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NEW QUESTION # 46
David had $10,000 in his investment account with Dynamic Investments, a mutual funds dealer. On June 28, David wants to buy 500 units in ABC Canadian Dividend Fund that has a Net Asset Value Per Unit (NAVPU) of $14.10. His friend Robert suggests that he may get a better price if he used the strategy of dollar-cost averaging. David then instructs his Dealing Representative to place a purchase order for 100 units on the first of every month starting July 1st for the next 5 months.
The orders are executed at the following NAVPUs.
July 01, $14.00
Aug. 01, $14.50
Sep. 01, $15.00
Oct. 01, $14.25
Nov. 01, $16.50
Did David get a better purchase price following the dollar-cost averaging strategy compared to making a lump-sum purchase of 500 shares on Jun 28, 20xx?
- A. David realizes that Dollar cost averaging is the best strategy for getting lower prices.
- B. David got his 500 units at a lower price than the lump sum price he would have paid.
- C. David got his 500 units at the same price as the lump sum price he would have paid.
- D. David got his 500 units at a higher price than the lump sum price he would have paid
Answer: D
Explanation:
Explanation
Dollar-cost averaging is a strategy that involves investing equal amounts of money at regular intervals, regardless of the price of the security. By using dollar-cost averaging, investors may lower their average cost per share and reduce the impact of volatility on their portfolios. However, this strategy does not guarantee a better purchase price than making a lump-sum purchase. In this case, David got his 500 units at a higher price than the lump sum price he would have paid. His average cost per unit was $14.65, while the lump sum price was $14.10. Therefore, D is the correct answer. References: What Is Dollar-Cost Averaging?, What Is Dollar Cost Averaging?, Dollar-Cost Averaging: Definition and Examples
NEW QUESTION # 47
Patrick is a portfolio manager for the HyperTally Growth Fund. It has generated an annualized rate of return of
10% this past year. However, with the anticipation of very high inflation to soon occur, there is also an expectation of higher interest rates. Patrick is concerned about the future returns of existing stocks within the fund. What may Patrick do to protect against the market value of the fund dropping?
- A. Agree to buy forward contracts where he is in the "long' position.
- B. Purchase put options for the fund's existing assets.
- C. Avoid the use of derivatives because they are speculative in nature.
- D. Buy call options for the existing stocks stored within the fund.
Answer: B
NEW QUESTION # 48
You have been researching Canadian equity mutual funds for a new client. You come across the following information.
What can you conclude from this information?
- A. Fontaine Equity Fund has a lower risk level since its Sharpe Ratio is lower.
- B. Chamberlain Equity Fund has lower volatility since its 5-year annualized return is higher.
- C. Fontaine Equity Fund is a better fund because it has a higher quartile ranking.
- D. Fontaine Equity Fund's higher MER contributes to its lower 5-year annualized return.
Answer: D
NEW QUESTION # 49
The Mutual Fund Dealers Association of Canada (MFDA) has strict rules concerning conflicts of interest.
Which of the following is TRUE?
- A. Borrowing money from a client will always be acceptable provided there is a written contract detailing the nature of the agreement.
- B. Gifts and benefits may be provided to a client if your employer is aware of the benefits and has given approval.
- C. Activities that do not relate specifically to your employer need not be reported.
- D. Only actual conflicts must be reported to your employer. Potential conflicts need not be reported because they have not happened yet.
Answer: B
NEW QUESTION # 50
Sven owns preferred shares that give him the option to sell his holdings back to the issuing company at a predetermined price and within a specified time. What type of preferred shares does Sven own?
- A. redeemable
- B. convertible
- C. participating
- D. retractable
Answer: D
NEW QUESTION # 51
Which of the following statement about Exchange Traded Funds (ETFs) is TRUE?
- A. All ETFs are actively managed.
- B. ETFs have lower MERs compared to mutual funds.
- C. Investors may sell their ETFs in the stock market or redeem them through the Fund at the NAVPU of the day.
- D. Usually the market price of an ETF is the net asset value per unit (NAVPU) of the Fund on that day.
Answer: B
Explanation:
Explanation
An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund.
Typically, ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. ETFs have lower management expense ratios (MERs) compared to mutual funds because they are passively managed and do not incur high costs for research, analysis, and portfolio rebalancing. Therefore, this statement is true about ETFs.
References: Exchange-Traded Fund (ETF) Explanation With Pros and Cons - Investopedia, The Best ETFs - Exchange Traded Funds Rankings | US News Investing
NEW QUESTION # 52
Sagira is a Compliance Officer with WealthPath Investments Inc., a registered mutual fund dealer. Sagira routinely answers inquiries from the firm's Dealing Representatives and offers guidance.
Which of the following statements would Sagira likely agree is a permitted activity for Dealing Representatives to have with clients?
- A. Authority granted to a Dealing Representative over a client's account or finances must be documented under a Power of Attorney.
- B. Borrowing from clients is prohibited, but personal loans to clients may be offered.
- C. Purchasing real property from clients is permitted if there is a written agreement in place and the firm is party to the agreement.
- D. Positions of influence are permitted if the terms and conditions of the regulator are met and the activity is approved by the dealer.
Answer: D
Explanation:
Explanation
A position of influence is an outside activity that places the Dealing Representative in a position of power or influence over a client or potential client, such as a trustee, executor, or director of a charitable organization. A position of influence may create a conflict of interest or a potential conflict of interest between the Dealing Representative and the client. Therefore, the MFDA rules require that a Dealing Representative must report any position of influence to the dealer and obtain the dealer's approval before engaging in such activity. The dealer must also ensure that the position of influence does not impair the Dealing Representative's ability to act in the best interests of the client and that the client is aware of the nature and extent of the position of influence12 References = Canadian Investment Funds Course (CIFC) - Module 1: The Financial Services Industry - Section 1.3: Know Your Client (KYC)3 and web search results from search_web(query="positions of influence and mutual fund dealers association rules")12
3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-1.pdf
NEW QUESTION # 53
Which of the following best describes how a target date fund works?
- A. Through the years, the asset allocation shifts from equities towards fixed income as the maturity date approaches.
- B. Through the years, the asset allocation shifts from fixed income towards equities as the maturity date approaches.
- C. The mutual fund is constantly rebalanced to maintain an even split between equities and fixed income through the life of the mutual fund.
- D. In exchange for a lump-sum purchase the unitholder receives guaranteed monthly payments for life.
Answer: A
Explanation:
Explanation
This is because a target date fund is designed to reduce the risk and volatility of the portfolio as the investor gets closer to their retirement or other savings goal. Equities tend to have higher returns but also higher risk than fixed income, so a target date fund gradually reduces the exposure to equities and increases the exposure to fixed income over time. This way, the investor can benefit from the growth potential of equities in the early years and preserve their capital with the stability of fixed income in the later years.
NEW QUESTION # 54
Khuyen is a Dealing Representative for Stark Contrast Investments. Her dealer has relationships with 20 different mutual fund families. This gave her the flexibility to sell two different types of funds from two different fund families to her client, Bao. $5,000 was invested in the Blue Moon Global Balanced fund and an additional $5,000 was invested in the Orange Sun Asset Allocation fund. Khuyen has been reviewing the performance of both funds and has determined that Bao would be better off being fully invested in the Blue Moon Global Balance fund. Bao had previously signed a Limited Authorization Form (LAF) for Khuyen, so she goes ahead and does not worry about consulting with Bao before making the change.
What type of activity has Khuyen performed?
- A. Value investing
- B. Top-down management
- C. Churning
- D. Discretionary trading
Answer: D
Explanation:
Explanation
Discretionary trading is a type of trading activity where the advisor makes investment decisions on behalf of the client without obtaining the client's prior consent for each transaction. Discretionary trading is only allowed if the client has signed a discretionary management agreement with the advisor and the advisor is registered as a portfolio manager. A limited authorization form (LAF) does not grant the advisor the authority to engage in discretionary trading. A LAF only allows the advisor to execute trades that are initiated by the client, such as pre-authorized contributions or withdrawals. Therefore, Khuyen has performed discretionary trading by switching Bao's funds without consulting him, which is a violation of her registrant responsibilities and ethical standards. References:
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 2: The Sales Process, Section 2.4:
Ethics and Compliance, page 2-161
Discretionary Trading Definition - Investopedia2
NEW QUESTION # 55
Jehona is a Dealing Representative with Vista Wealth Investments Inc., a mutual fund dealer in Ontario and Nova Scotia. Jehona has reviewed her client Sokol's account and wants to adjust the holdings and re-balance the portfolio. Which of the following statements about Jehona's permitted activities is CORRECT?
- A. If Jehona wants to execute trades for Sokol's account, Sokol must provide his specific authorization before the trades are entered.
- B. If Sokol has signed a Limited Authorization Form, Jehona can process the trades in the account without Sokol's pre-approval.
- C. If Sokol has given Jehona discretionary trading authority, Jehona can process trades in the account without Sokol's pre-approval.
- D. If Jehona wants to execute the trades without Sokol's pre-approval, Sokol must first appoint Jehona as his Power of Attorney.
Answer: A
Explanation:
Explanation
The statement that is correct about Jehona's permitted activities is option B. According to Section 13.3 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI
31-103), registered individuals must not engage in discretionary trading, meaning that they must not execute a transaction for a client's account without the specific authorization of the client before the transaction.
Therefore, if Jehona wants to execute trades for Sokol's account, Sokol must provide his specific authorization before the trades are entered. The other statements are not correct about Jehona's permitted activities. Option A is false because a Limited Authorization Form does not allow Jehona to process trades in the account without Sokol's pre-approval; rather, it allows Jehona to accept instructions from a third party authorized by Sokol, such as a spouse or a lawyer. Option C is false because Sokol cannot give Jehona discretionary trading authority, as it is prohibited by NI 31-103 for mutual fund dealers and their representatives. Option D is false because appointing Jehona as his Power of Attorney does not allow Jehona to execute trades without Sokol's pre-approval; rather, it allows Jehona to act on behalf of Sokol in legal and financial matters, subject to certain conditions and limitations. References: [Registration Requirements, Exemptions and Ongoing Registrant Obligations], [Discretionary Trading | GetSmarterAboutMoney.ca], [Limited Authorization Form | IFIC],
[Power of Attorney | GetSmarterAboutMoney.ca]
NEW QUESTION # 56
You are meeting a new client, Steven, and you are trying to determine his level of understanding of different investments. Which question would give you the most information regarding your client's familiarity with investing?
- A. Do you have the resources to invest for the long-term?
- B. Do you understand the relationship between risk and return?
- C. Do you want to minimize taxes from your investments?
- D. What rate of return do you expect from investing?
Answer: B
Explanation:
Explanation
This question would give you the most information regarding your client's familiarity with investing because it tests their basic knowledge of one of the fundamental concepts in finance. The relationship between risk and return is the trade-off that investors face when choosing between different investments. Generally, the higher the risk, the higher the expected return, and vice versa. A client who understands this relationship would be able to evaluate the potential outcomes and costs of their investment decisions and choose the ones that match their risk tolerance and return objectives. A client who does not understand this relationship might have unrealistic expectations or make unsuitable choices.
References = Risk-Return Tradeoff Definition - Investopedia, Risk and Return - Corporate Finance Institute, Risk and Return: An Introduction - Morningstar
NEW QUESTION # 57
What purpose does it serve for non-money market mutual funds to hold money market instruments?
- A. If the portfolio manager has an immediate need for cash, money market instruments are relatively easy to liquidate.
- B. They ensure that the fair market value of a mutual fund will not drop below a minimal market value.
- C. They are purchased by non-money market funds to satisfy the regulatory requirement of fund diversification.
- D. Money market instruments primarily generate investment income that provides investors with preferential tax treatment.
Answer: A
NEW QUESTION # 58
Which of the following statements best describes dollar-cost averaging?
- A. It is a type of systematic withdrawal program.
- B. It is making lump-sum purchases when the market price for a mutual fund is low.
- C. It is the strategy of purchasing a set number of units of a mutual fund on a regular basis.
- D. It is buying a set dollar amount of a mutual fund on a regular basis
Answer: D
NEW QUESTION # 59
Reginald is a Dealing Representative, who feels pressure from management at the beginning of every calendar year, to open new registered retirement savings plans (RRSPs) and generate RRSP contributions. It is the end of February, and Reginald is close to reaching his personal sales objectives. He just finished an appointment with a prospective new client, Orel. Orel wants to open a tax-free savings account (TFSA) to build emergency savings. However, Reginald recommended to Orel that he should first contribute to an RRSP, and then use the tax savings for a TFSA contribution. With regards to account suitability, what can be said about Reginald's advice?
- A. Based on Orel's stated need, recommending an RRSP contribution is unsuitable.
- B. By convincing Orel to contribute to an RRSP, instead of a TFSA, Reginald has put his client's interest first.
- C. Reginald is putting the client's interest first by informing Orel why he should change his investment strategy.
- D. Recommending an investment solution that addresses two needs, is putting Reginald's client's interest first.
Answer: A
Explanation:
Explanation
Orel's goal is to build emergency savings, which means he needs a flexible and accessible account that does not penalize withdrawals. A TFSA is more suitable for this purpose, as it allows tax-free withdrawals at any time and does not affect other income-tested benefits. An RRSP, on the other hand, is designed for long-term retirement savings, and withdrawals are subject to income tax and withholding tax. Moreover, RRSP withdrawals reduce the contribution room permanently, and may affect eligibility for government benefits such as the Canada Child Benefit or the Guaranteed Income Supplement.
References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.1:
Registered Retirement Savings Plan (RRSP)1 and Section 3.2: Tax-Free Savings Account (TFSA)2
1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf 2:
https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf
NEW QUESTION # 60
Taylor is chatting with other parents in the park when the conversation turns to registered education savings plans (RESPs).
Taylor thinks that most of what they are saying is incorrect.
Which of the following statements about self-directed RESPs is TRUE?
- A. Educational Assistance Payments (EAPs) withdrawn from the plan are not taxable.
- B. The government contributes an additional grant for low income families who qualify.
- C. Educational Assistance Payments (EAPs) may only be used for tuition for a post-secondary program.
- D. Only one beneficiary may be named per RESP.
Answer: B
Explanation:
Explanation
A self-directed RESP is a type of RESP where the subscriber (the person who opens the plan) has the freedom to choose and manage the investments within the plan, such as stocks, bonds, mutual funds, etc. A self-directed RESP can have one or more beneficiaries (the children who will use the funds for their education) and can be individual or family plans. A self-directed RESP is eligible for the Canada Education Savings Grant (CESG), which is a 20% matching grant on the first $2,500 of annual contributions per beneficiary, up to a lifetime limit of $7,200. Additionally, low income families who qualify may receive an extra 10% or 20% on the first $500 of annual contributions per beneficiary, depending on their net family income. This is called the Additional CESG. Educational Assistance Payments (EAPs) are the payments made from the RESP to the beneficiary when they enroll in a qualifying post-secondary program. EAPs consist of the CESG, the Additional CESG, and any income or growth earned within the plan. EAPs may be used for any education-related expenses, such as tuition, books, transportation, accommodation, etc. EAPs are taxable in the hands of the beneficiary, who usually has a lower tax rate than the subscriber.
References: Canadian Investment Funds Course, Chapter 5: Registered Plans1
NEW QUESTION # 61
Which among the following plans includes a provision that places a maximum limit on the amount that can be withdrawn during a calendar year?
- A. Life Income Fund (LIF)
- B. Registered Retirement Savings Plan (RRSP)
- C. Registered Retirement Income Fund (RRIF)
- D. Deferred Profit Sharing Plan (DPSP)
Answer: A
Explanation:
Explanation
A LIF is a type of registered retirement income fund that is used to hold and pay out locked-in pension funds.
A LIF has both a minimum and a maximum withdrawal limit for each calendar year, which are determined by the federal or provincial pension legislation, the age of the annuitant, and the value of the fund. The minimum withdrawal limit is similar to that of a RRIF, but the maximum withdrawal limit is intended to ensure that the LIF provides income for the lifetime of the annuitant123 References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.4: Life Income Fund (LIF)4 and web search results from search_web(query="maximum withdrawal limit for LIF RRSP RRIF DPSP")123
4: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf
NEW QUESTION # 62
Which of the following statements is TRUE about inflation?
- A. Purchasing power rises as inflation rises.
- B. Generally inflation will benefit those who are living on investment income.
- C. An increase in the inflation rate could mean investors have less money to invest.
- D. Inflation results in a redistribution of income from borrowers to lenders.
Answer: C
Explanation:
Explanation
Inflation is the general increase in the prices of goods and services over time. Inflation reduces the purchasing power of money, meaning that a dollar can buy less than it used to. Inflation also erodes the real value of investment income, such as interest, dividends, and capital gains. Therefore, an increase in the inflation rate could mean that investors have less money to invest, as their income and savings lose value.
References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 1: Economic Factors and Financial Markets, Section 5.1.2: Inflation1; CIFC prepkit, Chapter 5: Types of Investments, Question
5.1.2 2
NEW QUESTION # 63
Ayan wants to make a registered retirement savings plan (RRSP) contribution and deduct it from his Year 1 income. What is the deadline for this contribution (assume that it is NOT a leap year)?
- A. December 31, Year 2
- B. March 1, Year 1
- C. March 1, Year 2
- D. December 31, Year 1
Answer: C
NEW QUESTION # 64
Bernadette has a high-paying job and is in the top tax bracket. She recently received a payment of $5 million upon the settlement of her uncle's estate. Bernadette would like to invest her inheritance in financial products that would not only grow her money but is also income tax friendly.
Which of the following would provide the most favourable tax treatment?
- A. Dividends received from a large foreign corporation.
- B. Capital gains from a large Canadian corporation.
- C. Eligible dividends from a publicly-listed Canadian corporation
- D. Coupon payments from Government of Canada bonds.
Answer: C
NEW QUESTION # 65
Quintin has been a Dealing Representative for Global Maximum Financial for 5 years. Today, he opened an account for his new client, Reginald. In addition to opening a new account, Reginald agreed to accept Quintin's investment recommendation and placed a purchase order to buy units of the Global Maximum Value Equity fund.
Quintin informed his Branch Manager Lupita about this new account on the same day the purchase order was received. Lupita told Quintin that she would complete her review of the New Client Application Form (NCAF) by no later than tomorrow.
Which statement regarding this new account opening is CORRECT?
- A. Unless Quintin is presently under probation, he does not need Lupita's approval regarding the NCAF.
- B. Quintin cannot accept purchase orders from a client until Lupita completes her review of the NCAF.
- C. Quintin and Lupita are both following proper procedure regarding new account openings and purchase orders.
- D. Lupita has two business days from the date of opening the new account to approve the NCAF completed by Quintin.
Answer: B
Explanation:
Explanation
According to the MFDA Rules, a Dealing Representative must not accept any purchase orders from a client until the Branch Manager or other designated person has reviewed and approved the New Client Application Form (NCAF) for the client. This is to ensure that the Dealing Representative has obtained and verified all the necessary information about the client, such as identity, investment objectives, risk tolerance, financial situation, and suitability of investments. The review and approval of the NCAF must be completed before any trades are executed for the client, unless there are exceptional circumstances that justify a delay. In this case, Quintin should have waited for Lupita's approval of the NCAF before placing the purchase order for Reginald.
References: 1: MFDA Rules as at December 31, 2021 - MFDA 2 (Rule 2.2.4)
NEW QUESTION # 66
Jonathan is a Dealing Representative who has just finished an appointment with his new client, Shirley.
Jonathan has concluded that Shirley has a low-risk profile but wants to establish additional savings of
$500,000. During their discussion, Shirley emphasizes she wants investments that are also tax efficient.
Jonathan learned that currently Shirley has no registered retirement savings plan (RRSP) and tax-free savings account (TFSA) contribution room due to using those opportunities by investmenting elsewhere.
What variable is a PRIMARY consideration for Jonathan when making an investment recommendation?
- A. The tax consequences.
- B. Investment objective
- C. Expected time horizon.
- D. Shirley's risk profile.
Answer: D
Explanation:
Explanation
Shirley's risk profile is the primary consideration for Jonathan when making an investment recommendation.
Risk profile is a measure of how much risk an investor is willing and able to take on in their portfolio. It is determined by factors such as age, income, net worth, investment objectives, time horizon, and personal preferences. It is essential for a dealing representative to assess the risk profile of their client before recommending any investment products or strategies, as they have a fiduciary duty to act in the best interest of their client and ensure that their recommendations are suitable for their client's needs and goals. The other variables are also important, but they are secondary to the risk profile. References: [Risk Profile], [Know Your Client (KYC)]
NEW QUESTION # 67
Which of the following statements best describes dollar-cost averaging?
- A. It is a type of systematic withdrawal program.
- B. It is making lump-sum purchases when the market price for a mutual fund is low.
- C. It is the strategy of purchasing a set number of units of a mutual fund on a regular basis.
- D. It is buying a set dollar amount of a mutual fund on a regular basis
Answer: D
Explanation:
Explanation
Dollar-cost averaging is the practice of systematically investing equal amounts of money at regular intervals, regardless of the price of a security. This strategy can reduce the overall impact of price volatility and lower the average cost per share. By buying regularly in up and down markets, investors buy more shares at lower prices and fewer shares at higher prices. Dollar-cost averaging aims to prevent a poorly timed lump sum investment at a potentially higher price. References: What Is Dollar-Cost Averaging? - Investopedia
NEW QUESTION # 68
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