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31
12.5 Learning Goal 5
1) Mutual funds are used extensively as retirement investments.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
2) Investors should select mutual funds that match their personal investment goals and provide
the services they desire.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
3) Mutual funds are popular instruments for speculation and short-term trading.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 5
4) Funds that charge higher sales commissions. consistently earn above average rates of return.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Revised
Learning Goal: Learning Goal 5
32
5) Mutual funds and exchanged-traded funds are available to meet the goals of both aggressive
and conservative investors.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 5
6) An investor who wants to use mutual funds as a storehouse of value should invest in
A) high-yield corporate bond funds and growth funds.
B) growth funds and equity-income funds.
C) equity-income funds and long-term bond funds.
D) money funds and short-term bond 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 5
7) Investors use mutual funds for which of the following reasons?
I. to accumulate wealth
II. to minimize risk
III. as a speculative vehicle
IV. as a storehouse of value
A) I and II only
B) II, III 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 5
33
8) Tax laws allow investors to hold mutual funds in which of the following types of retirement
plans?
I. ordinary IRAs
II. Roth IRAs
III. 401-K plans
IV. Keogh plans
A) I and II only
B) II, III 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 5
9) Which of the following accurately describe reasons for investing in mutual funds?
I. to effectively control the timing of capital gains for tax purposes
II. to achieve portfolio diversification at a reasonable cost
III. to invest in unfamiliar sectors or geographic regions
IV. to outperform the market
A) I and IV only
B) II and III only
C) I, II and III 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 5
34
10) Reasons to invest in mutual fund include
I. a wide range of services such as automatic reinvestment and systematic withdrawal plans.
II. minimizing the time and effort spent choosing securities.
III. rates of return that consistently beat the market averages.
IV. participation in a variety of tax sheltered and tax deferred retirement programs.
A) I and II only
B) II, III 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 5
11) A mutual fund is generally more tax efficient when it has a ________ turnover rate and a
________ dividend yield.
A) low; low
B) low; high
C) high; low
D) high; high
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 5
12) Investors seeking tax-exempt income should invest in
A) index funds.
B) government bond funds.
C) municipal bond funds.
D) money market funds.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 5
35
13) Mutual funds can be used in which of the following tax exempt or tax deferred plans?
I. self-directed retirement plans (SEPS)
II. traditional IRAs
III. Roth IRAs
IV. 401-K accounts
A) I, II, and IV only
B) I and IV only
C) II and III 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: New Question
Learning Goal: Learning Goal 5
12.6 Learning Goal 6
1) Both capital gains and dividend income from mutual funds are taxable in the year in which
they are earned unless the mutual fund is held in a tax-sheltered plan.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 6
2) Both realized and unrealized capital gains from mutual fund investments are currently
taxable for individual income tax purposes.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 6
36
3) Only realized capital gains from mutual fund investments are currently taxable for individual
income tax purposes.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 6
4) Both the performance of the overall stock market as well as the skills of the mutual fund
manager affect the performance of a mutual 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 6
5) Unrealized capital gains or losses will have no effect on a mutual fund's net asset value.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 6
6) Last year, Sue purchased a closed-end mutual fund that was trading at $42 and had an NAV
of $38. Sue sold the fund today when the NAV is $44 and the market price is $43. The fund
paid $1 in dividends over the past year. What is the Sue's holding period return?
A) 4.8%
B) 7.1%
C) 11.6%
D) 18.4%
managers
AACSB: 3 Analytical thinking
Question Status: Previous Edition
Learning Goal: Learning Goal 6
