Finance Chapter 13 Closed-ended mutual funds are guaranteed, they cannot lose

Chapter 13—Investing in Mutual Funds

1. Closed-ended mutual funds are guaranteed, they cannot lose value.

a.

True

b.

False

Easy

2. Investors select and purchase securities held within mutual funds.

a.

True

b.

False

Moderate

3. Exchange-traded mutual funds are actually closed-end mutual funds.

a.

True

b.

False

Challenging

4. With open-end mutual funds, investors cannot lose more than they invested.

a.

True

b.

False

True

Moderate

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

Challenging

6. Open-ended mutual funds companies buy their shares back from investors at NAV.

a.

True

b.

False

True

Moderate

7. Closed-end mutual funds companies buy their shares back from investors at NAV.

a.

True

b.

False

Moderate

8. Exchange-traded funds can create new shares to meet demand.

a.

True

b.

False

True

Chapter 13—Investing in Mutual Funds

9. Spiders and Diamonds are examples of ETFs.

a.

True

b.

False

True

Challenging

10. Open-ended mutual funds can be traded on an intraday basis.

a.

True

b.

False

Challenging

11. ETFs often distribute large capital gains to their shareholders.

a.

True

b.

False

Moderate

12. A closed-end investment company can create an unlimited number of shares.

a.

True

Moderate

Chapter 13—Investing in Mutual Funds

b.

False

Easy

13. There are more closed-end investment companies than there are open-end companies.

a.

True

b.

False

Easy

14. An open-end investment company is commonly known as a mutual fund.

a.

True

b.

False

True

Easy

15. The most important advantage of a mutual fund is pooled diversification.

a.

True

b.

False

True

Easy

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

True

Easy

17. Closed-end mutual funds can trade at either a discount or a premium from their net asset value.

a.

True

b.

False

True

Moderate

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

True

Challenging

19. The price an investor can sell his shares of an open-end mutual fund is the net asset value.

a.

True

b.

False

True

Moderate

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

True

Easy

21. Exchange-traded funds have characteristics of both closed-end and open-end funds.

a.

True

b.

False

True

Easy

22. A mutual fund is owned by the management company.

a.

True

b.

False

Moderate

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

Moderate

25. Back-end load funds offer more liquidity to investors than no-load funds.

a.

True

b.

False

Challenging

26. All mutual funds have management fees.

a.

True

b.

False

True

Moderate

27. A mutual fund prospectus is required to fully disclose all fund fees and expenses.

Moderate

Chapter 13—Investing in Mutual Funds

a.

True

b.

False

True

Easy

28. A hybrid REIT would invest only in real estate mortgages.

a.

True

b.

False

Challenging

29. A real estate investment trust that invests only in mortgages is called an equity trust.

a.

True

b.

False

Moderate

30. The size of a mutual fund’s management fee is related to the fund’s performance.

a.

True

b.

False

Moderate

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

True

Moderate

32. Loads are transaction charges for mutual funds.

a.

True

b.

False

True

Easy

33. All no-load funds charge an upfront fee to purchase shares of a mutual fund.

a.

True

b.

False

Easy

34. A 12b-1 fee can only be charged by a load mutual fund.

a.

True

b.

False

Moderate

Chapter 13—Investing in Mutual Funds

35. A fund’s prospectus would provide information about a fund’s fee structure.

a.

True

b.

False

True

Easy

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

Moderate

37. Mutual funds may be classified by the types of securities they purchase.

a.

True

b.

False

True

Easy

38. Growth funds are mutual funds designed for short-term investing.

a.

True

b.

False

Chapter 13—Investing in Mutual Funds

False

Easy

39. Aggressive growth funds typically buy stocks with high price/earnings ratios and stocks with volatile price

fluctuations.

a.

True

b.

False

True

Moderate

40. Value funds typically invest in stocks that do not pay dividends and have a high price/earnings ratio.

a.

True

b.

False

Moderate

41. Balanced funds invest in a proportionate amount of common and preferred stocks and bonds.

a.

True

b.

False

True

Easy

42. The primary investment objective of bond funds is income.

a.

True

b.

False

True

Moderate

43. Growth-and-income funds invest most of their capital in common stocks.

a.

True

b.

False

True

Moderate

44. Money funds are high in both liquidity and risk.

a.

True

b.

False

Challenging

45. Indexed funds have high realized capital gains.

a.

True

b.

False

Challenging

Chapter 13—Investing in Mutual Funds

46. Sector funds concentrate their holdings in specific targeted markets.

a.

True

b.

False

True

Moderate

47. Generally speaking, socially responsible funds abstain from investing in alcohol, gambling, or tobacco stocks.

a.

True

b.

False

True

Easy

48. Equity-income funds emphasize capital appreciation in their investment goals.

a.

True

b.

False

Moderate

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

Moderate

51. For most investors, the best way to deal in foreign securities is through an international mutual fund.

a.

True

b.

False

True

Easy

52. A technology fund is an example of a sector fund.

a.

True

b.

False

True

Moderate

53. Index funds are actively managed.

a.

True

Moderate

Chapter 13—Investing in Mutual Funds

b.

False

Easy

54. Asset allocation funds concentrate on one type of investment.

a.

True

b.

False

Easy

55. The major reason that investors use mutual funds is their contractual plans, which force regular investing.

a.

True

b.

False

Moderate

56. The major benefit to small investors of mutual funds is diversification.

a.

True

b.

False

True

Easy

Chapter 13—Investing in Mutual Funds

57. A mutual fund always provides active professional investment management.

a.

True

b.

False

Easy

58. Global mutual funds can invest both in domestic and international stocks.

a.

True

b.

False

True

Easy

59. Asset allocation funds invest in stocks, bonds, and money market securities.

a.

True

b.

False

True

Easy

60. By using automatic reinvestment plans, dividend and capital gains are used to automatically buy additional shares in

the fund.

a.

True

b.

False

True

Easy

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

True

Moderate

62. An investor with a small amount of money should stick to using load funds instead of no-load funds.

a.

True

b.

False

Easy

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

True

Easy

64. Dividend income and capital gains distributions are taxed at identical tax rates.

a.

True

Chapter 13—Investing in Mutual Funds

b.

False

Easy

65. A mutual fund’s price per share will increase if its underlying holdings increase in value.

a.

True

b.

False

True

Moderate

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

Challenging

67. Mutual fund conversion privileges can often be exercised online.

a.

True

b.

False

True

Easy

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

Moderate

69. The approximate yield on a mutual fund depends only on the fund’s dividend income and capital gains distributions.

a.

True

b.

False

Easy

70. The individual manager of a mutual fund has little to do with a fund’s success.

a.

True

b.

False

Easy

71. A guarantee of expected fund’s future performance is its past performance.

a.

True

b.

False

Moderate

Chapter 13—Investing in Mutual Funds

72. Index funds, while trying to match market performance, consistently underperform market benchmarks.

a.

True

b.

False

Moderate

73. Advantages of exchange traded funds over mutual funds include a broader market focus.

a.

True

b.

False

Challenging

74. ETFs are set up to protect investors from capital gains taxes better than most mutual funds can.

a.

True

b.

False

True

Challenging

75. The expected cash flows of a real estate investment are determined by rent, depreciation, and taxes.

a.

True

b.

False

True

Moderate