Question 1

List the following four types of medium-term bond mutual funds in order from the lowest default risk to the highest: Ginnie Mae,corporate,high-yield,Treasury.

Accepted Answer

Treasury,Ginnie Mae,corporate,high-yield.

Question 2

You are considering investing in a no-load mutual fund that focuses on growth stocks or in an index fund.The growth stock fund had an annual return of 15% and expenses of 2%.The index fund had an annual return of 12% and expenses of 1%.Assuming equal risk,you should buy

Accepted Answer

A)  the index fund. 
B)  the growth fund. 
C)  some of both. 
D)  neither; the expenses are too high. 
A)  the index fund. 
B)  the growth fund. 
C)  some of both. 
D)  neither; the expenses are too high. B

Question 3

The best investment strategy is to

Accepted Answer

A)  diversify across stock and bond mutual funds with different objectives. 
B)  hold only bond mutual funds with bonds from U.S. corporations. 
C)  buy only one or two stock mutual funds. 
D)  buy individual stocks in one sector and bonds of companies in a different sector. 
A)  diversify across stock and bond mutual funds with different objectives. 
B)  hold only bond mutual funds with bonds from U.S. corporations. 
C)  buy only one or two stock mutual funds. 
D)  buy individual stocks in one sector and bonds of companies in a different sector. A

Question 4

In calculating the net asset value (NAV),which of the following is true?

Accepted Answer

A)  Dividends are subtracted and expenses added 
B)  Interest is subtracted and expenses are added 
C)  Dividends are added and expenses are subtracted 
D)  Interest and other expenses are not included 
A)  Dividends are subtracted and expenses added 
B)  Interest is subtracted and expenses are added 
C)  Dividends are added and expenses are subtracted 
D)  Interest and other expenses are not included

Question 5

Which of the following statements about hedge funds is not true?

Accepted Answer

A)  They sell shares to wealthy individuals and financial institutions. 
B)  They charge high management fees. 
C)  They require a large initial investment. 
D)  They are exposed to very little risk. 
A)  They sell shares to wealthy individuals and financial institutions. 
B)  They charge high management fees. 
C)  They require a large initial investment. 
D)  They are exposed to very little risk.

Question 6

Which of the following stock mutual funds focus on medium size companies that are more established than small-cap firms,but may have less growth potential?

Accepted Answer

A)  Equity income funds 
B)  Sector funds 
C)  Mid-size capitalization funds 
D)  Balanced growth and income funds 
A)  Equity income funds 
B)  Sector funds 
C)  Mid-size capitalization funds 
D)  Balanced growth and income funds

Question 7

Which of the following expenses is usually the highest for a mutual fund?

Accepted Answer

A)  Management fees 
B)  Administrative fees 
C)  12b-1 fees 
D)  Referral fees 
A)  Management fees 
B)  Administrative fees 
C)  12b-1 fees 
D)  Referral fees

Question 8

Which of the following is not a reason why index funds typically incur lower expenses than other mutual funds?

Accepted Answer

A)  Index funds are not actively managed. 
B)  There are no expenses for research. 
C)  The portfolio is revised infrequently, so transaction costs are low. 
D)  The Securities and Exchange Commission sets a limit on index fund expenses. 
A)  Index funds are not actively managed. 
B)  There are no expenses for research. 
C)  The portfolio is revised infrequently, so transaction costs are low. 
D)  The Securities and Exchange Commission sets a limit on index fund expenses.

Question 9

Index stock funds always contain the stock of every company in a particular index.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following funds would probably have the highest potential risk and return?

Accepted Answer

A)  Index funds representing the entire stock market 
B)  Capital appreciation funds 
C)  Equity income funds 
D)  Balanced growth and income funds 
A)  Index funds representing the entire stock market 
B)  Capital appreciation funds 
C)  Equity income funds 
D)  Balanced growth and income funds

Question 11

In deciding if a no-load mutual fund is a good investment for you,you should carefully consider all of the following except

Accepted Answer

A)  the fund's investment objective. 
B)  the fund's previous managers. 
C)  the fund's investment strategy. 
D)  your risk tolerance level. 
A)  the fund's investment objective. 
B)  the fund's previous managers. 
C)  the fund's investment strategy. 
D)  your risk tolerance level.

Question 12

Which of the following stock funds would probably have the lowest risk and return?

Accepted Answer

A)  International funds 
B)  Capital appreciation funds 
C)  Equity income funds 
D)  Sector funds 
A)  International funds 
B)  Capital appreciation funds 
C)  Equity income funds 
D)  Sector funds

Question 13

The component of expense ratios that includes a fee charged by some mutual funds to pay brokers is

Accepted Answer

A)  a management fee. 
B)  a 12b-1 fee. 
C)  an administrative expense. 
D)  a referral fee. 
A)  a management fee. 
B)  a 12b-1 fee. 
C)  an administrative expense. 
D)  a referral fee.

Question 14

The net asset value (NAV)is reported in financial newspapers and on financial Web sites

Accepted Answer

A)  for the total fund family. 
B)  on a per-share basis. 
C)  as a percentage of the fund's price. 
D)  on a weekly basis due to the complexity of computation. 
A)  for the total fund family. 
B)  on a per-share basis. 
C)  as a percentage of the fund's price. 
D)  on a weekly basis due to the complexity of computation.

Question 15

Before investing in a mutual fund,you should request and evaluate the fund's prospectus,which is available for a small charge.

Accepted Answer

A) True 
 B)False

Question 16

Capital appreciation funds tend to invest in stocks that distribute little or no dividends so that earnings can be reinvested for expansion.

Accepted Answer

A) True 
 B)False

Question 17

While not all mutual funds have loads or commissions,they all have management fees and expenses that are charged to the mutual fund shareholders.

Accepted Answer

A) True 
 B)False

Question 18

An advantage of investing in mutual funds is that they all have the objective of preserving capital.

Accepted Answer

A) True 
 B)False

Question 19

When evaluating mutual funds which are investing in the same types of securities/markets,you should compare

Accepted Answer

A)  historical performance. 
B)  management fees. 
C)  12b-1 expenses. 
D)  All of these factors should be considered. 
A)  historical performance. 
B)  management fees. 
C)  12b-1 expenses. 
D)  All of these factors should be considered.

Question 20

Index funds usually have lower capital gains on their investments and are,therefore,advantageous to investors in higher income tax brackets.

Accepted Answer

A) True 
 B)False

Exam 17: Investing in Mutual Funds

List the following four types of medium-term bond mutual funds in order from the lowest default risk to the highest: Ginnie Mae,corporate,high-yield,Treasury.

You are considering investing in a no-load mutual fund that focuses on growth stocks or in an index fund.The growth stock fund had an annual return of 15% and expenses of 2%.The index fund had an annual return of 12% and expenses of 1%.Assuming equal risk,you should buy

The best investment strategy is to

In calculating the net asset value (NAV),which of the following is true?

Which of the following statements about hedge funds is not true?

Which of the following stock mutual funds focus on medium size companies that are more established than small-cap firms,but may have less growth potential?

Which of the following expenses is usually the highest for a mutual fund?

Which of the following is not a reason why index funds typically incur lower expenses than other mutual funds?

Index stock funds always contain the stock of every company in a particular index.

Which of the following funds would probably have the highest potential risk and return?

In deciding if a no-load mutual fund is a good investment for you,you should carefully consider all of the following except

Which of the following stock funds would probably have the lowest risk and return?

The component of expense ratios that includes a fee charged by some mutual funds to pay brokers is

The net asset value (NAV)is reported in financial newspapers and on financial Web sites

Before investing in a mutual fund,you should request and evaluate the fund's prospectus,which is available for a small charge.

Capital appreciation funds tend to invest in stocks that distribute little or no dividends so that earnings can be reinvested for expansion.

While not all mutual funds have loads or commissions,they all have management fees and expenses that are charged to the mutual fund shareholders.

An advantage of investing in mutual funds is that they all have the objective of preserving capital.

When evaluating mutual funds which are investing in the same types of securities/markets,you should compare

Index funds usually have lower capital gains on their investments and are,therefore,advantageous to investors in higher income tax brackets.

Overview of a Financial Plan

Planning With Personal Financial Statements

Applying Time Value Concepts

Using Tax Concepts for Planning

Banking and Interest Rates

Managing Your Money

Assessing and Securing Your Credit

Managing Your Credit

Personal Loans

Purchasing and Financing a Home

Auto and Homeowners Insurance

Health and Disability Insurance

Life Insurance

Investing Fundamentals

Investing in Stocks

Investing in Bonds

Asset Allocation

Retirement Planning

Estate Planning

Integrating the Components of a Financial Plan

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