Unit 4 Study Guide

Question 1

The ___ represents the per-share price of a mutual fund, calculated by dividing total assets minus liabilities by the number of shares outstanding.

Answer 1

NAV

Question 2

A mutual fund’s ____ shows how risky it is compared to similar funds, often displayed as a 1–5 star rating

Answer 2

Morning star risk rating

Question 3

A ________ pools money from many investors to buy a diversified portfolio of securities.

Answer 3

mutual

Question 4

A ____________ fund invests mainly in companies’ stocks to achieve growth through rising share prices.

Answer 4

stock

Question 5

A ____________ fund invests in government or corporate bonds to provide regular income.

Answer 5

bond

Question 6

A _____________ fund invests in short-term, low-risk securities such as Treasury bills, offering safety and liquidity.

Answer 6

money market fund

Question 7

An ___________ fund seeks to match the performance of a market index like the S&P 500 and is passively managed.

Answer 7

index

Question 8

A __________ (also called a balanced fund) invests in both stocks and bonds to achieve growth and income.

Answer 8

hybrid

Question 9

An __________ is traded on stock exchanges like individual stocks and can be bought or sold throughout the day.

Answer 9

ETF

Question 10

A __________ is a fee charged when buying or selling a mutual fund that goes to the broker or advisor.

Answer 10

load

Question 11

A __________ fund has no sales commission; investors buy directly from the fund company.

Answer 11

no load

Question 12

A ________ load is charged at the time of purchase, reducing the amount initially invested.

Answer 12

front end load

Question 13

A __________ load is charged when selling fund shares, often decreasing the longer you hold them.

Answer 13

back end load

Question 14

A _______ load is an annual fee charged each year you own the fund.

Answer 14

level

Question 15

The ________ strategy involves investing a fixed amount of money at regular intervals to reduce market timing risk.

Answer 15

dollar cost averaging

Question 16

______ funds are designed to match market performance and usually have lower fees

Answer 16

passive

Question 17

______ funds are designed to out do market performance and usually have higher fees

Answer 17

active

Question 18

The ____ratio represents the annual percentage of fund assets used to pay for management and operating costs

Answer 18

expense

Question 19

A ____________ fund focuses on companies expected to grow faster than average, often reinvesting earnings.

Answer 19

growth

Question 20

A ______ fund invests in undervalued companies trading below their true worth.

Answer 20

value

Question 21

An _______ fund focuses on generating consistent payments to investors, often through dividends or interest.

Answer 21

income

Question 22

____ refers to how easily an investment can be converted into cash without losing value.

Answer 22

liquidity

Question 23

What is the main difference between active and passive funds?

Answer 23

Active funds are managed by professionals who try to outperform the market; passive funds track an index and aims to match the market

Question 24

Explain how a front-end load can affect an investor’s total return.

Answer 24

A front end load reduces the amount initially invested, lowering potential returns

Question 25

Why might an investor choose a no-load fund instead of a load fund

Answer 25

To avoid paying because all the money goes directly into the fund

Question 26

Give one advantage of investing through an ETF compared to a traditional mutual fund.

Answer 26

ETFs can be traded anytime during the day as well as have lower fees

Question 27

Fund that seeks companies expected to grow rapidly

Answer 27

growth fund

Question 28

Invests in undervalued companies

Answer 28

value fund

Question 29

Invests in short-term, low-risk securities

Answer 29

money market funds

Question 30

Measures how risky a fund is compared to others

Answer 30

morning star risk ratings

Question 31

Fee charged each year a fund is owned

Answer 31

level load

Question 32

Percentage used to cover management costs

Answer 32

expense ratio

Question 33

Percentage used to cover management costs

Answer 33

dollar cost averaging

Question 34

how are mutual funds categorized?

Answer 34

how fees are charged to a customer

Question 35

what are load funds?

Answer 35

Load funds are mutual funds that charge a sales fee or commission.

Question 36

what are no load funds

Answer 36

No-load funds usually do not charge any sales fee or commission, as long as you keep your money invested for a specified period, often five years.

Question 37

front load A shares

Answer 37

A single fee paid by the investor when they purchase shares of the fund.

Question 38

long-term investors (more than 10 years) will do best with which shares? ABC?

Answer 38

A shares

Question 39

front load B shares

Answer 39

A single fee paid when you redeem or sell, your mutual fund shares

Question 40

If you think you'll sell your shares in about five to seven years which shares can be a good idea? ABC?

Answer 40

B shares

Question 41

what are C shares

Answer 41

Yearly fees. A fixed percentage taken from the fund's assets.

Question 42

this share class is usually the best idea when you'll be holding your mutual fund shares for a short period of time (more than one year but less than three).

Answer 42

C shares

Question 43

what are mutual funds?

Answer 43

a company that brings together money from many people and invests it in stocks, bonds and other assets.