Question 1

A mutual fund designed for investors who are looking for a tax-efficient income stream without trading in capital gains is called a(n) __________ fund.

Accepted Answer

T-series funds are specifically designed to provide investors with a tax-efficient income stream, often by distributing returns in a way that minimizes the investor's immediate tax liability, without necessarily trading in capital gains.

Question 2

The Marginal Mutual Fund's portfolio is valued at $50 million.The fund has liabilities of $10 million, and the investment company sponsoring the fund has issued 2,000,000 shares.What is the fund's net asset value per share?

Accepted Answer

The net asset value (NAV) per share is calculated by subtracting the fund's liabilities from its assets to get the net assets, then dividing by the number of shares. Here, ($50 million - $10 million) / 2,000,000 shares = $40 million / 2,000,000 shares = $20.00 per share.

Question 3

Income dividends and capital gain distributions are

Accepted Answer

Income dividends and capital gain distributions are typically subject to federal taxation. There is no exemption or specific threshold amount stated in the question, so choices C, D, and E are incorrect.

Question 4

An affordable way for investors to invest in a diversified basket of securities; provides the diversification of an index fund with the flexibility of a stock is with a(n) ____________ fund.

Accepted Answer

Exchange-traded funds (ETFs) offer investors an affordable and flexible way to invest in a diversified basket of securities. Like an index fund, an ETF tracks a specific index, such as the S&P 500, and provides exposure to a wide range of stocks or other assets in that index. However, unlike a traditional mutual fund, ETFs trade on an exchange like a stock and can be bought and sold throughout the day at market prices, providing investors with greater flexibility and control over their investments. Closed-end and open-end funds are other types of mutual funds, while convertible funds are a specific type of bond fund that invests in convertible bonds. Index funds can be either open-end or exchange-traded.

Question 5

The Sage Mutual Fund's portfolio is valued at $120 million.The fund has liabilities of $10 million, and the investment company sponsoring the fund has issued 5,000,000 shares.What is the fund's net asset value per share?

Accepted Answer

The net asset value (NAV) per share is calculated by subtracting liabilities from the total portfolio value and then dividing by the number of shares. NAV = ($120 million - $10 million) / 5,000,000 shares = $110 million / 5,000,000 shares = $22.00 per share.

Question 6

A mutual fund that seeks to achieve a high level of income and liquidity through investment in short-term money market instruments, such as T-bills, commercial paper, and short-term government bonds is __________________

Accepted Answer

A money market fund is a type of mutual fund that invests in short-term, low-risk debt securities, such as T-bills and commercial paper, to generate income and provide liquidity. The goal of the money market fund is to provide investors with a safe and stable investment option that can be easily converted to cash, making it an ideal choice for short-term financial goals and emergency funds.

Question 7

The least liquid of all the types of mutual funds is __________________

Accepted Answer

Real estate mutual funds invest in physical properties that are not easily sold or converted to cash, making them the least liquid of all the types of mutual funds. Money market funds, on the other hand, invest in short-term, low-risk securities that are highly liquid and can be easily converted to cash. Therefore, B is the most liquid type of mutual fund.

Question 8

If a mutual fund charges a front-end load of 3%, how much must the investor pay per unit if the NAVPS is $10.00?

Accepted Answer

The investor must pay the NAVPS plus the front-end load. The front-end load is 3% of $10.00, which is $0.30. Therefore, the investor pays $10.00 + $0.30 = $10.30 per unit.

Question 9

A mutual fund that aims for long-term growth through capital appreciation and the reinvestment of income by investing in income producing real property is __________________

Accepted Answer

A mutual fund that invests in income producing real property is a real estate mutual fund. None of the other choices specifically mention investing in real property, making D the best choice.

Question 10

A mutual fund that seeks to make investment decisions that are guided by moral criteria that can vary from fund to fund is __________________

Accepted Answer

The term "ethical fund" refers to a mutual fund that invests in companies that meet certain moral criteria, such as environmental sustainability, social responsibility, or religious beliefs. The specific criteria can vary from fund to fund, but the overarching goal is to create a portfolio of investments that align with the values of the fund's investors.

Question 11

A mutual fund that requires investors to make regular purchases over a specified period of time is called a

Accepted Answer

A mutual fund that requires investors to make regular purchases over a specified period of time is called a contractual savings plan. This type of plan allows investors to make regular contributions to the mutual fund, which can help them achieve their long-term financial goals such as retirement or education savings. It is a good option for those who want to invest regularly and who are committed to their investment plan.

Question 12

During 2000, Lianne Majoro received income dividends of $850 and capital gain distributions of $540.The tax consequence is that

Accepted Answer

Both income dividends and capital gain distributions are taxable income and must be included on Lianne Majoro's tax return.

Question 13

The most popular and least complicated method of purchasing shares in an open-end mutual fund is through a

Accepted Answer

A regular account is the most popular and least complicated method of purchasing shares in an open-end mutual fund as it allows investors to buy and sell shares at any time and doesn't require any contractual agreements or minimum investment amounts. Voluntary savings plans, contractual savings plans, minimum withdrawal plans, and free contract plans may have restrictions or additional requirements that make them more complicated or less flexible for investors.

Question 14

An affordable way for investors to invest in a diversified basket of securities; constructed to track the components of a market index such as the S&P 500 or the S&P/TSX Composite is with a(n) ____________ fund.

Accepted Answer

An index fund is a type of mutual fund that tracks the components of a market index, such as the S&P 500 or the S&P/TSX Composite. Index funds are typically passively managed, meaning that the fund manager does not make active decisions about which securities to buy or sell. Instead, the fund manager simply buys and sells securities to match the composition of the index. This makes index funds a relatively low-cost way for investors to invest in a diversified basket of securities.

Question 15

Most Canadian mutual funds sponsored by the Canadian chartered banks __________________

Accepted Answer

Most Canadian mutual funds, especially those sponsored by Canadian chartered banks, typically charge an annual management expense ratio (MER) to cover the costs of managing the funds. Additionally, many of these funds are no-load, meaning they do not charge fees for entering or exiting the fund.

Question 16

Anne Lily purchased 260 shares of the New Sage Growth Fund.The net asset value for each share at the time of purchase was $19.If this fund charges a 4.5 percent load, what is the commission amount she will pay the investment company?

Accepted Answer

First, we need to calculate the total cost of purchasing 260 shares, which is:
260 shares x $19/share = $4940
Next, we need to calculate the commission amount by multiplying the total cost by the load percentage:
$4940 x 4.5% = $222.30
Therefore, the commission amount she will pay the investment company is $222.30. Option B is the correct answer.

Question 17

Which of the following is not a withdrawal option for a mutual fund?

Accepted Answer

Mutual funds typically do not have a requirement for investors to wait a certain number of years before making a withdrawal. Therefore, option E is not a valid withdrawal option for a mutual fund. Options A, B, C, and D are all common withdrawal options for mutual funds.

Question 18

Morgan Phelps just purchased 200 shares in the Green Fidelity Fund.The purchase cost for each share was $40.If this fund charges a 6 percent load, what is the total amount of commission he will pay the investment company?

Accepted Answer

The commission is calculated as 6% of the total purchase cost. The total purchase cost is 200 shares * $40 = $8000. The commission is 6% of $8000, which is $480.

Question 19

A mutual fund in which no sales charge is paid by the individual investor is called a(n) ____________ fund.

Accepted Answer

A no-load fund doesn't require the investor to pay any sales charge upon buying or selling the fund shares. This can result in lower overall costs and greater returns for the investor.

Question 20

Because of up front charges, many financial experts and government agencies are critical of

Accepted Answer

Contractual savings plans often have up front charges that can be a disadvantage for investors, which is why they are criticized by financial experts and government agencies. Regular accounts, voluntary savings plans, minimum withdrawal plans, and free contract plans do not necessarily have up front charges.

Quiz 13: Investing in Mutual Funds