Mutual funds can be described as which of the following statements?

• A. A loan made by an investor directly to a corporation.
• B. A government-issued bond with a fixed interest rate.
• C. A type of security that represents ownership in a single corporation.
• D. A pool of funds collected from many investors to invest in a diversified portfolio of securities.

Answer: (D)

Verified step by step guidance

1. Understand the concept of mutual funds: Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of securities, such as stocks, bonds, and other assets.
2. Analyze the options provided in the question: Each option describes a different financial instrument or concept. Mutual funds are distinct from loans, government bonds, or ownership in a single corporation.
3. Eliminate incorrect options: Mutual funds are not loans made by investors to corporations, nor are they government-issued bonds with fixed interest rates. They also do not represent ownership in a single corporation.
4. Identify the correct description: Mutual funds are characterized by the pooling of funds from many investors to create a diversified portfolio, which helps reduce risk and provides access to professional management.
5. Conclude that the correct answer is: 'A pool of funds collected from many investors to invest in a diversified portfolio of securities.' This aligns with the definition and purpose of mutual funds.