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Funds Beginner:
Introduction to Index Funds
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Choose wisely. There is only one correct answer to each question.
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1.
Index mutual funds can outperform the whole market.
Choose wisely. There is only one correct answer.
True
False
False. Because an index fund is based on a particular measure of the market, it cannot outperform the whole market.
2.
What accounts for the fact that different mutual funds that use the same index tend to perform differently?
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They have different expenses.
They charge more or less in fees.
They use different computer programs.
They do not allocate their securities in the same way.
They do not allocate their securities in the same way. Different funds buy more or less of each security than other funds do.
3.
Index funds buy an equal number of shares of each security in their chosen index.
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True
False
False. Many of them buy more or fewer of a particular security.
4.
Why are management expenses in index funds low?
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Computers allocate the portfolios.
Portfolio turnovers are infrequent.
Market indexes do not change their chosen securities very often.
All of the above
All of the above. All of these explain why management expenses are low.
5.
Because the securities in index mutual funds are ________, there are few capital gains distributions from them.
Choose wisely. There is only one correct answer.
Traded frequently
Not traded frequently
Highly taxable
Not traded frequently. They are kept for long periods because their underlying indexes rarely add or drop securities.
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DONE