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1. A mutual fund's performance is best measured by:

(a)  Income return.

(b)  Total return.

(c)  Yield.

(d)  Capital gains distributions.

(e)  Don't know.

2. If a fund charges an expense ratio of 1% in 2002:

(a)  You will pay a one-time fee amounting to 1% of the number of shares held in the account.

(b)  Your fund investment's returns will be reduced by 1% in 2002.

(c)  Your fund investment is reduced by 1% at the time you buy shares.

(d)  You will pay a sales charge of 1% to a broker at the time you buy shares.

(e)  Don't know.

3. Common stocks always provide higher returns than bonds or money market investments.

(a)  True.

(b)  False.

(c)  Don't know.

4. When you invest in an employer's retirement savings plan such as a 401(k), your contributions are taxed:

(a)  When you withdraw them during retirement.

(b)  Before you invest them.

(c)  Once a year on or before April 15.

(d)  When you reach age 65.

(e)  Don't know.

5. If interest rates decline, the price of an existing bond or bond fund generally will:

(a)  Increase.

(b)  Decrease.

(c)  Stay about the same.

(d)  Don't know.

6. A fund's after-tax return may be influenced by:

(a)  The fund's pretax return.

(b)  The fund's buying and selling of securities.

(c)  The fund's distribution of capital gains and dividends.

(d)  All of the above.

(e)  Don't know.
 

7. The goal of an index mutual fund is to:

(a)  Track the investment return of a specified stock or bond benchmark.

(b)  Beat the investment return of a specified stock or bond benchmark.

(c)  Buy only stocks in Standard & Poor's 500 Index.

(d)  Invest in the best-performing sectors of the stock market.

(e)  Don't know.

8. If you invest in a 401(k) plan at work, you are not eligible to contribute to an IRA.

(a)  True.

(b)  False.

(c)  Don't know.

9. Dollar-cost averaging is:

(a)  A strategy that entails buying low and selling high.

(b)  A way to sell fund shares to minimize capital gains.

(c)  An approach in which you invest the same amount of money in a fund at regular intervals.

(d)  None of the above.

(e)  Don't know.

10. From 1926 to 2001, the average total return per year for the U.S. stock market was:

(a)  4% per year.

(b)  11% per year.

(c)  22% per year.

(d)  33% per year.

(e)  Don't know.

11. Mutual funds are insured by the Federal Deposit Insurance Corporation.

(a)  True.

(b)  False.

(c)  Don't know.

12. If two mutual funds hold the same securities, but one has higher operating expenses than the other, which of the following statements is true?

(a)  The fund with the higher expenses will have a higher return.

(b)  The fund with the lower expenses will have a higher return.

(c)  You can't say which fund would have a higher return, because expenses have no effect on returns.

(d)  None of the above.

(e)  Don't know.

13. According to a recent tax law change, investors under age 50 can contribute up to $_______ to their IRA for 2002.

(a)  $1,000.

(b)  $2,000.

(c)  $3,000.

(d)  $3,500.

(e)  Don't know.

14. If you own only U.S. stocks in your investment portfolio, you can reduce your overall risk by adding international stocks.

(a)  True.

(b)  False.

(c)  Don't know.

15. Which of the following is not an attribute of mutual funds?

(a)  Diversification.

(b)  Professional management.

(c)  Guaranteed return.

(d)  None of the above.

(e)  Don't know.

16. Which type of investment has generally offered the best protection against inflation over long periods of time?

(a)  Money market funds and bank accounts.

(b)  Government National Mortgage Association securities ("Ginnie Maes").

(c)  Stocks.

(d)  Corporate bonds.

(e)  Don't know.

17. Income earned on municipal bonds or dividends paid by municipal bond funds are generally exempt from federal income tax.

(a)  True.

(b)  False.

(c)  Don't know.

18. A charge to purchase mutual fund shares is frequently called:

(a)  A bid/ask spread.

(b)  An expense ratio.

(c)  A sales load.

(d)  A price/earnings ratio.

(e)  Don't know.

19. Generally, a portfolio that has 80% of its assets invested in stocks would be best suited for:

(a)  An 18-year-old using the assets to pay for college expenses over the next 4 years.

(b)  A 35-year-old investing for retirement.

(c)  A 75-year-old investing for income and capital preservation.

(d)  None of the above.

(e)  Don't know.

20. If you invest in a long-term bond fund with an average maturity of 10 years, you must hold the investment for at least 10 years:

(a)  True.

(b)  False.

(c)  Don't know.