CH 6

Question 1

Mutual Fund

Answer 1

is an investment vehicle that is comprised of the pooled dollars of many different individual investors. The manager of the mutual fund uses the pooled collection of money to invest in individual securities, then distributes the profits and losses of those individual securities to the individual investors.

Question 2

Prospectus

Answer 2

formal legal document that provides details about an investmenrt offered. Written in plain english.
contains info on:
underlying investments, past performance, fees and expenses, expirence of the funds managers, financial info of the fund itself

Question 3

Exchange-traded funds (or ETFs)

Answer 3

allow you to do the same thing, but oftentimes with a lower initial investment.

Question 4

Advantages of Mutual Funds

Answer 4

Diversification, Professional management, administration, automatic investing

Question 5

No transaction fee funds

Answer 5

mutual funds offered by an investment brokerage without any form of commission charged

Question 6

Transaction Fee funds

Answer 6

mutual funds offered by an investment brokerage for which investors must pay a commission to trade

Question 7

Open-end funds

Answer 7

the fund itself will sell new shares to anyone wishing to buy and will redeem shares of anyone wishing to sell.

Question 8

Closed-End Funds

Answer 8

the number of shares is fixed and never changes. Shares are listed on stock exchanges just like shares of stock.

Question 9

Pooled diversification

Answer 9

a process where individuals benefit from buying into a diversified portfolio of securities

Question 10

Minimum intial investment

Answer 10

the smallest dollar (or share) amount that an investor can purchase when investing in a fund

Question 11

Advantages of Mutual Funds

Answer 11

diversification, minimal investment, professional management, investment/tax reporting, easy switching/automatic investing

Question 12

Drawbacks of mutual funds

Answer 12

risk inhearent in underlying securities, uncontrollable tax liabilities, costs.

Question 13

Sales Charge

Answer 13

a front-end, back-end, annual commission paid to a broker for selling a mutual-funds

Question 14

Typical costs and fees of Mutual Funds

Answer 14

-Sales charges or “Loads” (front or back end)
-12b-1 fees (marketing costs 1%)
-Management fees (admin, advisory)
-Trading costs (turnover – not reported directly)

Question 15

Load Fund

Answer 15

a mutual fund that charges a commission or sales charge used to compensate a broker