Chapter 12

Fundamentals of Investing, 12e (Smart/Gitman/Joehnk)
Chapter 12 Mutual Funds and Exchange-Traded Funds
12.1 Learning Goal 1
1) Mutual funds provide a simplified means of diversifying a portfolio.

Answer: TRUE
Learning Outcome: F-01 Describe the different financial markets and the role of the financial
managers
AACSB: 3 Analytic Skills
Question Status: Previous Edition
2) When an investor buys shares in a mutual fund, he or she becomes a part owner of a portfolio
of securities.
Answer: TRUE
managers
3) Mutual funds rank second only to banks as being the largest financial intermediary in the
United States.
Answer: FALSE
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4) The mutual fund market is dominated by funds that invest in diversified bond portfolios.
Answer: FALSE
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5) The transfer agent for a mutual fund physically safeguards the securities being bought and
sold by that firm.
Answer: FALSE
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6) Mutual funds tend to outperform the market.
Answer: FALSE
managers
7) The mutual fund, and not the investor, is responsible for all income taxes on capital gains and
dividends earned by the fund.
Answer: FALSE
managers
8) Which one of the following statements concerning mutual funds is correct?

A) The selection of individual securities remains with the mutual fund investor.
B) Mutual funds were first created in the 1980s.
C) The mutual fund industry is the largest financial intermediary in the United States.
D) Mutual funds are generally highly concentrated portfolios.
Answer: C
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9) Which of the following are advantages offered by mutual funds?

I. professional portfolio management
II. dividend reinvestment
III. consistent returns in excess of the overall market rate of return
IV. modest capital outlay for investors
A) I and II only
B) I and IV only
C) II, III and IV only
D) I, II and IV only
Answer: D
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10) One drawback of investing in mutual funds is the
A) annual management fee.
B) lack of liquidity of fund shares.
C) amount required for the initial investment.
D) lack of information on the performance of the fund.
Answer: A
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11) Which one of the following statements is correct concerning players in the mutual fund
industry?
A) Security analysts and traders work for the management company.
B) Normally a bank serves as the custodian.
C) The management company maintains the shareholder records.
D) The mutual fund shareholders are the owners of the management company.
Answer: B
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12) During the 7 year market cycle of 2006-2012, in which category of funds did a majority of
funds outperform the market average?
A) large cap funds
B) small cap funds
C) asset allocation funds
D) In no category did a majority of funds outperform the market average.
Answer: D
managers
Question Status: Revised
13) Which of the following statements best describes the legal organization of mutual funds?
A) Funds are organized as a single entity that handles all functions such as custody and
investment decisions.
B) Funds split their basic functions such as record keeping and investment decisions among two
or more companies.
C) Funds are owned by the company that manages them.
D) A distributor keeps track of investment and redemption requests from shareholders and
maintains other shareholder records.
Answer: B
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14) To operate as a regulated investment company and enjoy the related tax benefits, a mutual
fund must annually distribute to its shareholders
A) half of its realized capital gains, and interest and dividend income.
B) none of its realized capital gains, but all of its interest and dividend income.
C) all of its realized capital gains, and at least 90 percent of its interest and dividend income.
D) all of its realized capital gains and interest and dividend income.
Answer: C
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15) Mutual fund investors delegate all of the following decisions to the fund's managers
EXCEPT
A) which companies and industries to invest in.
B) when to buy and sell individual stocks.
C) how many securities to hold in the portfolio.
D) how to allocate investments among different classes of assets such as stocks, bonds, cash and
real estate.
Answer: D
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16) Nearly all mutual funds operate as regulated investment companies. This means that
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.
Answer: C
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17) What are some of the advantages of investing through mutual funds? Name at least three.
Answer: Mutual funds offer professional management and securities selection. They offer a
level of diversification that might be too costly for the small or beginning investor to achieve.
Mutual funds offer services such as automatic dividend reinvestment and exchange privileges.
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1) Investors purchase shares in an open end mutual fund directly from the fund.
Answer: TRUE
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2) The purchase price of a closed-end mutual fund is equivalent to the net asset value of the fund.
Answer: FALSE
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3) The discount or premium on a closed-end mutual fund can be as much as 25 percent.

Answer: TRUE
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4) Trading in closed-end investment companies takes place between investors in the open
market.
Answer: TRUE
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5) As a general rule, the time to buy a closed-end mutual fund is when the fund's premium is
approximately 5 percent higher than its past average.
Answer: FALSE
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Question Status: New Question
6) A closed end fund is selling at a premium when the NAV exceeds the market price.
Answer: FALSE
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7) A closed-end fund with an NAV of $9.60 and a market price of $10.25 is selling at a premium
of 6.8%.
Answer: TRUE
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8) Closed-end funds are required to provide a prospectus to all new shareholders as long as the
fund is trading at a premium.
Answer: FALSE
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9) Like ordinary stocks, exchange traded funds (ETFs) can be sold short.
Answer: TRUE
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10) Hedge funds are subject to the same regulations and disclosure requirements as mutual
funds.
Answer: FALSE
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11) Most exchange-traded funds are index funds.

Answer: TRUE
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12) Investors who buy or sell exchange-traded funds will do so at a price based on the closing
price for the day.
Answer: FALSE
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13) Mutual fund fees are disclosed in the fund prospectus.
Answer: TRUE
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14) The net asset value is the price per share an investor will pay to acquire shares in a no-load,
open-end fund.
Answer: TRUE
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15) The longer you intend to hold a fund, the more willing you should be to accept a front-end
load charge in exchange for lower annual management and 12(b)-1 fees.
Answer: TRUE
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16) An open-end investment company

A) is involved in all trades of its shares.
B) sells shares at a discounted NAV price.
C) trades like a stock on the exchanges.
D) has a set number of shares.
Answer: A
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17) The net asset value of a mutual fund increased from $12.03 to $13.53, but its price per share
increased by only $1.26. This information indicates that the fund
A) paid out $1 in capital gains.
B) paid out $1 in dividends.
C) is a closed-end fund.
D) is an open-end fund.
Answer: C
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18) 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.
A) I and IV only
B) II and III only
C) I, II and III only
D) II, III and IV only
Answer: C
managers
19) Which of the following characteristics apply to exchange traded funds (ETFs)?
I. unlimited number of outstanding shares
II. typically track the performance of some index
III. Market prices may be higher or lower than NAV.
IV. May invest in the whole index or use a sample of securities to track the index as closely as
possible.
A) I and II only
B) II and III only
D) I, II and IV only
Answer: D
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20) Closed-end funds are

A) less liquid than open-end funds.
B) best purchased when they are selling at a premium.
C) purchased directly from the funds' manager.
D) traded at NAV.
Answer: A
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21) Which one of the following statements concerning ETFs is correct?
A) ETFs are based solely on U.S. indexes.
B) The ETF based on the Standard & Poor's 500 Index is priced at 1/10 the value of that index.
C) Spiders are based on the DJIA.
D) The ETF based on the Dow is priced at 1/10 of the value of the DJIA.
Answer: B
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22) Which of the following statements is(are) correct concerning exchange-traded funds (ETFs)?
I. You can buy and sell ETFs any time during trading hours.
II. ETFs are actively managed.
III. ETFs have high portfolio turnover rates.
IV. ETFs rarely distribute any capital gains.
A) I, II and IV only
B) I and IV only
C) II and III only
D) I, III and IV only
Answer: B
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23) The commission charged when shares of an open-end mutual fund are purchased is called a
A) management fee.
B) back-end load.
C) front-end load.
D) 12(b)-1 fee.
Answer: C
managers
24) Back-end loads

A) are charged when an investor buys their mutual fund shares.
B) are charged if an investor sells his or her shares within the first few years.
C) were designed to help no-load funds cover their marketing expenses.
D) encourage short-term trading.
Answer: B
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25) One characteristic of 12(b)-1 charges is that they are payable
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.
Answer: B
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26) Two mutual funds are quoted as follows.
Given these quotes, which one of the following is true?

A) Both funds are load funds.
B) Fund A is a no-load fund.
C) Fund B is a no-load fund.
D) Both funds are no-load funds.
Answer: C
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27) A type of fund that invests in real estate and/or mortgages is known as a
A) REIT.
B) ETF.
C) sector fund.
D) hedge fund.
Answer: A
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28) Which type of fund is always passively managed?

A) a closed-end fund
B) a growth fund
C) a value fund
D) an index fund
Answer: D
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29) Performance fees based on profits earned by the fund are typical of
A) hedge funds.
B) exchange traded funds.
C) closed-end investment companies.
D) open end mutual funds.
Answer: A
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30) Which of the following statements is(are) correct concerning hedge funds?
I. They are highly regulated.
II. They hedge all positions to limit risks.
III. Management and other fees are extremely low compared to other types of funds.
IV. Access is limited to institutions and high net worth or high income individuals.
A) I, II and III only
B) II and IV only
C) IV only
D) I, II, III and, IV
Answer: C
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31) Investors in hedge funds have the legal status of

A) shareholders.
B) limited partners.
C) general partners.
D) trustees.
Answer: B
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32) Mutual funds can carry a number of different types of sales charges and fees. Briefly explain
the following such expenses.
(a) a front-end load
(b) a back-end load
(c) a 12(b)-1 fee
Answer:
(a) A front-end load is a sales commission that is charged when an investor purchases a load
fund. The charge can be substantial (up to 8 1/2 percent of the purchase price of the shares).
(b) A back-end load is a sales commission that is charged when an investor sells shares in a fund.
The load may be as much as 7 1/4 percent, but back-end loads tend to decline each year,
generally disappearing after 5 or 6 years.
(c) 12(b)-1 fees are known as hidden loads. They are assessed each year the fund is owned,
regardless of the fund's investment performance. They can amount to as much as 1 percent per
year.
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33) Explain why closed-end funds can sell at prices other than the fund's NAV.
Answer: Closed-end funds have a set amount of shares outstanding. The market price is
determined by the economic forces of demand and supply, which are in turn affected by changes
in the NAV, the market outlook, and investor expectations. Beyond normal competitive
pressures, other factors that lead to discounts (and premiums) include the fund's relative
performance, its annual payout or yield, the name recognition of the fund's manager, fund asset
liquidity, and/or a substantial amount of unrealized appreciation in the fund's portfolio.
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34) Use this information to answer the following questions.
(a) Which fund does NOT charge a front-end load?

(b) Which fund can best be described as a low-load fund?
(c) What can you say about Fund B with respect to the type of investments it most likely holds?
(d) If you want to buy a fund and hold it for five years, which one of these funds should you
purchase based on fund costs? Assume the funds earn a positive rate of return each year.
Answer:
(a) Fund B does not charge a front-end load.
(b) Fund D is a low-load fund.
(c) Fund B probably holds small-cap stocks that are speculative and volatile in nature. The fund
is seeking stocks that will have high capital appreciation.
(d) Fund D appears to be the lowest cost fund for a five year period, assuming a positive rate of
return each year.
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35) What are the primary disadvantages of owning mutual fund shares?
Answer: The primary disadvantages are the fund costs, the lack of continuous trading and
pricing (investors buy or sell at the closing price for the day), and the lack of control over capital
gain distributions.
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1) The primary objective of growth mutual funds is capital appreciation with a high level of
current income.
Answer: FALSE
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2) Morningstar, a leading. mutual fund industry publication, classifies funds by the number of
shareholders and the total amount of money invested in the fund.
Answer: FALSE
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3) Index funds merely attempt to match the performance of some benchmark, not to outperform
it.
Answer: TRUE
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4) The maximum average maturity of the holdings within a money market account must be 6
months or less.
Answer: FALSE
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5) Socially responsible funds only hold stocks of companies that meet the fund's ethical
guidelines.
Answer: TRUE
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6) A unit investment trust

A) engages in short-term trading within a particular sector.
B) offers a low-cost, diversified portfolio.
C) is an unmanaged portfolio of securities.
D) is used only for fixed-income securities.
Answer: C
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7) Risk-seeking investors seeking maximum capital appreciation with little, if any current
income, should invest in
A) value funds.
B) growth funds.
C) aggressive growth funds.
D) equity-income funds.
Answer: C
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8) An aggressive growth mutual fund is least likely to purchase a stock

A) with a high P/E ratio.
B) with a high anticipated rate of growth.
C) of an unseasoned firm.
D) with a high dividend yield.
Answer: D
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9) Aggressive mutual funds often employ investing strategies such as

I. short selling.
II. margin trading.
III. option trading.
IV. hedging.
A) I and III only
B) II and III only
C) I, II and IV only
D) I, II, III and IV
Answer: D
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10) Value funds seek stocks
I. with low dividend yields.
II. with potential for growth.
III. with low P/E ratios.
IV. of newly discovered firms.
A) I and III only
B) II and III only
C) II, III and IV only
Answer: B
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11) The primary objective of an equity-income fund is

A) capital gains.
B) current income with capital preservation.
C) potentially high capital gains with limited income.
D) high risk-return trade-offs.
Answer: B
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12) Which type of mutual fund consists of both stocks and bonds with a combined objective of
current income and long-term capital gains?
A) equity-income
B) balanced
C) value
D) bond
Answer: B
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13) One characteristic of bond funds is the

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.
Answer: C
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14) One advantage gained by investing in a bond fund rather than in individual bonds is the
A) diversification among issuers.
B) most bond funds outperform their benchmarks.
C) immunity from interest rate changes.
D) guarantee that the bonds will be held to maturity to avoid market fluctuations.
Answer: A
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15) Which of the following are advantages of bond funds over individual bonds?
I. greater liquidity
II. maturities matched to the investor's time horizon
III. automatic reinvestment of interest payments
IV. diversification
A) I and III only
B) I, III and IV only
Answer: B
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16) Investors who seek triple (federal, state, and local) tax-free income should invest in
________ bond funds.
A) convertible
B) indexed
C) mortgage-backed
D) single-state municipal
Answer: D
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17) Compared to yields on general purpose money funds, the yields on tax-exempt money funds
are
A) about the same.
B) 5 to 10 percent higher.
C) 5 to 10 percent lower.
D) 20 to 30 percent lower.
Answer: D
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18) Government securities money funds are structured to eliminate

A) interest rate risk.
B) inflation risk.
C) default risk.
D) market risk.
Answer: C
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19) A fund that is designed to match the performance of a measure such as the S & P 500 or the
Russell 2000 is called a(n)
A) index fund.
B) targeted fund.
C) sector fund.
D) block fund.
Answer: A
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20) One characteristic of most index funds is that such funds typically
A) produce a large dollar amount of realized capital gains every year.
B) have a very low-cost structure with respect to management fees and transaction fees.
C) charge high front-end loads.
D) are designed to "beat the market."
Answer: B
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21) Ashley believes that the price of gas and oil is about to rise and energy company profits will
follow. She should invest in
A) an asset allocation fund.
B) an emerging market fund.
C) a sector fund.
D) an aggressive growth fund.
Answer: C
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22) Socially responsible funds are distinguished from other mutual funds because they
A) invest only in over-the-counter stocks.
B) do not charge any sales commission or management fees.
C) invest only in companies that meet specified moral, ethical, or environmental standards.
D) will sell their shares only to investors who sign a statement saying they do not smoke tobacco
or use alcohol.
Answer: C
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23) Funds that invest in a portfolio of companies from the same or closely related industries are
known as
A) aggressive growth funds.
B) sector funds.
C) emerging market funds.
D) asset allocation funds.
Answer: B
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24) One type of mutual fund spreads investors' money across equity markets, bond markets, and
money markets. Moreover, as market conditions change, the amount of money invested in each
market sector will change. This type of mutual fund is known as a(n)
A) socially responsible fund.
B) fiscally responsible fund.
C) growth-and-income fund.
D) asset allocation fund.
Answer: D
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25) Which one of the following statements is correct concerning international funds?
A) A devaluation of the dollar causes returns on foreign investments to improve from a U.S.
perspective.
B) International funds are considered low-risk investments.
C) Balance-of-trade positions do NOT affect the rate of return from a U.S. perspective.
D) Technically, global funds can only invest in foreign securities.
Answer: A
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26) Every mutual fund has a stated investment objective. Disclosure of the investment objective
is required by the SEC, and is used to classify a mutual fund into one of several categories.
Briefly explain the investment objective of each of the following categories.
(a) growth funds
(b) aggressive growth funds
(c) equity-income funds
(d) balanced funds
Answer:
(a) Growth funds seek capital appreciation through long-term growth and capital gains. They
offer little, if any, current income.
(b) Aggressive growth funds seek capital gains and are considered speculative in nature.
(c) Equity-income funds seek current income by investing in high-yielding common stocks.
Capital preservation is a secondary objective.
(d) Balanced funds hold a portfolio of both stocks and bonds for the purpose of generating both
current income and long-term capital gains.
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1) Automatic investment plans makes it easier for investors to save money.

Answer: TRUE
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AACSB: 6 Reflective Thinking Skills
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2) To participate in an automatic investment plan, investors must allow the investment company
to have access to a bank account or their paycheck.
Answer: TRUE
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3) Dividends and capital gains earned by mutual fund investors are taxed when the shares are
redeemed.
Answer: FALSE
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4) The conversion privilege offered by many mutual funds enables investors, within three days,
to convert their shares back to cash in an amount equal to the original cost of the investment.
Answer: FALSE
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5) The conversion privilege allows investors to switch from one fund to another without fees if
an only if the funds are managed by the same company such Fidelity or Vanguard.
Answer: TRUE
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6) Systematic withdrawal plans from mutual funds usually require a minimum investment of at
least $100,000.
Answer: FALSE
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7) The ability to automatically buy additional fund shares using the dividend income generated
by the fund is called a(n)
A) automatic investment plan.
B) automatic reinvestment plan.
C) systematic withdrawal plan.
D) conversion plan.
Answer: B
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8) Typical services offered by mutual funds include:

I. Automatic reinvestment plans.
II. Automatic investment plans.
III. Automatic fund conversion as investment goals change.
IV. Automatic withdrawal plans
A) I and III only
B) II and IV only
Answer: C
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9) Which of the following is a default option for most mutual funds?

A) Automatic reinvestment of dividends and interest income.
B) Automatic investment of a fixed sum each month.
C) Automatic conversion from aggressive to conservative funds as clients approach retirement.
D) Automatic withdrawal of a fixed amount each month.
Answer: A
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10) Automatic reinvestment plans

A) are a good way to avoid taxes on dividends and capital gains.
B) may involve exceptionally high transaction fees.
C) do not allow for the purchase of fractional shares.
D) are an excellent way to accumulate wealth through disciplined investing.
Answer: D
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11) Investors interested in predictable cash flow from their investments should consider funds
that offer
A) conversion privileges.
B) systematic withdrawal plans.
C) automatic reinvestment plans.
D) automatic investment plans.
Answer: B
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12) Mutual funds often report returns as the growth of $10,000 over a period of time. These
returns assume that
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.
Answer: A
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13) The conversion privilege provided by mutual fund families allows investors to
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.
Answer: B
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1) Mutual funds are used extensively as retirement investments.

Answer: TRUE
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2) Investors should select mutual funds that match their personal investment goals and provide
the services they desire.
Answer: TRUE
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3) Investors should never use mutual funds to invest in areas where they would not buy
individual stocks.
Answer: FALSE
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4) Funds that consistently earn above average rates of return also tend to charge higher sales
commissions.
Answer: FALSE
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5) Mutual funds and exchanged traded funds are available to meet the goals of both aggressive
and conservative investors.
Answer: TRUE
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6) An investor who wants to use mutual funds as a storehouse of value should invest in
A) high-yield corporate bond funds and growth funds.
B) growth funds and equity-income funds.
C) equity-income funds and long-term bond funds.
D) money funds and short-term bond funds.
Answer: D
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7) 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
A) I and II only
B) II, III and IV only
Answer: D
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8) Tax laws allow investors to hold mutual funds in which of the following types of retirement
plans?
I. ordinary IRAs
II. Roth IRAs
III. 401-K plans
IV. Keogh plans
A) I and II only
Answer: D
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9) Which of the following accurately describe reasons for investing in mutual funds?
I. to effectively control the timing of capital gains for tax purposes
II. to achieve portfolio diversification at a reasonable cost
III. to invest in unfamiliar sectors or geographic regions
IV. to outperform the market
A) I and IV only
B) II and III only
Answer: B
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10) Reasons to invest in mutual fund include
I. a wide range of services such automatic reinvestment and systematic withdrawal plans.
II. minimizing the time and effort spent choosing securities.
III. rates of return that consistently beat the market averages.
IV. participation in a variety of tax sheltered and tax deferred retirement programs.
A) I and II only
Answer: C
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11) A mutual fund is generally more tax efficient when it has a ________ turnover rate and a
________ dividend yield.
A) low; low
B) low; high
C) high; low
D) high; high
Answer: A
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12) Investors seeking tax-exempt income should invest in

A) index funds.
B) government bond funds.
C) municipal bond funds.
D) money market funds.
Answer: C
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1) Unless the investor specifically requests otherwise capital gains are normally distributed as
cash payments.
Answer: FALSE
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2) Both realized and unrealized capital gains from mutual fund investments are currently taxable
for individual income tax purposes.
Answer: FALSE
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3) Only realized capital gains from mutual fund investments are currently taxable for individual
income tax purposes.
Answer: TRUE
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4) 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.
Answer: TRUE
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5) Holding period returns are normally used only for investment periods of one year or less.
Answer: TRUE
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6) Last year, Sue purchased a closed-end mutual fund that was trading at $42 and had an NAV of
$38. Sue sold the fund today when the NAV is $44 and the market price is $43. The fund paid $1
in dividends over the past year. What is the Sue's holding period return?
A) 4.8%
B) 7.1%
C) 11.6%
D) 18.4%
Answer: A
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7) Investors are generally well advised to avoid mutual funds with
A) highly rated fund managers.
B) low fees and high tax efficiency.
C) consistently poor historical performance.
D) good performance in both up and down markets.
Answer: C
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8) Returns on exchange traded funds may come from

I. capital gains.
II. dividends.
III. increases in the fund's premium.
IV. decreases in the fund's discount.
A) I and II only
B) III and IV only
Answer: A
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9) Which of the following are sources of income for an open-end mutual fund?
I. dividend and interest income
II. change in the discount or premium
III. capital gains
IV. change in NAV
A) I and III only
B) I, II and III only
C) I, III and IV only
Answer: C
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10) Income distributed by a mutual fund from which one of the following sources receives a
preferential tax rate of 15%?
A) dividends on common stock
B) interest on bonds
C) dividends from most preferred stocks
D) dividends from REITs
Answer: A
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11) Investment companies can inflate the percentage of funds that outperformed their benchmark
by
A) including unrealized capital gains.
B) closing funds that underperformed their benchmark.
C) using a different fiscal year than the benchmark.
D) assuming that investors automatically add to their holdings.
Answer: B
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12) A mutual fund's net asset value is determined by

A) demand for the fund based on the fund's performance.
B) the fund manager's reputation.
C) the value of the securities held by the fund.
D) all of the above.
Answer: C
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13) Income from ________ is exempt from federal income taxes?

A) money market funds
B) municipal bond funds
C) government bond funds
D) REITs
Answer: B
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14) Last year at this time, a mutual fund had an NAV of $13.20 per share. Over the past year the
fund paid dividends of $0.70 per share and had a capital gains distribution of $1.20 per share.
What is the holding period return assuming that the current NAV is $14.42?
A) 13.2%
B) 14.4%
C) 21.6%
D) 23.6%
Answer: D
managers
15) Many funds advertise their returns as the amount to which $10,000 invested in the fund
would have grown to over 5 or 10 years. These results assume that
A) all dividends, interest and capital gains on a pre-tax basis are reinvested in the fund.
B) all dividends and capital gains less a 15% deduction for taxes are reinvested in the fund.
C) all dividends and interest are reinvested in the fund.
D) no dividends or capital gains are reinvested in the fund.
Answer: A
managers
16) Information for ABC Fund is
The market-based holding period return for ABC Mutual Fund is

A) -19.1%.
B) -14.6%.
C) 0.3%.
D) 9.4%.
Answer: B
managers
30
17) What is the average annual compound rate of return for a fund with the following values?
A) 10.5%
B) 10.8%
C) 25.6%
D) 32.3%
Answer: A
managers
18) Mutual fund investors are primarily exposed to ________ and ________ risks.
A) market; financial
B) market; inflation
C) business; financial
D) business; inflation
Answer: B
managers
31

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Fundamentals of Investing, 12e (Smart/Gitman/Joehnk)

Chapter 12 Mutual Funds and Exchange-Traded Funds

12.1 Learning Goal 1

1) Mutual funds provide a simplified means of diversifying a portfolio.

8) Which one of the following statements concerning mutual funds is correct?

9) Which of the following are advantages offered by mutual funds?

3) The discount or premium on a closed-end mutual fund can be as much as 25 percent.

11) Most exchange-traded funds are index funds.

16) An open-end investment company

20) Closed-end funds are

24) Back-end loads

26) Two mutual funds are quoted as follows.

Given these quotes, which one of the following is true?

28) Which type of fund is always passively managed?

31) Investors in hedge funds have the legal status of

(a) Which fund does NOT charge a front-end load?

12.3 Learning Goal 3

6) A unit investment trust

8) An aggressive growth mutual fund is least likely to purchase a stock

9) Aggressive mutual funds often employ investing strategies such as

11) The primary objective of an equity-income fund is

13) One characteristic of bond funds is the

18) Government securities money funds are structured to eliminate

12.4 Learning Goal 4

1) Automatic investment plans makes it easier for investors to save money.

8) Typical services offered by mutual funds include:

9) Which of the following is a default option for most mutual funds?

10) Automatic reinvestment plans

12.5 Learning Goal 5

1) Mutual funds are used extensively as retirement investments.

12) Investors seeking tax-exempt income should invest in

12.6 Learning Goal 6

8) Returns on exchange traded funds may come from

12) A mutual fund's net asset value is determined by

13) Income from ________ is exempt from federal income taxes?

16) Information for ABC Fund is

The market-based holding period return for ABC Mutual Fund is

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