sample questions ch.17 (9-4)
Before investing in a mutual fund the very least you should do is A) read the prospectus. B) consult an attorney. C) open an account with a broker. D) consult a certified financial planner.
A
High yield (junk) bond funds focus on relatively risky bonds issued by firms that are subject to A) default risk. B) interest rate risk. C) exchange risk. D) management risk.
A
Index funds incur ________ expenses and are ________ managed compared to other funds. A) fewer; not actively B) fewer; actively C) more; not actively D) more; actively
A
Investors can earn a return on an investment in a stock mutual fund in all of the following ways except A) interest distributions. B) dividend distributions. C) capital gains distributions. D) redeeming shares.
A
On the average, actively managed mutual funds have an expense ratio of about A) 1.5%. B) 2.5%. C) 3%. D) 5%.
A
The difference between an international and a global fund is A) global funds invest in both U.S. firms and those of other countries whereas international funds focus on firms outside the United States. B) international funds invest in U.S. firms and those of other counties while global funds invest only in foreign firms. C) international funds invest in Treasury securities but no U.S. firms while global funds invest in both. D) there is no difference except in name.
A
Which of the following bond mutual funds has both the lowest default risk and the lowest interest rate risk? A) Short-term Treasury B) Long-term Ginnie Mae C) Long-term corporate D) Short-term high yield
A
Which of the following characteristics is not true of closed-end funds? A) They can be load or no-load funds. B) They do not repurchase shares from investors. C) They are bought and sold on stock exchanges. D) They may sell above or below NAV.
A
Which of the following expenses is usually the highest for a mutual fund? A) Management fees B) Administrative fees C) 12b-1 fees D) Referral fees
A
You are investing for your retirement 20 years hence. You would be most interested in a fund whose investment objective is focused on A) long-term growth. B) capital conservation. C) income generation. D) a balance of some growth but mostly high dividends.
A
A family of mutual funds is A) a group of funds all of which have the same objective. B) a number of funds with different objectives operated by one investment company. C) an arrangement whereby a number of competing investment companies pool their resources. D) quite rare in the mutual fund industry.
B
A(n) ________ is a document that provides financial information about a mutual fund, including expenses and past performance. A) annual report B) prospectus C) financial statement D) balance sheet
B
From the perspective of investors, the most important expense statistic mentioned in the prospectus of a mutual fund is the A) gross profit margin ratio. B) expense ratio. C) times interest earned ratio. D) growth rate.
B
High yield bond funds have a ________ potential return and ________ risk. A) high; low B) high; high C) low; high D) low; low
B
If you are investing for the "long-term" and are interested in capital appreciation and comfortable with increased risk levels, you should consider a(n) ________ or a(n) ________. A) global bond fund; international bond fund B) growth fund; small cap fund C) international index fund; global index fund D) junk bond fund; domestic equity income fund
B
In deciding if a no-load mutual fund is a good investment for you, you should carefully consider all of the following except A) the fund's investment objective. B) the fund's previous managers. C) the fund's investment strategy. D) your risk tolerance level.
B
Investors in high tax brackets will normally achieve higher performance by selecting mutual funds that generate A) long-term dividends. B) long-term capital gains. C) long-term stock dividends. D) short-term capital gains.
B
Mutual funds that sell shares directly to investors and repurchase shares investors want to sell are called ________ funds. A) open-market B) open-end C) closed-end D) fair value
B
Regarding load and no-load mutual funds, A) load funds usually outperform no-load funds. B) no-load funds perform at least as well as load funds even when the fees are ignored. C) the two types of funds perform about the same considering the fees. D) load funds may be bought directly, whereas no-load funds must be purchased through a broker
B
Technology funds focus on technology based firms. Which of the following statements regarding these firms is not true? A) Many of these firms are relatively young. B) They have a low degree of risk. C) They have potential for high returns. D) They do not have a consistent record of strong performance.
B
The ________ is the market value of the securities that a mutual fund has purchased minus any liabilities. A) book value B) net asset value C) gross asset value D) net worth value
B
The amount by which a closed-end fund's share price in the secondary market is above the fund's NAV is called the A) market value. B) premium. C) discount. D) par value.
B
The component of expense ratios that includes a fee charged by some mutual funds to pay brokers is A) a management fee. B) a 12b-1 fee. C) an administrative expense. D) a referral fee.
B
The net asset value (NAV) is reported in financial newspapers and on financial Web sites A) for the total fund family. B) on a per-share basis. C) as a percentage of the fund's price. D) on a weekly basis due to the complexity of computation.
B
The susceptibility of a mutual fund's performance to general stock market conditions is known as A) interest rate risk. B) market risk. C) exchange risk. D) corporate risk
B
To calculate the NAV, the market value of the portfolio less liabilities is divided by the ________ to arrive at a per-share basis. A) original number of shares B) shares currently issued by the fund C) maximum shares to be issued D) average number of shares in comparable funds
B
Which of the following funds would probably have the highest potential risk and return? A) Index funds representing the entire stock market B) Capital appreciation funds C) Equity income funds D) Balanced growth and income funds
B
Which of the following is a stock mutual fund? A) Ginnie Mae fund B) Growth fund C) Municipal securities fund D) Treasury securities fund
B
Which of the following is not a source of profits for owners of a stock mutual fund? A) Dividends distributed by the mutual fund B) Interest distributed by the mutual fund C) Capital gains distributed by the mutual fund D) Capital gains from the sale of their shares in the mutual fund
B
Which of the following is not a true statement about mutual funds? A) All require a minimum investment. B) All have the same investment goals. C) The calculation of net asset value is the same. D) All have a management expense ratio
B
You are considering investing in a no-load mutual fund that focuses on growth stocks or in an index fund. The growth stock fund had an annual return of 15% and expenses of 2%. The index fund had an annual return of 12% and expenses of 1%. Assuming equal risk, you should buy A) the index fund. B) the growth fund. C) some of both. D) neither; the expenses are too high.
B
An investor who wants to invest in a particular sector but does not have strong opinions about which stocks to purchase within that sector would be likely to choose a(n) A) balanced growth and income fund. B) mid-cap fund. C) exchange-traded fund that represents that particular sector. D) growth fund.
C
Existing shares of closed-end mutual fund companies are purchased A) from the investment company directly. B) from the investment company through a broker. C) from other investors in the stock market. D) from a bank.
C
In calculating the net asset value (NAV), which of the following is true? A) Dividends are subtracted and expenses added B) Interest is subtracted and expenses are added C) Dividends are added and expenses are subtracted D) Interest and other expenses are not included
C
Long term Treasury bonds are considered to be the "risk free" asset in the global financial markets. However, long term Treasury bond funds still bear significant ________ risk. A) global comparative B) financial C) interest rate D) deflation
C
Stock brokers typically do not recommend no-load funds because A) the return is lower than on load funds and brokers want to sell only the best funds to their clients. B) federal law prohibits brokers from selling no-load funds. C) no-load funds do not pay a fee to the broker for selling them. D) there is no secondary market for them.
C
The amount by which a closed-end fund's share price in the secondary market is below the fund's NAV is called the A) market value. B) premium. C) discount. D) par value
C
The possibility that interest rates may rise is an example of A) political risk. B) exchange rate risk. C) interest rate risk. D) liquidity risk.
C
When the global financial forecast calls for recession in China and Europe, you should consider investing in A) a global fund. B) an international fund. C) a domestic large cap fund. D) a global bond fund.
C
Which of the following is not a characteristic of a closed-end mutual fund? A) Once the fund closes the shares of the fund trade on the stock market just like a stock. B) The shares may sell above NAV on the secondary market. C) Investors can easily sell their share back to the fund on a daily basis at NAV. D) The shares may sell below NAV on the secondary market.
C
Which of the following stock funds would probably have the lowest risk and return? A) International funds B) Capital appreciation funds C) Equity income funds D) Sector funds
C
Which of the following stock mutual funds focus on medium size companies that are more established than small-cap firms, but may have less growth potential? A) Equity income funds B) Sector funds C) Mid-size capitalization funds D) Balanced growth and income funds
C
________ funds are mutual funds that attempt to mirror the movements of existing broad market indicators. A) Internet B) Stock C) Index D) International
C
A mutual fund must distribute ________ to investors in the same year as earned. A) dividends B) profits C) capital gains D) Both A and C are correct.
D
Advantages of investing in mutual funds include all of the following except A) diversification of your investment. B) professional management. C) meeting specific investment goals. D) there is virtually no risk of loss.
D
An open-end mutual fund may do all of the following except A) sell shares directly to investors. B) charge a fee to buy but not sell shares. C) repurchase shares from investors who want to sell their shares. D) have its shares traded on the New York Stock Exchange.
D
In considering various fund characteristics, which of the following should you not consider? A) Minimum investment B) Investment objective C) Investment company D) S & P ratings
D
Index funds are popular for all of the following reasons except A) their performance relative to other mutual funds. B) they incur low expenses. C) they are not actively managed. D) performance is frequently lower than that of actively managed portfolios.
D
Index funds offer tax advantages because they ________ in much trading and, therefore, ________ capital gains. A) engage; generate B) do not engage; generate C) engage; do not generate D) do not engage; do not generate
D
International bond funds A) focus on bonds issued by non-U.S. firms or governments. B) may hold bonds that offer a higher yield than U.S. bonds. C) are subject to exchange rate risk. D) All of the above are correct.
D
Investing in one of which of the following funds will typically give you the least diversification? A) Growth funds B) Capital appreciation funds C) Equity income funds D) Sector funds
D
Municipal bond mutual funds are primarily for investors seeking A) ongoing interest income cash flow. B) income free of federal taxes. C) income free of state taxes. D) Both A and B are correct
D
Treasury bond funds with short maturities have ________ default risk and ________ interest rate risk. A) high; low B) high; high C) limited; high D) low; limited
D
When evaluating mutual funds which are investing in the same types of securities/markets, you should compare A) historical performance. B) management fees. C) 12b-1 expenses. D) All of these factors should be considered
D
Which of the following bond mutual funds has both the highest default risk and the highest interest rate risk? A) Long-term Treasury B) Short-term Ginnie Mae C) Short-term corporate D) Long-term high-yield
D
Which of the following is not a reason for investing in mutual funds? A) Small amount of funds needed B) Portfolio manager expertise C) Specific investment goals D) Overly diversified
D
Which of the following is not a reason why index funds typically incur lower expenses than other mutual funds? A) Index funds are not actively managed. B) There are no expenses for research. C) The portfolio is revised infrequently, so transaction costs are low. D) The Securities and Exchange Commission sets a limit on index fund expenses
D
Which of the following is not included in the prospectus? A) Redemption fee B) Expenses including management fees C) Expenses including advertising and marketing fees D) Advice on when to buy and sell
D
Which of the following is not true of global and international bond funds? A) They may be subject to interest rate risk. B) They may be subject to exchange rate risk. C) Their expenses may be higher than those of domestic bond funds. D) They are especially attractive to investors in high tax bracket
D
You may purchase an open-end no-load mutual fund in all of the following ways except A) over the phone. B) by U.S. mail. C) over the Internet. D) from a broker
D
________ mutual funds invest in both foreign bonds and U.S. bonds. A) International bond B) Index C) Treasury bond D) Global bond
D
A breakdown of the fees and expenses of a mutual fund is not one of the items addressed in a prospectus
FALSE
A stock mutual fund that pays higher than normal dividends is called a growth fund.
FALSE
An advantage of investing in mutual funds is that they all have the objective of preserving capital.
FALSE
An international stock mutual fund is one that owns shares in companies from the United States and other countries.
FALSE
Before investing in a mutual fund, you should request and evaluate the fund's prospectus, which is available for a small charge.
FALSE
Hedge funds, which are not regulated by the Securities and Exchange Commission, are only available to wealthy investors and are less risky than ordinary mutual funds.
FALSE
In assessing different mutual funds, the returns vary, but the expenses are fixed
FALSE
Index stock funds always contain the stock of every company in a particular index.
FALSE
No-load mutual funds sell directly to investors and charge a somewhat smaller management fee than load funds.
FALSE
Of the management, advertising, and administrative fees charged by mutual funds, normally the management fee is the smallest.
FALSE
On average, mutual funds have an expense ratio of about 3%
FALSE
Socially responsible mutual funds are those whose managers have taken and passed a strict financial ethics test
FALSE
Studies on mutual funds have found that load funds perform better than no-load fund
FALSE
The difference between stock mutual funds and bond mutual funds lies in the percentage of stocks and bonds that each fund purchases
FALSE
A mutual fund is a diversified portfolio of stocks and/or bonds depending on what the manager has purchased.
TRUE
A mutual fund that buys only the stocks of gold mining companies is a good example of a sector fund.
TRUE
A small-cap fund focuses on firms that are relatively small and its investment objectives somewhat overlap capital appreciation funds
TRUE
Balanced growth and income funds contain both growth stocks and stocks that pay high dividends
TRUE
Capital appreciation funds are mutual funds that focus on stocks that are expected to grow at a very high rate.
TRUE
Capital appreciation funds tend to invest in stocks that distribute little or no dividends so that earnings can be reinvested for expansion
TRUE
Capital gains from mutual funds can be received if the mutual fund makes a profit on the shares it sells or if an individual investor realizes a gain on the sale of mutual fund shares.
TRUE
Choosing a mutual fund or an investment company involves reviewing past performance and also comparing fees and expenses charged
TRUE
Closed-end mutual funds have a limited number of shares that are sold when the funds are first created; the shares are then resold over the stock exchanges
TRUE
Corporate bond funds focus on bonds issued by high-quality firms and, therefore, tend to have a low degree of default risk.
TRUE
Even bond mutual funds with little or no default risk have interest rate risk
TRUE
In general, it is prudent to purchase a no-load fund instead of a load fund
TRUE
In most cases, the fees charged by load funds go to stockbrokers or other financial advisers who execute transactions for investors.
TRUE
Index funds usually have lower capital gains on their investments and are, therefore, advantageous to investors in higher income tax brackets
TRUE
Index mutual funds tend to have lower expenses than other types of mutual funds
TRUE
Municipal bond funds have tax advantages over other kinds of mutual funds.
TRUE
Mutual funds pool money from investors to purchase portfolios of investments
TRUE
Mutual funds that receive dividends and capital gains must distribute these to investors in the same year
TRUE
Open-end mutual fund companies sell directly to investors and repurchase shares whenever investors wish to sell them.
TRUE
Some mutual funds have much higher expenses or expense ratios than others, and this expense can affect your overall returns.
TRUE
The net asset value (NAV) per share of a mutual fund is determined by the market value of securities owned minus liabilities divided by the number of mutual fund shares outstanding.
TRUE
The price per share for a closed-end mutual fund can differ from the fund's NAV per share.
TRUE
There is no limit on the number of open-end mutual fund shares that a company can offer.
TRUE
Two advantages of investing in mutual funds are diversification and professional management.
TRUE
While not all mutual funds have loads or commissions, they all have management fees and expenses that are charged to the mutual fund shareholders
TRUE
