CFS CFS Mutual Funds & ETFs 3

Question 1

What is a 'fund of funds'?

Accepted Answer

A mutual fund that invests in shares of other mutual funds or ETFs

Answer

A fund that pools capital from multiple pension funds

Answer

A fund restricted to investing in government-sponsored entities

Answer

A closed-end fund that invests in private equity funds only

Question 2

Under SEC regulations, what is the maximum allowable 12b-1 fee as a percentage of average net assets annually?

Accepted Answer

1.00%

Answer

0.25%

Answer

0.50%

Answer

2.00%

Question 3

What is a 'target-date fund' and how does its investment strategy work?

Accepted Answer

A fund that gradually shifts from aggressive to conservative allocations as the target retirement date approaches

Answer

A fund that invests only in bonds maturing in a specific year

Answer

A fund designed to reach a specific return target by a set date

Answer

A fund that closes to new investors after a specified date

Question 4

Which regulatory body requires mutual funds to provide investors with a prospectus before or at the time of investment?

Accepted Answer

The SEC (Securities and Exchange Commission)

Answer

FINRA (Financial Industry Regulatory Authority)

Answer

The Federal Reserve

Answer

The OCC (Office of the Comptroller of the Currency)

Question 5

What distinguishes an 'inverse ETF' from a traditional ETF?

Accepted Answer

An inverse ETF is designed to return the opposite of its benchmark index's daily performance

Answer

An inverse ETF invests in emerging markets that move counter to U.S. markets

Answer

An inverse ETF charges fees only when the fund makes a profit

Answer

An inverse ETF holds the benchmark securities in reverse alphabetical order

Question 6

What is 'dollar-cost averaging' and what benefit does it provide to mutual fund investors?

Accepted Answer

Investing a fixed dollar amount at regular intervals, reducing the average cost per share over time

Answer

Calculating the average cost basis across all fund purchases for tax purposes

Answer

Averaging the fund's daily NAV over a 12-month period

Answer

Spreading investments equally across multiple fund categories