A mutual fund is a diversified portfolio of stocks and/or bonds depending on what the manager has purchased.

Question

BlackTom AI · Accepted Answer

Examining the statement about mutual funds requires separating the core definition from edge cases.
Option 1 (True): A mutual fund is typically described as a pooled investment vehicle managed by a fund manager that invests in a variety of securities, such as stocks and/or bonds, to create a diversified portfolio. The manager’s purchases determine the fund's holdings, which is consistent with how mutual funds operate: professional management selects a mix of assets to achieve diversification and manage risk. This aligns with the standard understanding of mutual funds as diversified portfolios.
Option 2 (False): One could argue that not all mutual funds are perfectly diversified or that some funds focus on a single sector or asset class. While sector- or single-asset funds exist, they are exceptions rather than the rule, and many mutual funds aim for broad diversification across multiple securities. Saying that a mutual fund is never diversified would be an overgeneralization and incorrect, as the majority of mutual funds strive to spread risk across many holdings. Additionally, even funds that emphasize a particular objective (like a bond fund, equity fund, or balanced fund) still maintain a portfolio constructed from multiple securities rather than a single investment.
Overall, the typical and most common characterization of a mutual fund is that it is a diversified portfolio of stocks and/or bonds managed by a professional, with holdings determined by the manager’s purchasing decisions. Exceptions exist, but they do not override the standard definition.

BUSFIN 1200 AU2025 (2014) Final Exam- Requires Respondus LockDown Browser

A mutual fund is a diversified portfolio of stocks and/or bonds depending on what the manager has purchased.

View Explanation

Log in for full answers

Similar Questions

Mutual funds pool money from investors to purchase portfolios of investments.

Two advantages of investing in mutual funds are diversification and professional management.

One of the attractive features of mutual funds is that they offer small investors a diversified portfolio and professional management.

Mutual funds are often considered to be a good way to get started with medium-risk investments.

Which one of the following statements regarding open-end mutual funds is false?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler