Deck 3: Investment Funds

Question 1

Closed-end investment companies:

A) do not trade in a secondary market.
B) usually sell no additional shares after the IPO.
C) closed-end investment companies are passive investments that only index the market.
D) are also known as ETFs.

Answer 1

usually sell no additional shares after the IPO.

Question 2

Which of the following statements regarding investment company prices is not true?

A) The effective price for open-end investment companies is the NAV.
B) Open-end shares often sell at discounts from their actual per-share value.
C) Closed-end shares may sell at discounts from their actual per-share value.
D) All of these statements are true.

Answer 2

Open-end shares often sell at discounts from their actual per-share value.

Question 3

Which of the following trade on stock exchanges?

A) unit investment trusts
B) closed-end investment companies
C) open-end investment companies
D) All trade on stock exchanges.

Answer 3

closed-end investment companies

Question 4

Which of the following is not a reason for investing indirectly through investment funds?

A) The investor has a small capital base and cannot properly diversify on their own.
B) The investor does not have adequate time to manage the investment portfolio.
C) The investor perceives a benefit to invest exclusively in the shares of one corporation.
D) The investor does not wish to manage their own portfolio.

Question 5

Mutual funds that are constantly changing their capitalization as new shares are sold and outstanding shares are redeemed are also known as:

A) unit investment trusts.
B) closed-end investment funds.
C) regulated investment companies.
D) open-end investment funds.

Question 6

For closed-ended funds:

A) if NAV > market price, the fund is selling at a discount.
B) if NAV < market price, the fund is selling at a discount.
C) if NAV > market price, the fund is trading at a premium.
D) Closed-ended funds cannot trade at either a premium or a discount.

Question 7

Which of the following is an objective of a money market mutual fund?

A) Growth
B) Capital gains
C) Long-term capital appreciation
D) None of the above is an objective of a money market fund.

Question 8

Mutual funds may be affiliated with an underwriter. This means

A) the underwriter has an exclusive right to distribute shares.
B) the underwriter selects the securities in the portfolio.
C) there is no risk to the issuer of the mutual fund.
D) there is no risk to the investor of the mutual fund.

Question 9

A professionally managed fund that is sold to sophisticated high net worth investors that may pursue higher risk positions not available to more traditional mutual fund investors is known as:

A) a specialty fund.
B) an international or global fund.
C) an ethical fund.
D) a hedge fund.

Question 10

The most common type of payment for load fees in Canada is:

A) front-end sales charges.
B) back-end (redemption) charges.
C) giving the investor the option of front- or back-end charges.
D) no loads.

Question 11

In addition to load fees, a mutual fund investor may also have to pay:

A) NAV.
B) NAVPS.
C) MER.
D) EFT.

Question 12

A fund that has a sales charge of 2 to 3 percent is said to be a:

A) back-end load fund.
B) discount fund.
C) front-end load fund.
D) low load fund.

Question 13

Which of the following is true when one looks at both mutual funds in relation to ETFs?

A) ETFs are more like mutual funds than closed-ended investment companies.
B) There are no commission fees when purchasing an ETF.
C) ETFs have lower MERs than mutual funds.
D) ETFs can be redeemed any time by the holder just like a mutual fund holder.

Question 14

Which of the following is not a feature of an ETF?

A) ETFs are priced continuously during a trading day.
B) ETFs can only be purchased in a cash account and cannot be margined.
C) ETFs can be sold short.
D) Most ETFs are passively managed funds designed to mimic the performance of a market index.

Question 15

Which of the following is not an ETF?

A) Spider
B) Diamonds
C) Cubes
D) LSVCC

Question 16

One of the biggest advantages of passively managed country funds is their:

A) higher performance.
B) lower expenses.
C) increased liquidity.
D) decreased risk.

Question 17

LSVCCs have all of the following characteristics except:

A) They must be sponsored by labour organizations.
B) Their specific mandate is to invest in small to medium-size business.
C) Among their main purposes are to create and protect jobs.
D) They increase the amount of angel and bridge financing in the market.

Question 18

An example of a mutual fund "supermarket" is a:

A) large mutual fund family that offers funds in a large variety of funds.
B) brokerage firm that offers funds of various fund families through one source.
C) mutual fund family that offers banking, insurance and other financial services.
D) brokerage firm that offers its own funds to account holders.

Question 19

Funds that have the unique feature of guaranteeing that, regardless of how poorly the fund performs, investors are entitled to at least a minimum percentage of their total investments after a certain period of time are referred to as:

A) segregated funds.
B) hedge funds.
C) ETFs.
D) LSVCCs.

Question 20

All of the following statements about Labour Sponsored Venture Capital Corporations (LSVCCs) are true except:
1) Eligible investments are restricted to taxable Canadian businesses that are active in Canada.
2) LSVCCs may be considered hybrid securities, since they are speculative investments that offer tax benefits.
3) RRSPs holding LSVCCs are allowed to hold double the current 20% foreign content.
4) Unlike mutual funds, LSVCCs are not restricted to 10% ownership in a given company.

A) 1 and 2
B) 1 and 3
C) 1, 2, and 4
D) All of these statements are true.

Question 21

Despite the popularity of mutual funds, investors still directly hold a majority of all Canadian publicly traded stocks.

Question 22

Buying units in a mutual fund is an example of direct investing.

Question 23

Investment funds offer investors an easy vehicle for diversification, where funds from thousands of investors are used to buy a wide variety of securities.

Question 24

The NAV of a mutual fund considers both realized and unrealized capital gains.

Question 25

Value funds would be more likely to buy stock based on a sound earnings record, while growth funds might invest in companies with limited or no earnings records.

Question 26

Most loaded funds do not charge a redemption fee.

Question 27

By showing average total return for mutual funds, investors are able to make direct comparisons among funds as to their performance.

Question 28

Passively managed country funds are designed to match a stock index of a particular country.

Question 29

Global funds tend to hold a higher percentage of their portfolio in domestic securities than do international funds.

Question 30

ETFs funds tend to have lower MERs than most mutual funds.

Question 31

If the NAV is greater than the market price on a closed-end fund, the fund is selling at a premium.

Question 32

A disadvantage to LSVCCs is that they do not provide any tax breaks.

Question 33

Segregated Funds are sold by insurance companies and are required by law to guarantee that at a minimum, investors will receive all of their contribution back after a stated amount of time.

Question 34

Would one expect to find higher P/E ratios in the shares that are purchased for an aggressive growth fund or in a growth and income fund?

Question 35

Does an investor with $5,000 to invest have a wide or narrow selection of mutual funds available?

Question 36

Which classification of funds are expected to have the lowest management fees?

Question 37

An aggressive equity mutual fund began the year with a net asset value (NAV) of $6.50 per share. During the year, it received $0.15 dividend income, $1.25 in realized capital losses, and $0.50 in unrealized capital gains. Ninety percent of the income was distributed to shareholders. Calculate the year-end NAV.