IFIC Chapter 12 questions well answered
already passed
Equity Mutual Funds - correct answer ✔✔-invest in the common and preferred shares of publicly-traded
companies.
-have the goal of earning capital gains, sometimes with a current dividend income component.
-the riskiest of the three basic mutual fund types—money market, fixed-income, and equity funds
-suitable primarily for clients with longer investment time horizons.
-make no specific attempt to preserve capital
-average return performance of equity funds parallels that of the TSX Index
Canadian Equity Mutual Fund Categories - correct answer ✔✔-standard equity
-equity growth
-equity index
Standard Equity Fund - correct answer ✔✔-seeks to earn some combination of dividend income and
capital gains from investment in Canadian common stocks.
-this objective appears to be similar to that of a preferred dividend fund. The difference between the
two is that an equity fund usually has a much stronger capital gains focus.
Conservative Equity Funds - correct answer ✔✔-hold common shares of large capitalization firms with
strong dividend records. The capital appreciation potential for this type of shares is, however, limited.
Equity Growth Funds - correct answer ✔✔-the investment objective of an equity growth fund is capital
gains. Some dividend income may be earned, but probably not much (these companies tend to keep
their profits as retained earnings, reinvesting to continue to grow)
-seek out smaller firms that do not have the financial ability to pay dividends. They need all the funds
they can obtain in order to grow.
Equity Growth Fund Risks - correct answer ✔✔-smaller, growing firms have a greater potential for failure
, -these growth firms often trade at very high price/earnings ratios
-share price volatility
Small Cap Funds - correct answer ✔✔-an aggressive growth fund that invests exclusively in smaller,
lesser-known firms that are expected to grow at a faster rate than normal growth companies
-"Small cap" stands for small capitalization, which means that the market value of the equity of the firm
is relatively low, probably because the firm itself is small.
-rarely pays dividends.
-aggressive and riskier than regular growth funds.
-return is expected to be primarily from capital gains.
-typically firms making and marketing new types of products for which market demand may be difficult
to determine
-a type of specialty fund
Market Capitalization Calculation - correct answer ✔✔-Market Capitalization = Number of shares
outstanding × Current Market Share Price
Conservative Equity Growth Funds - correct answer ✔✔-seek out small, growth-oriented firms that have
higher market capitalizations than small cap funds
Equity Index Fund - correct answer ✔✔-has the goal of replicating the movements of a market index.
-in Canada, that particular index is often the S&P/TSX Composite Index. Similar weightings to the index it
tries to replicate
-index funds generally do not hold all of the stocks represented in the index they try to replicate
-appeal to investors who believe in market efficiency
-lower management fees
-equity index funds typically generate capital gains, and are also likely to earn a certain amount of
dividend income (can also earn interest income). This is not always the case, however. Some equity index
funds do not own equities at all. Instead, they hold risk free investments like T-bills and purchase
derivatives that closely replicate the index return.
already passed
Equity Mutual Funds - correct answer ✔✔-invest in the common and preferred shares of publicly-traded
companies.
-have the goal of earning capital gains, sometimes with a current dividend income component.
-the riskiest of the three basic mutual fund types—money market, fixed-income, and equity funds
-suitable primarily for clients with longer investment time horizons.
-make no specific attempt to preserve capital
-average return performance of equity funds parallels that of the TSX Index
Canadian Equity Mutual Fund Categories - correct answer ✔✔-standard equity
-equity growth
-equity index
Standard Equity Fund - correct answer ✔✔-seeks to earn some combination of dividend income and
capital gains from investment in Canadian common stocks.
-this objective appears to be similar to that of a preferred dividend fund. The difference between the
two is that an equity fund usually has a much stronger capital gains focus.
Conservative Equity Funds - correct answer ✔✔-hold common shares of large capitalization firms with
strong dividend records. The capital appreciation potential for this type of shares is, however, limited.
Equity Growth Funds - correct answer ✔✔-the investment objective of an equity growth fund is capital
gains. Some dividend income may be earned, but probably not much (these companies tend to keep
their profits as retained earnings, reinvesting to continue to grow)
-seek out smaller firms that do not have the financial ability to pay dividends. They need all the funds
they can obtain in order to grow.
Equity Growth Fund Risks - correct answer ✔✔-smaller, growing firms have a greater potential for failure
, -these growth firms often trade at very high price/earnings ratios
-share price volatility
Small Cap Funds - correct answer ✔✔-an aggressive growth fund that invests exclusively in smaller,
lesser-known firms that are expected to grow at a faster rate than normal growth companies
-"Small cap" stands for small capitalization, which means that the market value of the equity of the firm
is relatively low, probably because the firm itself is small.
-rarely pays dividends.
-aggressive and riskier than regular growth funds.
-return is expected to be primarily from capital gains.
-typically firms making and marketing new types of products for which market demand may be difficult
to determine
-a type of specialty fund
Market Capitalization Calculation - correct answer ✔✔-Market Capitalization = Number of shares
outstanding × Current Market Share Price
Conservative Equity Growth Funds - correct answer ✔✔-seek out small, growth-oriented firms that have
higher market capitalizations than small cap funds
Equity Index Fund - correct answer ✔✔-has the goal of replicating the movements of a market index.
-in Canada, that particular index is often the S&P/TSX Composite Index. Similar weightings to the index it
tries to replicate
-index funds generally do not hold all of the stocks represented in the index they try to replicate
-appeal to investors who believe in market efficiency
-lower management fees
-equity index funds typically generate capital gains, and are also likely to earn a certain amount of
dividend income (can also earn interest income). This is not always the case, however. Some equity index
funds do not own equities at all. Instead, they hold risk free investments like T-bills and purchase
derivatives that closely replicate the index return.
