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Personal Finance > Chapter 15 > Flashcards

Chapter 15 Flashcards

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1
Q

Mutual Fund

A

An investment that raises from investors, pools of money, and invests in stocks, bonds, and other investments.

Each Investor owns a share of the fund proportionate to his/her investment

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2
Q

Advantages of Mutual Funds

A 
Professional Management
Minimal Transaction Costs
Liquidity
Flexibility
Service
Avoidance of bad Brokers
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3
Q

Disadvantages of Mutual Funds

A 
Lower than market performance
Costs
Risks
You cant diversity away a market crash
Taxes
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4
Q

Net Asset Value

A

The dollar value of a share in a mutual fund

(Total market value of all securities - Liabilities)/ Total shares outstanding

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5
Q

Open End Investment Company

A

A mutual fund that has the ability to issue as many shares as investors want.

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6
Q

Closed End Investment Company

A

A mutual Fund that cant issue new shares. Funds raise money only once u issuing a fixed number of shares and thereafter the shares can be traded in between investors.

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7
Q

Unit Investment Trust

A

Fixed pool of securities, generally municipal bonds, in which each share represents a proportionate ownership interest in that pool.

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8
Q

Real Estate Investment Trust (REIT)

A

An investment vehicle that specializes in real estate investments, such as shopping centers or rental property

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9
Q

Hedge Fund

A

A private investment fund that is largely unregulated and very risky. Charged high fees and only allows for very wealthy investors.

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10
Q

Load

A

Sales commission charged on a mutual fund

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11
Q

Load Fund

A

Fund that charges a Load

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12
Q

No Load Fund

A

Fund that does not charge a Load

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13
Q

Class A Shares

A

Front end Load– Fee charged when funds are purchased

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14
Q

Class B Shares

A

Back end load–A commission that only is charged when the investor liquidates his or her holdings

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15
Q

Class C Shares

A

Investor is charged a Front and Back end Load

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16
Q

Expense Ratio

A

ratio of a mutual funds expenses to its total assets

Want this to be low

17
Q

Turnover Rate

A

Measure of the level of the funds trading activity, indicating what percentage of the funds investments are turned over during the year

A higher rate will indicate more expenses

18
Q

12b-1 Fee

A

Annual Fee, Generally .23-1% of funds assets, charged by the mutual fund for marketing costs

19
Q

Total Return

A

(Dividends Distributed+Capital Gains Distributed+ending NAV-Beginning NAV) / (Beginning NAV)

or
(Number of Ending shares X ending price)-(Number of beginning shares X Beginning Price)/ (Number of Beginning shares X Beginning Price)

20
Q

Money market mutual Fund

A

Invests in Treasury Bills, CDs, and other short term investments(less than 30 days)
No load, constant $1 NAV

Tax exempt, Governmental Securities

21
Q

Stock Funds

A

Mutual Funds that Invest Primarily in Common Stock

22
Q

Aggressive Growth Fund

A

Tries to maximize capital appreciation, ignores actual income. Potential for big gains but also big loss

23
Q

Small Company Growth Fund

A

limit investments to small companys

24
Q

Growth Funds

A

Similar to aggressive growth but focuses on strong firms that pay dividends

25
Q

Growth-and-Income Funds

A

Invests in a portfolio that provides the investor with a steady stream of income in addition to possibility of increasing value

26
Q

Sector funds

A

specialized mutual fund that invests at least 65% of its assets in securities of a specific industry

27
Q

Index Fund

A

Invests into stock portfolios tracking market index,

Ex. S&P 500

28
Q

International fund

A

concentrates investments in securities from other countries

29
Q

Balanced Mutual Fund

A

Holds Common stock, Bonds, and sometimes preferred stock

Less volatile than mutual funds. Tries to balance objectives of long term growth, income and stability

30
Q

Asset Allocation Funds

A

Invests in Stocks, Bonds, and Money mkt Securities.

Moves money between the three to outperform the market

31
Q

Life Cycle Fund

A

Tries to tailor holdings to the investors individual characteristics, such as age and risk

32
Q

Target Retirement Fund

A

Based on lifestyle of a retiree

33
Q

Exchange Traded Fund

A

Fund that trades on an exchange

34
Q

Services of Mutual Funds

A 
Automatic investment/ withdrawal
wiring of funds
Phone or internet switching
check writing
bookkeeping and help with taxes
35
Q

Buying a mutual fund

A

Make Goals
What does it take to meet objectives
Evaluate funds
Make the purchase

Personal Finance (3 decks)

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