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Chapter 13—Investing in Mutual Funds
1. Closed-ended mutual funds are guaranteed, they cannot lose value.
a.
True
b.
False
2. Investors select and purchase securities held within mutual funds.
a.
True
b.
False
3. Exchange-traded mutual funds are actually closed-end mutual funds.
a.
True
b.
False
4. With open-end mutual funds, investors cannot lose more than they invested.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
5. While ETFs offer many of the benefits of mutual funds, they have the tax-timing disadvantages not present with
otherwise comparable mutual funds.
a.
True
b.
False
6. Open-ended mutual funds companies buy their shares back from investors at NAV.
a.
True
b.
False
7. Closed-end mutual funds companies buy their shares back from investors at NAV.
a.
True
b.
False
8. Exchange-traded funds can create new shares to meet demand.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
9. Spiders and Diamonds are examples of ETFs.
a.
True
b.
False
10. Open-ended mutual funds can be traded on an intraday basis.
a.
True
b.
False
11. ETFs often distribute large capital gains to their shareholders.
a.
True
b.
False
12. A closed-end investment company can create an unlimited number of shares.
a.
True
Chapter 13—Investing in Mutual Funds
b.
False
13. There are more closed-end investment companies than there are open-end companies.
a.
True
b.
False
14. An open-end investment company is commonly known as a mutual fund.
a.
True
b.
False
15. The most important advantage of a mutual fund is pooled diversification.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
16. It is almost impossible to lose money in a mutual fund as the result of fraud or the mutual fund company's bankruptcy.
a.
True
b.
False
17. Closed-end mutual funds can trade at either a discount or a premium from their net asset value.
a.
True
b.
False
18. The net asset value (NAV) per share is found by dividing the market value of the fund's securities less the fund's
liabilities by the number of shares outstanding.
a.
True
b.
False
19. The price an investor can sell his shares of an open-end mutual fund is the net asset value.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
20. More people invest in mutual funds than in any other type of investment product.
a.
True
b.
False
21. Exchange-traded funds have characteristics of both closed-end and open-end funds.
a.
True
b.
False
22. A mutual fund is owned by the management company.
a.
True
b.
False
23. Low-load funds do not charge a commission upon initial purchase.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
24. A mutual fund cannot charge more than 6.5 percent in total sales charges and fees.
a.
True
b.
False
25. Back-end load funds offer more liquidity to investors than no-load funds.
a.
True
b.
False
26. All mutual funds have management fees.
a.
True
b.
False
27. A mutual fund prospectus is required to fully disclose all fund fees and expenses.
Chapter 13—Investing in Mutual Funds
a.
True
b.
False
28. A hybrid REIT would invest only in real estate mortgages.
a.
True
b.
False
29. A real estate investment trust that invests only in mortgages is called an equity trust.
a.
True
b.
False
30. The size of a mutual fund's management fee is related to the fund's performance.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
31. The price per share of a closed-end investment fund could be lower than its NAV.
a.
True
b.
False
32. Loads are transaction charges for mutual funds.
a.
True
b.
False
33. All no-load funds charge an upfront fee to purchase shares of a mutual fund.
a.
True
b.
False
34. A 12b-1 fee can only be charged by a load mutual fund.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
35. A fund's prospectus would provide information about a fund's fee structure.
a.
True
b.
False
36. Load fees charged on mutual funds help insure that the fund is well managed and that the investor's yields will be
greater than those on no-load funds.
a.
True
b.
False
37. Mutual funds may be classified by the types of securities they purchase.
a.
True
b.
False
38. Growth funds are mutual funds designed for short-term investing.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
39. Aggressive growth funds typically buy stocks with high price/earnings ratios and stocks with volatile price
fluctuations.
a.
True
b.
False
40. Value funds typically invest in stocks that do not pay dividends and have a high price/earnings ratio.
a.
True
b.
False
41. Balanced funds invest in a proportionate amount of common and preferred stocks and bonds.
a.
True
b.
False
42. The primary investment objective of bond funds is income.
a.
True
b.
False
43. Growth-and-income funds invest most of their capital in common stocks.
a.
True
b.
False
44. Money funds are high in both liquidity and risk.
a.
True
b.
False
45. Indexed funds have high realized capital gains.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
46. Sector funds concentrate their holdings in specific targeted markets.
a.
True
b.
False
47. Generally speaking, socially responsible funds abstain from investing in alcohol, gambling, or tobacco stocks.
a.
True
b.
False
48. Equity-income funds emphasize capital appreciation in their investment goals.
a.
True
b.
False
49. Balanced funds invest in a mix of utility and growth equities.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
50. The objective of bond and money market funds is growth.
a.
True
b.
False
51. For most investors, the best way to deal in foreign securities is through an international mutual fund.
a.
True
b.
False
52. A technology fund is an example of a sector fund.
a.
True
b.
False
53. Index funds are actively managed.
a.
True
Chapter 13—Investing in Mutual Funds
b.
False
54. Asset allocation funds concentrate on one type of investment.
a.
True
b.
False
55. The major reason that investors use mutual funds is their contractual plans, which force regular investing.
a.
True
b.
False
56. The major benefit to small investors of mutual funds is diversification.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
57. A mutual fund always provides active professional investment management.
a.
True
b.
False
58. Global mutual funds can invest both in domestic and international stocks.
a.
True
b.
False
59. Asset allocation funds invest in stocks, bonds, and money market securities.
a.
True
b.
False
60. By using automatic reinvestment plans, dividend and capital gains are used to automatically buy additional shares in
the fund.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
61. Conversion privileges allow investors to exchange one fund's shares for that of another, as long as the funds are in the
same fund family.
a.
True
b.
False
62. An investor with a small amount of money should stick to using load funds instead of no-load funds.
a.
True
b.
False
63. Dividend income, capital gains distributions, and changes in the fund's share price are all sources of return for a
mutual fund.
a.
True
b.
False
64. Dividend income and capital gains distributions are taxed at identical tax rates.
a.
True
Chapter 13—Investing in Mutual Funds
b.
False
65. A mutual fund's price per share will increase if its underlying holdings increase in value.
a.
True
b.
False
66. If a mutual fund provides for automatic reinvestment, the reinvested dividends will not be taxed until the shares are
redeemed.
a.
True
b.
False
67. Mutual fund conversion privileges can often be exercised online.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
68. The lower the R2, the closer the relationship between an ETF and its associated target index.
a.
True
b.
False
69. The approximate yield on a mutual fund depends only on the fund's dividend income and capital gains distributions.
a.
True
b.
False
70. The individual manager of a mutual fund has little to do with a fund's success.
a.
True
b.
False
71. A guarantee of expected fund's future performance is its past performance.
a.
True
b.
False
Chapter 13—Investing in Mutual Funds
72. Index funds, while trying to match market performance, consistently underperform market benchmarks.
a.
True
b.
False
73. Advantages of exchange traded funds over mutual funds include a broader market focus.
a.
True
b.
False
74. ETFs are set up to protect investors from capital gains taxes better than most mutual funds can.
a.
True
b.
False
75. The expected cash flows of a real estate investment are determined by rent, depreciation, and taxes.
a.
True
b.
False
