The ZZZ Money Market Fund has a 7-day yield of 0.05%. What is the current yield for the fund?Round your answer to two decimal places.
Answer(s): D
The current yield for a money market fund is calculated by annualizing the 7-day yield: (7-day yield × 365 / 7). For a 7-day yield of 0.05% (0.0005), the calculation is: 0.0005 × 365 / 7 = 0.02607 or 2.61%.The feedback from the document states:"The current yield for a money market fund is calculated as the most recent seven-day yield on the fund, adjusted to an annual rate. The formula is: Current yield = (Seven-day yield × 365 / 7). In this case the current yield is (0.0005 × 365 / 7) = 0.0261."
Chapter 11 Conservative Mutual Fund ProductsLearning Domain: Analysis of Mutual Funds
Which type of fund is least likely to produce capital gains income?
Answer(s): C
Money market funds invest in short-term securities that generate interest income, and their unit value remains constant (typically $10), preventing capital gains. The feedback from the document states:"All returns earned on money market funds are considered interest earnings and are taxed as interest income. Since money market funds invest only in money market securities that pay interest, no other type of income can be earned. Because the value of the units of a money market fund is constant ($10), no capital gains can be made on the sale of units of the fund."
What type of risk is the fundamental risk factor for fixed-income securities?
Interest rate risk is the primary risk for fixed-income securities, as their value decreases when interest rates rise due to fixed cash flows. The feedback from the document states:"Interest rate risk is the fundamental risk factor for fixed-income securities such as bonds, mortgages and preferred shares. As interest rates move up, the value of a fixed-income security falls. This is because the cash flow from the fixed-income security is fixed."
Which statement is most accurate about fund wraps?
Fund wraps are managed portfolios with pre-selected asset allocation models, where the wrap sponsor is responsible for allocation decisions. The feedback from the document states:"A fund wrap program provides a series of portfolios with multiple mutual funds to reflect pre- selected asset allocation models. Each model is designed to meet the needs of a group of investors sharing a similar client profile. Responsibility for the asset allocation decision falls to the wrap sponsor."
Chapter 12 Riskier Mutual Fund ProductsLearning Domain: Analysis of Mutual Funds
Your client, Mrs. DaSousa, would like to diversify her portfolio by investing in a global equity fund. What should you advise her about the foreign currency risk?
Global equity funds can act as a hedge against a decline in the Canadian dollar's value, increasing the investment's value in Canadian dollars if the foreign currency strengthens. The feedback from the document states:"Global mutual funds are attractive because they can provide a hedge against a decline in the relative value of the Canadian dollar. For example: if investors buy a Japanese fund, and then the value of the Canadian dollar falls relative to the yen, the Canadian dollar value of that investment will increase even if the value of the fund's units in yen has remained unchanged."
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