Deck 5: Mutual Funds

Question 1

A(n) ___________ fund issues a fixed number of shares that are bought and sold in the open secondary market. The fund capitalization is fixed unless a new public offering is made.

A) money market
B) open-end
C) stock mutual
D) closed-end
E) exchange-traded

Answer 1

D

Question 2

The _____________ is the difference between the load and the NAV.

A) offering price
B) deferred sales charge
C) sales charge
D) management fee
E) exchange fee

Answer 2

A

Question 3

A document that contains specific information regarding a mutual fund, such as expenses, holdings, objective, management, etc., is called a(n):

A) indenture.
B) gratuity.
C) grievance.
D) prospectus.
E) fund filing.

Answer 3

D

Question 4

An open-end fund that invests strictly in short-term, high-quality, low-risk securities is called a(n) ___________ mutual fund.

A) stock
B) money market
C) exchange traded fund
D) closed-end
E) bond

Question 5

An investment company that issues shares to anyone wishing to buy and redeems shares from anyone wishing to sell is called a(n) ___________ fund.

A) market
B) open-end
C) stock mutual
D) closed-end
E) exchange

Question 6

A hedge fund is a(n) ___________ investment company that sells its shares to ___________.

A) Registered; the general public
B) Registered; only to a limited number of financially sophisticated investors
C) Open-end; the general public
D) Unregistered; a limited number of private investors
E) Close-end; only a limited number of financial institutions

Question 7

A(n) ___________ is a fee charged on the initial purchase of a mutual fund, for example, a 5% of the offering price.

A) deferred sales charge
B) special fee
C) back-end load
D) front-end load
E) exchange load

Question 8

A company that pools funds of individual investors and invests them on a group basis is called a(n) ___________ company.

A) Trust
B) Investment
C) Brokerage
D) Mutual
E) Financial

Question 9

What is the "high water mark" for a hedge fund manager to receive the portion of their fee based on performance?

A) The percentage by which the fund outperforms the Dow Jones Industrial Average.
B) The highest previous value of the fund.
C) The percentage ranking versus other fund managers that a hedge fund manager must achieve.
D) The legal limit that a fund manager can charge for a performance based fee.
E) The percentage return of the fund in the previous year.

Question 10

___________ is an index fund holding a diversified portfolio of securities, priced and traded on public exchanges.

A) NAV
B) RRSP
C) ETF
D) GDP
E) EVA

Question 11

___________ is the combination of operating expenses and other charges expressed as a ratio of total assets in a mutual fund.

A) Trading expense
B) Maintenance expense
C) MER
D) Fixed cost
E) DSC

Question 12

You have owned shares in the Scotia Stock Fund for years. Now, you decide to redeem your shares and invest in the Scotia Bond Fund. Usually, the fund sponsor is willing to waive the ___________ fee for this transaction.

A) turnover
B) switch
C) trading
D) redemption
E) management

Question 13

A(n) ___________ is a non-corporate form of business organization holding debt and equity of an underlying business and distributing all income generated back to unit-holders.

A) Co-op trust
B) Income trust
C) Labor-sponsored fund
D) Tax-free income fund
E) Guaranteed trust

Question 14

A deferred sales charge is also know as a(n):

A) offering price.
B) special fee.
C) back-end load.
D) front-end load.
E) exchange fee.

Question 15

A fund's turnover is a measure of the fund's ___________ during a year.

A) Trading activity
B) Total fees charged
C) Change in senior investment managers
D) Rate of return
E) Number of shares outstanding

Question 16

The total asset value of a fund minus the liabilities divided by the number of shares outstanding is called the fund's ____________.

A) NAV
B) RRSP
C) ETF
D) GDP
E) EVA

Question 17

The money market deposit accounts are primarily bank deposits where the funds will be protected up to $100,000 of loss by the ___________.

A) CIPF
B) CPA
C) IDA
D) CHMC
E) CDIC

Question 18

A ___________ is a charge applied when mutual fund shares are redeemed.

A) management fee
B) special fee
C) back-end
D) front-end
E) switch fee

Question 19

An investment company:

A) manages financial and real assets for itself.
B) operates as a financial company on Wall Street.
C) manages financial assets for investors.
D) operates as an arm of a full service brokerage.
E) manages real assets for investors.

Question 20

Expenses charged by mutual funds to cover such as account set-up and annual registration costs are known as:

A) exchange fees.
B) special fees.
C) turnover.
D) deferred sales charge.
E) trading costs.

Question 21

Which of the following mutual funds is likely to have the highest dividend yield?

A) Equity income fund.
B) Capital appreciation fund.
C) Growth and income fund.
D) Small company stock fund.
E) Growth fund.

Question 22

Why did income trusts become less popular with investors in Canada after October 31, 2006?

A) A new income trust tax was announced which increased taxes on income trusts.
B) New measures in GAAP made it harder to defer profits.
C) Income trusts lost their status to be bought as RRSP investments.
D) Ownership laws changed requiring a minimum 50% Canadian ownership of income trusts.
E) The creation of income trusts were banned.

Question 23

To analyze a mutual fund, we pay the least attention to its

A) degree of diversification.
B) market timing.
C) management expense ratio.
D) trading volume.
E) risk level.

Question 24

Which of the following is not a reason to pay fees and expenses associated with mutual funds?

A) Mutual funds provide greater diversification than most investors can achieve on their own.
B) You feel the manager is a superior investor.
C) Mutual funds tend to have greater returns than the stock market as a whole.
D) The fund specializes in a particular country you want to invest in, but are unable to research particular assets because of distance, costs, etc.
E) Mutual funds provide recordkeeping for shareholders.

Question 25

Which of the following is a drawback of diversification?

A) Spreading your investment over many securities may limit your chances for a large return.
B) The value of a diversified fund could decrease and be worth less than the original investment
C) Fees associated with diversification are not worth the possible benefits of diversification.
D) Diversification offers no extra safety as all stock go up in the long term.
E) None of the above.

Question 26

All of the following expenses are reported in a mutual fund's prospectus except:

A) front-end loads.
B) special fees.
C) management fees.
D) back-end loads.
E) trading costs.

Question 27

Which of the following mutual funds will be the best in providing current income, safety of principal and liquidity?

A) Income funds.
B) Balanced funds.
C) Exchange-traded funds.
D) Money market funds.
E) All of the above.

Question 28

Which of the following mutual funds might try to time the market to achieve superior performance?

A) Equity income funds.
B) Capital appreciation fund.
C) Growth and Income funds.
D) Small company stock fund.
E) Asset allocation funds.

Question 29

In order to be treated as a "flow-through entity" for tax purposes, a mutual fund must do which of the following?
I) It must hold almost all of its assets in stocks, bonds, and other securities.
II) It must follow investing rules set by the Canada Revenue Agency.
III) It must pass through all realized investment income to its shareholders.

A) I and II only.
B) I and III only.
C) II and III only.
D) III and IV only.
E) I, II, and III.

Question 30

A mutual fund is owned by:

A) fund management.
B) the fund family.
C) the board of directors.
D) shareholders.
E) the fund investment advisor.

Question 31

Which of the following types of mutual funds will likely have the most stable net asset value?

A) Long-term growth funds.
B) Money market funds.
C) Government bond funds.
D) Growth and income funds.
E) International stock funds.

Question 32

Which of the following fees and expenses are most important for long-term investors?
I) Management fees.
II) Front-end loads.
III) Deferred sales charges.
IV) Annual administrative fees.

A) I only.
B) I and IV only.
C) II and III only.
D) II and IV only.
E) III and IV only.

Question 33

Money market mutual funds

A) Are offered by all banks and mutual fund families
B) Are identical to money market deposit accounts
C) May invest in either short-term or long-term securities
D) Are guaranteed by the CDIC
E) May offer limited check-writing features

Question 34

You have purchased shares of the AGF Stock Fund for just a week. However, you decide you want to invest in a bond fund so you move your investment to the AGF Bond Fund. If the company charges you a fee of $30, this charge is considered as a(n):

A) management fee.
B) soft dollar expense.
C) front-end load.
D) deferred sales charge.
E) short-term trading fee.

Question 35

Which of the following is false concerning the money market mutual funds?

A) Their NAV is always $10 per share.
B) Money market mutual funds are often closed-end funds.
C) Money market mutual funds invest in high quality, low-risk securities.
D) As funds earn interest on the investments, their fund owners are given more shares.
E) Money market mutual funds in general offer a safe investment with relatively low risk.

Question 36

Which of the following is an advantage of purchasing mutual funds?

A) Spreading your investment over many securities may limit your chances for a large return.
B) There costs associated with mutual funds which are not accrues with individual securities.
C) A mutual fund allows for diversification without having to purchase numerous securities.
D) Professional money managers are better able to make security decisions than are individual investors.
E) The losses incurred from mutual funds are covered by the CIPF.

Question 37

The net asset value of a money market mutual fund

A) Generally fluctuates on a daily basis
B) Is guaranteed to be $10
C) Can be equal to or greater than $10, but not less than $10
D) Can fall below $10
E) Is protected by the CDIC

Question 38

Which of the following fund types would likely have the lowest turnover?

A) Capital appreciation funds.
B) Index funds.
C) Social conscience funds.
D) Corporate bond funds.
E) International stock funds.

Question 39

To avoid taxation, tax-managed fund manager must:

A) match realized gains with realized losses.
B) hold down turnover to minimize taxable capital gain.
C) focus on the tax liabilities of fund owners.
D) emphasize earnings and cash flows.
E) all of the above.

Question 40

Which of the following facts concerning open-end mutual funds is false?

A) The number of shares is fixed.
B) Open-end funds are typically created by investment advisory firms.
C) Open-end funds stand ready to repurchase shares every trading day.
D) An open-end fund can never sell for a premium or a discount.
E) Open-end mutual funds are owned by shareholders.

Question 41

Which of the following fund types often trades at a discount or premium to its NAV?

A) Index funds.
B) Money market funds.
C) Open-end funds.
D) Closed-end funds.
E) Hedge funds.

Question 42

Which of the following is not a mutual fund company share?
$$\begin{array} { r r r } & \text { NAV } & \text { Offering Price } \\\text { A. } & \$ 16.85 & \$ 16.75 \\\text { B. } & \$ 14.25 & \$ 14.50 \\\text { C. } & \$ 12.00 & \$ 12.55 \\\text { D. } & \$ 10.95 & \$ 10.95\end{array}$$

A) Option A
B) Option B
C) Option C
D) Option D
E) None of the above.

Question 43

Which of the following fund types is not registered with the securities exchange commissions?

A) Exchange traded funds.
B) Money market funds.
C) Open-end funds.
D) Closed-end funds.
E) Hedge funds.

Question 44

Which of the following is false regarding mutual funds?

A) A mutual fund can deviate from its stated investment objective.
B) Mutual funds are generally managed without concern for the tax consequence to its shareholders.
C) It is common for mutual funds to underperform the stock market.
D) Mutual funds have experienced a decline in assets over the past twenty years.
E) Mutual fund investing has increased in part due to the growth of defined contribution plans.

Question 45

A(n) ___________ fund invests in stocks around the world, but can also have significant holdings in domestic companies in Canada.

A) International
B) emerging market
C) ETF
D) global
E) closed-end

Question 46

An index fund designed to mimic the performance of a market index such as the S&P/TSX 60 Index in which shares are priced and traded on public exchanges and the fund will buy or sell shares directly in large blocks is a(n):

A) exchange traded fund.
B) money market fund.
C) open-end fund.
D) closed-end fund.
E) hedge fund.

Question 47

Which of the following funds would be most likely to invest mainly in small, risky stocks?

A) Aggressive growth fund.
B) Balanced fund.
C) Growth and income fund.
D) Money market fund.
E) Equity income fund.

Question 48

A ___________ fund allows the fund manager to vary the investment percentage of stocks, bonds, and money market instruments based upon the manager's view.

A) balanced
B) growth and income
C) flexible portfolio
D) fund of funds
E) equity income

Question 49

Which of the following is true regarding hedge funds?

A) They are more liquid than mutual fund shares
B) They are generally less restricted in how and where they can invest
C) They have no limitations on when and how often investment capital can be distributed or removed
D) All of the above
E) None of the above

Question 50

Suppose you are planning to invest in a mutual fund for the next thirty-five years. The expense you should be most concerned with is the:

A) management fee.
B) front-end load.
C) deferred sales charge.
D) exchange fee.
E) back-end load.

Question 51

A(n) ___________ fund avoids investments in tobacco, alcohol, gambling, and similar companies.

A) sin
B) growth
C) social conscience
D) equity
E) balance

Question 52

Investment in no-load mutual fund shares

A) needs a brokerage service
B) requires a commission payment
C) is identical to investments with load charges
D) can be made directly through the investment company
E) None of the above

Question 53

Which of the following funds would likely maintain a relatively constant investment percentage in stocks and bonds?

A) Aggressive growth fund.
B) Balanced fund.
C) Growth and income fund.
D) Money market fund.
E) Equity income fund.

Question 54

Which type of fund should you purchase if you are interested in investing primarily in countries that have relatively new stock markets?

A) international fund.
B) emerging market fund.
C) social conscience fund.
D) global fund.
E) sector.

Question 55

You are going to invest in the AIC Stock Fund that has A, B, and C share classes. All share classes have a thirty basis point management fee. The A shares have a five percent front-end load and no annual administrative fee. The B shares have a three percent back-end load and a seventy-five basis point annual administrative fee. The C shares have no load and a one hundred basis point annual administrative fee. If your investment horizon is thirty years, the ___________ shares would be the best alternative.

A) A
B) B
C) C
D) All are the same.
E) Insufficient information.

Question 56

Which of the following is a reason that makes the use of fund performance history problematic?

A) Funds with high expense ratios tend to be poor performers.
B) The best performing funds may simply be the riskiest funds.
C) A fund tends to keep its performance ranking over time.
D) Mutual fund returns are difficult to measure.
E) All of the above are true.

Question 57

___________ is a measure of the trading activity of a mutual fund over a period.

A) DSC
B) Turnover
C) Spread
D) Maintenance fee
E) Yield-to-maturity

Question 58

The dollar amount per share of a front-end load is the ___________ minus the ___________.

A) sales price; NAV
B) offer price; NAV
C) NAV; negotiated price
D) sales price; offer price
E) NAV; offer price

Question 59

Which of the following fees and expenses is not directly reported to shareholders?

A) Trading costs.
B) Management fees.
C) Special fees.
D) Deferred sales charge.
E) Switch fees.

Question 60

Which of the following funds is likely to be the most volatile?

A) Money market fund.
B) Balanced fund.
C) Capital appreciation fund.
D) Asset allocation fund.
E) Emerging market fund.

Question 61

Money market deposit accounts:

A) are protected by CDID.
B) are exempted from OSC regulations.
C) are covered under CIPF protection.
D) can suffer the loss of principal.
E) have unlimited cheque-writing privileges.

Question 62

A tax-managed stock fund:

A) Produces income that is tax-free
B) Tends to lower turnover
C) Concentrates on maximizing pre-tax income
D) Invests only in tax-free securities
E) Only sells securities if they will produce a loss

Question 63

The main difference between a closed-end fund and an open-end fund is:

A) The minimum initial investment
B) The way in which each is regulated by the OSC
C) The way each is traded after the initial public offering
D) The type of allowable investments
E) All of the above

Question 64

Which of the following is not a characteristic generally associated with hedge funds?

A) Ability of fund to utilize a high degree of leverage
B) Ability of fund to sell short
C) Guaranteed redemption of shares immediately upon shareholder's request
D) Minimally regulated
E) Vast array of investment options

Question 65

Empirical researches on investment companies indicate that:

A) load funds outperform no-load funds.
B) larger funds beat smaller funds.
C) they have done slightly better than the market after netting out transaction costs.
D) individual funds cannot consistently outperform the market.
E) funds with more turnovers outperform those having fewer turnovers.

Question 66

If you redeem a large quantity of ETF shares, you will:

A) Receive the underlying stock
B) Be paid in cash on the second trading day following the trade date
C) Need to do so over a period of time rather than all in one day
D) Be paid in cash immediately
E) Pay a redemption fee based on the size of the transaction

Question 67

Hedge funds are:

A) high-risk investments.
B) suitable only for the super-wealthy.
C) involved with active portfolio management.
D) constructed with a special fee scheme.
E) all of the above.

Question 68

The management fee for a mutual fund is measured as a percentage of its:

A) return.
B) sales charge.
C) offer price.
D) NAV
E) total assets.

Question 69

The ABC Fund is a closed-end fund founded in 1998 at which time it was fully subscribed. You want to invest $5,000 in this fund today. You need to have purchased your shares

A) In a private transaction
B) Under the agreement made in 1998
C) Directly from the fund
D) From a relative
E) From another shareholder

Question 70

Which of the following are annual mutual fund expenses?
I) Management fees.
II) RRSP trustee fees.
III) DSC.
IV) Switch fees.

A) I only.
B) II and III only.
C) II and IV only.
D) I and II only.
E) I, II, and III only.

Question 71

Which of the following is false regarding RRSPs?

A) Any unused RRSP deduction limit can be carried forward indefinitely.
B) Mutual fund losses within RRSPs can be claimed on tax returns.
C) All contributions to RRSPs are tax deductible.
D) There is a deadline for investors to make their RRSP-eligible contributions.
E) None of the above.

Question 72

The primary difference between an index fund and an exchange traded fund (ETF) is the

A) Higher expenses associated with the ETF
B) Fact that you can short sell an index fund, but not an ETF
C) Fact that you pay commission to purchase an index fund, but not an ETF
D) Greater variety of industry-specific offerings provided by index funds as compared to ETFs
E) Fact that ETFs are traded like stocks throughout the trading period

Question 73

How the price of the shares is determined for a closed-end investment company?

A) Usually sell at a premium to net asset value.
B) Equal to NAV plus a load charge.
C) Determine by the supply and demand in the marketplace.
D) Equal to the net value per share.
E) Equal to net asset value less redemption.

Question 74

A hedge fund may charge a special performance fee that is frequently equal to:

A) 10% - 15% of NAV
B) 15% - 20% of NAV
C) 20% - 30% of NAV
D) 20% - 40% of the market price
E) 20% - 40% of the fund's profits

Question 75

Which of the following is inappropriate for investing in a mutual fund?

A) Match the investment goal to a specific fund category
B) Identify the types of services offered by funds that may be useful
C) Develop a clear investment objective
D) Select the fund with the best performance over the most recent quarter
E) None of the above

Question 76

___________ are asset-holding units of companies using their expertise to generate income for investors.

A) Special-purpose vehicles
B) Special-drawing rights
C) Income trusts
D) Self-regulatory organizations
E) Wealth management teams

Question 77

Which of the following bond funds will rely on market timing?

A) Asset allocation funds
B) Extended balanced funds
C) Convertible funds
D) Income funds
E) All of the above

Question 78

RRSP eligible mutual funds

A) must be traded on a Canadian stock exchange.
B) must be sold by a Canadian broker.
C) must be invested in Canadian government securities.
D) must be issued by a Canadian bank.
E) none of the above.

Question 79

Mutual fund turnover is measured as:

A) total funds sales divided by total fund asset.
B) the lesser of fund sales or purchases divided by end of period assets.
C) total fund purchases divided by average daily assets.
D) the lesser of fund sales or purchases divided by average daily assets.
E) average daily assets divided by the lesser of fund sales or purchases.

Question 80

Special fees are charged for certain funds and under certain conditions. They include

A) trustee fee
B) account set-up fee
C) short-term trading fee
D) processing fee
E) all of the above