E. Withdraw all principal and leave interest dividends and capital gain distributions in the account

e

Professional advisory services provide research on mutual funds in all of the following areas except A. A historical profile. B. Statistical information. C. Performance, risk analysis, and portfolio analysis. D. Summary of the analyst's research. E. All of these are included by professional advisory services.

e

Which of the following is not correct? A. When evaluating a mutual fund, an important question to ask is this: How long has the present fund manager been managing the fund? B. Over the years, the majority of managed mutual funds have failed to outperform the Standard & Poor's 500 stock index. C. Managed funds may be open-end funds or closed-end funds. D. A benchmark of a good fund manager is the ability to increase share value when the economy is good and retain that value when the economy is bad. E. A managed fund will outperform an index fund only 60% of the time.

e

Which of the following provides some information about mutual funds for free and more detailed information at a cost? A. Financial publications B. Internet C. Mutual fund annual report D. Newspapers E. Professional advisory services

e

Which of the following types of stock funds invests in stock traded within one specific region of the world? A. Equity income funds B. Growth funds C. Index funds D. International funds E. Regional funds

e

Whose shares are issued and redeemed by the investment company at the request of investors? A. Closed-end fund B. Exchange-traded fund C. Net asset value fund D. No-load fund E. Open-end fund

e