Funds Beginner: Introduction to Index Funds

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1.
The fact that index funds are actively managed accounts for their relatively low management expenses.
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False. Active management would increase management expenses. Computers manage most index funds, thus making them passively managed.
2.
What accounts for the fact that different mutual funds that use the same index tend to perform differently?
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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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False. Many of them buy more or fewer of a particular security.
4.
Index mutual funds try to ________ a particular market index.
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Perform as well as. Index funds choose the securities in a particular index to match its performance.
5.
An investor in index funds may pay little in capital gains taxes because the securities in his or her fund are inexpensive.
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False. Small amounts of capital gains are explained by the fact that the securities in index funds are rarely sold.