Q&A Hero

Q: The chief disadvantage of front-end load funds is that the investor has less money to invest after commissions.

Q: An investor should expect a mutual fund to achieve its historical track record of returns.

Q: An important consideration with an open-end fund is whether it is a load fund or a no-load fund.

Q: A prospectus contains information, deemed essential by the SEC, in providing some disclosure to potential investors regarding the fund's investment objectives and policies, risks, management, expenses, and current portfolio.

Q: Money market fund rates do not closely track short-term market interest rates, because the maturities of assets held in money market portfolios generally range from one to six months.

Q: Actually, the term mutual fund applies specifically to open-end investment companies, although closed-end funds are sometimes loosely labeled as mutual funds as well.

Q: An investor in mutual funds must also be sensitive to the excessive performance claims that are sometimes made by mutual fund salespeople.

Q: An investor in a mutual fund can incur capital gains even if no shares are sold.

Q: Stocks in sector funds tend to be underpriced.

Q: Closed-end funds can be used for international emerging market investing.

Q: Open-end common stock funds are much less common than closed-end funds.

Q: A closed-end fund stands ready to buy your shares back at all times.

Q: Money market funds are usually load funds.

Q: Open-end funds often sell at a discount to net asset value.

Q: Load mutual funds outperform no-load funds.

Q: Load funds, which charge a commission, generally perform no better than no-load funds.

Q: On average, mutual funds tend to outperform the market over the long run.

Q: Morningstar Mutual Fund Survey is considered one of the leading authorities on mutual fund performance.

Q: Closed-end funds have a fixed number of shares; open-end funds do not.

Q: Assuming no reinvestment, the total return on mutual fund shares is the total ending value of your shares, divided by the total beginning value of your shares.

Q: Good performance by a mutual fund in the past is highly indicative of good performance in the future.

Q: The intent of dollar-cost averaging is to avoid buying high and selling low.

Q: The acceptable range for a mutual fund's total yearly expenses is from 2% to 3% of assets.

Q: The smart investor will compare the portfolio of a fund to its stated objectives.

Q: The prospectus is designed to provide a broad overview of the mutual fund, but is not required to disclose its investment focus or the investment style that it represents.

Q: Exchange-traded funds (ETFs) are similar to index mutual funds, but they trade on stock exchanges like common stock.

Q: When you invest in a typical load fund with an 8.5% load, the fund must appreciate by over 10% in value for you to break even on your investment.

Q: Between 70% and 75% of all investment funds in the U.S. are open-ended.

Q: Most common stock closed-end funds trade at a discount to NAV.

Q: Shares of a closed-end fund trade on an exchange, just like stocks.

Q: At the end of 2009, approximately 43% of U.S. households owned shares in mutual funds.

Q: An investor is in a 35% tax bracket for normal (ordinary) income. During the course of the year, he received $5,000 in dividends and had $15,000 capital gains on stock he had held for 19 months. How much will his total tax be on this investment-related income?

Q: An investor who is in a 33% tax bracket for normal (ordinary) income buys a stock for $5,000 and sells it for $9,000. How much will her tax obligation be if she holds the stock for:(a) 6 months?(b) 14 months?

Q: Using the Table below, assume a single person has a taxable income of $40,000.(a) How much tax will be owed? (You will need to refer to the Table plus make your own calculations).(b) What is the person's average tax rate?(c) What is the person's marginal tax rate?

Q: You sell 100 shares of PGD short at a price of $50 per share. How much is your initial margin, given margin requirements of 40%? If the stock declines to $30 per share, what is your percentage gain or loss on the initial equity?

Q: You buy 100 shares of stock at $50 per share on margin of 40 percent. If the price of the stock declines to $35, what is your percentage loss?

Q: You buy 100 shares of stock at $40 per share on margin of 40%. If the price of the stock rises to $60 per share, what is your percentage gain in equity?

Q: Assume the following five companies are used in computing an index (there have been no stock splits during this time).(a) If the index is price-weighted, what will be the value of the index on Dec. 31, 2004?(b) Using the same data from the above table, determine the index value if the index is calculated on a value-weighted basis.

Q: The tax rate that is simply the amount of taxes paid, divided by taxable income is:A.the marginal tax rate.B.the average tax rate.C.the short-term capital gains tax rate.D.the long-term capital gains tax rate.

Q: If an investor is in a 34% tax bracket and has held a stock for two years, the applicable tax rate that will apply to dividends is: A.15%. B.20%. C.28%. D.34%.

Q: The minimum holding period to qualify for the long-term capital gains treatment is: A.1 month. B.12 months. C.18 months. D.24 months. E.36 months.

Q: Long-term capital gains treatment serves as encouragement for investors to buy: A.high-yield stocks. B.municipal bonds. C.U.S. government bonds. D.growth stocks.

Q: The tax rate that specifically applies to each new dollar of income is the: A.marginal tax rate. B.average tax rate. C.short-term capital gains tax rate. D.long-term capital gains tax rate.

Q: The difference between a cash account and a margin account is: A.a margin account allows the investor up to five days to pay for the entire purchase. B.a cash account gives the investor a 2% discount if they pay within 10 days, or the investor has to pay the entire amount within 30 days (2/10 net 30). C.a margin account allows the investor to borrow a percentage of the purchase price from the brokerage firm. D.a margin account is less risky to the investor. E.a cash account requires the stock be kept registered in street name, and a margin account allows the securities to be delivered to the customer.

Q: The following are all value-weighted indexes, except: A.the S&P 500. B.the Dow Jones Industrial Average. C.midcap 400. D.the S&P Industrials (400 stocks). E.wilshire 5000.

Q: When an investor establishes a position in a security, A.they are said to be long if they purchase the security for their account. B.they are said to be long if they sell the security for their account. C.they are said to be short if they sell the security for their account. D.they are said to be short if they purchase the security for their account. E.Both a and c

Q: Margin accounts are used by: A.traders who think their long-run returns will be greater than the cost of borrowing. B.speculators who think their long-run returns will be greater than the cost of borrowing. C.investors who think their long-run returns will be greater than the cost of borrowing. D.All of the above

Q: A type of index that weighs each company by its total market value as a percentage of the total market value for all firms is: A.an equal-weighted index. B.a value-weighted index. C.an equally-weighted index. D.a price-weighted index.

Q: The Nikkei average relates to stock movements in what market? A.Korea B.Japan C.Austria D.Australia E.China

Q: The amount of taxes paid, divided by taxable income, is called: A.the marginal tax rate. B.the average tax rate. C.the implied tax rate. D.None of the above

Q: Performance in the bond market is usually gauged by: A.indexes and averages. B.interest rate movements. C.yield curve changes. D.B and C

Q: An example of an equal-weighted index or average is the: A.Russell 2000. B.Dow Jones Industrial Average. C.Value Line Average. D.Russell 1000. E.S&P 500.

Q: Online brokers have become popular because: A.they offer discounts on stock research reports. B.their commissions are lower than full-service or discount brokers. C.they specialize in the stock of low priced securities. D.only online brokers can service self-directed individual retirement accounts.

Q: A stop order is similar to a limit order, except that once the set price is reached, the stop order A.is executed after all limit orders at the same price. B.becomes a limit order. C.goes to the end of the execution cue. D.immediately becomes a market order.

Q: A __________ order sets the price at which an investor is willing to buy or sell and assures the investor that he/she will pay no more or receive no less than the agreed-upon price. A.limit B.stop C.good 'til canceled D.market

Q: If a stock is sold short, the equity in the investor's account will go up if the stock A.price goes down. B.price goes up. C.is split 2 for 1. D.A and C

Q: The success of a short investment position depends on: A.a level stock price. B.a declining stock price. C.an increasing stock price. D.declining interest rates. E.More than one of the above

Q: Which of the following are features of margin accounts? A.They leverage returns (i.e., magnify the size of a gain or loss) B.You must put up part of the purchase price in cash or other securities C.Purchased securities are not delivered to the investor D.The percentage of the total cost the investor must pay is set by the Federal Reserve Board E.All of the above are features

Q: A ____________ requires full payment for the purchase of securities, while a _____________ allows the investor to borrow a portion of the purchase price from the brokerage firm. A.money market account; cash account B.cash account; charge account C.cash account; margin account D.type 5 account; a type 2 account

Q: The NASDAQ 100 includes high tech firms such as: A.IBM, Oracle, and Cisco Systems. B.Microsoft, Intel, and Cisco Systems. C.Hewlett Packard, Cisco Systems, and Compaq. D.All of the above

Q: Which of the following is NOT a characteristic of the Wilshire 5000 Equity Index? A.It is most frequently used by individual investors B.It represents the total dollar value of 5,000 stocks on a value-weighted basis C.It contains all NYSE and AMEX issues, and most active NASDAQ issues D.It is used as a measure of the broadest market performance index E.It is a value-weighted index

Q: ________________ represents 75% of the total value of firms listed on the NYSE, while ____________________ includes 1,700 individual firms. A.The Dow Jones Industrial Average; Value Line Average B.Wilshire 5000; Russell 2000 C.The Value Line Average; Standard & Poor's Composite D.The Dow Jones Composite Average; the Standard & Poor's Industrials E.The Standard & Poor's 500 Index; Value Line Average

Q: The index which gives equal weight to every company included, and is therefore not dominated by any single company, is the: A.Dow Jones Composite Average. B.Standard & Poor's 400 Index. C.The Value Line Average. D.American Stock Exchange Index. E.Dow Jones World Index.

Q: Companies having the greatest impact on the computation of the Dow Jones Averages and the Standard & Poor's Indexes have the ____________ and the ____________, respectively. A.highest price; highest total market value B.highest total market value; highest price C.highest price; lowest liquidity D.greatest number of shares outstanding; highest price

Q: Which of the following is NOT a characteristic of the Dow Jones Industrial Average? A.It includes only very high quality common stock B.It generally follows the trend of the market C.The companies included comprise over 25% of the market value of companies listed on the New York Stock Exchange D.It is a value-weighted average E.Dividends require adjustments to the divisor

Q: Commissions charged by stock brokers tend to vary among different classes of brokers.

Q: A stop order is similar to a limit order, except that the order turns into a market order once the stop price is hit.

Q: Minimum maintenance standards require that a margined investor always maintains the initial margin position.

Q: The Securities and Exchange Commission publishes a list of approved securities that may be borrowed against.

Q: A margin represents the amount of money an investor may borrow to purchase securities.

Q: Margin percentages are set by the Board of Governors of the Federal Reserve System.

Q: Tax rates that apply to income within a given tax bracket are referred to as marginal tax rates.

Q: For investors putting their funds in tax-deferred accounts, the capital gains tax provisions during the holding period are irrelevant.

Q: All of the S&P measures are true indexes, in that they are linked to a base value.

Q: You can write off up to $5,000 in investment losses in any one year.

Q: If a stock is held for less than 12 months, any gain in value is taxed as ordinary income.

Q: Novice investors should consider using full-service brokers.

Q: Long-term capital gains are taxed at a higher tax rate than dividends.

Q: The margin requirement on stock is currently 30%.

Q: The margin requirement is associated with short selling.