Question # 1
Daisy is a Dealing Representative registered in the province of Saskatchewan only. Daisy’s client, Orville, a resident of Lloydminster, Saskatchewan is a retiree who presently has a $1,000,000 with her dealer, Easy Ride Financial. Orville is now planning to move to Vegreville, Alberta next month. Easy Ride Financial is registered in Alberta and Saskatchewan. Neither Easy Ride Financial nor Daisy have any clients who are resident in Alberta.
Which of the following should Daisy do if she wants to continue to service Orville’s account?
| A. Request approval from the Mutual Fund Dealers Association of Canada to be eligible to be a registered Dealing Representative in Alberta
| B. Daisy could seek permission from her dealer to request a client mobility exemption with the Alberta Securities Commission.
| C. Daisy will need to forfeit her registration in Saskatchewan if she wants to be registered in Alberta to keep Orville as a client.
| D. Register with a different mutual fund dealer that is registered in Alberta so she can keep Orville as a client.
|
B. Daisy could seek permission from her dealer to request a client mobility exemption with the Alberta Securities Commission.
Explanation:
Daisy could seek permission from her dealer to request a client mobility exemption with the Alberta Securities Commission. This exemption allows a registered individual in one jurisdiction to service a client who moves to another jurisdiction, without having to register in the new jurisdiction, subject to certain conditions. Some of these conditions are that the individual must be registered with a dealer that is registered in both jurisdictions, the individual must not have more than five clients in the new jurisdiction, and the individual must notify the regulator in the new jurisdiction of the exemption.
References:
Client Mobility Exemption
Question # 2
Ken is a member of his employer’s Defined Benefit Pension Plan (DBPP). Which of the following statements about Ken’s plan is CORRECT?
| A. Contributions to the plan do not result in a Pension Adjustment (PA) for Ken.
| B. The amount Ken receives in retirement depends on the performance of the investments he has selected within the plan.
| C. The amount that Ken will receive at retirement is not guaranteed.
| D. Income received from the plan is eligible for pension income splitting even if Ken retires before 65.
|
D. Income received from the plan is eligible for pension income splitting even if Ken retires before 65.
Explanation:
The statement that is correct about Ken’s plan is option D. A defined benefit pension plan (DBPP) is a type of employer-sponsored retirement plan that promises to pay a specified amount of income to the plan member upon retirement. The amount of income is based on a formula that considers factors such as years of service, salary, and age. Income received from a DBPP is eligible for pension income splitting even if Ken retires before 65, meaning that he can transfer up to 50% of his eligible pension income to his spouse or common-law partner for tax purposes. This can reduce the overall tax payable by the couple if they are in different tax brackets. Therefore, option D is correct about Ken’s plan. The other statements are not correct about Ken’s plan. Option A is false because contributions to the plan do result in a Pension Adjustment (PA) for Ken, which is an amount that reduces his RRSP contribution room for the following year. Option B is false because the amount Ken receives in retirement does not depend on the performance of the investments he has selected within the plan; rather, it depends on the formula that determines his pension benefit. Option C is false because the amount that Ken will receive at retirement is guaranteed by the plan sponsor, unless the plan sponsor becomes insolvent or terminates the plan.
References:
[Defined Benefit Pension Plans | GetSmarterAboutMoney.ca], [Pension Income Splitting | GetSmarterAboutMoney.ca], [Pension Adjustment (PA) | GetSmarterAboutMoney.ca]
Question # 3
What does a normal yield curve look like?
| A. slopes upward to the left
| B. is flat and has no slope
| C. slopes down to the right
| D. slopes upward to the right
|
D. slopes upward to the right
Explanation:
A normal yield curve is a graphical representation of the relationship between the interest rates and the maturities of different fixed income securities. It slopes upward to the right, meaning that longer-term bonds have higher yields than shorter-term bonds. This reflects the fact that investors demand higher compensation for lending money for longer periods of time and taking on more risk. A normal yield curve indicates that investors expect the economy to grow steadily and inflation to remain stable.
References:
Canadian Investment Funds Course (CIFC) | IFSE Institute, Unit 4, Lesson 3
Question # 4
Which of the following statements best describes dollar-cost averaging?
| A. It is a type of systematic withdrawal program.
| B. It is buying a set dollar amount of a mutual fund on a regular basis
| C. It is the strategy of purchasing a set number of units of a mutual fund on a regular basis.
| D. It is making lump-sum purchases when the market price for a mutual fund is low.
|
B. It is buying a set dollar amount of a mutual fund on a regular basis
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
Question # 5
Which of the following statements about pension adjustments (PA) is TRUE?
| A. They represent how much your pension is reduced due to market conditions.
| B. They increase your registered retirement savings plan (RRSP) room by the amount of the pension adjustment.
| C. They represent how much your pension will increase due to years of service.
| D. You will receive a PA whether you are in a defined contribution or a defined benefit pension plan.
|
D. You will receive a PA whether you are in a defined contribution or a defined benefit pension plan.
Explanation:
A pension adjustment (PA) is the amount that the Canada Revenue Agency (CRA) assigns to your pension plan each year to reflect the value of the pension benefits that you earned. The PA reduces your registered retirement savings plan (RRSP) contribution room for the following year by the same amount.
The PA ensures that all taxpayers have access to comparable tax assistance, regardless of the type of pension plan they participate in. You will receive a PA whether you are in a defined contribution or a defined benefit pension plan, but the calculation of the PA will differ depending on the type of plan. (Canadian Investment Funds Course, Chapter 8, Section 8.2)
References:
Canadian Investment Funds Course, Chapter 8, Section 8.2: Retirement Savings Plans and Pension Plans
Investopedia: Pension Adjustment: Definition and Types of Plans1
PlanEasy: What Is A Pension Adjustment?2
Question # 6
Which statement CORRECTLY describes index mutual funds and traditional exchange-traded funds (ETFs)?
| A. Index funds use an active investment management style, whereas ETFs use a passive investment management style.
| B. Both types of funds are closed-end investments that are required to hold the same securities as the index at all times.
| C. The market price of an ETF must match its net asset value (NAV), whereas there can be discrepancy in the pricing of index funds.
| D. Both types of funds attempt to replicate the return of a specific market index, but their returns may not perfectly match the index.
|
A. Index funds use an active investment management style, whereas ETFs use a passive investment management style.
Explanation:
Index mutual funds and traditional exchange-traded funds (ETFs) are both types of investment funds that use a passive investment management style, which means they try to track the performance of a specific market index, such as the S&P/TSX Composite Index or the S&P 500 Index. They do so by holding the same securities as the index or a representative sample of them, and by adjusting their portfolio composition and weighting to reflect any changes in the index. However, both types of funds may not be able to exactly replicate the return of the index for various reasons, such as fees, expenses, tracking error, rebalancing frequency, dividend reinvestment, and cash holdings. Therefore, there may be some deviation or difference between the fund’s return and the index’s return, which is called tracking difference.
References:
Canadian Investment Funds Course, Chapter 4: Types of Investments1
Question # 7
Which of the following statements describes a feature of the Home Buyers’ Plan (HBP)?
| A. To qualify- as a first-time home buyer you or your spouse must never have previously owned a home
| B. Once you are required to repay the amounts back to your RRSP. any missed or incomplete payments are subject to tax.
| C. A qualifying home must be purchased by December 31 of the year of withdrawal.
| D. If you have a spouse or common-law partner, each of you can withdraw up to JE50.000 from your registered retirement savings plans (RRSPs).
|
B. Once you are required to repay the amounts back to your RRSP. any missed or incomplete payments are subject to tax.
Explanation:
The Home Buyers’ Plan (HBP) is a program that allows eligible first-time home buyers to withdraw up to $35,000 from their registered retirement savings plans (RRSPs) to buy or build a qualifying home without paying any tax on the withdrawal. The withdrawn amount must be repaid to the RRSP over a period of up to 15 years, starting from the second year after the withdrawal. If the required repayment for a year is not made, it is added to the taxpayer’s income and subject to tax. Therefore, option B describes a feature of the HBP. The other options are not correct descriptions of the HBP. Option A is false because to qualify as a first-time home buyer, you or your spouse must not have owned and lived in another home as your principal place of residence during the four-year period before the date of withdrawal. Option C is false because a qualifying home must be purchased or built before October 1 of the year following the year of withdrawal. Option D is false because if you have a spouse or common-law partner, each of you can withdraw up to $35,000 from your RRSPs, not $50,000.
References:
[Home Buyers’ Plan (HBP)], [Home Buyers’ Plan (HBP) - Canada.ca], [Home Buyers’ Plan (HBP) | GetSmarterAboutMoney.ca]
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