Chapter 14

Benito placed $11,500 in a mutual fund with a 3.5% front-end load. How much money did he actually invest in the fund after accounting for the load?

$11,097.50 Benito placed $11,500 in a mutual fund with a 3.5% front-end load. He actually invested $11,097.50 in the fund after accounting for the load. The 3.5% front-end load is a sales commission that will be deducted from the amount of his investment and the remainder placed in the fund. So, ($11,500 - (.035 x $11,500)) = $11,097.50.

Haven has invested in a mutual fund. The net asset value at the time of purchase was $254.50 and he sells the fund two years later for $275.00. Additionally, during the time that he owns the mutual fund, he receives dividends of $12.50 and capital gain distributions of $15.75. What is Haven's return on this investment?

19.16% Haven's total return can be calculated using the following formula: total return = dividends distrib. + capital gains distrib. + ending NAV - beginning NAV beginning NAV Substituting the values provided, total return = ($12.50 + $15.75 + $275.00 - $254.50)/$254.50 = 19.16%

Jessica purchased 100 shares in a mutual fund at an NAV of $23.45. She held the fund for one year and received a dividend of $2 during that time and a capital gains distribution of $4.22. What is her total percentage return if she sold her shares for an NAV of $27.10?

42%Jessica purchased 100 shares in a mutual fund at an NAV of $23.45. She held the fund for one year and received a dividend of $2 during that time and a capital gains distribution of $4.22. Her total percentage return if she sold her shares for an NAV of $27.10 was 42%. To compute the percentage return you add up Jessica's total income from the fund and then divide it by her initial investment. So; % return = ($2 dividend + $4.22 capital gain + ($27.10 - $23.45))/ $23.45 = $9.87/$23.45 = .4209 or 42.1%

At this point in time there are approximately __________ mutual funds that specialize in all different types of financial assets.

8,000

Mutual fund loads, or sales fees, can be as high as:

8.5%.

holding individual assets.

A diversified stock mutual fund will help you eliminate the risk associated with:

Which of these is a decision factor you should use when evaluating different mutual fund investments?

Personal goals

Which of these is an advantage of mutual funds?

Professional management

An investment vehicle that pools investor funds and invests the proceeds in real estate or mortgages is known as a(n):

REIT

Which of these investments is an appropriate asset for a money market mutual fund to hold in its portfolio?

U.S. Treasury bills

A(n) __________ fund will hold stocks, bonds and also preferred stock.

balanced

A __________ fund invests primarily in long-term debt.

bond

ETFs can be bought and sold:

during normal trading hours just like a stock

A high risk, largely unregulated investment fund for wealthy investors is called a:

hedge fund.

A type of mutual fund that attempts to tailor its holdings to an investor's age and tolerance for risk is known as a(n):

life cycle fund.

A sales commission charge on a mutual fund is referred to as a(n):

load.

Mutual fund advisors are compensated by:

management fees.

A description of a specific mutual fund that lists the fund's objectives, risks and other information is known as a(n):

mutual fund prospectus.

An investment vehicle that pools money from a number of investors and then invests those funds in stocks, bonds, or some financial asset is known as a(n):

mutual fund.

A mutual fund that does not charge any sales commission is called a:

no-load fund.

A type of mutual fund that can issue an unlimited number of mutual fund shares is known as a(n):

open-end fund.

Mutual funds that typically invest at least 2/3rds of their assets in a specific industry are known as:

sector funds.

When an investor wants to sell shares in an open-end mutual fund they:

sell them back to the mutual fund at net asset value

One measure of a mutual fund's trading activity is the:

turnover ratio.