Chapter 16 Review: Investing in Mutual Funds

The major reasons why investors purchase mutual funds are professional management and diversification.

• True

• False

Investors in an open-end fund are free to buy and sell shares at the net asset value.

• True

• False

The potential return on any investment should be indirectly related to the risk the investor assumes.

• True

• False

A load fund is a mutual fund in which investors pay a commission either when they purchase shares.

• True

• False

High-yield bond funds are sometimes referred to as junk-bond funds.

• True

• False

A mutual fund in which shares are issued only when the fund is organized is called a ________ fund.

• closed-end

• open-end

• load

• convertible

A mutual fund whose shares are issued and redeemed by the investment company at the request of investors is called a ________ fund.

• closed-end

• open-end

• load

• convertible

A mutual fund in which investors pay a commission every time they purchase shares is called a ________ fund.

• closed-end

• open-end

• load

• no-load

A mutual fund in which no sales charge is paid by the individual investor is called a(n) ________ fund.

• closed-end

• open-end

• load

• no-load

A fee that some investment companies charge for distributing and marketing a mutual fund is called a:

• 4A-1 fee.

• 12b-1 fee

• 18-2 fee

• 403 fee