Investing Through Mutual Funds Chapter 15

TRUE/FALSE 1. A mutual fund is an investment company that pools funds obtained by selling shares to investors and makes investments to achieve financial goals. ANS: T PTS: 1 DIF: easy REF: p. 458 2. A mutual fund is a type of investment company. ANS: T PTS: 1 DIF: easy REF: p. 458 3. It is much easier to select an open-end mutual fund share than it is to select specific stocks and bonds. ANS: T PTS: 1 DIF: easy REF: p. 458 4. Similar to corporate shareholders, holders of mutual funds have a say in running the company, since they have equity interest in the pool of assets and a residual claim on the profits. ANS: F mutual fund shareholders do not have voting rights in the mutual fund company. PTS: 1 DIF: moderate REF: p. 458 5. Financial risk is reduced through mutual fund investments because the fund is able to diversify investments. ANS: T PTS: 1 DIF: easy REF: p. 458 6. Mutual fund shares are redeemed at their net asset value (NAV) at the end of the trading day. ANS: T PTS: 1 DIF: moderate REF: p. 458-459 7. Net asset value of a mutual fund is the price one pays (excluding any transaction costs) to buy a share of a mutual fund. ANS: T PTS: 1 DIF: easy REF: p. 458-459 8. The NAV of a mutual fund with a market value of its assets of $100 million and 10 million shares outstanding would be $10. ANS: F you must also subtract the market value of any liabilities of the fund before dividing by the number of shares. PTS: 1 DIF: difficult REF: p. 459 9. Net asset value of a mutual fund is calculated weekly. ANS: F NAVs are calculated daily.