Which of the following is not included in calculating the expense ratio of a mutual fund?
Answer(s): C
Redemption fees are not included in calculating the expense ratio of a mutual fund. Redemption fees are incurred by the fund shareholders when they redeem their shares of the fund. All of the other expenses represent annual expenses that the fund incurs and are, therefore, included in calculating the expense ratio of a mutual fund.
Which of the following plans allows the contributor to withdraw both his earnings and contributions tax-free if certain conditions are met?
Answer(s): A
The Roth IRA allows the contributor to withdraw both his earnings and contributions tax- free if the Roth IRA has been in existence for at least 5 years and the contributor has reached the age of 59 ½. In all of the other choices, only non-tax-deductible contributions may be withdrawn tax-free.
Which of the following correctly describes a difference between closed-end and open-end investment companies?
Answer(s): B
A difference between closed-end and open-end investment companies is that open-end investment company shares will never be offered at a price below the net asset value of the fund; this is not true of closed-end companies. The shares of open-end investment companies (mutual funds) are bought (and sold) through the company itself at net asset value or net asset value plus a load charge.Therefore, the offer price will always be greater than or equal to the fund's net asset value per share.Closed-end company shares are bought and sold on exchange floors, and the price is set by supply and demand, so closed-end shares may sell for less than the net asset value of the fund. Closed-end companies have a fixed number of shares. Open-end companies can create new shares if there are more buyers than sellers. Both types of management companies can be either diversified or non-diversified in their holdings.
Which of the following is not a potential advantage associated with investing through a mutual fund?
Price discovery is not a potential advantage associated with investing through a mutual fund. The net asset value of the fund determines its price, not the interaction of buyers and sellers in the market. All the other choices are advantages of investing through a mutual fund.
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