Chapter 10 PRACTICE TEST

According to the document, what is a potential downside of frequent buying and selling?

• Countering long-term investment advice

• Increasing investment knowledge

• Reducing trading costs

• Improving stock performance

What is financial diversification?

• Holding many different securities to reduce risk

• Investing in a single stock for maximum return

• Focusing on one sector for expertise

• Avoiding all types of investments

What is a closed-end fund?

• A fund with a fixed number of shares

• A fund that is open to new investors

• A fund that invests only in bonds

• A fund that guarantees returns

What is a key advantage of index funds?

• They require professional management

• They have higher fees than actively managed funds

• They don't require professional management, so their fees are lower

• They focus on narrow market segments

What is a drawback of mutual funds mentioned in the text?

• They have no professional management

• They charge no fees

• They can make a serious dent in the overall return

• They are not diversified

What is the NAVPS determined by?

• The total liabilities of the fund

• The total cash of the fund

• The total value of the fund's securities and other assets

• The total number of investors

What is a characteristic of closed-end funds?

• They issue additional shares as needed

• They buy shares directly from the mutual fund

• They have a fixed number of shares

• They allow unlimited redemptions

What is a key drawback of securities that haven't been registered with the SEC?

• They can be sold to anyone.

• They are more expensive.

• They can't be sold to accredited investors.

• They can't be sold to anyone except accredited investors.

What is market timing?

• Buying and holding stocks for long-term gains

• Predicting when prices of specific stocks will rise and fall

• Investing in undervalued stocks

• Diversifying a stock portfolio

What is the challenge with market timing?

• It requires a lot of capital

• It is difficult to consistently identify the timing and direction of changes in stock prices

• It involves high transaction fees

• It is only suitable for experienced investors