Question 1

Compared to yields on general purpose money funds, the yields on tax-exempt money funds are

Accepted Answer

A)   about the same.
B)   5 to 10 percent higher.
C)   5 to 10 percent lower.
D)   20 to 30 percent lower.

Question 2

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

Accepted Answer

A)   I and II only
B)   II, III and IV only
C)   I, II and IV only
D)   I, II, III and IV

Question 3

Mutual funds rank second only to banks as being the largest financial intermediary in the United States.

Accepted Answer

A) True 
 B)False

Question 4

Closed-end funds are required to provide a prospectus to all new shareholders as long as the fund is trading at a premium.

Accepted Answer

A) True 
 B)False

Question 5

The conversion privilege provided by mutual fund families allows investors to

Accepted Answer

A)   move from one fund to another without incurring any capital gains tax liability.
B)   be more aggressive since they can re-allocate their funds when market conditions change.
C)   re-allocate their funds at any time as long as they pay an additional sales load on the transferred funds.
D)   move from one fund family to another once every six months.

Question 6

The transfer agent for a mutual fund physically safeguards the securities being bought and sold by that firm.

Accepted Answer

A) True 
 B)False

Question 7

One characteristic of 12(b) -1 charges is that they are payable

Accepted Answer

A)   only in years that the mutual fund shows an increase in net asset value.
B)   each year regardless of the performance of the mutual fund.
C)   only during the first year the fund is owned.
D)   only when shares in the fund are sold.

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

Investors who buy or sell exchange-traded funds will do so at a price based on the closing price for the day.

Accepted Answer

A) True 
 B)False

Question 10

Funds that consistently earn above average rates of return also tend to charge higher sales commissions.

Accepted Answer

A) True 
 B)False

Question 11

Investors who seek triple (federal, state, and local)  tax-free income should invest in ________ bond funds.

Accepted Answer

A)   convertible
B)   indexed
C)   mortgage-backed
D)   single-state municipal

Question 12

Which of the following characteristics apply to closed-end mutual funds?
I. unlimited number of outstanding shares
II. transactions between shareholders
III. Market prices may be higher or lower than NAV.
IV. Fund will repurchase shares at any time.

Accepted Answer

A)   I and IV only
B)   II and III only
C)   I, II and III only
D)   II, III and IV only C

Question 13

Mutual funds often report returns as the growth of $10,000 over a period of time. These returns assume that

Accepted Answer

A)   all dividends and capital gains are reinvested.
B)   all dividends and capital gains are withdrawn.
C)   all dividends and capital gains are reinvested after deductions for income taxes.
D)   the investor contributes money to the fund on a regular basis through an automatic investment plan.

Question 14

Income from ________ is exempt from federal income taxes?

Accepted Answer

A)   money market funds
B)   municipal bond funds
C)   government bond funds
D)   REITs

Question 15

Nearly all mutual funds operate as regulated investment companies. This means that

Accepted Answer

A)   they are no-load funds.
B)   portfolio decisions are mandated by government authorities.
C)   they do not pay taxes on their income.
D)   their investments are guaranteed by the FDIC. C

Question 16

The primary objective of growth mutual funds is capital appreciation with a high level of current income.

Accepted Answer

A) True 
 B)False

Question 17

Morningstar, a leading. mutual fund industry publication, classifies funds by the number of shareholders and the total amount of money invested in the fund.

Accepted Answer

A) True 
 B)False

Question 18

Dividends and capital gains earned by mutual fund investors are taxed when the shares are redeemed.

Accepted Answer

A) True 
 B)False  False

Question 19

One characteristic of bond funds is the

Accepted Answer

A)   requirement of a minimum initial investment of $5,000 or more.
B)   high anticipated short-term growth potential.
C)   fluctuation in value in response to changing interest rates.
D)   extremely aggressive trading approach.

Question 20

The commission charged when shares of an open-end mutual fund are purchased is called a

Accepted Answer

A)   management fee.
B)   back-end load.
C)   front-end load.
D)   12(b) -1 fee.

Exam 12: Mutual Funds and Exchange-Traded Funds

Compared to yields on general purpose money funds, the yields on tax-exempt money funds are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Mutual funds rank second only to banks as being the largest financial intermediary in the United States.

Correct AnswerverifiedShow Answer

Closed-end funds are required to provide a prospectus to all new shareholders as long as the fund is trading at a premium.

Correct AnswerverifiedShow Answer

The conversion privilege provided by mutual fund families allows investors to

Correct AnswerverifiedShow Answer

The transfer agent for a mutual fund physically safeguards the securities being bought and sold by that firm.

Correct AnswerverifiedShow Answer

One characteristic of 12(b) -1 charges is that they are payable

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Investors who buy or sell exchange-traded funds will do so at a price based on the closing price for the day.

Correct AnswerverifiedShow Answer

Funds that consistently earn above average rates of return also tend to charge higher sales commissions.

Correct AnswerverifiedShow Answer

Investors who seek triple (federal, state, and local) tax-free income should invest in ________ bond funds.

Correct AnswerverifiedShow Answer

Which of the following characteristics apply to closed-end mutual funds? I. unlimited number of outstanding shares II. transactions between shareholders III. Market prices may be higher or lower than NAV. IV. Fund will repurchase shares at any time.

Correct AnswerverifiedC

Mutual funds often report returns as the growth of $10,000 over a period of time. These returns assume that

Correct AnswerverifiedShow Answer

Income from ________ is exempt from federal income taxes?

Correct AnswerverifiedShow Answer

Nearly all mutual funds operate as regulated investment companies. This means that

Correct AnswerverifiedC

The primary objective of growth mutual funds is capital appreciation with a high level of current income.

Correct AnswerverifiedShow Answer

Morningstar, a leading. mutual fund industry publication, classifies funds by the number of shareholders and the total amount of money invested in the fund.

Correct AnswerverifiedShow Answer

Dividends and capital gains earned by mutual fund investors are taxed when the shares are redeemed.

Correct AnswerverifiedFalse

One characteristic of bond funds is the

Correct AnswerverifiedShow Answer

The commission charged when shares of an open-end mutual fund are purchased is called a

Correct AnswerverifiedShow Answer

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C

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C

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False

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