Mutual Fund—Worksheet
Mutual Funds—Worksheet (Mutual Funds May 23, 2014)
1. When would an order to buy or sell an open-ended investment trust (a mutual fund) be executed and at what price? What about an order to buy or sell an exchanged traded fund (ETF) or closed-ended investment trust? When would the order be executed, and at what price?
2. What happens to the net asset value of a fund when the fund goes ex-dividend?
3. Is it better to buy A, B, or C shares in a mutual fund?
4. Have money market mutual funds been a good place to invest or park money over the last 6 or 7 years? Explain.
5. What is the most important advantage of an indexed mutual fund? What is the reason for this advantage?
6. Real estate is not a liquid investment. What do open-ended investment trusts (mutual funds) that invested in realty actually invest in? Be precise. Why might it be advantageous to invest in a closed- ended real estate investment trust (REIT) rather than an open-ended REIT? What might be a disadvantage to the closed-ended REIT that might increase the risk somewhat?
7. What type of investor might prefer a municipal bond fund rather than a corporate bond fund? Be precise.
8. Junk bond funds have more risk of default than investment grade bond funds. However, junk bond funds usually have much less of another type of risk than investment grade bond funds. What type of risk do junk bond funds have less of and why?
9. Why is it generally not a good idea to buy mutual funds in December?
10. Some funds charge a redemption fee of 2% if an investor redeems his shares within 30 or 60 days after buying them. Why is this a good idea, especially if the fees are put into the assets of the fund?
11. Although it is somewhat of a simplification, some funds are described as value, blend, or growth. These same funds might also be described as small, medium, and large capitalization (Cap) funds. Draw a matrix showing the risk/reward ratio of these types of funds.
12. Which kinds of mutual funds can easily be sold short? Selling short is a way of making money when stock prices, bond prices, commodity prices, etc. are dropping.
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