CSC - Canadian Securities Course Mutual Funds and ETFs Questions and Answers

Question 1

An investor is comparing two Canadian equity mutual funds. Fund A has a gross annual return of 8% and a Management Expense Ratio (MER) of 2.25%. Fund B has a gross annual return of 7.5% and an MER of 1.10%. Assuming all other factors are equal, what would be the approximate net return for the investor in each fund?

Accepted Answer

Fund A: 5.75%, Fund B: 6.40%

Answer

The net return to an investor is calculated by subtracting the Management Expense Ratio (MER) from the fund's gross return. For Fund A, the net return is 8% - 2.25% = 5.75%. For Fund B, the net return is 7.5% - 1.10% = 6.40%. This demonstrates how a lower MER can lead to a higher net return, even with a slightly lower gross performance.

Question 2

Which of the following statements BEST describes a key difference in how Exchange-Traded Funds (ETFs) and open-end mutual funds are priced and traded?

Accepted Answer

ETFs trade on a stock exchange and their prices can fluctuate throughout the day, whereas mutual funds are priced once daily at the close of business.

Answer

The primary trading and pricing difference is that ETFs trade on stock exchanges like individual stocks, with prices determined by supply and demand throughout the trading day (intraday). In contrast, open-end mutual funds are not traded on an exchange; buy and sell orders are executed only once per day at the Net Asset Value Per Share (NAVPS) calculated after the market closes.

Question 3

Within the structure of a mutual fund, which entity is primarily responsible for holding the fund's cash and securities in safekeeping to protect the assets of the investors?

Accepted Answer

The Custodian

Answer

The custodian is the entity, typically a trust company or chartered bank, responsible for the safekeeping of the mutual fund's assets (cash and securities). This separation of asset management (the manager) from asset custody is a key investor protection feature, ensuring the fund's portfolio is secure.

Question 4

An investor wants to gain exposure to the S&P/TSX Composite Index. Their primary goals are to achieve returns that closely track the index performance and to minimize annual investment costs. Which of the following investment products is MOST suitable for this investor?

Accepted Answer

A passive index-tracking ETF

Answer

A passive index-tracking ETF is designed specifically to replicate the performance of a benchmark index, like the S&P/TSX Composite. These funds typically have very low management expense ratios (MERs) compared to actively managed funds, making them the most suitable choice for an investor focused on tracking an index at the lowest possible cost.

Question 5

At what point is the Net Asset Value Per Share (NAVPS) of a Canadian mutual fund typically calculated and used for processing all buy and sell orders for that day?

Accepted Answer

At the close of business, typically 4:00 p.m. ET

Answer

The NAVPS for a mutual fund is calculated at the end of each business day, after the major North American markets have closed (typically 4:00 p.m. ET). All purchase and redemption orders placed during that day are processed at this single calculated price, ensuring fairness for all investors transacting on that day.

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Practice Test

CSC - Canadian Securities Course Mutual Funds and ETFs Questions and Answers