Choose wisely. There is only one correct answer to each question.
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1.
Sector weightings in a fund tell you how much price risk a fund is taking on.
False. Sector weightings tell you the industries your manager favors.
2.
A fund's number of holdings tells you how much sector risk a fund is taking on.
False. The number of holdings tells you how much per-issue risk a fund is taking on.
3.
Why should you study the funds in the average market capitalization section of Morningstar's style box in more detail?
The funds differ in size. Further study can tell you which funds might perform better in different market conditions; for example, very-small-cap funds might do well in an environment that favors very small companies.
4.
Which stock fund is likely the most volatile?
A fund with a P/E of 35, 25 holdings, and a 200% turnover rate. The last fund is taking on more price risk (its P/E is higher than the other funds' P/E) and per-issue risk than the others (its number of holdings is smaller), and it is trading more aggressively.
5.
A fund's turnover rate tells you how frequently the manager trades the portfolio.
True. Buy-and-hold managers will have lower turnover rates than managers who buy and sell stocks on short-term factors.
