Question # 1
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 # 2
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 # 3
When comparing mutual funds, what information would help a Dealing Representative determine a suitable mutual fund for a client?
| A. Comparing historical rates of return between different types of mutual funds.
| B. Assessing historical differences in the rate of return per unit of risk of similar mutual funds.
| C. Referencing the fund code for each mutual fund that is being compared.
| D. The rights a client has if there is a desire to cancel the purchased mutual fund.
|
B. Assessing historical differences in the rate of return per unit of risk of similar mutual funds.
Explanation:
B is correct because assessing historical differences in the rate of return per unit of risk of similar mutual funds helps a Dealing Representative to compare the performance and risk-adjusted returns of different mutual funds and select the most suitable one for a client’s risk tolerance and investment objectives. Comparing historical rates of return between different types of mutual funds (A) does not account for the risk involved in each type of fund. Referencing the fund code for each mutual fund that is being compared © does not provide any information about the fund’s characteristics, features, or suitability. The rights a client has if there is a desire to cancel the purchased mutual fund (D) are not relevant for determining a suitable mutual fund for a client.
References:
Canadian Investment Funds Course (CIFC) | IFSE Institute
Question # 4
Loretta is looking for a well diversified equity fund. Her ideal mutual fund would hold investments within and outside Canada. Although she is seeking growth, Loretta also wants a mutual fund that invests in quality companies.
Which of the following mutual funds would be the best choice for Loretta?
| A. Dominion International Growth Fund - this international equity fund invests in small and medium sized companies in countries all around the world.
| B. Polar Global Blue Chip Equity Fund - this global equity fund invests in large, established companies in mostly stable and mature foreign markets.
| C. Lennox Energy Fund - this sector fund invests primarily in Canadian oil and gas companies that sell both to domestic and foreign markets.
| D. Auric Precious Metals Fund - this sector fund invests in Canadian companies that participate in the precious metals sector such as owning mines in foreign countries.
|
B. Polar Global Blue Chip Equity Fund - this global equity fund invests in large, established companies in mostly stable and mature foreign markets.
Explanation:
Loretta is looking for a well diversified equity fund that invests both within and outside Canada. She also wants a fund that invests in quality companies, which implies that she prefers lower risk and higher stability. A global equity fund would meet her criteria, as it can invest in any country, including Canada, and diversify across different regions and markets. A global equity fund that focuses on large, established companies, also known as blue chip stocks, would also suit her preference for quality and stability, as these companies tend to have strong financial performance, competitive advantages, and consistent dividends. Therefore, the Polar Global Blue Chip Equity Fund would be the best choice for Loretta among the given options.
References: Canadian Investment Funds Course, Unit 6, Section 6.2
Question # 5
Stan, a portfolio manager, is looking at two steel companies as potential investments. Truesteel Inc. has a current ratio of 2:1 while Strongco Ltd. has a current ratio of 0.8:1. What could this information indicate?
| A. It appears that Truesteel is more profitable than Strongco.
| B. Truesteel is better able to meet its short-term financial obligations than Strongco.
| C. The stock market is more optimistic about the prospects for Truesteel than Strongco.
| D. Stronqco is reiving less on debt financing than Truesteel.
|
B. Truesteel is better able to meet its short-term financial obligations than Strongco.
Explanation:
The current ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations with its current assets. A higher current ratio indicates that the company has more current assets than current liabilities, which means it can meet its short-term obligations more easily. A lower current ratio indicates that the company has less current assets than current liabilities, which means it may face liquidity problems or default risk. Therefore, the information given in the question indicates that Truesteel is better able to meet its short-term financial obligations than Strongco. The current ratio does not necessarily reflect the profitability, market outlook, or debt financing of the companies.
References:
Current Ratio Explained With Formula and Examples, Current Ratio Formula, Current ratio
Question # 6
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 # 7
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
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