Multiple Choice Answers

1. A closed end fund is also known as a mutual fund.
True
False

2. The net asset value of a mutual fund is. . .
the total amount of assets in a mutual fund
the difference between the funds’ assets and liabilities, divided by the number of shares.
the net number of positions the mutual fund invests in.
the % gain or loss of a mutual fund.
none of the above.

3. The main source of profits from investing in a stock mutual fund is from dividends.
True
False

4. Which of the following best describes a passive investment that holds a fixed portfolio of securities for a specific time period?
a mutual fund
a closed end fund
an open end fund
a unit investment trust
all of the above

5. An index fund seeks to duplicate the returns of a particular index (such as the S & P 500).
True
False

6. Buying a call gives you the right to. . .
sell stock at a specific price
buy stock at a specific price
sell a mutual fund at a specific price
buy a mutual fund at a specific price
none of the above

7. It is almost always the best investment strategy to simply invest in the hottest performing asset class from the previous year.
True
False

8. Which of the following class of mutual fund shares has a declining “back end” sales charge?
“A” share
“B” share
“C” share
no load
none of the above

9. The strike price of an option changes daily.
True
False

10. Which of the following would typically be the least volatile?
a commodities fund
a small cap growth fund
a biotechnology fund
a moderate asset allocation fund
a technology fund

11. The shares of no-load mutual funds are bought and sold at n.a.v.
True
False

12. Which of the following best describes an employer sponsored retirement plan?
a traditional ira
a roth ira
a joint account
a 401k
none of the above

13. If an investor is bearish, he or she could. . .
buy on margin
buy a call
sell a put
buy a put
none of the above

14. The seller of a call option would close the position by.
buying a put
selling a put
buying a call
selling a call
none of the above

15. You should only invest in no load funds because they are completely free of charge to investors.
True
False

16. The following type of mutual fund share typically has an “up front” sales charge. . .
“A” share
“B” share
“C” share
no load
none of the above

17. Mutual funds are a fairly recent type of investment.  They were basically invented in the 1970’s.
True
False

18. what strategy would be best if you think that stock prices are going to fall?
buy a stock index call
buy a stock index put
sell a stock index call
sell a stock index put
none of the above

19. The taxes on the gains earned by a mutual fund are passed along to the fund’s shareholders.
True
False

20. Which of the following would be the best strategy to determine whether or not a particular mutual fund is a good one to invest in. . .
make your decision based on what the return the year before was
make your decision based on whether or not the fund is a no-load
make your decision after comparing the manager’s past performance against similar funds and the appropriate benchmark
just buy the fund that did the worst in its category the previous year
just buy the mutual fund that has the largest assets under management

21. Which of the following best describes the difference between a stock’s price and the option’s strike price?
market value
option value
time premium
intrinsic value
premium value

22. Which of the following has the lowest annual expenses?
“A” share
“B” share
“C” share
all mutual funds have identical annual expenses

23. Because asset allocation involves diversification, the returns you get over time will be extremely volatile.
True
False

24. What are the main advantages of investing in a mutual fund?
professional money management
diversification
a guaranteed rate of return
#1 and #2
all of the above

25. Which of the following allows an individual to deduct the dollar amount contributed each year from their taxes?
a joint account
a roth ira
a 401k
all of the above
none of the above

26. Buying options gives you the potential for. . .
leverage
income
safety of principal
unlimited loss
all of the above

27. Missy wants to buy a diversified investment.  She should buy. . .
an S & P 500 index fund
a NASDAQ 100 index fund
an emerging growth fund
a large cap growth fund
an asset allocation fund

28. Buying a put may give you the right to. . .
buy stock
sell stock
receive dividends
all of the above
none of the above

29. Which of the following allows you to never pay taxes on any realized capital gains, interest, or dividends?
a roth ira

a joint account
a traditional ira
a 401k
a trust account

30. Which of the following is a secondary market for options?
CBOE
NYSE
The American Stock Exchange
all of the above
none of the above

31. A closed end fund. . .
is a mutual fund that has closed to new investors
has an unlimited number of shares
is always bought and sold at n.a.v.
trades on an exchange and is bought and sold like a stock
all of the above

32. A hedge fund. . .
is a very liquid investment
is a good “core” holding for all investors
are available to the general investing public
all of the above
none of the above

33. Which of the following will often trade at a discount or a premium to its n.a.v.?
an index fund
an open end fund
a closed end fund
all of the above
none of the above

34. An etf. . .
always trades at a premium or a discount to its nav
is bought and sold after the market has closed for the day
is bought and sold just like a mutual fund
is bought and sold just like a stock
none of the above

35. Which of the following is/are important in setting up your asset allocation?
age
risk tolerance
time horizon
all of the above
none of the above

36. Which of the following is the closest to an index fund?
a stock
a bond
an option
an etf
a hedge fund

37. The maximum potential loss for buying a put or a call is. . .
unlimited
the option premium
the strike price
the time premium
none of the above

38. Which of the following is bullish?
buying stock
buying a call
selling a put
all of the above
none of the above

39. There are no limits to the amount you can contribute to a retirement account.
True
False

40. A value fund manager would probably invest in which of the following companies?
a company with a much higher than average p/e ratio
a company with an extremely high growth rate and peg ratio
a company favored by momentum investors and day traders
an out of favor company that has the potential to rebound
none of the above

41. A seller of options. . .
has the potential for unlimited gains
can always exercise their option before expiration
must pay the option premium
always keeps the option premium
none of the above

42. Which of the following is true?
the holding period for long term capital gains is over 1 year
long term capital gains are taxed at a maximum of 15%
short term capital gains can have a higher tax rate than long term capital gains
all of the above are true
none of the above are true
(Tax rate was 15% till 2012)
43. The maximum gain for selling an option is the option premium.
True
False

44. Which of the following is true?
one option contract covers 100 shares of stock
equity options typically expire on the third friday of the expiration month
all options have a time limit
all of the above are true
none of the above are true

45. In 2008 you make $40,000 and contribute $5,000 to your 401k. . .
you will pay taxes as if you earned $35,000 instead of $40,000 and the capital gains, interest and dividends grow tax deferred
you cannot deduct the $5,000 from your taxable income but the money in your 401k will grow tax free
you will still pay taxes on the $40,000 but the gains in the 401k are tax deferred.
you can deduct the $5,000 from your taxable income and all capital gains, dividends, and interest grow tax free
none of the above

46. Selling covered call options is more dangerous than selling uncovered calls.
True
False

47. If an option expires out of the money, it expires worthless.
True
False

48. The price of an option depends on. . .
the strike price
the stock price
the expiration date
all of the above
none of the above

49. What type of mutual fund share has no front end sales charge and no back end sales charge if you hold it for over one year?
“A” share
“B” share
“C” share
all of the above
none of the above

50. Etf’s are similar to closed end funds in that they trade like stocks during the day.  They are also a very good alternative to open end index funds.
True
False