Investment Jobs Mutual Fund Investment 3 — Questions and Answers
Question 1: How does a closed-end fund differ from an open-end fund?
- It has unlimited shares
- It trades on an exchange at a market price that can differ from NAV (Correct answer)
- It cannot hold stocks
- It is always tax-exempt
Correct answer: It trades on an exchange at a market price that can differ from NAV
Closed-end funds have a fixed share count and trade on exchanges, often at a premium or discount to NAV.
Question 2: What is a money market mutual fund designed to do?
- Maximize aggressive growth
- Preserve capital and provide liquidity with low risk (Correct answer)
- Invest only in foreign equities
- Track a commodity index
Correct answer: Preserve capital and provide liquidity with low risk
Money market funds invest in short-term, high-quality debt to preserve capital and stay liquid.
Question 3: A back-end load (contingent deferred sales charge) is paid when?
- At purchase
- When shares are sold, often declining over time (Correct answer)
- When reinvesting dividends
- Annually regardless of activity
Correct answer: When shares are sold, often declining over time
A back-end load is charged at redemption and typically decreases the longer shares are held.
Question 4: What is a balanced fund?
- A fund holding only Treasury bills
- A fund mixing stocks and bonds in one portfolio (Correct answer)
- A fund that only invests internationally
- A fund with no management fees
Correct answer: A fund mixing stocks and bonds in one portfolio
Balanced funds hold both equities and fixed income to balance growth and income.
Question 5: Why might an index fund have a lower expense ratio than an active fund?
- It pays higher dividends
- It requires less research and trading to track an index (Correct answer)
- It is government subsidized
- It holds fewer total securities
Correct answer: It requires less research and trading to track an index
Passive index funds simply mirror an index, reducing management and trading costs.
Question 6: What does a fund's prospectus primarily provide to investors?
- A guarantee of returns
- Disclosure of objectives, risks, fees, and performance (Correct answer)
- A list of all other shareholders
- Tax advice for the year
Correct answer: Disclosure of objectives, risks, fees, and performance
The prospectus discloses the fund's objectives, strategies, risks, and costs.
Question 7: When are mutual fund shares typically priced each day?
- Every minute during trading hours
- Once after the market closes (forward pricing) (Correct answer)
- Only on Mondays
- At the moment the order is placed
Correct answer: Once after the market closes (forward pricing)
Open-end funds use forward pricing, calculating NAV once daily after market close.
Investment Jobs Mutual Fund Investment 3
How does a closed-end fund differ from an open-end fund?