Chapter 13 Questions

docx

School

University of Saskatchewan *

*We aren’t endorsed by this school

Course

104

Subject

Finance

Date

Apr 3, 2024

Type

docx

Pages

Uploaded by EarlIbis1430

Chapter 13 Investing in Mutual Funds Review Questions 1. Define and describe pooled investment funds. A pooled investment fund is an investment vehicle that pools together money from many investors and invests that money in a variety of stocks, bonds, or indexes of stocks and/or bonds. There are many different types of pooled investments. As an individual investor, the types of pooled investments that you are most likely to come across include mutual funds, Exchange-Traded Funds (ETFs), and segregated funds. 2. What is the difference between marketability and liquidity? The difference between liquidity and marketability is that liquidity refers to the ease with which the investor can convert the investment into cash without a loss of capital; whereas marketability may result in a loss of capital. 3. What are the advantages and disadvantages of ETF as compared to mutual funds? ETFs have lower expense ratios than mutual funds because most ETFs simply track an index or market and are not actively managed. ETFs are also more tax efficient than mu- tual funds. An ETF generally pays a quarterly dividend, but unlike mutual funds, ETFs do not make capital gain distributions to their shareholders. Another advantage of ETFs is that you can buy or sell them at any time throughout the day like stock. Also, you can use limit orders or stop-buy orders, and buy on margin, which you cannot do with mutual funds. Whereas mutual funds generally require a minimum initial investment of $500 to $5,000, there is no minimum for investing in ETFs. There are also a few disadvantages to ETFs. Some are so thinly traded that they can be illiquid. In addition, once you have in- vested in a mutual fund, the investment company may allow you to invest additional small amounts frequently without charging you a fee each time. If you buy small amounts of an ETF frequently, you will have to pay a broker’s commission each time. 4. What is a Fund Fact document? How soon must a Fund Facts document be provided to an investor who has invested in a mutual fund? A Fund Facts document is designed to give investors key information about a mutual fund in a language they can easily understand and at a time that is relevant to their invest- ment decision. Effective June 15, 2014, when you initially purchase a mutual fund, a Fund Facts must be provided to you within 48 hours of your purchase. Question 1 The market value of securities and the current liabilities for a mutual fund are $483 450 000 and $18 070 900, respectively. What is the net asset value per share (NAVPS) for this mutual fund if there are 40 million shares outstanding? NAVPS = Net Asset Value (NAV) ÷ Number of Shares Outstanding NAVPS = ($483 450 000 − $18 070 900) ÷ 40 000 000 NAVPS = $11.63

Question 2 Hope invested $9000 in a mutual fund at a time when the price per share was $30. The fund has a load fee of $300. How many shares did she purchase? Investment $9,000 Less load fee $ 300 Available $8,700 Price per share ÷ 30 Number of shares 290 Question 3 Mark owns a mutual fund that has an NAVPS of $45 and expenses of $1.45 per share. What is the management expense ratio for Mark’s mutual fund? Management expense ratio (MER) = MER per share ÷ NAVPS Management expense ratio = $1.45 ÷ $45 = 3.2% Question 4 Zenia invested in the no-load Romaine Mutual Fund one year ago by purchasing 1000 shares of the fund at a net asset value of $25 per share. The fund distributed $1.50 per share in dividends and $2 per share in capital gains. The net asset value of the fund today is $26 per share. What was her holding period return (HPR)? HPR = ending value − beginning value + income beginningvalue = ( $ 26 − $ 25 ) +( $ 1.50 + $ 2 ) $ 25 = $ 4.50 $ 25 = 0.18 ∨ 18%

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version