Multiple Choice
When Rick recently died and left behind an individual IRA account in his name, which of the following statements best describes what typically happens to the IRA account?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
Which of the following types of mutual funds would most appropriately be classified as long-term investments that are properly diversified?
A
A balanced mutual fund investing in a mix of stocks and bonds across various industries
B
A mutual fund that invests exclusively in a single company's stock
C
A sector-specific mutual fund focused solely on technology stocks
D
A money market mutual fund investing in short-term debt instruments
Verified step by step guidance1
Understand the concept of mutual funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of assets such as stocks, bonds, or other securities. They are managed by professional fund managers.
Identify the characteristics of long-term investments: Long-term investments typically aim for growth over an extended period and often involve a diversified portfolio to reduce risk.
Evaluate the options provided: Analyze each type of mutual fund mentioned in the problem to determine its suitability as a long-term, diversified investment.
Option analysis: A mutual fund investing exclusively in a single company's stock lacks diversification and is highly risky. A sector-specific mutual fund focused solely on technology stocks is also not properly diversified, as it is concentrated in one industry. A money market mutual fund investing in short-term debt instruments is not a long-term investment, as it focuses on liquidity and safety rather than growth.
Conclude that a balanced mutual fund investing in a mix of stocks and bonds across various industries is the most appropriate choice for a long-term, diversified investment. This type of fund spreads risk across different asset classes and industries, aligning with the principles of diversification and long-term growth.
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