IFIC Question and answers verified to pass Unique Risk - correct answer - If a security's price is affected by new information, and if new information arrives frequently, then its price will tend to be volatile, and so will the returns that it generates
- When more than one security is held i...
IFIC - Section 5 Chapter 15 - Selecting a
Mutual Fund
Unique Risk - correct answer ✔- If a security's price is affected by new
information, and if new information arrives frequently, then its price will tend to
be volatile, and so will the returns that it generates
- When more than one security is held in a portfolio, these unique risks tend to
cancel each other out. (diversification will cancel unique risk out.)
Default Risk - correct answer ✔- The risk that a bond coupon will not be paid
(You can reduce this by avoid specializing in corporate bonds.)
Market Risk (Systematic risk) - correct answer ✔- Changes in the overall
market affecting an entire class of securities; no way to reduce this
Exchange Rate Risk - correct answer ✔- Changes in the relative value of the
currencies of the countries of investment
(You can reduce this by Hedging)
Interest Rate Risk - correct answer ✔- Changes in interest rates leading to
changes in Fixed-income securities prices
(You can reduce this by avoid specializing in fixed-income securities.)
What are the steps in selecting a Mutual Fund ? - correct answer ✔1)
Research the Performance Data
2) Focus on Appropriate Investment Objectives
3) Focus on Best Long Term Performance: a
, 4) Focus on Best Year to Year Performance:
5) Focus on Good Performers with Lower Volatility:
6) Focus on Funds with Successful Investment Managers
7) Compare Fund Facts Documents and Compare Prospectuses
8) Examine Fees and Charges
9) Analyze the Size of the Fund
10) Make the Decision
Canadian Investment Funds Standards Committee (CIFSC) - correct answer
✔the body that oversees mutual fund classification, listing 45 categories
containing more than 5000 funds
4 elements of mutual funds before selecting candidates - correct answer ✔1.
People
2. Philosophy
3. Process
4. Performance
GARP managers seek companies with which of the following criteria
compared to the industry average? - correct answer ✔Stocks with high
return on equity.
Managers that use the Growth at a Reasonable Price (GARP) approach tend
to look
1. Companies with projections of growing earnings plus high and increasing
returns on equity relative to the industry average.
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