Question

1. Which are types of mutual funds?

Check all that apply:

Stock funds

Private equity funds

Hybrid funds

Bond funds

Money market funds

2. What are the benefits of using mutual funds?

Check all that apply:

Diversification

Higher returns

Reduced initial investment

Professional management

3. What are the disadvantages of using mutual funds compared to a savings account?

Check all that apply:

Fund expenses

Lower return

Risk

Taxes

4. Which statements are true about index funds?

Check all that apply:

Index fund managers try to identify under- or overvalued securities.

Index funds are unmanaged.

Index funds try to beat their relevant benchmark.

Index funds are considered passive investment vehicles.

Index funds try to replicate the investment performance of a particular index.

5. Why does investing in index funds usually result in better investment performance than investing in active funds?

Check all that apply:

Markets are very efficient.

Index funds have much lower expense ratios.

Index funds are more tax efficient.

Index funds are better at selecting securities.

Active funds incur high trading expenses.

Answer 1

1.

Stock funds

Hybrid funds

Bond funds

Money Market fund

Explanation:

These are types of investment schemes in mutual funds, like bond fund invest ing bonds, hybrid fund invest in stock and bond both.

2.

Diversification

Reduced initial investment

Professional management

Explanation:

Mutual fund provides diversification even with smallest amount of capital invested and that too is managed by professional managers.

3.

Fund Expenses

Risk

Taxes

Explanation:

Mutual fund has inherent risk as they invest in financial market, it has expense ratio for managing the asset and taxes on capital gain.

4.

Index funds are considered passive investment vehicles.

Index funds try to replicate the investment performance of a particular index.

Explanation:

Index funds are passive investments, and as they are not actively managed its main motive is to mimic returns of a particular index

5.

Index funds have much lower expense ratios.

Active funds incur high trading expenses.

Explanation:

Index funds are passively managed so it has low expense ratio compared to active funds which are actively managed.