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CSI IFC Exam Questions
Investment Funds in Canada (Page 17 )

Updated On: 28-Feb-2026
Page 17 of 99
PDF with 486 Questions

Which factors would cause the management expense ratio charged by a mutual fund to be higher?

The fund invests in foreign equities

The fund is large in size

The fund is managed by the fund sponsor's management team

The fund pays a trailer fee

  1. 2 and 3
  2. 1 and 2
  3. 1 and 4
  4. 3 and 4

Answer(s): C

Explanation:

Factors that increase a mutual fund's management expense ratio (MER) include investing in foreign equities and paying trailer fees, as these add to operational costs. The feedback from the document states:

"Four factors primarily affect the management expense ratio. Funds that invest in foreign equities; are small in size; are managed by an outside specialist firm; and charge trailer fees will have higher management expense ratios."


Reference:

Chapter 16 ­ Mutual Fund Fees and ServicesLearning Domain: Evaluating and Selecting Mutual Funds



An investor purchases units of an equity fund for $17.60. In which of the following circumstances would an investor potentially owe taxes on capital gains?

  1. The fund is sold today for $18.80 per unit and the proceeds are reinvested
  2. The fund is currently valued at $18.80 per unit
  3. A dividend distribution is reinvested into additional units of the same fund
  4. The fund is currently valued at $16.45 per unit

Answer(s): A

Explanation:

Capital gains are realized when an investor sells a fund at a profit. Selling units at $18.80 (purchased at $17.60) triggers a taxable capital gain in a non-registered account. The feedback from the document states:

"Capital gains are generated when an investor sells an investment for more than the price paid; for example, selling a stock at a profit will generate a capital gain. Capital gains are not realized when an investment goes up in price; a sale must occur."


Reference:

Chapter 16 ­ Mutual Fund Fees and ServicesLearning Domain: Evaluating and Selecting Mutual Funds



Which exemplifies the tendency of mutual fund companies to shut down poor performing funds?

  1. Standby underwriting
  2. Survivorship bias
  3. Short selling
  4. Standard lot

Answer(s): B

Explanation:

Survivorship bias occurs when poor-performing funds are closed, excluding them from performance rankings and inflating the perceived performance of surviving funds. The feedback from the document states:

"All comparison universes also exhibit some degree of survivorship bias no matter how carefully the universes are constructed. Survivorship bias develops as defunct portfolios drop out and are excluded from rankings in subsequent quarters. A performance universe is essentially a universe of survivors."


Reference:

Chapter 14 ­ Understanding Mutual Fund PerformanceLearning Domain: Evaluating and Selecting Mutual Funds



Which index would investors use as a benchmark for doing research on the largest listed public companies in the US marketplace?

  1. S&P/TSX Composite
  2. MSCI EAFE Index
  3. FTSE Canada Universe Bond Index
  4. S&P 500

Answer(s): D

Explanation:

The S&P 500 is the appropriate benchmark for researching the largest listed public companies in the US market. The feedback from the document provides:

"Index: S&P 500, Description: The 500 largest publicly held companies that trade on U.S. markets, Performance uses: U.S. equity funds."


Reference:

Chapter 14 ­ Understanding Mutual Fund PerformanceLearning Domain: Evaluating and Selecting Mutual Funds



Which Sharpe ratio result would indicate that the fund earned a return less than the risk-free return?

  1. 2.5
  2. 1
  3. -0.2
  4. 0.5

Answer(s): C

Explanation:

A negative Sharpe ratio indicates that the fund's return is less than the risk-free rate, as the numerator (Fund Return - T-bill Rate) is negative. The feedback from the document states:

"The Sharpe ratio is calculated as (Fund Return - T-bill Rate) ÷ Fund Standard Deviation. A negative Sharpe ratio means the mutual fund has a return less than the risk-free rate, as the numerator of the ratio would be negative."


Reference:

Chapter 15 ­ Selecting a Mutual FundLearning Domain: Evaluating and Selecting Mutual Funds



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