Deck 13: Personal Investing - Investing in Mutual Funds

Question 1

Trailing commissions,management expenses and marketing expenses are all part of the MER of a mutual fund.

Answer 1

True

Question 2

When comparing the MERs and performance of various mutual funds it is important to include only ones with similar objectives.

Answer 2

True

Question 3

A mutual fund that buys only the stocks of the TSX is a good example of a sector fund.

Answer 3

False

Question 4

Open-end mutual fund companies sell directly to investors and repurchase units whenever investors wish to sell them.

Question 5

If you bought a back-end load mutual fund which had a six-year declining redemption schedule,and held the fund for seven years,you would pay only a minimal load fee.

Question 6

A stock mutual fund that pays higher-than-normal dividends is called a growth fund.

Question 7

Studies on mutual funds have found that the management expense ratio (MER)has no relationship to overall fund performance.

Question 8

Investors in mutual funds may receive capital gains without redeeming any shares.

Question 9

Closed-end mutual fund shares trade on stock exchanges and can sell at a premium or discount to their NAVPS.

Question 10

The net asset value (NAV)per share of a mutual fund is determined by the market value of securities owned minus liabilities divided by the number of mutual fund units outstanding.

Question 11

Hedge funds use risky strategies to successfully earn high returns for wealthy investors.

Question 12

Through research you can find the best professional fund managers and eliminate market risk from your stock mutual funds.

Question 13

Most mutual funds are conservative investments.

Question 14

MERs can be high due to high sales and marketing expenses or due to research costs such as for researching international companies.

Question 15

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

Question 16

A mutual fund is a diversified portfolio of stocks and/or bonds,depending on the investment objective of the fund.

Question 17

While not all mutual funds have loads or commissions,they all have management fees and expenses that are charged to the mutual fund shareholders.

Question 18

Index stock funds contain every company's stock that make up the particular index.

Question 19

In most cases,the fees charged by load funds have no impact on the overall return of your investment.

Question 20

There are three ways that taxable income can be generated for investors in mutual funds without the investor actually receiving any income.

Question 21

Which of the following is True about MERs?

A)MERs only include manager and sales expenses.
B)Mutual funds with lower MERs tend to outperform those with higher.
C)All types of mutual funds have similar MERs.
D)You need to subtract the MER from the posted return to figure out performance.

Question 22

You are considering investing in a no-load mutual fund that focuses on growth stocks or in an index fund based on the TSX.The growth stocks fund had a five year average annual return of 11 percent with MER of 2.6 percent.The index fund had a five year average annual return of 11 percent with MER of 1.1 percent.Assuming equal risk,you should buy

A)the index fund because it has a lower MER.
B)the growth fund because its portfolio performed better.
C)some of both,for diversification,as they performed equally.
D)neither,because the expenses are too high for funds of this type.

Question 23

Advantages of investing in mutual funds include all of the following except

A)diversification of your investment.
B)professional management.
C)meeting specific investment goals.
D)eliminating systematic risk.

Question 24

Because exchange-traded funds (ETFs)are passively managed,they are a good choice for an investor who is looking for tax efficiency.

Question 25

A conservative investor should only invest in a variety of bond mutual funds.

Question 26

A family of mutual funds is

A)where all of the funds have the same objective such as bond funds.
B)a number of funds with different objectives operated by one investment company.
C)where a number of competing investment companies pool their resources.
D)quite rare in the mutual fund industry.

Question 27

Mutual funds,which sell units directly to investors and repurchase units from investors who want to sell,are called

A)open-market funds.
B)open-end funds.
C)closed-end funds.
D)fair value funds.

Question 28

For mutual funds,the net asset value (NAV)is reported

A)on an hourly basis.
B)on a daily basis.
C)monthly on the close of the last Friday.
D)weekly on Fridays just after market close.

Question 29

Which of the following is True about mutual fund expenses?

A)International equity funds often have higher MERs.
B)The MERS of all kinds of funds are roughly the same.
C)Management fees include all sales and administration expenses.
D)The funds with higher MERs pay the sales people the most.

Question 30

Regarding load and no-load mutual funds,

A)load funds have outperformed no-load funds on average.
B)no-load funds have outperformed load funds on average.
C)they tend to perform about the same when the commission is included.
D)load funds require a broker,whereas no-load funds must be purchased directly.

Question 31

The most important considerations in choosing a mutual fund or an investment company involves reviewing past performance and comparing fees and expenses charged.

Question 32

Segregated funds are insurance products,but similar to mutual funds,and offer a guarantee of as much as 100 percent of the funds invested upon maturity or the death of the owner.

Question 33

Which of the following is a stock mutual fund?

A)Asset allocation fund
B)Balanced growth and income
C)Mid-cap fund
D)Money market fund

Question 34

A fund with a favourable historical track record is likely to continue to outperform funds with similar objectives in the future.

Question 35

Global bond funds potentially offer higher yields than Canadian bond funds,but have higher MERs and more risk.

Question 36

Both segregated funds and mutual funds generally offer creditor protection in the event of bankruptcy.

Question 37

The tracking error on an index mutual fund refers to how closely an index fund mirrors the movements of the index it represents.

Question 38

Which of the following characteristics is True of closed-end funds?

A)They are not regulated.
B)They repurchase units from investors.
C)They are bought and sold through a mutual fund dealer.
D)They may sell above or below NAV.

Question 39

As long as a mutual fund is diversified with more than 60 different investments,further diversification is not recommended.

Question 40

Exchange-traded funds (ETFs)are similar to index mutual funds but have lower MERs and are traded like stocks,so have brokerage commission charges when buying and selling them.

Question 41

Index funds offer tax advantages because

A)they trade frequently,generating frequent capital gains.
B)they generate less capital gains through trades.
C)they have higher MERs which reduces taxable distributions.
D)they do not receive dividends or interest.

Question 42

The possibility that the Bank of Canada may raise the prime rate is an example of

A)political risk.
B)exchange rate risk.
C)interest rate risk.
D)monetary risk.

Question 43

The return on an index fund may be less than the return on the index it represents because of

A)tracking errors and costs.
B)management fees.
C)load fees.
D)dividends and taxation.

Question 44

The most important expense statistic mentioned in the Fund Facts is the

A)gross expense ratio.
B)management expense ratio.
C)total expense ratio.
D)trading expense ratio.

Question 45

Which of the following stock funds would probably have the lowest risk and return?

A)TSX Index
B)Capital appreciation
C)Dividend
D)Technology Sector

Question 46

In evaluating the performance of your Canadian equity mutual fund,the most appropriate comparison would be its performance relative to the

A)cost of living (CPI)index.
B)S&P 500 index.
C)Dow Jones index.
D)TSX index.

Question 47

Global bond funds

A)are issued by Canadian firms or governments.
B)are always higher yielding than Canadian bond funds.
C)are subject to interest and exchange rate risk.
D)cannot include Canadian bonds.

Question 48

Treasury bill funds have

A)high liquidity and inflation risk and low default risk.
B)high interest rate risk and low default risk.
C)low interest rate risk and default risk.
D)low interest rate risk,no default risk and high inflation risk.

Question 49

In order to select appropriate mutual funds for yourself,you should determine your investment objectives,evaluate your risk tolerance,and the final step is to

A)review and compare key information from the relevant Fund Facts documents.
B)review and compare key information from the simplified prospectuses.
C)open an account with a broker.
D)consult a certified financial planner.

Question 50

If you had $12 000 to invest in mutual funds which had a 2 percent front end load fee and NAVPS of $15,how many units could you buy?

A)784
B)800
C)816
D)Unknown

Question 51

The difference between an international fund and a global fund is that

A)global funds invest in Canadian firms and those of other countries too.
B)international funds invest in Canadian firms and those of other countries too.
C)international funds invest in specified countries while global funds have no restrictions.
D)There is no difference except in name.

Question 52

Which of the following can be a source of taxation even if not paid out to owners of a Canadian bond mutual fund?

A)Interest,dividends and capital gains
B)Interest and capital gains
C)Interest and dividends
D)Interest income only

Question 53

A mutual fund with investments in bonds,stock,and preferred shares would best be described as

A)a balanced fund.
B)a three sector fund.
C)a diversified fund.
D)a balanced growth and income fund.

Question 54

Which of the following bond mutual funds have both the highest default risk and interest rate risk?

A)Long-term AAA corporate bonds
B)Short-term BBB corporate bonds
C)Short-term high-yield corporate bonds
D)High-yield long-term corporate bonds

Question 55

You own 500 units of a fund that now has a NAV of $12.30.What is your total investment worth?

A)$6150
B)$61 500
C)$6150,minus the load fee
D)$6150,plus the load fee

Question 56

Which of the following applies to global bond funds in comparison to Canadian bond funds?

A)They are a safe way to ensure higher yields.
B)They have less interest rate risk,but more exchange rate risk.
C)The currency rate risk is offset by the diversification benefits.
D)They have potential for higher yields and have higher risk.

Question 57

In non-registered accounts,investors in high marginal tax brackets will normally prefer mutual funds that generate

A)dividends.
B)long-term capital gains.
C)long-term stock dividends.
D)short-term capital gains.

Question 58

Funds that attempt to mirror the movements of existing broad market indicators are called

A)class funds.
B)stock funds.
C)index funds.
D)ETFs.

Question 59

A mutual fund that invests only in shares of gold mining companies would be called a

A)growth fund.
B)small-cap fund.
C)Canadian equity fund.
D)sector fund.

Question 60

Investing in which of the following funds will typically give you the least diversification?

A)Growth funds
B)Large-Cap funds
C)Equity income funds
D)Sector funds

Question 61

List considerations you should take into account when purchasing a mutual fund.

Question 62

You own 600 units of a fund with a current NAV of $14.36.Your portion of the fund distributions is $718.00 of dividends,capital gains,and interest earnings.What will be your total units now?

A)600 units
B)605 units
C)550 units
D)650 units

Question 63

One advantage that segregated funds have over mutual funds is

A)the beneficiary designation.
B)no loads.
C)lower MERs.
D)higher MERs.

Question 64

If Raymond does not want to pay any fees to invest in mutual funds,he should pick

A)no-load mutual funds.
B)front-end load mutual funds.
C)back-end load mutual funds.
D)zero-fee mutual funds.

Question 65

Three and a half years ago you purchased 1200 units of a fund with a NAV of $16.75.The NAV is now $34.50 and the fund had a 6 percent redemption fee declining at 1 percent per year and based on the value of the holdings at the time of the transaction.What will be the proceeds if you sell it today?

A)$38 744
B)$41 400
C)$40 158
D)$40 797

Question 66

For whom would purchasing segregated funds would be most appropriate?

A)A young married couple looking for a high risk long-term growth portfolio
B)A business owner who deals with creditors on a regular basis
C)An investor seeking low management fees and low MERs
D)An investor seeking special diversification in sector funds

Question 67

Which is the best reason for investing in funds?

A)Management expense ratios
B)Portfolio managers' performance
C)Sector investment goals
D)Diversification

Question 68

List ten types of bond mutual funds in order of least risk to highest,considering multiple risk factors and indicate which ones are most crucial for each type.

Question 69

If Becky is going to retire soon,which of the following funds is most appropriate for her?

A)Income funds
B)Growth funds
C)Hedge funds
D)Small-cap funds

Question 70

Which of the following uses the most risky strategies?

A)Sector funds
B)Hedge funds
C)Segregated funds
D)Small-Cap funds

Question 71

Which of the following applies to hedge funds?

A)They are regulated similarly to mutual funds.
B)They are appropriate for business owners who could benefit from creditor protection.
C)They are not regulated by a securities commission.
D)They use leverage and hedging to guarantee above average returns.

Question 72

The units of a segregated fund differ from the units of a mutual fund in that

A)a segregated fund does not report a NAV.
B)the units of the segregated fund are owned by the unit holder.
C)each unit is insured from the date of purchase.
D)the units of the segregated fund are owned by the insurance company.

Question 73

Which of the following must be considered before assessing the skills of equity fund managers?

A)The industry sectors held in the funds
B)The interest yield curve
C)The P/E ratios of key market sectors
D)The average dividend payout ratios

Question 74

If Betty has inherited significant wealth but has very limited investment knowledge,which of the following funds would be least appropriate for her?

A)Segregated funds
B)Dividend funds
C)Hedge funds
D)Balanced funds

Question 75

What is the biggest advantage of an ETF over other funds?

A)Better management
B)Lower MERs
C)Economies of scale
D)Diversification

Question 76

Which of the following bond mutual funds has highest risk?

A)High-yield bond funds
B)Canadian bond funds
C)Canadian corporate bond index fund
D)Canadian long-term bond index fund

Question 77

Studies show that segregated funds

A)consistently outperform stock markets because of their guarantee.
B)consistently outperform mutual funds because of the probate fees.
C)consistently underperform mutual funds because of their higher expenses.
D)consistently outperform mutual funds because of the important insurance option.

Question 78

At 55 years of age you may want to reduce risk by switching from very aggressive funds to balanced funds.If your portfolio is worth $498 000 and your family fund company charges you a 2 percent switch fee and 3 percent redemption fee,what will it cost to change funds?

A)$4980
B)$9960
C)$24 900
D)$14 940

Question 79

If Rebecca's mutual fund has a sales charge schedule saying that if the fund is sold within the first year,the sales charge is 6 percent and if it is sold in the third year,the sales charge becomes 4.5 percent,Rebecca's mutual fund has a

A)low load.
B)discount-fee.
C)broker commission.
D)declining redemption schedule.

Question 80

What is the most important difference between an index mutual fund and an exchange traded fund (ETF)?

A)ETFs are better managed.
B)ETFs trade like stocks.
C)There are more types of ETFs.
D)ETFs have higher MERs.