Investment Jobs Mutual Fund Investment 2 — Questions and Answers
Question 1: What is the Net Asset Value (NAV) of a mutual fund?
- Total assets minus liabilities divided by shares outstanding (Correct answer)
- The total marketing fees charged annually
- The fund's highest price in the past year
- The dividend paid per share each quarter
Correct answer: Total assets minus liabilities divided by shares outstanding
NAV equals the fund's total assets minus liabilities, divided by the number of outstanding shares.
Question 2: An open-end mutual fund issues shares in what manner?
- A fixed number set at the IPO
- Continuously, creating new shares as investors buy in (Correct answer)
- Only through secondary market trading
- Once per year on the ex-dividend date
Correct answer: Continuously, creating new shares as investors buy in
Open-end funds continuously issue and redeem shares directly at NAV.
Question 3: What does the expense ratio of a mutual fund represent?
- The fund's annual return
- The annual operating costs as a percentage of assets (Correct answer)
- The maximum sales load allowed
- The capital gains tax owed by investors
Correct answer: The annual operating costs as a percentage of assets
The expense ratio is the fund's yearly operating costs divided by its average assets.
Question 4: A front-end load is a fee charged when?
- When shares are redeemed
- When dividends are reinvested
- At the time shares are purchased (Correct answer)
- When the fund underperforms its benchmark
Correct answer: At the time shares are purchased
A front-end load is a sales charge deducted at the time of purchase.
Question 5: Which fund type is professionally managed to beat a benchmark index?
- An index fund
- An actively managed fund (Correct answer)
- A money market fund
- An exchange-traded note
Correct answer: An actively managed fund
Actively managed funds rely on managers selecting securities to outperform a benchmark.
Question 6: What is a key advantage of a mutual fund for small investors?
- Guaranteed returns
- Instant diversification with a small investment (Correct answer)
- Exemption from all fees
- No exposure to market risk
Correct answer: Instant diversification with a small investment
Mutual funds pool money, giving small investors access to a diversified portfolio.
Question 7: A 12b-1 fee covers what fund expense?
- Portfolio manager salaries only
- Distribution and marketing costs (Correct answer)
- Custodial bank charges
- Capital gains distributions
Correct answer: Distribution and marketing costs
12b-1 fees are annual marketing and distribution charges included in the expense ratio.
Investment Jobs Mutual Fund Investment 2
What is the Net Asset Value (NAV) of a mutual fund?