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How Much Do You Know About the Mutual Funds?
This quiz, by Vanguard Group, can also be taken on the fund family's Web site. Answers are at the end.

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

A. Yield
B. Income return
C. Total return
D. Capital gains distributions

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

A. Money market funds and bank accounts
B. Government National Mortgage Association securities (also known as Ginnie Maes or GNMAs)
C. Stocks
D. Corporate bonds

3. If a fund charges an expense ratio of 1 percent:

A. You pay a one-time fee of 1 percent after holding shares for a year
B. Your fund's returns are reduced by 1 percent each year you own the fund
C. The amount you invest in a fund is reduced by 1 percent at the time you buy shares
D. You pay a 1 percent load or sales charge to a broker at the time you buy shares

4. True or false: Common stocks always provide higher returns than bonds or money market investments.

A. True
B. False
5. As an individual, the most you can contribute to an IRA each year is:

A. $1,000
B. $3,000
C. $5,000
D. $10,000

6. True or false: Interest and dividends earned by municipal bonds are exempt from federal income tax.

A. True
B. False

7. True or false: All else being equal, the lower a bond fund's average credit quality, the higher its yield.

A. True
B. False

8. The investment objective of an index mutual fund is to:

A. Seek to track the investment returns of a specified stock or bond benchmark.
B. Try to beat the investment return of a specified stock or bond benchmark.
C. Buy only stocks in Standard & Poor's 500 Index.
D. Seek to invest in the best-performing sectors of the stock market.

9. If interest rates declined, the price of a bond or bond fund generally would:

A. Increase.
B. Decrease.
C. Stay about the same.
D. Be impossible to predict.

10. 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.

11. True or false: If you own only U.S. stocks in your investment portfolio, you will reduce your overall risk by adding international stocks.

A. True
B. False
12. Which market benchmark or stock exchange is the best gauge of the performance of the entire U.S. stock market?

A. S&P 500 Index
B. Wilshire 5000 Total Market Index
C. Dow Jones Industrial Average
D. Nasdaq Composite Index

13. True or false: If you invest in a 401(k) plan at work, you are not eligible to contribute to an IRA.

A. True
B. False

14. How long must you hold a stock or stock fund to receive the lowest capital gains tax rate?

A. More than one month
B. More than six months
C. More than one year
D. More than five years

15. From 1926 to 1999, the total return for U.S. stocks averaged:

A. 5 percent per year.
B. 11 percent per year.
C. 19 percent per year.
D. 28 percent per year.

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

A. Diversification.
B. Professional management.
C. Guaranteed return.
D. None of the above.

© 2002 The Washington Post Company