Who Accepts All of the Risk Associated with a Mutual

question 23

Multiple Choice

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

• A)the fund's managers
• B)the fund's shareholders
• C)the federal government
• D)the corporations that originally issued the stocks and/or bonds held by the fund

---

Definitions:

Interest Rate

The percentage of a loan amount charged by lenders to borrowers for the use of money, or the rate earned on deposit accounts.

Net Present Value

A method used in capital budgeting to analyze the profitability of an investment by calculating the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Present Value

The present value of a future amount of money or a series of cash flows, discounted by a certain rate of return.

Net Present Value Rule

A principle that states an investment should be made if the net present value of its cash flows, discounted at the hurdle rate, is positive.