21
11) Value funds seek stocks
I. with low dividend yields.
II. with potential for growth.
III. with low P/E ratios.
IV. of newly discovered firms.
A) I and III only
B) II and III only
C) II, III and IV only
D) I, II, III and IV
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
12) The primary objective of an equity-income fund is
A) capital gains.
B) current income with capital preservation.
C) potentially high capital gains with limited income.
D) high risk-return trade-offs.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
13) Which type of mutual fund consists of both stocks and bonds with a combined objective of
current income and long-term capital gains?
A) equity-income
B) balanced
C) value
D) bond
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
22
14) One characteristic of bond funds is the
A) requirement of a minimum initial investment of $5,000 or more.
B) high anticipated short-term growth potential.
C) fluctuation in value in response to changing interest rates.
D) extremely aggressive trading approach.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
15) One advantage gained by investing in a bond fund rather than in individual bonds is the
A) diversification among issuers.
B) most bond funds outperform their benchmarks.
C) immunity from interest rate changes.
D) guarantee that the bonds will be held to maturity to avoid market fluctuations.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
16) Which of the following are advantages of international funds?
I. greater diversification
II. potentially higher returns
III. income is taxed at a lower rate
IV. ease of investing compared to buying individual foreign securities
A) I and III only
B) I, III and IV only
C) I, II and IV only
D) II, III and IV only
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 3
23
17) Investors who seek triple (federal, state, and local) tax-free income should invest in
________ bond funds.
A) convertible
B) indexed
C) mortgage-backed
D) single-state municipal
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
18) Compared to yields on general purpose money funds, the yields on tax-exempt money
funds are
A) about the same.
B) 5 to 10 percent higher.
C) 5 to 10 percent lower.
D) 20 to 30 percent lower.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
19) Government securities money funds are structured to eliminate
A) interest rate risk.
B) inflation risk.
C) default risk.
D) market risk.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
24
20) A fund that is designed to match the performance of a measure such as the S & P 500 or the
Russell 2000 is called a(n)
A) index fund.
B) targeted fund.
C) sector fund.
D) block fund.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
21) One characteristic of most index funds is that such funds typically
A) produce a large dollar amount of realized capital gains every year.
B) have a very low-cost structure with respect to management fees and transaction fees.
C) charge high front-end loads.
D) are designed to “beat the market.”
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
22) Madison believes that the leisure industry (resorts, travel, restaurants, etc.) is about to
experience extraordinary growth because baby boomers are entering their retirement years. She
should invest in
A) an asset allocation fund.
B) a fixed income fund.
C) a sector fund.
D) an aggressive growth fund.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 3
25
23) Socially responsible funds are distinguished from other mutual funds because they
A) invest only in over-the-counter stocks.
B) do not charge any sales commission or management fees.
C) invest only in companies that meet specified moral, ethical, or environmental standards.
D) will sell their shares only to investors who sign a statement saying they do not smoke
tobacco or use alcohol.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
24) Funds that invest in a portfolio of companies from the same or closely related industries are
known as
A) aggressive growth funds.
B) sector funds.
C) emerging market funds.
D) asset allocation funds.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
25) One type of mutual fund spreads investors’ money across equity markets, bond markets,
and money markets. Moreover, as market conditions change, the amount of money invested in
each market sector will change. This type of mutual fund is known as a(n)
A) socially responsible fund.
B) fiscally responsible fund.
C) growth-and-income fund.
D) asset allocation fund.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
26
26) Which one of the following statements is correct concerning international funds?
A) A devaluation of the dollar causes returns on foreign investments to improve from a U.S.
perspective.
B) International funds are considered low-risk investments.
C) Balance-of-trade positions do NOT affect the rate of return from a U.S. perspective.
D) Technically, global funds can only invest in foreign securities.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 3
27) Target date funds
A) invest in more conservative assets as the target date approaches.
B) invest in bonds with durations that match the target date.
C) liquidate their assets and distribute the proceeds when the target date is reached.
D) guarantee a minimum net asset value once the target date is reached.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 3
28) Every mutual fund has a stated investment objective. Disclosure of the investment objective
is required by the SEC, and is used to classify a mutual fund into one of several categories.
Briefly explain the investment objective of each of the following categories.
(a) growth funds
(b) aggressive growth funds
(c) equity-income funds
(d) balanced funds
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
27
Copyright © 2017 Pearson Education, Inc.
Learning Goal: Learning Goal 3
12.4 Learning Goal 4
1) Automatic investment plans makes it easier for investors to save money.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
2) To participate in an automatic investment plan, investors must allow the investment
company to have access to a bank account or their paycheck.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
3) Dividends and capital gains earned by mutual fund investors are taxed when the shares are
redeemed.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
4) Investors using the conversion privilege to move money from one mutual fund to another
within the same family may incur a tax liability.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 4
28
5) The conversion privilege allows investors to switch from one fund to another without fees if
and only if the funds are managed by the same company such as Fidelity or Vanguard.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
6) Systematic withdrawal plans from mutual funds usually require a minimum investment of at
least $100,000.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
7) The ability to automatically buy additional fund shares using the dividend income generated
by the fund is called a(n)
A) automatic investment plan.
B) automatic reinvestment plan.
C) systematic withdrawal plan.
D) conversion plan.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
29
8) Typical services offered by mutual funds include
I. automatic reinvestment plans
II. automatic investment plans
III. automatic fund conversion as investment goals change
IV. automatic withdrawal plans
A) I and III only
B) II and IV only
C) I, II and IV only
D) I, II, III and IV
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
9) Automatic reinvestment of dividends and interest income
A) is a default option for most mutual funds.
B) will allow investors to defer taxes on the amounts earned.
C) must be reauthorized by the investor each year.
D) will subject investors to excessive commissions on small transactions.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 4
10) Automatic reinvestment plans
A) are a good way to avoid taxes on dividends and capital gains.
B) may involve exceptionally high transaction fees.
C) do not allow for the purchase of fractional shares.
D) are an excellent way to accumulate wealth through disciplined investing.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
30
11) Investors interested in predictable cash flow from their investments should consider funds
that offer
A) conversion privileges.
B) systematic withdrawal plans.
C) automatic reinvestment plans.
D) automatic investment plans.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
12) Mutual funds often report returns as the growth of $10,000 over a period of time. These
returns assume that
A) all dividends and capital gains are reinvested.
B) all dividends and capital gains are withdrawn.
C) all dividends and capital gains are reinvested after deductions for income taxes.
D) the investor contributes money to the fund on a regular basis through an automatic
investment plan.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4
13) The conversion privilege provided by mutual fund families allows investors to
A) move from one fund to another without incurring any capital gains tax liability.
B) be more aggressive since they can re-allocate their funds when market conditions change.
C) re-allocate their funds at any time as long as they pay an additional sales load on the
transferred funds.
D) move from one fund family to another once every six months.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 4