Test 3- Chapter 23 Mutual Funds

Question 1

Entity that pools funds from consumers & businesses and invest in securities (stocks, bonds, real estate, etc)

Answer 1

mutual funds

Question 2

what are some advantages of mutual funds?

Answer 2

professional management of money
more efficient than DIY (often lower cost)
provides liquidity and diversification

Question 3

what is the primary source of revenue for mutual fund brokers?

Answer 3

expense ratio

Question 4

how much is the expense ratio on average?

Answer 4

.74%

Question 5

why do they charge an expense ratio?

Answer 5

an expense to manage your money

Question 6

what is a front-end load?

Answer 6

charge when you buy the fund

Question 7

what is a back end load?

Answer 7

charge when you sell funds

Question 8

Most load funds are typically _______ end loads

Answer 8

front

Question 9

everytime you invest in a new mutual fund you pay the

Answer 9

load

Question 10

What is an index fund?

Answer 10

tracks an index

for example the S&P 500 and Wilshire 5,000

Question 11

what are some advantages of having an index fund?

Answer 11

typically there’s no load and low expenses

you get the market

Question 12

most professionals say that the _____ or at least half of your investments should be in mutual funds

Answer 12

core

Question 13

what are money market mutual funds?

Answer 13

invest in short term securities

Question 14

Money market mutual funds:
were the bank killer fund
most investors have ____
good place to park your ______
many people get their paychecks directly deposited to this and then divvy up money
___________ account
if you want the cash you have to move the money to a bank, but many money market accounts have _______

Answer 14

one
cash
intermediary
checks

Question 15

What are growth funds?

Answer 15

higher than average earnings & sales growth, with a high price to earnings ratio

Question 16

what are value funds?

Answer 16

low price to earnings ratio, dividend paying, but slower growth

Question 17

most professionals will say what about growth and value funds?

Answer 17

that you should have both of them

Question 18

what are international funds?

Answer 18

foreign only

Question 19

what are global funds?

Answer 19

us & foreign

Question 20

what are sector funds?

Answer 20

gold, healthcare, real estate investment trust

Question 21

bond funds include what?

Answer 21

treasuries, corporate and munis

can be short, medium, and long term

Question 22

can you purchase an overall bond market fund?

Answer 22

yes

Question 23

Who are the regulators for mutual funds?

Answer 23

SEC

Question 24

are mutual funds a typically safe investment?

Answer 24

generally very safe from fraud and administrative loss because mutual funds are highly regulated

Question 25

what does the performance of mutual funds depend on?

Answer 25

risk and return on the market, if it’s managed or if it’s an index fund

Question 26

in order to invest in hedge funds you must be?

Answer 26

an accredited investor

Question 27

why must you be an accredited investor in order to buy into hedge funds?

Answer 27

because they are risky investments

accredited investors have qualified themselves as smart with their money

Question 28

hedge funds are a fund for what?

Answer 28

wealthy, pensions, endowments and institutions

Question 29

what do hedge funds invest in?

Answer 29

long, derivative, short, leverage

Question 30

who is the main regulator for hedge funds?

Answer 30

SEC

Question 31

are hedge funds heavily or lightly regulated

Answer 31

lightly, because they tend to be secretive about what they are investing in

Question 32

how is the liquidity on hedge funds?

Answer 32

very limited, they give you a date you are allowed to sell on

Question 33

In order to qualify as an accredited investor to be able to buy into a hedge fund you must?

Answer 33

pay the minimum upfront investment, plus you have to have a specific amount of money in the bank

Question 34

do hedge funds tend to outperform the market?

Answer 34

nope

Question 35

explain what private equity firms do?

Answer 35

company sees a mature firm, but believe it’s undervalued

private equity firm purchase the firm with debt in order to extract value out of the underperforming company

they then take the company private and restructure it

then the company typically has an IPO

typically takes 1-2 years

Question 36

explain what venture capital firms do?

Answer 36

invest in start ups with high growth potential