Chapter 13: Investing in Mutual Funds, ETFs, and Real Estate

Question 1

financial service organization that receives money from its shareholders and invests those funds on their behalf in a diversified portfolio of securities.

Answer 1

mutual fund

Question 2

who manages security selection and the portfolio under a mutual fund?

Answer 2

professional money managers

Question 3

investment company whose shares trade on stock exchanges.

Answer 3

exchange traded fund (ETF)

Question 4

when individuals pool resources for collective benefits of all contributors, this is referred to as…

Answer 4

pooled diversification.

Question 5

1. diversification
2. professional management
3. financial returns
4. convenience

These are objectives of what type of investment?

Answer 5

mutual funds

Question 6

1. management company
2. investment advisor
3. distributor
4. custodian
5. transfer agent

These are the 5 different roles needed for m…

Answer 6

utual funds.

Question 7

is an open-end or closed-end investment company:

1. sell unlimited number of shares
2. investors buy and sell shares from same mutual fund
3. price fund at current value of all securities in portfolio

Answer 7

open-end investment company

Question 8

(total market value of all securities in fund - liabilities) / shares outstanding =

Answer 8

net asset value (NAV)

Question 9

is an open-end or closed-end investment company:

1. operate w/ fixed number of shares outstanding and rarely issues new shares.
2. trading is done in an open market
3. no stock redemptions
4. trades occur at a discount or premium to their NAV
5. more pressure on managers

Answer 9

closed-end investment company

Question 10

fund set up to match performance of a certain market segment.

Answer 10

index fund

Question 11

ETFs are traded on listed exchanges, provide shares on an investor demand basis, sales occur at the end of the day, low costs/ portfolio turnover/taxes, and it’s best for narrow, targeted investing.

Answer 11

true

Question 12

commission when shares of open-end mutual funds are purchased.

Answer 12

load funds

Question 13

low-load mutual funds have 2-3% commission.

Answer 13

true

Question 14

load fund that charges as much as 7 1/4% of value of shares sold.

Answer 14

back-end load mutual funds

Question 15

no charge to buy funds.

Answer 15

no-load funds

Question 16

help no-load funds cover distribution/marketing expenses

Answer 16

12b-1 fees (hidden loads)

Question 17

cost incurred to hire professional money managers to run the fund’s portfolio of investments.

Answer 17

management fees

Question 18

redemption fees and back-end loads are indicated by…

Answer 18

“r”

Question 19

12b-1 fees are indicated by…

Answer 19

“p”

Question 20

redemption and 12b-1 fees are indicated by..

Answer 20

“t”

Question 21

1. shareholder transaction costs
2. annual operating expenses
3. total cost over time

These are included in the what for mutual funds?

Answer 21

fee tables

Question 22

invests in common stock w/ above-average growth potential

Answer 22

growth funds

Question 23

higly speculative investments that seeks large profits from capital gains.

Answer 23

aggressive growth funds

Question 24

invest in stocks that are undervalued by the market.

Answer 24

value funds

Question 25

emphasize current income and invest in high-yielding common stock; low risk.

Answer 25

equity-income funds

Question 26

balanced portfolio of stocks and bonds to generate well-balanced income and capital gains; 30-40% bonds.

Answer 26

balanced funds

Question 27

balanced funds that automatically change asset allocation from more to less equity exposure as investor ages.

Answer 27

life-cycle (target-date) funds

Question 28

seeks balanced return made of current income and long-0term gains, but more emphasis on capital gains.

Answer 28

growth-and-income funds

Question 29

invest in various kinds of fixed-income securities; income = main focus.

Answer 29

bond funds

Question 30

portfolio of short-term money market instruments.

Answer 30

money market mutual funds

Question 31

portfolio of stocks/bonds equivalent to those in a market index.

Answer 31

index funds

Question 32

restricts investments to a particular sector of the market; capital gains = goal.

Answer 32

sector funds

Question 33

includes only socially responsible companies in portfolio.

Answer 33

socially responsible funds (SRFs)

Question 34

invests exclusively in foreign securities.

Answer 34

international funds

Question 35

spreads investors' money across different types of markets.

Answer 35

asset allocation funds

Question 36

allows fund shareholders to funnel fixed amounts from paycheck or bank account into mutual funds.

Answer 36

automatic investment plans

Question 37

deals w/ dividends and other distributions that funds pay to shareholders.

Answer 37

automatic reinvestment plans

Question 38

automatically receive fixed amount monthly or quarterly.

Answer 38

systematic withdrawal plan

Question 39

change from one fund to another.

Answer 39

conversion privileges

Question 40

funds offered by same company.

Answer 40

fund families

Question 41

funds set up plans and handle all administrative details so shareholders can take full advantage of available tax savings.

Answer 41

retirement planning

Question 42

you must determine your investment objectives for using funds.

Answer 42

true

Question 43

1. attractive returns 2. tolerable risk exposure 3. acccumulate capital 4. speculate with your money 5. conserve capital These are objectives of...

Answer 43

funds

Question 44

ideal funds offer max capital growth when price rises, complete protection against capital loss when price falls, and high levels of current income always. Does a fund like this exist?

Answer 44

no

Question 45

each fund has its own objective, style of operation, and range of services.

Answer 45

true

Question 46

contains information on objectives, portfolio composition, management, and past performance.

Answer 46

profile (prospectus)

Question 47

what process helps to dwindle down fund options to 2-3 types of investments based on their objectives, risk tolerance, storehouse of value, management fees, and other fees/costs?

Answer 47

elimination process

Question 48

to further the elimination process, your should assess the fund's performance over the last 5-7 yrs, type of return, dividends, capital gains, and level of stability.

Answer 48

true

Question 49

if you stick to no-load or low-load mutual funds, you will yield....

Answer 49

greater returns.

Question 50

what are the 3 types of returns from mutual funds (and investments in general)?

Answer 50

1. dividend income 2. capital gains 3. change in share price

Question 51

show variability in EFTs total returns based on the underlying index.

Answer 51

R^2 statistical measure

Question 52

to estimate future performance of a ETF or mutual fund, look at past performance and consider the future direction of the whole market.

Answer 52

true

Question 53

what is the formula for when you buy a funds?

Answer 53

investment policy + management team

Question 54

homes, raw land, and any type of income-producing property.

Answer 54

real estate

Question 55

what is formula for the cash flows from real estate?

Answer 55

rent + depreciation + taxes + future sales price

Question 56

what is the key determinant of returns on estate investments?

Answer 56

financial leverage (borrowing)

Question 57

speculating in raw land is risky, but if you do it you should invest in areas of potential population growth or real estate demand.

Answer 57

true

Question 58

gross rental income - all operating expenses =

Answer 58

annual net operating income (NOI)

Question 59

expected annual rate of return on property.

Answer 59

cap rate

Question 60

office buildings, industrial space, warehouses, retail space, and hotels constitute...

Answer 60

commercial properties

Question 61

homes, apartments, and multifamily buildings constitute...

Answer 61

residential properties

Question 62

the percentage of available space rented over the year is referred to as the...

Answer 62

occupancy rates.

Question 63

closed-end investment company that invests in real estate and RE mortgages.

Answer 63

real estate investment turst (REIT)

Question 64

what are the 3 types of REITs?

Answer 64

1. equity 2. mortgage 3. hybird

Question 65

special-purpose syndicates organized to invest in RE.

Answer 65

real estate limited partnerships (LPs) OR LLCs

Question 66

mike has decided to purchase a real estate property that is expected to generate a new operating income of $63,000/yr. with a 9% cap rate, what is the property's estimate value?

Answer 66

$700,000

Question 67

the most attrative REITs to income-oriented investors are...

Answer 67

mortgage REITs.

Question 68

a fund that's structured to match the performance of a certain market segment is known as an index fund.

Answer 68

true

Question 69

do all mutual funds always charge a management fee?

Answer 69

yes

Question 70

the current market value of all securities offered by a mutual fund, less any liabilities, on a per-share basis is known as the fund's...

Answer 70

net asset value

Question 71

what funds invest in tax-exempt securities?

Answer 71

municipal bond funds

Question 72

service offered by mutual funds that help an investor earn compound interest on their investments. this is called?

Answer 72

automatic reinvestment plan

Question 73

having money taken at regular intervales form your paycheck and put into a mutual fund is an example of an automatic investment plan.

Answer 73

true

Question 74

what fund combines some of the operating characteristics of an open-end fund with some of the trading characteristics of a closed-end fund?

Answer 74

ETFs

Question 75

carlos holds a portfolio of stocks and bonds. he is planning to buy a real estate property worth $150,000. he can use financial leverage to make this purchase by taking a personal loan worth $100,000 and selling bonds worth $50,000 form his portfolio.

Answer 75

true

Question 76

adding real estate to your investment portfolio increases...

Answer 76

investment diversity.

Question 77

deprecaition gives the property owner an allowance for the decline the physical condition of the real estate over time.

Answer 77

true