Deck 4: Personal Investing - Investing in Mutual Funds

Question 1

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.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

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

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

Most mutual funds are conservative investments.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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

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

Three advantages of investing in mutual funds are diversification,marketability and economies of scale.

Question 19

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

Question 20

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

Question 21

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

Question 22

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 23

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 24

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 25

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

Question 26

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 27

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 28

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 29

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 30

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

Question 31

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

Question 32

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 33

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

Question 34

The most important considerations in choosing a mutual fund is your investment objectives and comparing fees and expenses charged.

Question 35

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

Question 36

If you own seven mutual funds further diversification is not recommended.

Question 37

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 38

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 39

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 40

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

Question 41

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 42

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 43

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 44

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 45

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 46

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 47

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 48

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 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

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 51

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 52

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 53

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 54

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 55

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 56

Money market mutual funds are

A)high risk and not very liquid.
B)high risk and very liquid.
C)low risk and not very liquid.
D)low risk and very liquid.

Question 57

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 58

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 59

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 60

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 61

If an investor was concerned about the tax efficiency of their mutual fund,which type of mutual funds should they buy?

A)Open-end mutual funds
B)Close-end mutual funds
C)Front-end load mutual funds
D)Back-end load mutual funds

Question 62

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 63

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 64

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 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

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

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

Question 67

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 68

Which of the following uses the most risky strategies?

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

Question 69

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 70

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 71

What is an 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.

Question 72

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 73

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 74

Which of the following bond mutual funds likely 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 75

Which is the best reason for investing in funds?

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

Question 76

Which of the following statements is generally true when comparing mutual funds to exchange traded funds?

A)Exchange traded funds are more tax efficient than mutual funds.
B)Mutual funds are more efficient than exchange traded funds.
C)Exchange traded funds and mutual funds are equally tax efficient.
D)In order to know which is more tax efficient we must first know what type of investments are held in the respective funds.

Question 77

One advantage that segregated funds have over mutual funds is

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

Question 78

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 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

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