Question 1

Closed-end investment companies:

Accepted Answer

Closed-end investment companies typically issue a fixed number of shares at an initial public offering (IPO) and do not sell additional shares after the IPO. Unlike open-end funds (mutual funds), which continuously issue and redeem shares based on demand, closed-end funds have a fixed number of shares that trade on a secondary market, similar to stocks.

Question 2

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

Accepted Answer

Open-end investment company shares are bought and sold at the net asset value (NAV) per share, not at discounts or premiums. This contrasts with closed-end shares, which can indeed trade at discounts or premiums to their NAV in the market.

Question 3

Which of the following trade on stock exchanges?

Accepted Answer

Closed-end investment companies trade on stock exchanges, unlike open-end investment companies (mutual funds) which do not. Unit investment trusts are also not typically traded on stock exchanges.

Question 4

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

Accepted Answer

Investing exclusively in the shares of one corporation does not align with the concept of investment funds, which typically aim to diversify investments across various assets to reduce risk.

Question 5

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

Accepted Answer

Open-end investment funds, also known as mutual funds, constantly change their capitalization as they sell new shares to investors and redeem outstanding shares. Unlike closed-end funds, which have a fixed number of shares, open-end funds can issue more shares as demand increases.

Question 6

For closed-ended funds:

Accepted Answer

When the Net Asset Value (NAV) of a closed-ended fund is greater than its market price, it means that the shares of the fund are being sold for less than their "true" value, indicating that the fund is selling at a discount.

Question 7

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

Accepted Answer

Money market mutual funds aim to provide investors with liquidity and stability, focusing on preserving capital and maintaining a stable net asset value, rather than seeking growth, capital gains, or long-term capital appreciation.

Question 8

Mutual funds may be affiliated with an underwriter. This means

Accepted Answer

An underwriter affiliated with a mutual fund typically has the exclusive right to distribute shares of the fund. This arrangement does not mean the underwriter selects the securities (that's the fund manager's job), nor does it eliminate risk for the issuer or the investor.

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:

Accepted Answer

Hedge funds are investment funds that are available to a limited range of investors and can undertake a wider range of investment and trading activities than other funds. They often engage in higher-risk strategies to achieve significant returns, targeting sophisticated, high-net-worth individuals and institutional investors.

Question 10

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

Accepted Answer

In Canada, mutual funds often offer investors the option to choose between front-end sales charges or back-end (redemption) charges, allowing flexibility based on the investor's preference.

Question 11

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

Accepted Answer

MER, or Management Expense Ratio, is a fee that mutual fund investors may have to pay in addition to load fees. It covers the costs of managing the fund, including administrative expenses and the payment to the fund manager. NAV (Net Asset Value) and NAVPS (Net Asset Value Per Share) are metrics used to determine the value of a mutual fund's assets, not fees. EFT is likely a typo for ETF (Exchange-Traded Fund), which is a type of investment fund and not a fee.

Question 12

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

Accepted Answer

A fund with a sales charge of 2 to 3 percent is typically referred to as a low load fund, as it has a lower sales charge compared to traditional front-end load funds.

Question 13

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

Accepted Answer

ETFs generally have lower Management Expense Ratios (MERs) compared to mutual funds due to their passive management style and lower operational costs.

Question 14

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

Accepted Answer

ETFs can indeed be purchased on margin, just like individual stocks, which means option B is not a correct feature of ETFs. The other options (A, C, D) correctly describe features of ETFs: they are priced continuously throughout the trading day, can be sold short, and most are passively managed to track the performance of a specific index.

Question 15

Which of the following is not an ETF?

Accepted Answer

LSVCC (Labour Sponsored Venture Capital Corporations) is not an ETF. ETFs (Exchange-Traded Funds) like Spider, Diamonds, and Cubes are investment funds traded on stock exchanges, much like stocks. LSVCCs, on the other hand, are a form of Canadian investment fund that focuses on providing venture capital to small and medium-sized businesses.

Question 16

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

Accepted Answer

Passively managed country funds typically have lower expenses because they aim to replicate the performance of a specific index, which requires less active management and results in lower fees compared to actively managed funds.

Question 17

LSVCCs have all of the following characteristics except:

Accepted Answer

Labour Sponsored Venture Capital Corporations (LSVCCs) are specifically designed to invest in small to medium-sized businesses and are indeed sponsored by labour organizations with a main purpose of creating and protecting jobs. However, their direct impact on increasing angel and bridge financing in the market is not a characteristic or primary goal of LSVCCs. Angel and bridge financing are forms of investment that typically come from individual investors or from specific funds dedicated to early-stage or transitional financing, which is not the direct aim of LSVCCs.

Question 18

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

Accepted Answer

A mutual fund "supermarket" refers to a brokerage firm that allows investors to buy and sell mutual funds from various fund families through a single account, providing a wide selection of funds in one location.

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:

Accepted Answer

Segregated funds are insurance-based investment products that offer a guarantee to protect a portion of the money you invest (usually between 75% to 100%). If the fund performs poorly, you are still guaranteed to get back a minimum percentage of your initial investment after a certain period, typically at maturity or upon the death of the investor.

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.

Accepted Answer

The answer of All of the following statements about Labour...

Quiz 3: Investment Funds