According to modern portfolio theory (MPT), diversification is achieve in a port

Question

According to modern portfolio theory (MPT), diversification is achieve in a portfolio by combining securities such that

Select one: a. the efficient frontier is parallel to the Y-axis.

b. the individual securities in the portfolio have negative (or low positive) correlations between each other's rate of returns.

c. the individual securities in the portfolio have high positive correlations between each other's rates of returns.

d. the efficient frontier is parallel to the X-axis.

Automatic dividend reinvestment means that mutual fund shareholders elect to receive dividends and/or capital gains distributions in the form of

Select one:

a. new shares of the fund.

b. tax credits.

c. reinvestment credits that can be used like stock options.

d. cash.

A fund that is designed to match the performance of the stock market as a whole, and which does so by buying and holding a portfolio of stocks equivalent to those in a index such as the S&P 500, is known as

Select one:

a. an index fund.

b. a sector fund.

c. a yield-enhanced funds.

d. a block fund.

The single most important investment objective of a growth fund is

Select one:

a. maximization of capital gains.

b. maximization of financial leverage.

c. maximization of dividend income.

d. maximization of interest income.

The type of mutual fund that has capital appreciation as its primary investment objective is

Select one:

a. an income fund.

b. a balanced fund.

c. a growth fund.

d. a money fund.

Two mutual funds within Fidelity Family of mutual funds were recently quoted in the Wall Street Journal as follows: Fidelity High Income NAV 6.94 Offer price 6.94 Fidelity Magellan NAV 57.24 Offer price 59.01

Select one:

a. Fidelity Magellan is a no-load fund.

b. Both funds are load funds.

c. Fidelity High Income is a no-load fund.

d. Both funds are no-load funds.

Owning mutual fund shares typically enables an investor to receive all the following EXCEPT

Select one:

a. professional management.

b. reinvestment of dividends.

c. convenience.

d. control over the investment portfolio.

If you sell a security at a loss and buy the same security back in 28 days, you have made

Select one:

a. an illegal tax swap.

b. a legal tax swap.

c. a wash sale.

d. a capital set-off.

Explanation / Answer

1. B.

According to Modern portfolio theory diversification is achieved by combining securitiee in a portfolio in such a way that individual securities have negqtive or low positive correlation s between each other rates of return.

3. A.

A fund that is designed to match the performance of the stock market as a whole, and which does so by buying and holding a portfolio of stocks equivalent to those in a index such as S&P 500 is knoen as index fund.

4. A

A primary goal of a growth fund is capital appreciation

The singsingle most important investment objective of a growth fund is maximization of capital gains.

5. C.

The type of mutual fund that has cqpital appreciation as its primary investment objective is q growth fund.

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