Canadian Investment Funds Course Unit 5: Types of Investments

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What is the main purpose of a Dealing Representative having in-depth knowledge about different types of investments?

To impress clients with complex investment jargon

To confuse clients with investment options

To showcase expertise in financial markets

To effectively match clients with suitable investments (correct)

Which type of investments are covered in the 'Types of Investments' unit as mentioned?

Cryptocurrencies and collectibles

Real estate and commodities

Art and antiques

Fixed income and money market instruments (correct)

What is the approximate duration of Unit 5: Types of Investments as mentioned?

2 hours and 10 minutes (correct)

3 hours

45 minutes

1 hour and 30 minutes

What is the main focus of Lesson 1: Building Blocks of Mutual Funds?

Learning about mutual fund structures Signup and view all the answers

What does a mutual fund typically consist of?

A mix of different types of investments Signup and view all the answers

Why is it important for Dealing Representatives to know about the investment objectives of mutual funds?

To match clients with suitable investments Signup and view all the answers

What is the key role of a Dealing Representative when it comes to mutual funds?

Educating clients about mutual funds Signup and view all the answers

'Equities' mentioned in the unit most likely refer to what type of asset?

Stocks or shares in companies Signup and view all the answers

What is the main investment profile of zero-coupon bonds?

Income and stability of principal Signup and view all the answers

Why are zero-coupon bonds typically held in registered accounts like RRSPs?

To shelter interest income from taxes Signup and view all the answers

What happens to the accrued interest income of strip bonds held in a nonregistered account?

Investors pay taxes on it annually Signup and view all the answers

How do zero-coupon bonds differ from strip bonds in terms of tax implication?

Zero-coupon bonds accrue interest annually for tax purposes Signup and view all the answers

Where does the interest income generated by securities like strip bonds go if held in a registered account?

It is sheltered from taxes Signup and view all the answers

What is the primary characteristic of zero-coupon bonds' face value at maturity?

It is pre-determined Signup and view all the answers

How do investors benefit by holding strip bonds in a registered account?

They are not taxed on accrued interest income Signup and view all the answers

What is the tax implication for investors holding strip bonds in a nonregistered account?

They pay annual taxes on accrued but unpaid interest income Signup and view all the answers

What is the purpose of investing in coupon bonds?

To maintain a stable income with higher returns than money market securities Signup and view all the answers

In the context of coupon bonds, what happens if the issuer defaults on payments?

The bondholder initiates bankruptcy proceedings against the issuer Signup and view all the answers

How are coupon payments for coupon bonds calculated?

Coupon Payment = [(face value x coupon rate) ÷ number of payments per year] Signup and view all the answers

What is Karen's semi-annual coupon payment on her $10,000 ABC bond with a 6% coupon rate?

$300 Signup and view all the answers

What type of payment does Karen receive on February 1, Year 4, in relation to her ABC bond investment?

Interest payment Signup and view all the answers

Why do bondholders of coupon bonds no longer receive physical certificates?

To reduce the risk of losing certificates Signup and view all the answers

What investment objective do coupon bonds primarily aim to achieve?

Stability of income with relatively higher returns than money market securities Signup and view all the answers

If a bondholder wants to force the issuer into bankruptcy due to defaults, what can they use the proceeds from selling assets for?

To repay both principal and interest payments Signup and view all the answers

What is the annual coupon payment on a bond with a par value of $800 and a coupon rate of 6%?

$40 Signup and view all the answers

If a bond's market price rises above its par value, what can be said about its current yield?

It will be less than the coupon rate Signup and view all the answers

What is the current yield on a bond sold at a premium of $1,500 with an annual coupon payment of $75?

4.5% Signup and view all the answers

If interest rates increase, what happens to the market price of a bond trading at a premium?

It decreases Signup and view all the answers

How does the current yield of a bond relate to its yield-to-maturity when it's trading at a discount?

Current yield is greater than yield-to-maturity Signup and view all the answers

What is the relationship between bond prices and interest rates when the bond is trading at par?

Current Yield equal to Coupon Rate Signup and view all the answers

In which scenario would a bond be considered to be trading at a discount?

$1,000 bond selling for $950 Signup and view all the answers

What are the key differences between forward contracts and futures contracts?

Futures contracts are customized contracts, while forward contracts are standardized. Signup and view all the answers

If Jerome enters into a forward contract to lock in the Canadian-Euro exchange rate, what does this ensure?

That Jerome will pay the exchange rate at the three specified points in time. Signup and view all the answers

How do forward and futures contracts differ in terms of trading venue?

Forward contracts are traded through a broker-dealer, while futures contracts are not. Signup and view all the answers

What role does a clearinghouse play in futures contracts?

The clearinghouse ensures that buyers and sellers follow through on the contract. Signup and view all the answers

In what way do derivatives like options, forward, and futures contracts contribute to mutual fund management?

Derivatives help to reduce risk and maximize profits in mutual funds. Signup and view all the answers

Which currency are Canadian mutual funds mostly denominated in?

Canadian Dollars Signup and view all the answers

Why might it be risky for buyers and sellers in forward contracts if there is no clearinghouse involved?

Buyers and sellers have no protection against defaulting on their contractual obligations. Signup and view all the answers

How does entering into a forward contract impact Jerome's certainty about future payment obligations?

'Jerome will have to pay in the future' is certain with a forward contract. Signup and view all the answers

What is the primary focus of portfolio managers who use the bottom-up approach?

Individual companies Signup and view all the answers

What is the main criterion Jenny uses to identify investment prospects for the European Value Fund?

Companies' good prospects Signup and view all the answers

Why does Jenny decide to invest in Kredietbank and Peroni Company despite the economic conditions of Belgium and Italy?

Solid management and good company prospects Signup and view all the answers

Which aspect of companies does Jenny focus on during her investment process for the European Value Fund?

Business prospects Signup and view all the answers

What do portfolio managers using the bottom-up approach believe can lead to success for good companies?

Solid management and business prospects Signup and view all the answers

How do portfolio managers using the bottom-up approach view the importance of market cycles?

Secondary consideration Signup and view all the answers

Which investment style looks for securities of companies with above-average growth potential compared to their peers?

Growth Signup and view all the answers

Bottom-Up Portfolio managers primarily focus on which level of analysis?

Individual companies Signup and view all the answers

What prevents Susan's portfolio manager from making defensive moves to protect investors in her index fund?

Being passively managed Signup and view all the answers

Why do practitioners of active portfolio management believe in their ability to outperform benchmarks?

Market inefficiencies Signup and view all the answers

What is the key difference between passive and active portfolio management?

Portfolio managers' ability to pick securities Signup and view all the answers

Why are passive investment strategies often criticized in terms of downside protection?

Inability to make defensive moves Signup and view all the answers

What is the core belief that drives active portfolio managers to seek outperforming benchmarks?

Market inefficiencies in security pricing Signup and view all the answers

What concept forms the basis of active portfolio management that passive strategies lack?

Market inefficiencies in pricing Signup and view all the answers

Why might Susan's index fund experience exaggerated ups and downs compared to the benchmark?

-10.7% mutual fund return in a falling market Signup and view all the answers

What kind of information do financial ratios provide about a company's future prices?

General trends Signup and view all the answers

Which aspect of financial ratios allows portfolio managers to compare companies of different sizes?

Relative numbers Signup and view all the answers

What is the primary focus of liquidity ratios in financial analysis?

Ability to meet short-term obligations Signup and view all the answers

Which statement best describes the purpose of profitability ratios?

Evaluating revenue-generating capabilities Signup and view all the answers

How are financial ratios used by portfolio managers to identify trends and opportunities?

By analyzing data over time Signup and view all the answers

In financial analysis, what do debt-equity ratios primarily indicate about a company?

Financing structure Signup and view all the answers

Why are portfolios that are below the efficient frontier considered inefficient and inferior?

They offer lower returns for the same level of risk. Signup and view all the answers

Which type of financial statement is used by portfolio managers to analyze securities and provides information about the company's assets, liabilities, and equity at a specific point in time?

Balance Sheet Signup and view all the answers

What do portfolio managers assess when using liquidity ratios in evaluating securities?

Ability to meet short-term obligations Signup and view all the answers

Which type of ratio helps portfolio managers assess how much of a company's operations are financed by debt versus equity?

Debt-equity ratio Signup and view all the answers

What is the primary focus of financial analysis for portfolio managers?

Assessing past and current company performance Signup and view all the answers

What is required of companies that make their securities available to the public?

Annual publication of audited financial statements Signup and view all the answers

What impact does a strong Canadian dollar relative to the U.S. dollar have on the return of U.S. investments held by Canadian investors?

The return is reduced after assets are converted into Canadian dollars Signup and view all the answers

How does volatility affect the actual performance of a mutual fund?

High volatility leads to dramatic price fluctuations, affecting actual performance Signup and view all the answers

In assessing the total return of a fund, why is it important to know the types of risks to which securities are exposed?

To understand the impact of volatility on security values Signup and view all the answers

How do investments with lower volatility levels differ in terms of price changes over time compared to highly volatile securities?

Experience steady price change over time Signup and view all the answers

When looking at measures of investment risks, what is referred to as a measure of changes in a security's value over time?

Volatility Signup and view all the answers

How do highly volatile securities differ from investments with lower volatility levels in relation to expected performance?

Low volatility investments are more likely to meet expected performance Signup and view all the answers

What does the term 'volatility' primarily measure in relation to securities?

Changes in value over a period of time Signup and view all the answers

How do securities with higher volatility levels typically behave compared to those with lower volatility levels?

'More-risky' but 'lower-liquidity' Signup and view all the answers

Canadian Investment Funds Course Unit 5: Types of Investments

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Questions and Answers

What is the main purpose of a Dealing Representative having in-depth knowledge about different types of investments?

Which type of investments are covered in the 'Types of Investments' unit as mentioned?

What is the approximate duration of Unit 5: Types of Investments as mentioned?

What is the main focus of Lesson 1: Building Blocks of Mutual Funds?

What does a mutual fund typically consist of?

Why is it important for Dealing Representatives to know about the investment objectives of mutual funds?

What is the key role of a Dealing Representative when it comes to mutual funds?

'Equities' mentioned in the unit most likely refer to what type of asset?

What is the main investment profile of zero-coupon bonds?

Why are zero-coupon bonds typically held in registered accounts like RRSPs?

What happens to the accrued interest income of strip bonds held in a nonregistered account?

How do zero-coupon bonds differ from strip bonds in terms of tax implication?

Where does the interest income generated by securities like strip bonds go if held in a registered account?

What is the primary characteristic of zero-coupon bonds' face value at maturity?

How do investors benefit by holding strip bonds in a registered account?

What is the tax implication for investors holding strip bonds in a nonregistered account?

What is the purpose of investing in coupon bonds?

In the context of coupon bonds, what happens if the issuer defaults on payments?

How are coupon payments for coupon bonds calculated?

What is Karen's semi-annual coupon payment on her $10,000 ABC bond with a 6% coupon rate?

What type of payment does Karen receive on February 1, Year 4, in relation to her ABC bond investment?

Why do bondholders of coupon bonds no longer receive physical certificates?

What investment objective do coupon bonds primarily aim to achieve?

If a bondholder wants to force the issuer into bankruptcy due to defaults, what can they use the proceeds from selling assets for?

What is the annual coupon payment on a bond with a par value of $800 and a coupon rate of 6%?

If a bond's market price rises above its par value, what can be said about its current yield?

What is the current yield on a bond sold at a premium of $1,500 with an annual coupon payment of $75?

If interest rates increase, what happens to the market price of a bond trading at a premium?

How does the current yield of a bond relate to its yield-to-maturity when it's trading at a discount?

What is the relationship between bond prices and interest rates when the bond is trading at par?

In which scenario would a bond be considered to be trading at a discount?

What are the key differences between forward contracts and futures contracts?

If Jerome enters into a forward contract to lock in the Canadian-Euro exchange rate, what does this ensure?

How do forward and futures contracts differ in terms of trading venue?

What role does a clearinghouse play in futures contracts?

In what way do derivatives like options, forward, and futures contracts contribute to mutual fund management?

Which currency are Canadian mutual funds mostly denominated in?

Why might it be risky for buyers and sellers in forward contracts if there is no clearinghouse involved?

How does entering into a forward contract impact Jerome's certainty about future payment obligations?

What is the primary focus of portfolio managers who use the bottom-up approach?

What is the main criterion Jenny uses to identify investment prospects for the European Value Fund?

Why does Jenny decide to invest in Kredietbank and Peroni Company despite the economic conditions of Belgium and Italy?

Which aspect of companies does Jenny focus on during her investment process for the European Value Fund?

What do portfolio managers using the bottom-up approach believe can lead to success for good companies?

How do portfolio managers using the bottom-up approach view the importance of market cycles?

Which investment style looks for securities of companies with above-average growth potential compared to their peers?

Bottom-Up Portfolio managers primarily focus on which level of analysis?

What prevents Susan's portfolio manager from making defensive moves to protect investors in her index fund?

Why do practitioners of active portfolio management believe in their ability to outperform benchmarks?

What is the key difference between passive and active portfolio management?

Why are passive investment strategies often criticized in terms of downside protection?

What is the core belief that drives active portfolio managers to seek outperforming benchmarks?

What concept forms the basis of active portfolio management that passive strategies lack?

Why might Susan's index fund experience exaggerated ups and downs compared to the benchmark?

What kind of information do financial ratios provide about a company's future prices?

Which aspect of financial ratios allows portfolio managers to compare companies of different sizes?

What is the primary focus of liquidity ratios in financial analysis?

Which statement best describes the purpose of profitability ratios?

How are financial ratios used by portfolio managers to identify trends and opportunities?

In financial analysis, what do debt-equity ratios primarily indicate about a company?

Why are portfolios that are below the efficient frontier considered inefficient and inferior?

Which type of financial statement is used by portfolio managers to analyze securities and provides information about the company's assets, liabilities, and equity at a specific point in time?

What do portfolio managers assess when using liquidity ratios in evaluating securities?

Which type of ratio helps portfolio managers assess how much of a company's operations are financed by debt versus equity?

What is the primary focus of financial analysis for portfolio managers?

What is required of companies that make their securities available to the public?

What impact does a strong Canadian dollar relative to the U.S. dollar have on the return of U.S. investments held by Canadian investors?

How does volatility affect the actual performance of a mutual fund?

In assessing the total return of a fund, why is it important to know the types of risks to which securities are exposed?

How do investments with lower volatility levels differ in terms of price changes over time compared to highly volatile securities?

When looking at measures of investment risks, what is referred to as a measure of changes in a security's value over time?

How do highly volatile securities differ from investments with lower volatility levels in relation to expected performance?

What does the term 'volatility' primarily measure in relation to securities?

How do securities with higher volatility levels typically behave compared to those with lower volatility levels?

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