Fundamentals of Indirect Investing

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Chapter 3

Multiple Choice Questions

Investing Indirectly

1. Which of the following is not a characteristic of investments companies?

a. pooled investing b. diversification c. managed portfolios d. reduced expenses

2. In order to avoid paying income taxes, an investment company must:

a. be classified as a non-profit organization b. invest only in municipal bonds. c. pass on interest, dividends, and capital gains to the stockholders. d. be registered as a closed-end investment company.

3. Investment companies must register with the SEC under the provisions of the:

a. Securities Act of 1933 b. Securities Exchange Act of 1934
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d. All of the above are true.

16. If a mutual fund holds a substantial amount of Treasury bills, this is probably a(an):

a. tax-exempt fund. b. conservative bond fund. c. income fund d. money market mutual fund.

17. Which of the following is true regarding value funds and growth funds?

a. Value funds seek stocks that are cheap by fundamental standards while growth funds seek stocks with high current earnings. b. Growth funds typically outperform value funds. c. Value funds and growth funds tend to perform well at different times. d. All of the above are true.

18. In general, index funds:

a. are higher risk than other funds. b. are traded on the exchanges. c. have lower expenses than other funds. d. all of the above.

The Mechanics of Investing Indirectly

19. Net asset value takes into account:

a. both realized and unrealized capital gains. b. only realized capital gains. c. only unrealized capital gains. d. neither realized or unrealized capital gains.

20. If NAV > market price of a fund, then the fund:

a. is selling at a discount. b. is selling at a premium. c. is an index fund. d. is an ETF.

21. Mutual funds may be affiliated with an underwriter. This means:

a. the underwriter

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