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WorksheetsUnit 4 Review Mutual Funds & ETFs
Total questions: 48
Worksheet time: 24mins
Name
Class
Date
1.
What is the primary purpose of a mutual fund?
a)
To combine investor money into a shared portfolio
b)
To guarantee growth through managed selections
c)
To trade individual stocks for each investor
d)
To eliminate all market-related uncertainty
2.
A growth fund focuses mainly on companies that:
a)
Expect rapid expansion in future earnings
b)
Pay consistent dividends every quarter
c)
Provide stable bond‑like income streams
d)
Maintain low volatility during downturns
3.
A sector fund is best identified as a mutual fund that:
a)
Concentrates on a single industry group
b)
Spreads investments evenly across markets
c)
Balances stocks and bonds for stability
d)
Tracks a broad market index automatically
4.
Which characteristic is most associated with income funds?
a)
Emphasis on companies with steady dividends
b)
Focus on firms expected to grow aggressively
c)
Allocation mainly toward short‑term bonds
d)
Holdings designed to mirror market indexes
5.
Why do mutual funds trade only once per day?
a)
NAV is determined after the market closes
b)
Managers must approve all share trades
c)
Regulations restrict trading during the day
d)
Pricing cannot be calculated until the weekend
6.
What does a prospectus mainly provide?
a)
Objectives, risks, and fees of a fund
b)
Real‑time prices for each investment
c)
Daily transaction summaries for traders
d)
A list of all federal requirements
7.
NAV increases most directly when:
a)
The value of fund assets rises
b)
The fund issues additional shares
c)
Liabilities increase within the fund
d)
Investors redeem shares frequently
8.
A target‑date fund adjusts its holdings by:
a)
Shifting toward safer assets over time
b)
Increasing stock exposure before maturity
c)
Matching the performance of a sector index
d)
Holding the same mix from start to finish
9.
A balanced fund typically includes:
a)
Both equities and fixed‑income assets
b)
Only stocks with high growth potential
c)
Only government and municipal bonds
d)
Commodities and alternative investments
10.
What does the expense ratio measure?
a)
Annual operating costs relative to assets
b)
Trading profits earned by a fund manager
c)
Fees paid only when shares are sold
d)
Commissions added to each fund trade
11.
ETFs differ from mutual funds because ETFs:
a)
Trade throughout the day like equities
b)
Always outperform market benchmarks
c)
Charge no operational expenses
d)
Are redeemed directly by investors
12.
Most ETFs are designed to:
a)
Track the return of a market index
b)
Outperform actively managed funds
c)
Rotate sectors based on predictions
d)
Adjust holdings throughout each day
13.
A similarity between ETFs and index mutual funds is that both:
a)
Aim to replicate the performance of an index
b)
Must be purchased only after market close
c)
Guarantee returns through diversification
d)
Change holdings frequently to beat the market
14.
Why do ETFs often have lower costs?
a)
They use simplified, passive strategies
b)
They avoid all trading activity
c)
They require no fund managers
d)
They are regulated differently
15.
What is one advantage of ETFs for active traders?
a)
They can be bought or sold during trading hours
b)
They never experience significant price movement
c)
They distribute income on a fixed schedule
d)
They always rise with the overall index
16.
An actively managed mutual fund is defined by:
a)
Managers frequently adjusting holdings
b)
A fixed basket of long‑term investments
c)
Continuous intraday trading on exchanges
d)
A passive approach to market changes
17.
A growth & income fund invests in assets that:
a)
Provide dividends and potential appreciation
b)
Offer high‑risk returns with minimal payouts
c)
Mirror a broad index with limited changes
d)
Focus solely on long‑term capital gains
18.
NAV must be calculated daily because:
a)
It reflects end‑of‑day asset values
b)
It determines each investor’s dividend
c)
It sets the commission for fund managers
d)
It adjusts hourly based on ETF prices
19.
An asset allocation fund includes:
a)
A mix of stocks, bonds, and cash assets
b)
Only stocks selected for fast growth
c)
Bonds with similar maturity timelines
d)
Holdings from a single specialized field
20.
Which statement describes most ETF holdings?
a)
The basket of securities is generally fixed
b)
The manager trades frequently for returns
c)
Holdings adjust constantly during the day
d)
The fund is required to rebalance hourly
21.
Buying an ETF on margin means that the investor:
a)
Purchases shares with borrowed funds
b)
Avoids paying trading commissions
c)
Receives guaranteed leveraged gains
d)
Can only invest in government securities
22.
A sector ETF focused on healthcare would mainly include:
a)
Firms providing medical or biotech services
b)
Companies from unrelated consumer sectors
c)
Stocks chosen solely for high dividends
d)
Bonds issued by federal health agencies
23.
Mutual funds may create more taxable events because they:
a)
Buy and sell holdings within the fund
b)
Trade only at the close of the market
c)
Are unable to report capital distributions
d)
Hold securities until they reach maturity
24.
Diversification in a mutual fund helps investors by:
a)
Reducing exposure to individual company risk
b)
Eliminating all volatility from the market
c)
Guaranteeing positive long‑term gains
d)
Replacing market risk with fixed returns
25.
A key advantage of pooled investment products like mutual funds is:
a)
Access to diversified portfolios with smaller amounts
b)
The guarantee of higher returns than stocks
c)
The removal of all management oversight
d)
The ability to avoid market‑related losses
26.
Index mutual funds aim to:
a)
Match the performance of their benchmark
b)
Outperform competitors through rotation
c)
Select only the highest‑yield stocks
d)
Actively time the market cycles
27.
As retirement approaches, target‑date funds typically:
a)
Increase bond exposure for reduced risk
b)
Shift heavily toward foreign growth stocks
c)
Replace bonds with higher‑risk equities
d)
Move into a fixed stock‑only portfolio
28.
A fund with a low expense ratio is most commonly:
a)
A passively managed index product
b)
An actively traded sector portfolio
c)
A mutual fund with high turnover
d)
A target‑date fund nearing its year
29.
ETF share prices change during the day because they:
a)
React to market supply and demand
b)
Are adjusted hourly by fund managers
c)
Must remain equal to NAV at all times
d)
Are priced only through institutional trades
30.
A major benefit of mutual funds and ETFs is that they:
a)
Provide diversified access with limited capital
b)
Require no understanding of market risk
c)
Guarantee principal and interest returns
d)
Invest only in government‑backed assets
31.
What does Assets Under Management (AUM) represent for a fund?
a)
The total market value of assets the fund controls
b)
The amount of cash a fund keeps uninvested
c)
The value of only the stocks held in the portfolio
d)
The annual income distributed by the fund
32.
Why is AUM important when evaluating a mutual fund or ETF?
a)
Larger AUM often supports better liquidity and stability
b)
Smaller AUM guarantees faster investment growth
c)
Higher AUM ensures lower fund volatility automatically
d)
Lower AUM requires outperformance of benchmarks
33.
When AUM rises significantly, it is most likely because:
a)
Investors add new capital or the portfolio increases in value
b)
The fund reduces the number of securities it holds
c)
Managers decrease the fund's exposure to equities
d)
The fund is required to rebalance its sector weights
34.
A passively managed fund primarily seeks to:
a)
Replicate the performance of a chosen benchmark
b)
Outperform the market through security selection
c)
Rotate holdings frequently to identify trends
d)
Allocate assets based on economic predictions
35.
Why do passive funds generally have lower costs than active funds?
a)
They follow predetermined indexes with fewer trades
b)
They employ multiple managers to reduce risk
c)
They rely on constant market analysis
d)
They adjust holdings daily to match movement
36.
Which feature best distinguishes a passive ETF from an active mutual fund?
a)
The ETF tracks an index with minimal interference
b)
The ETF guarantees lower volatility at all times
c)
The mutual fund trades only at end‑of‑day NAV
d)
The mutual fund holds a fixed set of securities
37.
NAV will most likely increase when:
a)
The value of the fund’s holdings rises faster than its liabilities
b)
The fund issues additional shares during the trading day
c)
The fund’s expenses are temporarily waived
d)
Redemption activity increases before close
38.
Why is NAV calculated after the market closes?
a)
Asset values must be finalized before pricing shares
b)
Regulations require NAV to match ETF prices
c)
Managers must approve trades before pricing
d)
NAV must equal the highest price reached
39.
A mutual fund holds $80 million in assets and $4 million in liabilities with 3 million shares outstanding. What is the NAV?
a)
25.33
b)
18.67
c)
30.67
d)
22.0
40.
During a strong market day, several stocks rise but liabilities also increase. How will this most likely affect NAV?
a)
NAV may rise but less than expected due to higher liabilities
b)
NAV must remain the same because of offsetting items
c)
NAV will fall because liabilities increased
d)
NAV cannot change until new shares are issued
41.
An investor buys shares of a mutual fund at 3:00 PM. When is the purchase price determined?
a)
Based on the NAV calculated at market close
b)
Based on the fund’s price at the time of purchase
c)
Based on the average NAV from the prior week
d)
Based on a price chosen by the fund manager
42.
A student wants an investment that mirrors the S&P 500 and trades during the day. Which fits?
a)
An ETF that tracks the S&P 500 index
b)
A growth mutual fund with active management
c)
A target‑date fund for retirement planning
d)
A sector mutual fund focusing on technology
43.
An investor with a 2065 target‑date fund should expect which shift?
a)
Increasing exposure to bonds and income assets
b)
Expansion into higher‑risk foreign stocks
c)
A fixed allocation that never changes
d)
More emphasis on growth stocks and fewer bonds
44.
A mutual fund’s AUM drops sharply in one month. Which explanation fits?
a)
Investors redeemed shares or asset values declined
b)
The fund added new holdings to improve performance
c)
Managers shifted entirely into government securities
d)
The fund reduced turnover to lower operating costs
45.
A sector ETF focused on semiconductors exposes investors to:
a)
Significant losses if the semiconductor industry declines
b)
Reduced liquidity because ETFs cannot trade intraday
c)
Inconsistent NAV pricing due to limited share volume
d)
Guaranteed underperformance vs. broad indexes
46.
A mutual fund distributes capital gains. What does this indicate?
a)
The fund sold securities that increased in value
b)
The fund avoided trading for most of the year
c)
The fund reduced expenses through low turnover
d)
The fund liquidated losses to reduce taxes
47.
An investor prefers low fees and doubts managers beat the market. Which fund fits?
a)
A passively managed index mutual fund
b)
An actively managed small‑cap fund
c)
A sector fund focusing on biotechnology
d)
A global fund rotating between regions
48.
A manager expects rising interest rates. Which action is most likely?
a)
Reduce bond exposure to limit interest‑rate sensitivity
b)
Increase long‑term bonds to capture higher yields
c)
Hold all positions unchanged to follow indexes
d)
Replace equities with cash to remove risk
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