quiz 3 - mutual funds, ETFs, and fixed income

Question 1

what is a mutual fund?

Answer 1

you pool your money with other investors to “mutually” buy equities

Question 2

benefits of mutual funds

Answer 2

diversification, low costs, convince, and professional management

Question 3

how is a mutual fund priced

Answer 3

Net asset value

Question 4

net asset value

Answer 4

• aggregate value of all the holdings
• subtract any fees and expenses
• divide the remaining value by the shares outstanding

Question 5

what is an ETF?

Answer 5

a pooled investment security that holds multiple underlying assets

Question 6

does a mutual fund of ETF have a lower expense ratio?

Answer 6

ETF

Question 7

what is an index fund?

Answer 7

a type of mutual fund/ETF with a portfolio constructed to match/track the components of a financial market index

Question 8

what percentage of active managers beat the S&P 500 index

Answer 8

34.9%

Question 9

what is a bond?

Answer 9

a debt investment in which an investor loans money to an entity which borrows the funds for a defined period at a variable or fixed interest rate

Question 10

positives of bonds

Answer 10

generate income, reduce risk, and protection against volatility

Question 11

negative of bonds

Answer 11

lower returns, slower capital appreciation, and long maturity

Question 12

yield to maturity

Answer 12

annualized return on bond investment or the total return of a bond if held to maturity

Question 13

what is the lowest rating that is still considered investment grade?

Answer 13

BBB/Baa

Question 14

what is the relationship between bond prices and yields?

Answer 14

inverse relationship

Question 15

what are the risks of bond investing that contribute to the yield?

Answer 15

interest rate risk, reinvestment risk, credit risk, liquidity risk, and inflation risk