Chapter 4: Mutual Funds Overview

<p>They typically combine both stocks and bonds (A)</p> Signup and view all the answers

<p>Size and Style (C)</p> Signup and view all the answers

<p>Income Fund (C)</p> Signup and view all the answers

<p>Cap Size Funds (B)</p> Signup and view all the answers

<p>Funds that invest in rapidly growing economies (B)</p> Signup and view all the answers

<p>Open-end funds stand ready to buy and sell shares at any time. (C)</p> Signup and view all the answers

<p>Fees for mutual funds are higher than buying individual securities. (D)</p> Signup and view all the answers

<p>The value of assets held by a mutual fund divided by the number of outstanding shares. (C)</p> Signup and view all the answers

<p>Investors pay taxes on both dividends and capital gains distributions. (A)</p> Signup and view all the answers

<p>Investment advisory firms and brokerage firms. (D)</p> Signup and view all the answers

<p>It will stop accepting additional investments but continue to take deposits from current investors. (A)</p> Signup and view all the answers

<p>To elect a board of directors to oversee the fund. (A)</p> Signup and view all the answers

<p>It does not have to pay taxes on its investment income. (A)</p> Signup and view all the answers

<p>To specialize in money market instruments (B)</p> Signup and view all the answers

<p>The fund's net asset value falls below $1.00 (C)</p> Signup and view all the answers

<p>They benefit from favorable tax treatment (C)</p> Signup and view all the answers

<p>MMDAs offer FDIC protection, while MMMFs do not (B)</p> Signup and view all the answers

<p>96% (B)</p> Signup and view all the answers

<p>Long-term funds (B)</p> Signup and view all the answers

<p>A fund that invests only in securities issued by a single state for tax-free interest (D)</p> Signup and view all the answers

<p>They are exempt from both federal and state income tax for residents of the issuing state (A)</p> Signup and view all the answers

<p>The fund added extra volatility to the returns. (B)</p> Signup and view all the answers

<p>Geometric returns are generally lower. (C)</p> Signup and view all the answers

<p>Default risk from the issuer. (B)</p> Signup and view all the answers

<p>Hedge fund managers have more freedom to choose strategies. (A)</p> Signup and view all the answers

<p>Hedge funds are exclusive to qualified investors. (A)</p> Signup and view all the answers

<p>It causes actual returns to fall short of expectations. (B)</p> Signup and view all the answers

<p>1% (B)</p> Signup and view all the answers

<p>ETNs offer exposure without the risk of leverage. (A)</p> Signup and view all the answers

<p>To only short sell securities (D)</p> Signup and view all the answers

<p>High expected volatility (B)</p> Signup and view all the answers

<p>Market Timing (C)</p> Signup and view all the answers

<p>Significant additional fees on top of hedge fund fees (C)</p> Signup and view all the answers

<p>To hedge against risks in long positions (A)</p> Signup and view all the answers

<p>Taxable and Municipal Bond Funds (C)</p> Signup and view all the answers

<p>Employing leverage and derivatives (B)</p> Signup and view all the answers

<p>Fund of Funds (B)</p> Signup and view all the answers

<p>According to the market cap of the stocks and investment style. (A)</p> Signup and view all the answers

<p>They are expected to experience significant business growth. (B)</p> Signup and view all the answers

<p>Mutual fund performance is monitored by various organizations. (B)</p> Signup and view all the answers

<p>It no longer sells shares to new investors. (B)</p> Signup and view all the answers

<p>Rapid growth resulting in excess cash that is hard to invest profitably. (A)</p> Signup and view all the answers

<p>It has a fixed number of shares that are traded on an exchange. (C)</p> Signup and view all the answers

<p>The usefulness of historical performance for future predictions is debated. (C)</p> Signup and view all the answers

<p>A Fund Selector for performance information. (C)</p> Signup and view all the answers

A corporation owned by shareholders who elect a board of directors, pooling investor money for investment.

An investment company that continuously buys and sells shares to investors at any time.

An investment company with a fixed number of shares traded only on the open market.

The value of a mutual fund's assets divided by the number of shares.

A business that pools investor money for investments.

A firm that manages mutual funds, earning fees for their services.

Fees and expenses associated with investing in mutual funds, not typically present in direct security purchases.

These companies don't pay taxes on their investment income.

Mutual funds that invest in short-term securities, like those issued by governments or corporations.

When the net asset value (NAV) of a money market mutual fund falls below $1.00.

Money market funds that earn interest subject to income taxes.

Money market funds that invest in tax-exempt securities, thus the interest earned on these is not taxable.

Bank accounts that resemble money market mutual funds, but are protected by FDIC insurance.

An independent U.S. government agency that protects bank deposits up to a certain amount.

Investment funds that invest in securities with longer maturities.

Mutual funds are often categorized for investment purposes, such as stock funds, bond funds, or balanced funds.

Stock funds are categorized by their investment goals, such as capital appreciation, dividend income, or a mix of both.

Stock funds can focus on companies of specific sizes: small-cap, mid-cap, or large-cap.

These funds invest in companies outside the investor's home country.

Investments focused on certain industries like biotechnology, internet, or energy.

Bond funds vary in their focus on short-term or long-term debt.

Bond funds differentiate based on the credit rating (risk) of the bonds they hold.

Funds designed for investors with a specific retirement date, gradually adjusting their asset allocation.

Visual representation of a fund's investment in terms of size (large, medium, small) and value or growth.

A mutual fund's goal, often classified based on the types of stocks it holds (e.g., small-cap growth, value).

Stocks of companies expected to have significant future business expansion.

Stocks that are perceived as undervalued compared to their potential.

The process of monitoring and analyzing the success of mutual funds.

A mutual fund that no longer accepts new investors.

Factors used to choose a suitable mutual fund (e.g., fund type, expense ratio, load).

Previous performance of a fund is assessed to consider the potential risks involved in investing.

Using borrowed money or derivatives to amplify potential gains or losses from market moves.

Selling borrowed securities with the expectation of buying them back at a lower price later, profiting from a decline in value.

Trying to predict market trends and investing in sectors or markets expected to perform well.

An investment vehicle that invests in other hedge funds, diversifying across different investment strategies.

High fees charged by hedge funds for their investment management services.

The performance of an investment company with a fixed number of shares, traded on the open market.

The difference between the market price of a closed-end fund and its net asset value (NAV), often resulting in a discount.

Investment funds that track a specific index or asset class, traded on stock exchanges like regular stocks.

Exchange-traded funds (ETFs) designed to amplify the returns of an underlying asset, typically by a fixed multiple. For example, a 3X leveraged ETF aims to deliver three times the return of its benchmark index.

Geometric returns, also known as compounded returns, consider the effect of compounding over time. In contrast, arithmetic returns are simple averages that do not account for compounding.

Despite aiming for amplified returns, leveraged ETFs often fall short of these goals due to daily rebalancing and the impact of volatility. As the underlying asset fluctuates, the ETF's value can lag behind the expected multiple.

Debt securities that track the performance of a specific index or asset, but unlike ETFs, they don't hold underlying assets, making them susceptible to issuer default risk.

The risk that an issuer, such as a company or government, will be unable to meet its financial obligations, such as repaying debt or making interest payments.

Investment funds that employ sophisticated strategies and leverage to generate high returns for accredited investors. They have flexibility in investment styles and often use complex financial instruments.

Individuals or entities deemed eligible to invest in hedge funds. These investors meet certain financial requirements, such as high net worth or sophisticated investment knowledge.

Hedge funds often have less diversification than other investment vehicles, meaning they are less spread across different assets. This strategy can lead to higher returns, but also greater volatility.