40 Questions
Which section of the financial statements includes cash inflows and outflows from daily activities?
Operating Activities
What is the purpose of the Statement of Retained Earnings?
To capture what is distributed to shareholders and what is retained by the company
What can companies use retained earnings for?
Either to pay off existing debt or reinvest in the company
What is the purpose of Notes to Financial Statements?
To clarify financial statements or provide additional information
What is included in Investing Activities?
Cash expenditures for the purchase of assets or cash receipts through the sale of assets
What is Financing Activities?
Includes cash raised by borrowing money or the issuance of shares
What is the purpose of the Statement of Retained Earnings in relation to the previous retained earnings balance?
To carry forward the previous retained earnings balance and add the net profit
Why is it important to study Notes to Financial Statements?
Because they contain information that may be important for an accurate comprehension of financial statements
What is the primary objective of passive portfolio managers?
To replicate the return of the benchmark as closely as possible
What is the benchmark in passive portfolio management?
A market index, such as the S&P/TSX composite index
How do passive portfolio managers achieve their goal?
By purchasing the exact same securities in the same proportion as the index
What is the result of a passive investment strategy on trading within a mutual fund?
A decrease in trading activity
What is the benefit of a passive investment strategy on management expense ratios (MERs)?
MERs decrease due to lower transaction costs
What is the underlying theory of a passive investment strategy?
The Efficient Market Hypothesis (EMH) theory
What does the Efficient Market Hypothesis (EMH) theory state?
Market prices of securities reflect all publicly available information
What is the implication of the Efficient Market Hypothesis (EMH) theory?
It is futile to attempt finding mis-priced securities
What is an active portfolio manager attempting to do in the market?
Identify undervalued securities to generate higher returns.
What is a key characteristic of an active portfolio management strategy?
It has the flexibility to select securities aligned with the investment mandate.
In the first year, why did Cheri's mutual fund outperform the S&P/TSX Composite Index?
The portfolio manager found opportunities in the resource and retail sectors.
What did the portfolio manager do in the second year to respond to the market downturn?
Took profits in some holdings and held cash as a defensive move.
Why did Cheri's mutual fund drop less than the S&P/TSX Composite Index in the second year?
The portfolio manager took profits and held cash as a defensive move.
What is the primary goal of an active portfolio manager?
To generate higher returns than the market index.
How did the portfolio manager adjust the mutual fund in the first year?
Sold underperforming holdings and reallocated the cash to other investments.
What is the benefit of an active portfolio management strategy?
It has the potential to generate higher returns than the market index.
What is the total value of the portfolio in scenario 1 after one year?
$1,040
If the price of the shares does not change, what is the impact on the end value of the portfolio?
The end value remains the same as the beginning value
What happens to the capital gain if the bond is not sold?
It remains unrealized
What is the value of the portfolio in scenario 3 after one year?
$740
What is the end value of the portfolio in scenario 5?
$1,540
What happens to the end value of the portfolio if the dividend is not paid in scenario 2?
It remains the same as the beginning value
What is the market value of the bond?
$1,010
What is the capital gain if the bond is sold?
$10
What happens to the end value in scenario 1 due to the dividend payment?
It increases by $40
What is the unrealized capital loss in scenarios 3 and 4?
$300
Why does the dividend payment in scenario 3 recover some of the loss?
Because the dividend payment increases the portfolio value
What happens to the portfolio in scenarios 5 and 6?
It increases in value
What is the status of gains or losses until the securities are sold?
Unrealized
Why are mutual fund investors interested in performance?
Both A and B
What happens to the prices of securities when the markets are open for trading?
They fluctuate
What do mutual fund investors use to compare potential new investments?
Performance
Learn about passive portfolio management strategy where portfolio managers choose securities according to a specific benchmark like stock indices. Understand how benchmarks are used to measure investment performance and how passive managers aim to replicate the benchmark rather than outperform it.
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