Chapter 11 Flashcards
What is the acceptable average term to maturity for a money market fund be?
60 days
How often to money market funds distribute the earned income?
Monthly
Describe how the effective yield calculation treats the 7-days return?
It assumes that the returns earned weekly are re-invested in the fund
Mortgage Fund
The in the “fixed-income” category, along with bond funds and preferred dividend funds
- Earn income in the form of interest and can also generate capital gains
- Carry higher risk than money market funds but less risk the bond funds
Money Market Funds
Must invest at least 95% of their total net assets in money market securities (short-term, high liquidity fixed income investments of varying maturities of 364 days or less that are readily available into cash)
- not very sensitive to changes in interest rates and low default risk
- not insured by the CDIC
- may fluctuate in value with changes in short-term rates
- include: T-Bills, high-quality corporate securities like commercial paper and banker’s acceptances
Seven-Day Yield Calculation
= ending net asset value / initial net asset value - 1
Current Yield Calculation
= (seven day yield x 365 )
——
7
Current Yield Calculation
= ending net asset value/ initial net asset value - 1 = A
A x 365 / 7 x100 = Current Yield
Effective Yield Calculation
[(1+seven day yield) ^ 365/7 -1]
When are residential mortgages considered as a conventional mortgage?
When they do not exceed 80% of the appraised value of the property
