Multiple Choice
According to financial theory, approximately how many different stocks from various categories are generally needed to create a well-diversified investment portfolio?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
When you invest in a mutual fund, you are contributing to a pool of money that will be:
A
invested in a diversified portfolio of securities by a professional manager
B
used exclusively to purchase shares of a single company
C
loaned directly to other investors
D
held in cash until you request a withdrawal
Verified step by step guidance1
Understand the concept of a mutual fund: A mutual fund is an investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities, such as stocks, bonds, and other assets.
Recognize the role of a professional manager: Mutual funds are managed by professional fund managers who make investment decisions on behalf of the investors to achieve the fund's objectives.
Eliminate incorrect options: Review the provided choices and identify which ones do not align with the definition of a mutual fund. For example, mutual funds are not used exclusively to purchase shares of a single company, nor are they loaned directly to other investors or held in cash indefinitely.
Focus on diversification: Mutual funds are designed to reduce risk by investing in a variety of securities, which is a key feature of their structure.
Select the correct answer: Based on the explanation, the correct answer is that mutual funds are 'invested in a diversified portfolio of securities by a professional manager.'
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