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Exam 13: Investing in Mutual Funds

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Question 41

Multiple Choice

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During 2000,Lianne Majoro received income dividends of $850 and capital gain distributions of $540.The tax consequence is that

A) both amounts must be included as taxable income.
B) only the dividends are taxable.
C) only the capital gains are taxable.
D) both amounts are tax exempt.
E) It is impossible to determine the tax consequences for dividend income and capital gain distributions unless the shares of the mutual fund are sold to another investor.

F) A) and C)
G) A) and B)

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Question 42

Multiple Choice

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A 1 to 6 percent fee that investors pay when they withdraw their investment from a mutual fund is called a(n)

A) contingent deferred sales load.
B) sales fee.
C) withdrawal fee.
D) unload fee.
E) load fee.

F) A) and B)
G) A) and C)

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Question 43

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A mutual fund that is eligible for tax credits is referred to as a labour sustenance venture capital corporation.

Investors in both closed-end and open-end funds can make money by purchasing shares at a low price and then selling them at a higher price.

Which of the following financial instruments have the following characteristics?

Explain the difference between a load fund and a no-load fund.From a performance standpoint,is there a significant difference between mutual funds that charge commissions and those that do not?

An investment company sponsoring a mutual fund must furnish shareholders a prospectus each year.

A mutual fund in which shares are issued only when the fund is organized is called a(n) ____________ fund.

An individual who helps investors decide when to switch their investment from one fund to another fund is called a(n)

Income dividends are the earnings a fund pays to shareholders after it has deducted expenses from its dividend and interest income.

A load fund is a mutual fund in which investors pay a commission every time they sell or redeem shares.

Index funds are bought at beginning-of-day prices.

Larry Bander purchased 280 shares of the New Horizons Growth Fund.The net asset value for each share at the time of purchase was $27.If this fund charges a 3.5 percent load,what is the commission amount he will pay the investment company?

A mutual fund that invests in common stocks and bonds with the primary objective of earning tax-advantaged income is called a(n) ____________ fund.

Karen and Jon-Nathaniel Bild just inherited $30,000 and would like to invest the money in a conservative mutual fund.Since they have never invested in mutual funds,they ask for your help.In your own words,describe the factors that can be used to evaluate a mutual fund investment.

A closed-end fund is a mutual fund in which shares are issued only when the fund is organized.

Shares in a close-end fund are redeemed by the investment company at the request of the investor.

The managers of mutual funds tailor their investment portfolios to the investment objectives of their customers.

The commission charge for purchasing shares of a load fund that imposes an up-front commission charge can be as high as 8.5 percent.This fee:

A mutual fund in which new shares are issued and redeemed by the investment company at the request of investors is called a(n) ____________ fund.