Personal Finance- Chapter 15- Investing through Mutual Funds

Mutual fund Investment company that pools funds by selling shares to investors and makes diversified investments to achieve financial goals of income or growth, or both
Net asset value (NAV) Per-share value of a mutual fund
Open-end mutual fund Investments that issues redeemable shares that investors purchase directly from the fund (or through a broker for the fund)
Mutual fund dividend Income paid to investors out of profits earned by the mutual fund from its investments
Ordinary income dividend distributions Distributions that occur when the fund pays out dividends from the stock and interest from the bonds it hold in its portfolio; these are passed onto the investor quarterly
Redeems When an investor sells mutual fund shares
Capital gain distributions Distributions representing the net gains (capital gains minus capital losses) that a fund realizes when it sells securities that were held in the fund’s portfolio
Mutual fund family Investment management company that offers a number of different funds to the investing public; each with its own investment objectives or philosophies of investing
Automatic reinvestment Investor’s option to choose to automatically reinvest any interest dividends, and capital gains payments to purchase additional fund shares
Exchange privilege Allowance for mutual fund shareholders to easily swap shares on a dollar-for-dollar basis for shares in another mutual fund within a mutual fund family. Also called switching, conversion, or transfer privilege
Beneficiary designation Allowance of fund holder to name one or more beneficiaries so that the proceeds bypass probate proceedings if the original shareholder dies
Withdrawal options (systematic withdrawal plans) Arrangements with a mutual fund company for shareholders who want to receive income on a regular basis from their mutual fund investments
Index mutual funds (or index funds) Are those funds whose investment objective is to achieve the same return as a particular market index by buying and holding all or a representative selection of securities in it
Money market funds Are those that invest in highly liquid, relatively safe securities with very short securities, always less than one yar
Tax-exempt money market funds Funds that limit their investments to tax-exempt municipal securities with maturities of 60 days or less
Bond funds (fixed-income funds) Fixed-income funds that aim to earn current income higher than a money market fund without incurring undue risk by investing in a portfolio of bonds and other low-risk investments that pay high dividends and offer capital appreciation
Aggressive growth funds (maximum capital gains funds) Funds that invest in speculative stocks with volatile price swings, seeking the greatest long-term capital appreciation possible. Also known as maximum capital gains funds and capital appreciation funds
Growth funds Funds that seek long-term capital appreciation by investing in common stocks of companies with higher-than-average revenue and earnings growth, often the larger and well-established firms
Growth and income funds Funds that invest in companies that have a high likelihood of both dividend income and price appreciation; less risk-oriented than aggressive growth funds or growth funds
Value funds Funds specializing in stocks that are fundamentally sound whose prices appear to be low (low P/E ratios) based on the logic that such stocks are currently out of favor and undervalued by the market
Stable-value fund Mutual fund that offers attractive returns and liquidity without market risk to defined contribution plan participants (and some 529 tuition savings plans) because they have contracts with banks and insurance companies designed to permit redemption of shares at book value regardless of market prices
Balanced funds Funds that keep a set mix of stocks and bonds, often 60 percent stocks and 40 percent bonds, in order to earn a well-balanced return of income and long-term capital gains
Asset allocation funds Investments in a mix of assets (usually stocks, bonds, and cash equivalents and sometimes international assets, gold and real estate); they buy and sell regularly to reduce risk while trying to outperform the market
Target-date retirement funds (life-cycle funds) Asset allocation funds that offer investors premixed portfolios of stocks, bonds, and cash that investors of a certain age and risk tolerance might prefer, and they are often named for the year one plans to retire
Load funds Mutual funds that always charge a “load” or sales charge upon purchase; the load is the commission used to compensate brokers
Front-end load A sales charge paid when an individuals buys an investment, reducing the amount available to purchase fund shares
Stated commission The sales charge as a percentage of the amount invested
Low-load funds Funds carrying sales charges of perhaps 1 to 3 percent; sold by brokers, via mail, and sometimes through mutual fund retailers located in shopping centers
Back-end load (contingent deferred sales charge) A sales commission that is imposed only when shares are sold; often charges are on a sliding scale, with the fee dropping 1 percentage point per year that the investor stays in the fund
Redemption charge (exit fee) Similar to a deferred load but often much lower; used to reduce excessive trading of fund shares
No-load funds Funds that allow investors to purchase shares directly at the net asset value (NAV) without the addition of sales charges
12b-1 fees (distribution fees) Annual fees that some “no-load” fund companies deduct from a fund’s assets to compensate salespeople and pay other expenses
Trailing commission Compensation paid to salespeople for months or years in the future
Standardized expense table SEC- required information that describes and illustrates mutual fund charges in an identical manner so that investors can accurately compare the effects of all of a fund’s fees and other expenses relative to other funds
Expense ratio Expense per dollar of assets under management
Limited management account An account at an investment firm whereby, for a fee, they sell and buy your mutual fund assets, usually quarterly, on your behalf to automatically rebalance your portfolio back to your specific standards
Fund screener (fund-screening tool) Permits investors to screen all of the mutual funds in the market to gauge performance
Profile prospectus (fund profile) Publication that describes the mutual fund, its investment objectives, and how it tries to achieve its objective in lay terms rather than the legal language used in a regular prospectus
Mutual fund bid price Shareholders receive this amount per share when they redeem their shares, which is the same dollar amount as the NAV
Mutual fund ask (or offer) price Price at which an investor can purchase a mutual fund’s shares; current NAV per share plus sales charges
Of the following types of stock funds,__ funds tend to be least risky. growth and income
The collection of securities and other investments owned by a mutual fund is called a(n) portfolio
Which of the following is (are) a unique advantage(s) of investing in a family of funds? exchange privileges
Approximately__ percent of all households invest in mutual funds. 50
Common measures of risk for mutual funds include all of these (standard deviation, the fund’s Sharpe ratio, and beta)
Most mutual funds are managed funds
Which is not a method for taking your funds out of a mutual fund? borrowing against your fund account
If you want to receive periodic, regular income from your mutual fund account you would set up a systematic withdrawal plan
Which is not a typical investment found in a bond fund aggressive growth stocks
Net asset value increases when the value of the underlying securities increases
Your first task in selecting a mutual fund is to review your investment policy
A mutual fund that provides the investor with some income and a good chance for long-term price appreciation has a__ objective. growth and income
A(n)__ is a closed-end investment company that makes a one-time public offering of only a specific, fixed number of units of investments in bonds. unit investment trust
Advantages of bond funds over individual bonds include all of the following except bond funds earn higher rates of return
​Compute the net asset value for a share of a mutual fund with the following characteristics:​Market value of assets:$6,257,562,000Market value of liabilities:$123,800,000Number of shares outstanding:134,430,000 $46.55
A group of mutual funds managed by the same investment company is called a mutual fund family
___ funds offer investors premixed portfolios of stocks, bonds, and cash that investors of a certain age and risk tolerance might prefer. target-date retirement
A switching privileges on mutual funds allows shareholders to exchange shares of one mutual fund for shares of any mutual fund in the same family of funds
​Compute the net asset value for a share of a mutual fund with the following characteristics:​Market value of assets:$177,000,000Market value of liabilities:$12,000,000Number of shares outstanding:7,250,000 $26.07
Open-end mutual fund shares have good liquidity because the fund company will buy back the shares whenever requested
A common stock fund that invests in only one industry such as construction companies is called a(n)__ fund. sector
Which type of fund would be most likely to invest in guaranteed investment contracts? stable-value fund
__invest in highly liquid, relatively safe securities with very short maturities money market funds
__ can be used to provide mutual fund information. all of these (financial magazines such as Money and Forbes, mutual fund prospectuses, Morningstar Mutual Funds)
A(n)__ guarantees the owner a fixed or floating interest rate for predetermined period of time with full return of the initial amount invested. guaranteed investment contract (GIC)
A mutual fund’s__ can allow investors to have amounts as low as $25 per month transferred from their bank account to purchase shares. automatic investment program
The type of mutual fund that is unmanaged is called a(n)__ fund. index
A switching privileges on mutual funds allows shareholders to exchanged shares of one mutual fund for shares of any mutual fund in the same family of funds
Which of the following allows you to easily move funds from one mutual fund to another managed by the same investment company? exchange privilege
Which of the following types of investment companies operates much like an index fund? exchange-traded fund
Sylvia owns 100 shares of Maxima Growth mutual fund. IN December she received a check for $50, payment of ordinary income dividend distributions and capital gains distributions. Sylvia also noticed in her daily newspaper listings that Maxima Growth is now worth $2 per share more than what she purchased it for at the beginning of the year. How much will Sylvia’s holdings in Maxima Growth add to her taxable income for the year assuming she decides not to sell the fund this year? $50
“Spiders” are a type of ETF
Mutual fund investors must pay federal income taxes on all of these (capital gain distributions, capital gains from selling their shares, ordinary income dividend distributions)
There are approximately__ mutual fund families in the United States. 400
A mutual fund that invests in a mix of assets (usually stocks, bonds, and cash equivalents and sometimes international assets, gold, and real estate), and they buy and sell regularly to reduce risk while trying to outperform the market is a(n) asset allocation fund
A mutual fund that emphasizes well-balanced return of income and long-term capital gains is a__ fund. balanced
Open-end mutual funds are sold at their current net asset value
Which is not a typical investment found in a bond fund? aggressive growth stocks
__funds invest in high-yield, high-risk corporate bonds. Junk bond
The Amalgamated Fund has assets with a market value of $25 million dollars, liabilities of $1 million dollars and 10 million shares outstanding. Its net asset value is $2.40
A REIT is a type of closed-end mutual fund that focuses on real estate
A(n)__is a closed-end investment company that makes a one-time public offering of only a specific, fixed number of units of investment in bonds. unit investment trust
If you want to avoid paying capital gains for taxes for the whole year on mutual fund shares purchased partway into the year, you would want to buy the shares after the record date
Compounding is attained in mutual fund investing through automatic reinvestment of dividends
Mutual funds that invest in lesser-known companies with a market capitalization of $2-$10 billion that expected to grow rapidly are called__ funds. mid-cap
You can make sure that your mutual fund account passes to your desired heir by completing a__ when you open your account. beneficiary desgination
Realized net capital gains that a mutual fund pays out to its investors called__distributions. capital gains
Which is not one of the major objectives of mutual funds? Social responsibility
A(n)__buys and holds an unmanaged fixed portfolio of fixed-maturity securities such as municipal bonds. unit investment trust
​Compute the net asset value for a share of a mutual fund with the following characteristics:​Market value of assets:$6,257,562,000Market value of liabilities:$123,800,000Number of shares outstanding:134,430,000 it is NOT: $46.55
The price of mutual fund share excluding any transaction cost is its ITS NOT: net income
Periodic, systematic investment in mutual funds is very much like__ when buying stocks. ITS NOT: exchange trading
You are legally required to include which of the following in gross income? all of these (lottery winnings, illegal income, alimony received)
Dave Scott’s total income is $52,000, but his taxable income is only $39,625. Therefore, his tax liability is $5, 763. Dave’s average tax rate is approximately__ percent. 11.1
Which of the following person is (are) practicing tax avoidance? employee who deducts qualifying job-related expenses
A person who is claimed as a dependent on someone else’s tax return can claim__ exemption(s) and at least a__ standard deduction on his or her own tax return. 0; $6,200
Jeff is trying to decide whether to sell his baseball card collection. He has been offered a price that would give him a profit of $2,500 by a dealer who has agreed to pay Jeff this price now or in January of next year. This year Jeff is in the 28 percent marginal tax bracket, but next year Jeff expects to be in the 15 percent marginal tax bracket. Therefore, the estimated income tax liability on this $2,500 income would be__this year and__ next year. $700; $375
Which of the following is not a deductible medical expense? Funeral expenses
Taxpayers with taxable incomes up to__ can use the IRS tax tables $100,000
The strategy of shifting the payment dates of deductible items is called accelerate deductions
A donation of old toys and clothes to the Salvation Army valued at $500 will save a single taxpayer in the 33 percent marginal tax bracket $165 if he or she has other itemized deductions of at least $6.200
Which of the following taxes is progressive? federal income taxes
Qualifying contributions to personal retirement accounts are subtracted as adjustments to income
Joe and Marcia, a married couple with three young children, have a gross income of $120,000, adjustments of $6,700, and itemized deductions totaling $16,900. If personal exemptions for the year are $3,700 each and the standard deduction is $11,600 for married couples, what is Joe and Maria’s taxable income if they file jointly? $77,900
Retirement investments can easily be made with pretax income
A federal tax reform proposal that would implement a national sales tax to replace all or a portion of the federal income tax is called the value-added tax
The Fishers did very well on their investment choice. They earned $280 in dividend income from their stock investment this year. Later in the same year when they sold the stock, they realized a long-term capital gain of $2,984. How much of this dividend and capital gain income will they have to pay taxes on? $3,264
A tax that requires a higher-income person to pay a higher percentage of his or her income in taxes is called a__ tax. progressive
Adjustments to gross income all of these (can be taken even if one takes the standard deduction, help one qualify for other deductions, are subtracted from gross income)
Depending on their level of income, low-and moderate-income taxpayers can claim a maximum nonrefundable__ retirement savings contribution credit. $1,000
There are now__ marginal tax rates for federal income taxes seven
Which of the following is not defined as part of gross income? gifts and inheritances
An extra benefit of a defined-contribution retirement plan is that most employers offer full or partial__ to employees accounts. matching contributions
Anne and Jose Romero are in the 28 percent marginal federal tax bracket. Two years ago they purchased 100 shares of ABC stock for $28 per share, paying commissions of $75. Last week they sold this stock for $35 per share and paid commissions of $50. How much is their taxable capital gain on this investment? $575
Numerous job-related expenses can potentially be deducted from federal income taxes as__ expenses. miscellaneous

Leave a Reply

Your email address will not be published. Required fields are marked *