Choose wisely. There is only one correct answer to each question.
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1.
Once a fund closes, it does not take in any more investments from existing shareholders.
False. Many funds do actually continue to take in new investments from their existing shareholders after they close.
2.
Why can very large funds have difficulty buying very small stocks?
Because it's tough to put large dollar amounts to work in a small stock without affecting its share price. Small-cap stocks take up less than 10% of the U.S. market's overall assets; large caps, meanwhile, account for about two thirds of the U.S. market. It's therefore easier for a fund manager with a lot of assets to buy bigger companies than to own a small fry.
3.
What is not something funds typically do to handle asset growth?
Own fewer stocks. Funds can close or change their strategies when faced with too many assets, or the fund managers may hold cash or buy more stocks.
4.
When it comes to buying stock for itself, the larger a fund is, the _______ it will be to boost a stock's share price.
More likely. It will help boost a stock's share price simply by bidding on its shares, and the larger the fund is, the bigger the effect will be.
5.
Which type of fund tends to be the most threatened by asset growth?
High-turnover small-growth funds. Because large-cap stocks are more liquid and account for the lion's share of the market's value, funds that focus on such names tend to be less affected by size than smaller-cap-focused funds. Low-turnover funds incur lower trading costs and are more affected by asset growth than fast-trading ones.
