Question

Your customer, age 60, is retired and living at home with a fully paid-off mortgage. Her portfolio contains growth stocks and high-quality bonds, and she is a longtime investor and comfortable with moderate risk. Her objective is a moderate level of current income to supplement her corporate pension plan distributions and the earnings from her IRA. Which of the following mutual funds is the most suitable for this customer?

a. LMN Stock Index Fund.
b. ABC Equity Income Fund.
c. QRS Capital Appreciation Fund.
d. XYZ Biotechnology Fund.

Answer 1

Answer:

Option B:ABC Equity Income Fund

Step-by-step explanation:

Mutual fund

This iss simply a form of an investment that comes or raises from the hands of investors, pools the money, which is directly invested on stocks, bonds, and other investments. It is said that under mutual funds, investor involved do owns a share of the fund proportionate to his/her investment but do not actually directly own securities. It pools money from investors with similar financial goals

It therefore necessary to achieve both current income and growth of income best suits the objectives and investment profile of the client. The capital appreciation and biotechnology funds not only fail to provide income; they are too risky for this retired person.

Advantages of Mutual funds

-diversification

-professional management, managers have access to high quality information

Advantage of mutual funds

1. Minimal transaction costs includes:

2. B/C mutual funds trade in high volume, they can negotiate lower transaction costs.