Investing in Mutual Funds Full Test Bank Ch.16

Personal Finance, 13e (Kapoor)

Chapter 16 Investing in Mutual Funds

1) At the beginning of 2018, there were almost 12,000 investment companies sponsoring mutual funds.

Difficulty: 1 Easy

Topic: Fund characteristics and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

2) The major reasons why investors purchase mutual funds are professional management and diversification.

Difficulty: 1 Easy

Topic: Fund characteristics and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

3) Because of professional management, there is no need for the individual investor to evaluate a mutual fund investment.

Difficulty: 2 Medium

Topic: Fund evaluation and comparisons

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

4) Today, there are more investment companies that offer closed-end funds than there are that offer open-end funds.

Difficulty: 2 Medium

Topic: Closed-end funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

5) Investors in an open-end fund are free to buy and sell shares at the net asset value.

Difficulty: 2 Medium

Topic: Open-end funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

6) There are more investment companies that offer exchange-traded funds than there are that offer open-end mutual funds.

Difficulty: 2 Medium

Topic: Exchange traded funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

7) The potential return on any investment should be indirectly related to the risk the investor assumes.

Difficulty: 2 Medium

Topic: Investment choices and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

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Gradable: automatic

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

Difficulty: 2 Medium

Topic: Fund management fees and other charges

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

9) If you need your money in a short period of time, you should consider conservative investments with less risk.

Difficulty: 2 Medium

Topic: Investment choices and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

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Gradable: automatic

10) You should consider your tolerance for risk before investing in mutual funds.

Difficulty: 1 Easy

Topic: Investment choices and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

11) For a mutual fund, the annual management fee is a fixed percentage of the fund's total liabilities.

Difficulty: 2 Medium

Topic: Fund management fees and other charges

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

12) Mutual funds have been around for a long time and became popular in the U.S. before the Great Depression in 1929.

Difficulty: 1 Easy

Topic: Fund characteristics and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

13) Investors 72 years or older are less likely to invest in mutual funds than any other age group.

Difficulty: 2 Medium

Topic: Fund characteristics and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

14) When you invest in Class A shares, you pay a sales charge when you sell your mutual fund shares.

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

15) Class C shares, with their ongoing higher 12b-1 fees, may be more expensive than Class A shares over a period of years.

Difficulty: 2 Medium

Topic: Fund management fees and other charges

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

16) All details related to management fees, sales fees, 12b-1 fees, and other expenses are contained in a mutual fund's prospectus.

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Fund information and advice

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

17) Mutual funds that allocate their investments among common stocks and bonds are referred to as small cap funds.

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

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Gradable: automatic

18) Mutual funds that invest in smaller, lesser-known companies that offer higher growth potential are referred to as sector funds.

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

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Gradable: automatic

19) High-yield bond funds are sometimes referred to as junk-bond funds.

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

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Gradable: automatic

20) A mutual fund that provides tax-free interest income is referred to as a long-term U.S. bond fund.

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

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Gradable: automatic

22) The family of funds concept makes it convenient for shareholders to switch their investments among funds as different funds offer more potential, financial reward, or security.

Difficulty: 2 Medium

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

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Gradable: automatic

23) The fund manager is ultimately responsible for a fund's success, because he/she decides when to buy or sell securities in the fund.

Difficulty: 1 Easy

Topic: Fund characteristics and considerations

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

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Gradable: automatic

24) Because an index mutual fund is a mirror image of a specific index, the dollar value of a share in an index fund increases when the index increases.

Difficulty: 1 Easy

Topic: Fund classifications

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

25) An investment company sponsoring a mutual fund must give existing shareholders a prospectus.

Difficulty: 1 Easy

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

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Gradable: automatic

26) While advisory services provide detailed information on common and preferred stocks, there are no advisory services that provide information on mutual funds.

Difficulty: 1 Easy

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Remember

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Gradable: automatic

27) Investors in closed-end funds, exchange-traded funds, and open-end funds can make money by purchasing shares at a low price and then selling them at a higher price.

Difficulty: 1 Easy

Topic: Fund returns and yields

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

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Gradable: automatic

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

Difficulty: 2 Medium

Topic: Investment goals

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

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Gradable: automatic

29) Typically, you must invest at least $15,000 to open a mutual fund account.

Difficulty: 1 Easy

Topic: Fund characteristics and considerations

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Remember

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Gradable: automatic

30) Income dividends are the earnings a fund pays to shareholders from its dividend and interest income.

Difficulty: 1 Easy

Topic: Fund returns and yields

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Remember

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Gradable: automatic

31) Capital gain distributions result when you decide to sell shares in a mutual fund at a price higher than you paid.

Difficulty: 2 Medium

Topic: Fund returns and yields

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

Difficulty: 2 Medium

Topic: Taxation and investments

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Remember

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Gradable: automatic

33) Tax information for mutual funds is reported as part of the year-end statement and on an IRS Form 1099 DIV.

Difficulty: 2 Medium

Topic: Taxation and investments

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

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Gradable: automatic

34) To purchase shares in an open-end mutual fund from an investment company, you may use four options: regular account transactions, voluntary savings plans, contractual savings plans, and reinvestment plans.

Difficulty: 2 Medium

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Remember

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Gradable: automatic

35) When you decide to redeem shares in an open-end mutual fund, the only option is to sell off a specific number of shares.

Difficulty: 1 Easy

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

36) Over many years, the majority of managed mutual funds outperform the Standard & Poor's 500 stock index.

Difficulty: 1 Easy

Topic: Fund returns and yields

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Remember

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Gradable: automatic

37) Which one of the following statements is false?

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 fund managers work for an investment company.

E) Even the best portfolio managers sometimes make mistakes.

Difficulty: 2 Medium

Topic: Fund characteristics and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

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Gradable: automatic

38) Which one of the following statements is false regarding exchange-traded funds?

A) An exchange-traded fund generally invests in the stocks or securities contained in a specific stock or securities index.

B) With an exchange-traded fund, an investor can purchase as little as one share.

C) The majority of exchange-traded funds 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) No minimum dollar investment amount is required for exchange-traded funds.

Difficulty: 2 Medium

Topic: Exchange traded funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

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Gradable: automatic

39) There are about ________ investment companies that offer exchange-traded funds.

A) 25

B) 50

C) 150

D) 1,900

E) 10,000

Difficulty: 3 Hard

Topic: Exchange traded funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

40) Over ________ investment companies offer open-end funds.

A) 100

B) 1,000

C) 3,000

D) 6,000

E) 9,000

Difficulty: 1 Easy

Topic: Open-end funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

41) A mutual fund in which shares are issued only when the fund is organized is called a ________ fund.

A) closed-end

B) open-end

C) load

D) no-load

E) convertible

Difficulty: 1 Easy

Topic: Closed-end funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

42) A mutual fund whose shares are issued and redeemed by the investment company at the request of investors is called a ________ fund.

A) closed-end

B) open-end

C) load

D) no-load

E) convertible

Difficulty: 1 Easy

Topic: Open-end funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

43) The current market value of a mutual fund's portfolio minus the mutual fund's liabilities equals a figure, that when divided by the number of shares outstanding, results in the:

A) book value.

B) outstanding balance.

C) LIBOR rate.

D) net asset value.

E) accounting value.

Difficulty: 2 Medium

Topic: Fund pricing

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

44) The Capitalist Mutual Fund's portfolio is valued at $40 million. The fund has liabilities of $2 million, and the investment company sponsoring the fund has issued 1,250,000 shares. What is the fund's net asset value?

A) $200.00

B) $30.40

C) $20.00

D) $12.50

E) $1.00

Explanation: ($40 million − $2 million) / 1.25 million shares = $30.40

Difficulty: 2 Medium

Topic: Fund pricing

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Apply

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Gradable: automatic

45) The All-Star Basic Value Fund's portfolio is valued at $105 million. The fund has liabilities of $2.5 million, and the fund's net asset value is $6.25. What is the fund's number of shares outstanding?

A)  2,500,000

B)  5,500,000

C) 6,250,000

D) 16,400,000

E) 38,720,000

Explanation: ($105 million − $2.5 million) / $6.25 = 16.4 million = $16,400,000

Difficulty: 3 Hard

Topic: Fund pricing

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Apply

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Gradable: automatic

46) For most mutual funds, the net asset value is calculated at the close of trading each:

A) year.

B) quarter.

C) week.

D) day.

E) hour.

Difficulty: 2 Medium

Topic: Fund pricing

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

47) The New American Enterprise Mutual Fund's portfolio is valued at $60 million. The fund has liabilities of $2 million, and the investment company sponsoring the fund has issued 2,900,000 shares. What is the fund's net asset value?

A) $60

B) $58

C) $40

D) $29

E) $20

Explanation: ($60 million − $2 million) / 2.9 million shares = $20

Difficulty: 2 Medium

Topic: Fund pricing

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Apply

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Gradable: automatic

48) A mutual fund in which investors pay a commission every time they purchase shares is called a ________ fund.

A) closed-end

B) open-end

C) load

D) no-load

E) convertible

Difficulty: 1 Easy

Topic: Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

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Gradable: automatic

49) The sales charge for purchasing shares in a load fund is ________ percent of the purchase price.

A) an average of 0.50 to 1

B) an average of 1 to 2

C) an average of 2 to 4

D) an average of 5 to 9 1/2

E) as high as 8 1/2

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

50) When an investor purchases shares in a load fund, the average load charge is between ________ percent.

A) 0.5 to 2

B) 1 and 2

C) 3 and 5

D) 4 and 6

E) 5 and 7

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

51) Mary Cooper just purchased 100 shares in the All-American Fund. The purchase cost for each share was $10. If this fund charges a 3 percent load, what is the total amount of commission she will pay the investment company?

A) $30

B) $100

C) $230

D) $300

E) $500

Explanation: $100 shares × ($10 × 0.03) = $30

Difficulty: 2 Medium

Topic: Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Apply

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Gradable: automatic

52) Bob Newsome purchased 250 shares of the Northern Lights Growth Fund. The purchase cost was $20 per share and the total commission was $250. What is the load being charged by the fund?

A) 8.5 percent

B) 5 percent

C) 4.5 percent

D) 3 percent

E) 2.5 percent

Explanation: ($250 shares) × ($20 × load) = $250; 250 / ($250 × $20) = load; $250 / $5,000 = 0.05 = 5 percent

Difficulty: 3 Hard

Topic: Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Apply

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Gradable: automatic

53) A mutual fund in which no sales charge is paid by the individual investor is called a(n) ________ fund.

A) closed-end

B) open-end

C) load

D) no-load

E) convertible

Difficulty: 1 Easy

Topic: Fund characteristics and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

54) The average management fee for mutual funds ranges between ________ percent of the fund's assets.

A) 0.50 and 2

B) 1.5 and 3

C) 3 and 4

D) 5 and 6 1/2

E) 7 and 8 1/2

Difficulty: 3 Hard

Topic: Fund management fees and other charges

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

55) The average management fee for all mutual funds is ________ of the fund's assets:

A) less than 0.01 percent.

B) less than 0.05 percent.

C) 0.50 to 2 percent.

D) 2 to 4 percent.

E) 4 to 5 percent.

Difficulty: 3 Hard

Topic: Fund management fees and other charges

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

56) A fee that investors pay when they withdraw their investment from a mutual fund is called a:

A) withdrawal fee.

B) 12b.

C) contingent deferred sales load.

D) front-end load.

E) management fee.

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

57) When Pete Mills went to withdraw $3,000 from the Nationwide Fidelity Mutual fund, he was informed that the fund would charge 4 percent of the amount withdrawn. What is the dollar amount of the withdrawal charge?

A) $400

B) $300

C) $120

D) $40

E) $30

Explanation: $3,000 × 0.04 = $120

Difficulty: 1 Easy

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

58) A fee that some investment companies charge for distributing and marketing a mutual fund is called a:

A) 14A-1 fee.

B) 12b-1 fee.

C) 18-2 fee.

D) 403 fee.

E) 401 fee.

Difficulty: 2 Medium

Topic: Fund management fees and other charges

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

59) Another name for a mutual fund that charges a contingent deferred sales load is a(n) ________ fund.

A) A

B) B

C) C

D) D

E) E

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

60) Another name for a mutual fund that doesn't levy a sales charge, but does charge an ongoing higher 12b-1 fee is a class ________ fund.

A) A

B) B

C) C

D) D

E) E

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

61) Together, all the different management fees, 12b-1 fees, and additional operating costs for a specific fund are referred to as a(n):

A) investment ratio.

B) expense ratio.

C) financial ratio.

D) expense turnover.

E) management ratio.

Difficulty: 2 Medium

Topic: Fund management fees and other charges

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

62) Many financial planners recommend that investors choose a mutual fund with an expense ratio that is:

A) 1 percent or less.

B) between 1 and 2 percent.

C) between 2 and 3 percent.

D) between 3 and 4 percent.

E) over 4 percent.

Difficulty: 2 Medium

Topic: Fund management fees and other charges

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

63) A mutual fund that invests in stocks and bonds with the primary objectives of conserving principal, providing income, and long-term growth is called a(n) ________ fund.

A) balanced

B) growth

C) industry

D) income

E) money market

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

64) A mutual fund that invests in companies expecting higher-than-average revenue and earnings growth is called a(n) ________ fund.

A) balanced

B) growth

C) industry

D) income

E) money market

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

65) A mutual fund that invests in stocks issued by companies with a long history of paying dividends is called a(n) ________ fund.

A) balanced

B) equity income

C) industry

D) sector

E) money market

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

66) A mutual fund that invests in investment-grade corporate debt with maturities between 3 and 10 years is called a(n) ________ fund.

A) long-term bond

B) growth

C) sector

D) income

E) intermediate corporate bond

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

67) A mutual fund that invests in companies within the same industry is called a(n) ________ fund.

A) growth-income

B) income

C) sector

D) small-cap

E) money market

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

68) A mutual fund that only invests in companies outside the United States is called a(n) ________ fund.

A) growth-income

B) income

C) international

D) industry

E) large-cap

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

69) A municipal bond fund:

A) is too risky for most investors.

B) invests in municipal bond mutual funds.

C) invests in bonds that are backed by the federal government.

D) is a risk-free investment.

E) invests solely in Treasury bonds.

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

70) 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?

A) Growth fund

B) Small cap fund

C) High-yield bond fund

D) International fund

E) Short-term U.S. government bond fund

Difficulty: 3 Hard

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

A) Income fund

B) Long-term corporate bond fund

C) U.S. government bond fund

D) Midcap fund

E) A fund of funds

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

72) When one investment company manages a group of mutual funds, it is called a:

A) family of funds.

B) exchange fund.

C) diversification fund.

D) versatility fund.

E) asset allocation fund.

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

A) Equity income fund

B) Regional fund

C) Sector fund

D) Life-cycle fund

E) Fund of funds

Difficulty: 3 Hard

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

74) Which one of the following funds would be considered the safest investment?

A) Growth fund

B) Money market fund

C) Sector fund

D) Asset allocation fund

E) High-yield bond fund

Difficulty: 3 Hard

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

75) Which one of the following statements is false?

A) The responsibility for choosing the right mutual fund rests with the individual investor.

B) Professional fund managers do make mistakes.

C) Investors should evaluate their investments on a regular basis.

D) There is no need to evaluate mutual fund investments, because investment companies hire the best professional managers they can to manage their funds.

E) Individual investors should be involved in choosing a mutual fund, because they know how the objectives of a mutual fund match their own investment objectives.

Difficulty: 2 Medium

Topic: Fund evaluation and comparisons

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

76) Which one of the following statements is true?

A) Most mutual funds are managed funds.

B) How long the present fund manager has been managing the fund is irrelevant.

C) You should ignore fees when comparing mutual funds.

D) Managed funds are usually index funds.

E) A team of managers is always better than a single fund manager.

Difficulty: 2 Medium

Topic: Fund evaluation and comparisons

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

77) Which one of the following statements is false?

A) As an investor, you should be concerned with how long a fund manager has been managing a mutual fund.

B) The fund manager chooses when to buy and sell securities in the fund.

C) If a manager has been managing a fund for 5 or 10 years, it is time to change managers and get someone with new ideas.

D) The fund manager is responsible for choosing the securities that are contained in the fund.

E) Managed funds have higher fees than index funds.

Difficulty: 2 Medium

Topic: Fund evaluation and comparisons

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

78) The typical expense ratio for an index fund is:

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.

Difficulty: 2 Medium

Topic: Fund management fees and other charges

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

79) Which one of the following statements is false regarding mutual funds and the internet?

A) Many investors have found a wealth of information about mutual fund investments on the internet.

B) It is possible to obtain current market values for a mutual fund by using the internet.

C) Most investment companies that sponsor mutual funds have a websites.

D) Professional advisory services are prohibited from discussing mutual funds on their websites.

E) The investment companies' website will provide procedures for opening an account, how much money is required to open an account, and statistical information about individual funds.

Difficulty: 3 Hard

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

80) An investment company sponsoring a mutual fund must give potential investors a(n):

A) 12b

B) prospectus.

C) disclosure/evaluation form.

D) redemption fee sheet.

E) annual report.

Difficulty: 2 Medium

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

81) Many investors will access a fund's ________ by using the internet. It includes a letter from the fund's independent auditors that provides an opinion as to the accuracy of the fund's financial statements.

A) annual report

B) 12b

C) annual prospectus

D) annual summary report from the president of the investment company

E) copy of the annual mutual funds report containing a summary of the professional advisory services comments

Difficulty: 2 Medium

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

82) Which one of the following publications does not provide readers with information about mutual funds and investing?

A) Bloomberg Businessweek

B) Current Business Survey

C) Forbes

D) Kiplinger's Personal Finance

E) MONEY

Difficulty: 2 Medium

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

83) Which of the following statements is false?

A) The purpose of investing in a closed-end fund, exchange-traded fund or open-end mutual fund is to earn a financial return.

B) Income dividends are the earnings that a fund pays to shareholders from its dividend and interest income.

C) Capital gain distributions are the payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio.

D) The only way to make money on a mutual fund is by selling shares at a higher price than was initially paid for them.

E) Income dividends are taxable.

Difficulty: 2 Medium

Topic: Fund returns and yields

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

84) During 2017, Lincoln Masters received income dividends of $850 and capital gain distributions of $540. Based on this information:

A) both amounts must be included as taxable income.

B) only the dividends are taxable.

C) only the capital gains are taxable.

D) both amounts are tax-exempt.

E) both amounts are taxed at a rate of 5 percent.

Difficulty: 2 Medium

Topic: Taxation and investments

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

85) Income dividends and capital gain distributions are:

A) exempt from taxation.

B) subject to federal taxation.

C) subject to federal taxation after the first $1,000.

D) subject to federal taxation after the first $5,000.

E) subject to federal taxation after the first $10,000.

Difficulty: 2 Medium

Topic: Taxation and investments

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

86) The most popular and least complicated method of purchasing shares in an open-end mutual fund is through a:

A) regular account transaction.

B) voluntary savings plan.

C) contractual savings plan.

D) minimum withdrawal plan.

E) free contract plan.

Difficulty: 2 Medium

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

87) A mutual fund that requires investors to make regular purchases over a specified period of time is called a:

A) regular account.

B) voluntary savings plan.

C) contractual savings plan.

D) minimum withdrawal plan.

E) free contract plan.

Difficulty: 2 Medium

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

88) Because of front-end commission charges, many financial experts and government regulatory agencies are critical of:

A) regular accounts.

B) voluntary savings plans.

C) contractual savings plans.

D) minimum withdrawal plans.

E) free contract plans.

Difficulty: 3 Hard

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

89) If an investor uses a reinvestment plan to invest income dividends and capital-gain distributions:

A) then both the income dividends and capital-gain distributions are tax-exempt.

B) only the income dividends are tax-exempt.

C) only the capital-gain distributions are tax-exempt.

D) both the income dividends and capital-gain distributions are currently taxable.

E) then both the income dividends and capital-gain distributions will be tax-deferred.

Difficulty: 2 Medium

Topic: Taxation and investments

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

90) Which one of the following is not a withdrawal option for a mutual fund owner, who has a minimum NAV of $5,000?

A) Withdrawing a specified, fixed dollar amount each investment period

B) Liquidating, or "selling off" a certain number of shares each investment period

C) Withdrawing a fixed percentage of asset growth

D) Withdrawing all asset growth earned during an investment period

E) Withdrawing a stated amount and treating it as a short-term loan

Difficulty: 3 Hard

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

91) Which of the following is an advantage of an exchange-traded fund?

A) No minimum investment amount

B) Buy and sell shares through a securities exchange at any time during the business day

C) Lower management fees than closed-end or open-end funds

D) Using limit orders to both buy and sell

E) All of these are advantages of ETFs.

Difficulty: 2 Medium

Topic: Exchange traded funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

92) Tiffany Scott puts $8,000 into a load mutual fund. She knows that her up-front sales charge is 5%. How much of her money actually goes to buy shares in the mutual fund?

A) $8,000

B) $7,600

C) $500

D) $400

E) $5

Explanation: $8,000 × 0.05 = $400; $8,000 − $400 = $7,600

Difficulty: 2 Medium

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

93) Joseph Carter is buying shares in a mutual fund that is investing in stocks throughout the world, including the United States. What type of mutual fund is this?

A) Aggressive-growth fund

B) Equity income fund

C) Global stock fund

D) International fund

E) Regional fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

94) Conrad Maestro is buying shares in a mutual fund that seeks rapid price appreciation by purchasing stocks whose prices are expected to increase dramatically in a short period of time. What type of mutual fund is he purchasing?

A) Aggressive growth fund

B) Equity income fund

C) Global stock fund

D) International fund

E) Regional fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

95) Phyllis Payne is buying shares in a mutual fund that invests in companies with a long history of paying a dividend whose objective is to provide income to shareholders. What type of mutual fund is she buying?

A) Aggressive growth fund

B) Equity income fund

C) Global stock fund

D) International fund

E) Regional fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

96) Norma Rose is buying shares in a mutual fund that invests in foreign stocks sold in securities markets throughout the world, excluding the United States. What type of mutual fund is she buying?

A) Aggressive growth fund

B) Equity income fund

C) Global stock fund

D) International fund

E) Regional fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

97) Noelle Simon is buying shares in a mutual fund that only invests in companies located in the Latin America area. What type of mutual fund is this?

A) Aggressive growth fund

B) Equity income fund

C) Global stock fund

D) International fund

E) Regional fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

98) Tisha Elmwood is buying shares in a mutual fund that avoids companies that do harm to people, animals, and the environment. What type of mutual fund is this?

A) Socially responsible fund

B) Sector fund

C) Small cap fund

D) Index fund

E) Growth fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

99) Christopher Fishbone is buying shares in a mutual fund that invests in companies that are all in the natural resources industry. What type of mutual fund is he buying?

A) Socially responsible fund

B) Sector fund

C) Small cap fund

D) Index fund

E) Growth fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

100) Sloan Richards is buying shares in a mutual fund that invests in companies with a total capitalization of less than $2 billion. What type of mutual fund is this?

A) Socially responsible fund

B) Sector fund

C) Small cap fund

D) Index fund

E) Growth fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

101) Nathan Fuller is buying shares in a mutual fund that invests in the same companies as those found in the Standard & Poor's 500. What type of mutual fund is he buying?

A) Socially responsible fund

B) Sector fund

C) Small cap fund

D) Index fund

E) Growth fund

Difficulty: 2 Medium

Topic: Closed-end funds; Fund classifications

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

102) Louise Prescott is buying shares in a mutual fund that invests in larger, well-established companies that are expecting higher-than-average revenues and earnings growth. What type of mutual fund is she buying?

A) Socially responsible fund

B) Sector fund

C) Small cap fund

D) Index fund

E) Growth fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

103) Which type of mutual fund invests in high-yield, high-risk corporate bonds?

A) Junk bond fund

B) Intermediate corporate bond fund

C) Municipal bond fund

D) Short-term government bond fund

E) World bond fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

104) Which type of mutual fund invests in corporate bonds with maturities in excess of 10 years?

A) Junk bond fund

B) Long-term corporate bond fund

C) Municipal bond fund

D) Short-term government bond fund

E) World bond fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

105) Which of the following invests in U. S. Treasury securities?

A) Junk bond fund

B) Intermediate U.S. bond fund

C) Municipal bond fund

D) Short-term corporate bond fund

E) World bond fund

Difficulty: 1 Easy

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

106) Marcie is seeking interest income for two years but wants to ensure that her investment is as safe as possible. Which type of mutual fund best fits her requirements?

A) Junk bond fund

B) Intermediate corporate bond fund

C) Growth fund

D) Short-term government bond fund

E) World bond fund

Difficulty: 3 Hard

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

107) Caroline Campbell is buying shares in a mutual fund that invests in bonds offered by foreign companies and governments. What type of mutual fund is she buying?

A) Junk bond fund

B) Intermediate corporate bond fund

C) Municipal bond fund

D) Short-term government bond fund

E) World bond fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

108) Which of the following would be found in a mutual fund's prospectus?

A) Statement describing the risk factors associated with the fund

B) Description of the fund's past performance

C) Information about the fund's management

D) The process for buying and selling shares in the fund

E) All of these would be found in a prospectus.

Difficulty: 2 Medium

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

109) Which of the following is a disadvantage associated with purchasing a mutual fund?

A) Difficulty of buying and selling shares

B) Aggressive or unethical sales personnel

C) Only one withdrawal option

D) No distribution of income and capital gains

E) Professional management

Difficulty: 2 Medium

Topic: Fund characteristics and considerations

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

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

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) Purchase/withdrawal costs

Difficulty: 2 Medium

Topic: Fund characteristics and considerations

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

111) Sharon Taylor uses all of her dividend income and capital gain distributions to purchase additional shares in her mutual fund. Which one of the following plans is she using?

A) Regular account transaction

B) Voluntary savings plan

C) Contractual savings plan

D) Reinvestment plan

E) Professional management

Difficulty: 2 Medium

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

112) Will Hopkins is getting ready to purchase shares in a mutual fund. He will have to pay a one-time sales charge to purchase these shares. What type of shares is he buying?

A) Class A

B) Class B

C) Class C

D) Either class A or B

E) Either class B or C

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

113) Melanie Davis is getting ready to purchase shares in a mutual fund. The fund will charge her a one-time back-end load fee only if she redeems her shares within a stated period of time (usually 5 years). What type of shares is she buying?

A) Class A

B) Class B

C) Class C

D) Either class A or B

E) Either class B or C

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

114) Which one of the following is true with respect to closed-end funds?

A) An unlimited number of shares are available to investors.

B) Most of the investment companies today offer closed-end funds.

C) Shares are traded on security exchanges similar to stocks.

D) The share prices are determined by their NAV.

E) Investors can never sell shares to another investor.

Difficulty: 2 Medium

Topic: Closed-end funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

115) Which of the following is true?

A) Over 100 million individual Americans own mutual funds.

B) Nearly forty-five percent of all U.S. households own mutual funds.

C) There were almost 12,000 mutual funds available at the beginning of 2018.

D) By the end of 2017, the combined value of assets held by mutual funds totaled over 22 trillion dollars.

E) All of these statements are true.

Difficulty: 3 Hard

Topic: Fund characteristics and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

116) Which of the following options can a mutual fund investor use to purchase shares in an open-end fund?

A) Regular account transaction

B) Voluntary savings plan

C) Contractual savings plan

D) Reinvestment plan

E) All of these are ways to purchase shares in an open-end fund.

Difficulty: 2 Medium

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

117) The Capitalist Mutual Fund's net asset value is $25. The fund has liabilities of $2.5 million and 1,500,000 shares have been issued. What is the value of the fund's portfolio?

A) $25 million

B) $40 million

C) $50 million

D) $37 million

E) $15 million

Explanation: ($25 × 1.5 million) + $2.5 million = $40 million

Difficulty: 3 Hard

Topic: Fund pricing

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

118) The turnover ratio of a mutual fund measures the:

A) length of time a manager has been in charge of the fund.

B) amount of profit the fund earns from one investment period to the next.

C) number of months the average investor holds the fund before selling.

D) percentage of a fund's holdings that have changed or "been replaced" during a 12-month period.

E) percentage of institutional investors who own the fund.

Difficulty: 2 Medium

Topic: Fund evaluation and comparisons

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

119) A mutual fund:

A) is a way of investing in a single stock.

B) offers safety through diversification because a loss in one investment is usually offset by gains in other investments within the fund.

C) is insured by the FDIC.

D) is not an investment that is increasing in popularity.

E) is professionally managed so investors need not monitor fund results.

Difficulty: 3 Hard

Topic: Fund characteristics and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

120) A closed-end fund is:

A) a fund that generally invests only in the stocks or other securities contained in a specific stock or securities index.

B) has only a certain number of shares available to investors when the fund is organized.

C) professionally managed so investors need not monitor the performance of the fund.

D) a fund whose shares are issued and redeemed by the investment company at the request of investors.

E) one whose shares trade only at end-of-the-day prices.

Difficulty: 2 Medium

Topic: Closed-end funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

121) Contingent deferred sales loads may also be referred to as ________ loads.

A) front-end

B) back-end

C) level

D) purchase

E) investiture

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

122) Contingent deferred sales loads generally:

A) apply until the shares you own are in the fund for 10 years or more.

B) apply regardless of how long your shares have been invested.

C) increase as the length of time you have been in the fund increases.

D) decline gradually until there is no withdrawal fee if you own the shares for more than five years.

E) apply only for the first year funds are invested.

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

123) Exchange-traded funds are offered by about ________ investment companies.

A) 10

B) 1,900

C) 10,000

D) 18,000

E) 25

Difficulty: 3 Hard

Topic: Exchange traded funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

124) What is the most common reason given by American mutual fund owners for investing in funds?

A) To reduce taxable income

B) Saving for someone's education

C) Saving for emergencies

D) Saving for retirement

E) Saving for a new car

Difficulty: 2 Medium

Topic: Investment goals

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

125) Another name for lifecycle funds is:

A) balanced funds.

B) funds of funds.

C) target-date funds.

D) asset allocation funds.

E) money market funds.

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

126) What percent of mutual funds receive a 5-star rating from Morningstar?

A) 5

B) 10

C) 15

D) 20

E) 25

Difficulty: 2 Medium

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

127) Which of the following is an example of an exchange-traded fund (commonly referred to as ETF) that is available to track an index?

A) Midcap stocks

B) Small cap stocks

C) Fixed-income securities

D) Commodities

E) All of these are correct

Difficulty: 2 Medium

Topic: Exchange traded funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

128) Most open-end funds provide their investors with which service?

A) Opportunity to buy and sell shares on request

B) Payroll deduction program

C) Automatic reinvestment program

D) Automatic withdrawal program

E) All of these

Difficulty: 2 Medium

Topic: Open-end funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

129) A contingent deferred sales load, which is a charge that shareholders pay when they withdraw their investment from a mutual fund, can be as low as 1 percent or as high as ________ depending on how long you own the mutual fund before making a withdrawal.

A) 3 percent

B) 5 percent

C) 7 percent

D) 10 percent

E) 15 percent

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

130) All of the following information is contained in a mutual fund's fee table, except:

A) expected return on investment.

B) management fees.

C) sales charge fees.

D) 12b-1 fees.

E) redemption fees.

Difficulty: 2 Medium

Topic: Fund management fees and other charges

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember; Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

131) Which of the following seeks high total return by maintaining precise amounts within each of the various types of asset that the fund invests in?

A) Funds of fund

B) Family of funds

C) Fixed-income securities

D) Money market instruments

E) Asset allocation fund

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

132) A(n) ________ fund is a fund that generally invests in the stocks or other securities contained in a specific stock or securities index.

A) closed-end

B) exchange-traded

C) open-end

D) load

E) no-load

Difficulty: 2 Medium

Topic: Exchange traded funds

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

133) Who owns the most mutual funds?

A) Investors less than 20 years old

B) Investors between 18 and 36 years old

C) Investors between 37 to 52 years old

D) Investors between 53 to 71 years old

E) Investors over 72 years old

Difficulty: 3 Hard

Topic: Investment choices and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

134) Today many investors use firms like ________ to create a financial plan to generate the income needed to satisfy their long-term goals?

A) New American Frontiers

B) NASDAQ

C) Dow Jones Industrial Average

D) Morgan Stanley

E) Standard & Poor's index

Difficulty: 3 Hard

Topic: Financial plan development; Investment information and advice

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

135) Why do Americans invest in mutual funds?

A) Saving for someone's education

B) Saving for emergencies

C) Using funds to reduce taxable income

D) Saving for retirement

E) All of these

Difficulty: 2 Medium

Topic: Investment choices and considerations

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

136) Within a family of funds, charges for exchanges generally are small for each transaction, and the fee may be as low as ________ per transaction.

A) $1

B) $5

C) $10

D) $15

E) $20

Difficulty: 2 Medium

Topic: Fund classifications

Learning Objective: 16-02 Classify mutual funds by investment objective.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

137) Which of the following states that it is impossible to consistently beat the market without raising your risk level?

A) Professional advisory services

B) Professional fund manager

C) Efficient market hypothesis

D) Investment company

E) Mutual fund broker

Difficulty: 2 Medium

Topic: Investment choices and considerations

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

138) Morningstar rates mutual funds from the lowest to the highest using ________ stars.

A) 2

B) 3

C) 4

D) 5

E) 6

Difficulty: 2 Medium

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

139) Which of the following companies manages assets of $5.1 trillion, has almost 400 different funds, and has historically been known as the leader of low-cost investing?

A) The Vanguard Group

B) Fidelity Investments

C) American Funds

D) Foreign Funds

E) Standard & Poor's

Difficulty: 3 Hard

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Remember

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

140) If the dollar amount of total return on your mutual fund is $165 and the original cost of your investment is $1,200, then what is your percentage of total return?

A) 6.88 percent

B) 7.25 percent

C) 12.00 percent

D) 13.75 percent

E) 16.50 percent

Explanation: $165 / $1,200 = 0.1375 = 13.75 percent

Difficulty: 1 Easy

Topic: Fund returns and yields

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

141) Which of the following is not an advantage of investing in mutual funds?

A) Ease of buying and selling shares

B) Ongoing management fees and 12b-1 fees

C) Professional management

D) Diversification

E) Multiple withdrawal options

Difficulty: 2 Medium

Topic: Fund characteristics and considerations

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

142) An investor is planning to systematically withdraw money from his open-end fund. He arranges to receive 40 percent of the $700 asset growth from this particular investment period. The amount he will receive is:

A) $40

B) $140

C) $280

D) $470

E) $700

Explanation: $700 × 0.40 = $280

Difficulty: 1 Easy

Topic: Fund characteristics and considerations

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Apply

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

143) Which of the following is not true of index funds?

A) Sometimes they are called "passive" funds.

B) They do have managers that simply buy the securities in the index.

C) They are a low-cost alternative to managed mutual funds.

D) The S&P 500 index outperforms the majority of funds over many years.

E) The typical expense ratio for index funds is 0.50 percent or more.

Difficulty: 2 Medium

Topic: Fund characteristics and considerations

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

144) Which of the following is a source of detailed information for fund investments?

A) Internet

B) Professional advisory services

C) The fund's annual report and prospectus

D) Financial publications

E) All of these

Difficulty: 1 Easy

Topic: Fund characteristics and considerations

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

145) Which of the following rates mutual funds from 1 to 5 stars on how well they have performed in comparison with similar funds?

A) Money

B) Bloomberg's Businessweek

C) Morningstar

D) Lipper

E) Value Line

Difficulty: 1 Easy

Topic: Fund ratings

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: automatic

146) What are seven steps you can take to open an investment account and begin investing in mutual funds?

1. Determine your investment goals and perform a financial checkup.

2. Save the money you need to purchase funds.

3. Research different brokerage firms and investment companies.

4. Choose the type of account that is appropriate for you.

5. Find a fund with an objective that matches your objective.

6. Once you identify two to five possible funds, evaluate each alternative before buying shares.

7. After all your research and evaluation, purchase shares in a fund that will help you obtain your investment goals.

Difficulty: 2 Medium

Topic: Investment choices and considerations

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

147) Why do investors purchase mutual funds instead of purchasing stocks, bonds, or other investments on their own?

Difficulty: 2 Medium

Topic: Fund characteristics and considerations

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

148) Explain the difference between a load fund and a no-load fund. From a performance standpoint, is there a significant difference between mutual funds that charge commissions and those that do not?

Many financial analysts suggest that there is no significant performance difference between mutual funds that charge commissions and those that do not. Since no-load funds offer the same investment opportunities that load funds offer, an investor should investigate them further before deciding which type of mutual fund is best.

Difficulty: 2 Medium

Topic: Fund management fees and other charges; Sales loads

Learning Objective: 16-01 Describe the characteristics of mutual fund investments.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

149) Cindy and John Appleby just inherited $30,000 and would like to invest the money in a conservative mutual fund. Since they have never invested in mutual funds, they ask for your help. Describe the sources of information available for evaluating a mutual fund investment.

(1) the internet;

(2) professional advisory services;

(3) current newspaper quotations;

(4) the fund's prospectus;

(5) the fund's annual report; and

(6) financial publications that include Bloomberg Businessweek, Kiplinger's Personal Finance, Fortune, Forbes, and Money.

Difficulty: 2 Medium

Topic: Fund information and advice

Learning Objective: 16-03 Explain how to evaluate mutual funds for investment purposes.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

150) Describe either the purchase options or withdrawal options that can be used to invest in or withdraw money from the investment company that sponsors an open-end mutual fund.

Withdrawal Options: Shares in an open-end fund can be sold on any business day to the investment company that sponsors the fund. In this case, shares are redeemed at their net asset value. In addition, most funds have provisions that allow investors with a minimum net asset value of at least $5,000 to use four options to systematically withdraw money. First, investors may withdraw a specified, fixed dollar amount each investment period. Second, investors may sell off a certain number of shares each investment period. Third, investors may withdraw a fixed percentage of asset growth. Fourth, investors may withdraw all asset growth earned during an investment period.

Difficulty: 2 Medium

Topic: Fund investments, exchanges, and redemptions

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual

151) You are considering the purchase of shares in a mutual fund. Discuss three advantages and three disadvantages of mutual fund investing that you believe are important for potential investors to consider.

ADVANTAGES OF MUTUAL FUND INVESTING

• Diversification.

• Professional management.

• Ease of buying and selling shares.

• Multiple withdrawal options.

• Distribution or reinvestment of income and capital gain distributions.

• Switching privileges within the same fund family.

• Services that include toll-free telephone numbers, complete records of all transactions, and savings and checking accounts.

DISADVANTAGES OF MUTUAL FUND INVESTING

• Purchase/withdrawal costs.

• Ongoing management fees and 12b-1 fees.

• Poor performance that may not match the Standard & Poor's 500 stock index or some other index.

• Inability to control when capital gain distributions occur and complicated tax-reporting issues.

• Potential market risk associated with all investments.

• Some sales personnel are aggressive and/or unethical.

Difficulty: 2 Medium

Topic: Investment choices and considerations; Fund information and advice

Learning Objective: 16-04 Describe how and why mutual funds are bought and sold.

Bloom's: Understand

Accessibility: Keyboard Navigation; Screen Reader Compatible

Gradable: manual