mutual Fund Quiz
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Questions and Answers

What happens to dividend stock prices when interest rates rise?

  • They are unaffected by interest rates
  • They fall to maintain yield competitiveness (correct)
  • They increase to attract more investors
  • They remain stable regardless of rates

    • High-yielding stocks are completely risk-free investments.

    False

    What is the primary purpose of funds?

    To make money for their investors

    A _______ is required by law to be operationally independent from the management company in a fund.

    <p>custodian</p> Signup and view all the answers

    Which function involves adjusting the portfolio as necessary?

    <p>Investment management</p> Signup and view all the answers

    A qualified professional auditor must be independent of the fund's management company.

    <p>True</p> Signup and view all the answers

    Match the following functions with their descriptions:

    <p>Marketing = Attracts money and keeps investors informed Administration = Records transactions and reports to investors Investment Management = Invests money in assets aligned with investment objectives Custodian = Holds fund assets independently</p> Signup and view all the answers

    Funds must be audited by a qualified professional _______ who checks financial statements.

    <p>auditor</p> Signup and view all the answers

    What is the primary role of collective investment funds?

    <p>To stand between the investor and the borrowing entity</p> Signup and view all the answers

    A decline in the market value of securities in a fund will always increase the Net Asset Value per share.

    <p>False</p> Signup and view all the answers

    What is the formula for calculating the Net Asset Value (NAV) per share?

    <p>NAV = (Total Values of Assets - Current Liabilities) ÷ Number of Shares</p> Signup and view all the answers

    The market value of new shares, when 8000 new shares are issued at a NAV of EGP 50, is EGP ______.

    <p>400,000</p> Signup and view all the answers

    Match the following types of mutual funds with their descriptions:

    <p>Money market mutual funds = Hold short-term, low-risk instruments Bond funds = Hold fixed-income securities Treasury bond funds = Primarily invest in government-issued bonds Mortgage-backed securities funds = Invest mainly in securities backed by mortgage loans</p> Signup and view all the answers

    If the market value of securities in the fund is EGP 5,000 and current liabilities are EGP 1,600 with 100 shares outstanding, what is the Net Asset Value per share?

    <p>EGP 46</p> Signup and view all the answers

    The purpose of stimulating the development of collective investment funds is to encourage savings and reduce future dependency on the state.

    <p>True</p> Signup and view all the answers

    What happens to the NAV per share if current liabilities increase while total assets remain unchanged?

    <p>NAV per share decreases.</p> Signup and view all the answers

    What is one reason governments encourage the development of funds?

    <p>It helps to mobilize capital.</p> Signup and view all the answers

    Hedge funds only invest in stocks and bonds.

    <p>False</p> Signup and view all the answers

    What is the main purpose of issuing bonds by companies and governments?

    <p>To finance their current and future operations.</p> Signup and view all the answers

    Smaller savers investing through funds helps to finance longer-term borrowing through the purchase of _____ and _____.

    <p>bonds, shares</p> Signup and view all the answers

    Match the following investment types to their descriptions:

    <p>Derivatives = Financial contracts whose value depends on an underlying asset Distressed firms = Companies facing bankruptcy or severe financial difficulties Convertible bonds = Bonds that can be converted to a predetermined number of shares Currency speculation = Investing with the aim of profiting from currency fluctuations</p> Signup and view all the answers

    Which of the following represents indefinite or permanent borrowing?

    <p>Shares</p> Signup and view all the answers

    Insurance and pension funds are considered bank financial institutions.

    <p>False</p> Signup and view all the answers

    What do companies aim to achieve by increasing profits and paying rising dividends?

    <p>To increase demand for their shares and enhance share prices.</p> Signup and view all the answers

    What is the primary function of mutual funds?

    <p>To collect funds from investors and invest in various assets</p> Signup and view all the answers

    Mutual funds allow individual investors to hold fractional shares of many different securities.

    <p>True</p> Signup and view all the answers

    What is the key idea behind investment companies and mutual funds?

    <p>Pooling of assets</p> Signup and view all the answers

    Mutual funds serve as a major intermediary between __________ and __________.

    <p>savers; borrowers</p> Signup and view all the answers

    Match the following functions of investment companies with their descriptions:

    <p>Record keeping and administration = Keeping track of capital gains and investments Diversification = Enabling investors to hold fractional shares Reinvestment = Reinvesting dividends and interest income for shareholders Pooling of assets = Collecting funds from individual investors</p> Signup and view all the answers

    Which of the following is NOT a function performed by investment companies?

    <p>Providing bank loans</p> Signup and view all the answers

    Investors in mutual funds have a claim to the the portfolio in proportion to the amount they invested.

    <p>True</p> Signup and view all the answers

    Name a type of asset that mutual funds invest in.

    <p>Equities, bonds, or money market instruments</p> Signup and view all the answers

    Which fund has the highest total revenues?

    <p>Fund A</p> Signup and view all the answers

    Fund B has no current liabilities.

    <p>False</p> Signup and view all the answers

    What is the Net Asset Value (NAV) of Fund A?

    <p>137.14</p> Signup and view all the answers

    The actual increase in securities market value for Fund A is ______ EGP.

    <p>157702</p> Signup and view all the answers

    Match the funds with their Total Current Assets:

    <p>Fund A = 908701 Fund B = 518427</p> Signup and view all the answers

    What is the total expenses for Fund B?

    <p>59022</p> Signup and view all the answers

    Both funds recorded zero extra ordinary revenues.

    <p>True</p> Signup and view all the answers

    What is the total asset value of Fund B?

    <p>493867</p> Signup and view all the answers

    The par-value of Fund's shares is ______ EGP.

    <p>100</p> Signup and view all the answers

    Which fund experienced a higher net income?

    <p>Fund A</p> Signup and view all the answers

    What was the Fund’s invested capital turnover in 2023?

    <p>27.87%</p> Signup and view all the answers

    The Debt Ratio increased from 2022 to 2023.

    <p>True</p> Signup and view all the answers

    What was the total net income for the Fund in 2023?

    <p>54105</p> Signup and view all the answers

    The ratio of returns on securities investments to the fund's total revenues in 2023 was ________%.

    <p>42.93</p> Signup and view all the answers

    Match the following ratios to their values in 2023:

    <p>Fund’s invested capital turnover = 27.87% Debt Ratio = 7.65% Ratio of Bonds Invested = 4.99% Gain/Loss of Invested financial securities = 96.19%</p> Signup and view all the answers

    Which of the following ratios showed a decrease from 2022 to 2023?

    <p>Ratio of investment in local Shares</p> Signup and view all the answers

    The Fund's total revenue in 2023 was less than in 2022.

    <p>False</p> Signup and view all the answers

    What was the Fund's NAV (Net Asset Value) in 2023?

    <p>46.2</p> Signup and view all the answers

    The ratio of T-Bills invested in 2023 was ________.

    <p>Zero</p> Signup and view all the answers

    How much did the actual increase in securities market value amount to in 2023?

    <p>19091</p> Signup and view all the answers

    The ratio of securities invested capital to Fund’s capital decreased from 2022 to 2023.

    <p>True</p> Signup and view all the answers

    What is the amount of total expenses for the Fund in 2023?

    <p>2144</p> Signup and view all the answers

    The net income from selling securities in 2023 was ________.

    <p>24145</p> Signup and view all the answers

    What is the Gain/Loss of Invested financial securities to total revenues ratio in 2022?

    <p>52.43%</p> Signup and view all the answers

    Study Notes

    Mutual Funds Management & Valuation

    • Mutual funds are financial intermediaries collecting funds from individual investors.
    • Investors pool assets to gain the benefits of large-scale investing.
    • Mutual funds invest in securities like bonds, equities and money market instruments.
    • Ownership of the fund is proportional to the number of shares purchased.

    Investment Companies Importance

    • Investment companies allow small investors to leverage large-scale investing.
    • Record-keeping and administration: Investors receive periodic reports tracking investments, distributions, and redemptions.
    • Diversification and divisibility: Fractional shares of many securities are accessible.
    • Professional management: Security analysts and portfolio managers can increase investment yield.
    • Lower transaction costs: Investment companies reduce brokerage fees for bulk transactions.
    • Flexibility: Funds can buy and sell daily, offering flexibility to investors, facilitating various investment objectives (preservation, growth, income).

    Net Asset Value (NAV)

    • NAV is the current market value of a fund's assets minus liabilities, divided by outstanding shares.
    • NAV = (Market value of assets - fund liabilities) / Number of outstanding shares.
    • Example: A fund with $6 million in assets, $60,000 in liabilities, and 500,000 outstanding shares has a NAV of $11.88.

    Types of Investment Companies

    • Unit Investment Trusts (Unmanaged): Fixed portfolio; little active management.
    • Managed Investment Companies: Portfolios are managed; further categorized into closed-end or open-end companies (mutual funds).
      • Open-end: Shares are bought and sold to fund; daily changes in outstanding shares.
      • Closed-end: Shares are bought only at initial offering; traded on exchanges; price may vary from NAV.

    Government Encouragement of Funds

    • Governments encourage diversification of funds through policies and incentives.
    • Funds encourage public savings to be utilized for investments financing governments’ and companies’ operations.
    • Government encourages fund development through collective investment by bank, insurance companies etc.

    Practical Case

    • Example calculation of NAV for a mutual fund with 100,000 shares, $6,600,000 in assets, and $1,600,000 in liabilities, yielding a NAV of $50.
    • In case of issuing new shares of 8000 shares, calculation of the market value for new shares.
    • Calculation of NAV, if the market value of securities declines to EGP 5000.

    Types of Mutual Funds (Investment Policies)

    • Equity Funds: Invest mainly in stocks, categorized by:
      • Growth, Emerging market, Global, Growth and income, Income equity, International, Regional.
    • Bond Funds: Invest in bonds, categorized by:
      • Corporate bond-general, Corporate bond-intermediate-term, Corporate bond-short-term, Global bond-general, Global bond-short-term, Government bond-general, Government bond-intermediate-term, Government bond-short-term, High-yield, Mortgage-backed.
    • Hybrid Funds: Mix of stocks and bonds;
      • Asset allocation and flexible portfolio, Target-date.
    • Money Market Funds: Invest in short-term, low-risk securities.

    Mutual Funds Objectives

    • Growth Funds: Focus on capital appreciation for stocks.
    • Growth-And-Income Funds: Aim to combine both capital gains and dividend income.
    • Income Funds: Seek income through dividend payments prioritized over capital gains.

    Operational Functions of Mutual Funds

    • Marketing: Attract investors, generate demand.
    • Administration: Recording transactions, managing investor accounts.
    • Investment Management: Managing assets in alignment with fund objectives.
    • Custody: Safeguarding and managing fund assets under the management of a custodian entity.
    • Audit: Independent verification of financial statements.
    • Compliance: Adhering to legal requirements and regulations.

    Role of the Custodian

    • Custodian is responsible for safeguarding fund assets.
    • Custodians must be independent of the fund management company.
    • Custodial duties are specific legal requirements as stated in the rules and regulations.

    Analyzing Fund Performance

    • Individual performance objectives vary but typically investors aim for capital or income returns.
    • Performance is traditionally measured as percentage change in NAV.
    • Performance calculations include increases/decreases in NAV (unit price) and distributions.
    • Example: Fund D increased NAV by 8.8%. Other calculations detailed in the text.

    Treatment of Entry and Exit Fees

    • Entry and exit costs (fees) should be considered in calculating fund performance.
    • Basis of comparison of NAVs and offer and bid return calculations.

    Time Periods

    • Different time periods yield varying returns, with longer periods potentially having both excellent and poor performance periods.
    • Performance measurement should encompass all relevant periods.

    Benchmarks

    • Use benchmarks as reference points for comparing fund performance with other investment products, the performance of other similar funds or sector index.
    • Comparison can assess whether the fund's objective has been achieved and/or whether the investment manager has shown added value or improvement over the market.

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    Mutual Funds Booklet Fall 2024 PDF

    Description

    Test your knowledge on the intricacies of investment funds, including their primary purposes and the impact of interest rates on dividend stock prices. Explore important concepts like Net Asset Value (NAV) and the roles of professionals in fund management.

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