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Exam 16: Investing in Mutual Funds

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Question 31

Multiple Choice

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During 2008,Lincoln Masters received income dividends of $850 and capital gain distributions of $540.Based on this information:

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) both amounts are taxed at a rate of 5 percent.

F) A) and E)
G) B) and D)

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Question 32

Multiple Choice

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If an investor uses a reinvestment plan to invest income dividends and capital- gain distributions:

A) then both the income dividends and capital-gain distributions are tax-exempt.
B) only the income dividends are tax-exempt.
C) only the capital-gain distributions are tax-exempt.
D) both the income dividends and capital-gain distributions are currently taxable.
E) then both the income dividends and capital-gain distributions will be tax-deferred.

F) C) and D)
G) All of the above

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Question 33

Multiple Choice

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A municipal bond fund:

Cindy and John Appleby 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 sources of information available for evaluating a mutual fund investment.

The fund manager is ultimately responsible for a fund's success.

Your parents are considering the purchase of shares in a mutual fund.Discuss three advantages and three disadvantages of mutual fund investing that you believe are important for potential investors to consider.

Capital gain distributions result when you decide to sell shares in a mutual fund at a price higher than you paid.

Tax information for mutual funds is reported as part of the year-end statement or IRS Form 1099-DIV.

Will Hopkins is getting ready to purchase shares in a mutual fund.He will have to pay an upfront sales commission to purchase these shares.What type of shares is he buying?

Which one of the following statements is true?

The average management fee for all mutual funds is:

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

A load fund is a mutual fund in which investors pay a commission either when they purchase or when they redeem shares.

Today,there are more closed-end funds than there are open-end funds.

To purchase shares in an open-end fund,you may use four options: regular accounts,voluntary savings plans,contractual savings plans,and reinvestment plans.

Although mutual funds are popular among individual investors,most people do not use them as part of an IRA or retirement account.

Nathan Fuller is buying shares in a mutual fund that invests in the same companies as those found in the S&P 500 and in roughly the same proportion.What type of mutual fund is he buying?

Which one of the following funds would be considered the safest investment?

Louise Prescott is buying shares in a mutual fund that invests in companies expecting higher than average revenues and earnings growth.What type of mutual fund is she buying?

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.