Chapter 16 – Investing in Mutual Funds
1. (p. 536) In late 2009, there were over 12,000 mutual funds, and the number continues to
increase each year.
2. (p. 537) The major reasons why investors purchase mutual funds are professional management
and diversification.
3. (p. 537) Because of professional management, there is no need for the individual investor to
evaluate a mutual fund investment.
Chapter 16 – Investing in Mutual Funds
4. (p. 537) A closed-end fund is a fund in which shares are issued only when the fund is
organized.
5. (p. 537) Today, there are more closed-end funds than there are open-end funds.
6. (p. 539) Shares in an open-end fund are redeemed by the investment company at the request of
the investor.
Chapter 16 – Investing in Mutual Funds
7. (p. 537-538) An exchange-traded fund, commonly referred to as an ETF is a fund that invests in
the stocks contained in a specific stock or securities index.
8. (p. 539) There are more exchange-traded funds than there are open-end mutual funds.
9. (p. 539) The net asset value for a mutual fund share is calculated by dividing the value of the
fund’s portfolio by the fund’s liabilities.
10. (p. 541) A load fund is a mutual fund in which investors pay a commission either when they
purchase or when they redeem shares.
Chapter 16 – Investing in Mutual Funds
11. (p. 541) For a load fund, the average commission usually ranges between 3 and 5 percent of
the purchase price.
12. (p. 541) A no-load fund is a mutual fund in which no sales charge is paid by the individual
investor to buy or sell shares.
13. (p. 542) For a mutual fund, the typical yearly management fee ranges from 2.5 to 5 percent
of the total dollar amount invested.
14. (p. 542) A contingent deferred sales load is a 1 to 5 percent charge that shareholders pay
when they withdraw their investment from a mutual fund.
Chapter 16 – Investing in Mutual Funds
15. (p. 542) Mutual funds charge the 12b-1 fee to offset advertising and marketing costs.
16. (p. 543) When you invest in Class A shares, you pay a sales commission when you sell your
mutual fund shares.
17. (p. 543) Class C shares, because of their ongoing, higher 12b-1 fees, are often more
expensive than Class A or Class B shares over a long period of time.
18. (p. 543) All information related to management fees, contingent deferred sales fees, 12b-1
fees, and other expenses are contained in a mutual fund’s fee table.
Chapter 16 – Investing in Mutual Funds
19. (p. 546) Mutual funds that apportion their investments among common stocks and bonds are
referred to as small-cap funds.
20. (p. 546) Mutual funds that invest in a variety of smaller, lesser-known companies that offer
higher growth potential are referred to as sector funds.
21. (p. 546) High-yield bond funds are sometimes referred to as junk bond funds.
22. (p. 546) A mutual fund that provides tax-exempt interest income is referred to as a long- term
U.S. bond fund.
Chapter 16 – Investing in Mutual Funds
23. (p. 546-547) Asset allocation funds invest in various asset classes including stocks, bonds,
fixed-income securities, and money market instruments.
24. (p. 547) The family of funds concept makes it convenient for shareholders to switch their
investments among funds as different funds offer more potential.
25. (p. 549) The fund manager is ultimately responsible for a fund’s success.
26. (p. 549) Because an index fund is a mirror image of a specific index, the dollar value of a
share in an index fund increases when the index increases.
Chapter 16 – Investing in Mutual Funds
27. (p. 554) In a newspaper quotation, NAV stands for “not accessible value.”
28. (p. 552) In a newspaper quotation, the letter “p” means a 12b-1 distribution fee is charged.
29. (p. 554) An investment company sponsoring a mutual fund must furnish shareholders a
prospectus each year.
30. (p. 552) While advisory services provide detailed information on common and preferred
stocks, there are no advisory services that provide information on mutual funds.
Chapter 16 – Investing in Mutual Funds
31. (p. 561) Investors in closed-end, 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.
32. (p. 556) Although mutual funds are popular among individual investors, most people do not
use them as part of an IRA or retirement account.
33. (p. 556) Typically, you must invest at least $15,000, to open a mutual fund account.
34. (p. 557) Income dividends are the earnings a fund pays to shareholders from its dividend and
interest income.
Chapter 16 – Investing in Mutual Funds
35. (p. 557) Capital gain distributions result when you decide to sell shares in a mutual fund at a
price higher than you paid.
36. (p. 558-559) While mutual fund income dividends are subject to taxation, capital gain
distributions are not subject to taxation.
37. (p. 559) Tax information for mutual funds is reported as part of the year-end statement or
IRS Form 1099-DIV.
38. (p. 560) To purchase shares in an open-end fund, you may use four options: regular accounts,
voluntary savings plans, contractual savings plans, and reinvestment plans.
Chapter 16 – Investing in Mutual Funds
39. (p. 561) When you decide to redeem shares in an open-end mutual fund, the only option is to
sell a specific number of shares.
40. (p. 537-538) Which one of the following statements is false?
41. (p. 538) Which one of the following statements is false?
Chapter 16 – Investing in Mutual Funds
42. (p. 539) There are about _____ exchange-traded funds.
43. (p. 539) Approximately ____________ percent of all mutual funds are open-end funds.
44. (p. 537) A mutual fund in which shares are issued only when the fund is organized is called
a(n) ____________ fund.
Chapter 16 – Investing in Mutual Funds
45. (p. 539) A mutual fund in which new shares are issued and existing shares redeemed by the
investment company at the request of investors is called a(n) ____________ fund.
46. (p. 539) The value of a mutual fund’s portfolio minus the mutual fund’s liabilities, divided by
the number of shares outstanding is called the:
47. (p. 539) The Capitalist Mutual Fund’s portfolio is valued at $45 million. The fund has
liabilities of $3 million, and the investment company sponsoring the fund has issued
1,600,000 shares. What is the fund’s net asset value?
Chapter 16 – Investing in Mutual Funds
48. (p. 539) The All-Star Basic Value Fund’s portfolio is valued at $210 million. The fund has
liabilities of $5 million, and the investment company sponsoring the fund has issued
16,400,000 shares. What is the fund’s net asset value?
49. (p. 539) For most mutual funds, the net asset value is calculated:
Chapter 16 – Investing in Mutual Funds
50. (p. 539) The New American Enterprise Mutual Fund’s portfolio is valued at $120 million.
The fund has liabilities of $4 million, and the investment company sponsoring the fund has
issued 5,800,000 shares. What is the fund’s net asset value?
51. (p. 541) A mutual fund in which investors pay a commission every time they purchase shares
is called a(n) ____________ fund.
52. (p. 541) The commission charge for purchasing fund shares that impose an up-front
commission charge ____________ percent.
Chapter 16 – Investing in Mutual Funds
53. (p. 541) When an investor purchases shares in a load fund, the average sales charge is usually
between ____________ percent.
54. (p. 541) Mary Cooper just purchased 100 shares in the All-American Fund. The purchase
cost for each share was $20. If this fund charges a 5 percent load, what is the total amount of
commission she will pay the investment company?
Chapter 16 – Investing in Mutual Funds
55. (p. 541) Bob Newsome purchased 250 shares of the Northern Lights Growth Fund. The
purchase cost was $30 per share. If this fund charges a 3 percent load, what is the commission
amount he will pay the investment company?
56. (p. 541) A mutual fund in which no sales charge is paid by the individual investor is called
a(n) ____________ fund.
57. (p. 542) The management fee for most mutual funds ranges between ______ percent.
Chapter 16 – Investing in Mutual Funds
58. (p. 542) The average management fee for all mutual funds is:
59. (p. 542) A 1 to 5 percent fee that investors pay when they withdraw their investment from a
mutual fund is called a:
60. (p. 542) When Pete Mills went to withdraw $5,000 from the Nationwide Fidelity Mutual
fund, he was informed that the fund would charge 5 percent of the amount withdrawn. What
is the dollar amount of the withdrawal charge?
Chapter 16 – Investing in Mutual Funds
61. (p. 542) A fee that some investment companies charge for advertising and marketing a
mutual fund is called a:
62. (p. 543) Another name for a mutual fund that charges a contingent deferred sales load is a
class ____________ fund.
63. (p. 543) Another name for a mutual fund that doesn’t charge a load, but does charge an
ongoing higher 12b-1 fee is a class ____________ fund.
Chapter 16 – Investing in Mutual Funds
64. (p. 543) All the different fees and fund operating costs are often referred to as a(n):
65. (p. 543) Many financial planners recommend that investors pick a mutual fund with an
expense ratio that is:
66. (p. 547) A mutual fund that invests in common stocks and bonds with the primary objectives
of conserving capital, providing income, and long-term growth is called a(n) ____________
fund.