Mar-2024 FREE IFSE Institute CIFC PRACTICE QUESTIONS AND ANSWERS UPDATES [Q131-Q154]

NEW QUESTION 131
Which of the following is a characteristic of a bond fund?

Income from a bond fund will primarily be interest but may also be capital gains

Bond funds are very low risk because they never go down in value.

If interest rates rise the value of a bond fund will also tend to rise.

Securities regulation specifies that bond funds must invest in investment grade bonds.

NEW QUESTION 132
Charlotte has received proceeds from a deceased family member’s estate. Charlotte decides to visit Malik, who’s a Dealing Representative at her bank. She tells Malik, she does not know much about trading ETFs, but she wants to invest in ETFs. Charlotte says she feels fortunate to have this money and that she’s not worried about losing it because she never planned on having any of it.
What element of the Know Your Client (KYC) information has Malik been able to learn?

Risk Profile

Risk Capacity

Risk Preference

Risk Tolerance

Explanation
The element of the Know Your Client (KYC) information that Malik has been able to learn is Charlotte’s risk preference. KYC information is a collection of personal and financial information that registered firms and individuals must obtain from their clients before providing any investment advice or services. KYC information helps registered firms and individuals understand their clients’ needs, goals, risk tolerance, time horizon, and personal circumstances, as well as comply with regulatory obligations such as suitability, disclosure, and reporting. One of the components of KYC information is risk preference, which is a measure of how much risk an investor is willing to take on in their portfolio. It reflects the investor’s attitude, personality, and emotional factors that influence their investment decisions. Risk preference can be classified into three categories: risk-seeking, risk-averse, or risk-neutral. Based on Charlotte’s statement that she does not know much about trading ETFs, but she wants to invest in ETFs, and that she feels fortunate to have this money and that she’s not worried about losing it because she never planned on having any of it, Malik can infer that Charlotte has a high-risk preference or a risk-seeking attitude. This means that Charlotte is willing to take on more risk in exchange for higher potential returns, even if it means losing some or all of her money.
Therefore, option C is correct regarding what element of KYC information Malik has been able to learn. The other options are not correct regarding what element of KYC information Malik has been able to learn. Option A is false because risk profile is not an element of KYC information; rather, it is an outcome of KYC information that summarizes the investor’s overall suitability for different types of investments based on their KYC information. Option B is false because risk capacity is not an element of KYC information; rather, it is a measure of how much risk an investor can afford to take on in their portfolio based on their financial situation and goals. Option D is false because risk tolerance is not an element of KYC information; rather, it is a measure of how much risk an investor can handle in their portfolio without losing sleep or changing their plans. References: [Know Your Client (KYC) | IFIC], [Know Your Client (KYC) | GetSmarterAboutMoney.ca], [Risk Preference | Investopedia]

NEW QUESTION 133
Beatrice is looking for comprehensive information regarding the analysis of financial statements and fund management expenses as it relates to her current mutual fund investment.
Which document would provide the information she is looking for?

Annual Information Form

Fund Facts

Simplified Prospectus

Management Reports of Fund Performance

NEW QUESTION 134
Your client, Helen, just received her non-registered account statement which states that one of her mutual funds made an interest income distribution during the year. She asks you how she will be taxed on the distribution. What do you tell Helen?

She will pay taxes on 50% of the distribution.

She will pay taxes at her top marginal tax rate.

She will pay taxes on the grossed-up amount of the income.

She will pay taxes at her average tax rate.

NEW QUESTION 135
Leira has a marginal tax rate of 45% and may deduct $5,000 in registered retirement savings plan (RRSP) contributions on her income tax return. If she decides to use her available deduction and assuming this does not reduce her taxable income to a lower tax bracket, by how much will it reduce her tax payable?

$5,000

$4,500

$2,250

$0

NEW QUESTION 136
On January 2nd of this year Evan purchased 500 preferred shares of Ingram Ltd. The preferred shares have a par value of $25 per share and a quarterly dividend of $0.98 per share. They also give Evan the option to sell the shares back to Ingram at par value any time from now until September 1st two years from now. What type of preferred shares does Evan own?

retractable

convertible

participating

redeemable

NEW QUESTION 137
Frederic recently sold his units in a US dollar (USD) denominated mutual fund. He wants to convert the proceeds back to Canadian dollars (CAD). If he received proceeds of $1,200 USD from the sale and the exchange rate is $1 CAD for $0.99 USD, how much will Frederic receive in Canadian dollars?

$1-188.00

$1,200.00

$1, 12.12

$1,320.00

NEW QUESTION 138
Which of the following statements about total return for money market funds is TRUE?

Performance is displayed with both current yield and effective yield.

Effective yield will always be lower than current yield.

Current yield incorporates the compounding effect.

Current yield reflects the income earned on a money market fund for the most recent 14 day period.

NEW QUESTION 139
Sonya meets with her client Elijah to review different investment approaches that could be offered to help him reach his financial goals. Part of that discussion included Sonya mentioning factors such as inflation, interest rates, and rates of return. Which stage of the Strategic Investment Planning (SIP) process does this describe?

Clarify Client Status, Problems and Opportunities

Identify Strategies and Present the Plan

Implement the Plan

Monitor and Update

NEW QUESTION 140
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?

Investment objective

Shirley’s risk profile.

Expected time horizon.

The tax consequences.

NEW QUESTION 141
Lior is considering an investment that gains exposure to companies that trade on the Toronto Stock Exchange (TSX). He is not sure what the differences are between a Canadian equity fund and a Canadian dividend fund.
What would you tell him?

Equity funds are more appropriate than dividend funds if Lior requires a steady flow of income.

Dividend funds generate tax-preferred income while income from equity funds is fully taxable.

Dividend funds tend to be less volatile and lower risk than equity funds.

Equity funds hold common shares while dividend funds hold only preferred shares.

Explanation
The answer that you should tell Lior is that dividend funds tend to be less volatile and lower risk than equity funds. A dividend fund is a type of equity fund that invests primarily in dividend-paying stocks, which are shares of companies that distribute a portion of their earnings to shareholders on a regular basis. A dividend fund provides income and capital appreciation to investors, as well as tax advantages for eligible dividends paid by Canadian corporations. A dividend fund tends to be less volatile and lower risk than an equity fund that invests in non-dividend-paying stocks or growth stocks, which are shares of companies that reinvest their earnings into expanding their business rather than paying dividends. This is because dividend-paying stocks are usually issued by well-established and profitable companies that have stable cash flows and earnings, which make them more resilient to market fluctuations and economic downturns. Therefore, option C is correct regarding what you should tell Lior. The other options are not correct or relevant to what you should tell Lior. Option A is false because equity funds are not more appropriate than dividend funds if Lior requires a steady flow of income; rather, dividend funds are more suitable for income-oriented investors who want to receive regular dividends from their investments. Option B is false because dividend funds do not generate tax-preferred income while income from equity funds is fully taxable; rather, both types of funds generate taxable income for investors, but eligible dividends from Canadian corporations may qualify for a lower tax rate than other types of income due to the dividend tax credit. Option D is false because equity funds do not hold common shares while dividend funds hold only preferred shares; rather, both types of funds hold common shares, but dividend funds focus on common shares that pay dividends, while equity funds may also hold common shares that do not pay dividends or pay low dividends. References: [Dividend Funds | GetSmarterAboutMoney.ca], [Equity Funds | GetSmarterAboutMoney.ca], [Dividend Tax Credit | GetSmarterAboutMoney.ca]

NEW QUESTION 142
The owners of Underground Airways Ltd. want to take their privately owned corporation public through an initial public offering (IPO). They are speaking to a specialist from an investment dealer to determinewhether it would be advisable to become listed on a stock exchange or the over-the-counter (OTC) market.
In comparing the two options, which of the following considerations is TRUE?

A stock exchange listing would provide Underground with greater market exposure and public confidence than listing on the OTC market.

Underground would still be directly involved in the trading of their shares on either market.

Underground would be subject to less stringent listing requirements if they chose the stock exchange as compared to the OTC market.

If Underground chose to list on the OTC market, there would be no secondary market available for investors.

NEW QUESTION 143
What type of mutual fund can invest in specified derivatives and forward contracts for grains, meats, metals, energy products, and coffee?

global equity fund

commodity pool

labour-sponsored investment fund

specialty fund

NEW QUESTION 144
Malik has been saving money for retirement but he is worried about the impact inflation may have on the value of his savings. He wants to purchase a bond that will give him a steady stream of income that is greater than the inflation rate. He has found a bond issued by a major airline with a market price of $9,200, a par value of $10,000, and a coupon rate of 6.75%. What is the current yield of this bond?

7.34%

6.75%

6.25%

6.21%

NEW QUESTION 145
During the calendar year, Firmansyah received a $1,800 eligible dividend from a large Canadian bank and a foreign, dividend from his The USD/CAD exchange rates is 1.3605.
Firmansyah’s federal marginal tax bracket is 29%. The enhanced dividend gross-up rate is 38% and the federal dividend tax credit rate for eligible dividends is 15%.
What federal tax liability will be due from the investment income?

$522.00

$348.00

$695.76

$870.00

Explanation
To calculate Firmansyah’s federal tax liability from the investment income, we need to follow these steps:
Step 1: Convert the foreign dividend from USD to CAD using the exchange rate given in the question.
The exchange rate is 1.3605 CAD per USD, which means that 1 USD is equivalent to 1.3605 CAD.
Therefore, Firmansyah’s foreign dividend in CAD is:
500×1.3605=680.25
Step 2: Calculate Firmansyah’s grossed-up dividend income from both sources. A grossed-up dividend income is the actual dividend received plus a percentage of the dividend that reflects the corporate tax paid by the issuer. The percentage varies depending on whether the dividend is eligible or non-eligible.
According to [this site], an eligible dividend is a dividend paid by a Canadian corporation that meets certain criteria, such as being listed on a designated stock exchange or being a subsidiary of such a corporation. A non-eligible dividend is a dividend that does not meet these criteria, such as a dividend paid by a foreign corporation or a small Canadian business corporation. The gross-up rate for eligible dividends in 2020 was 38%, while the gross-up rate for non-eligible dividends in 2020 was 15%.
Therefore, Firmansyah’s grossed-up dividend income from both sources is:
(1800+680.25)×(1+0.38)=3426.35
Step 3: Apply Firmansyah’s federal marginal tax rate to his grossed-up dividend income to get his federal tax before credits. A marginal tax rate is the percentage of tax applied to an additional dollar of income. According to [this site], Firmansyah’s federal marginal tax rate for 2020 was 29%, as his taxable income was between $150,473 and $214,368. Therefore, Firmansyah’s federal tax before credits is:
0.29×3426.35=993.64
Step 4: Subtract Firmansyah’s federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. A dividend tax credit is a percentage of the grossed-up dividend income that reflects the corporate tax paid by the issuer and avoids double taxation.
The percentage varies depending on whether the dividend is eligible or non-eligible. According to [this site], the federal dividend tax credit rate for eligible dividends in 2020 was 15%, while the federal dividend tax credit rate for non-eligible dividends in 2020 was 9.03%. Therefore, Firmansyah’s federal dividend tax credit from both sources is:
(1800+680.25)×0.38×0.15=297.88
Step 5: Subtract Firmansyah’s federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. This is the amount of federal income tax that Firmansyah has to pay or has overpaid from the investment income. Therefore, Firmansyah’s net federal tax liability from the investment income is:
993.64297.88=695.76
Hence, option C is correct. References: [Canadian Investment Funds Course (CIFC) | IFSE Institute],
[Dividend Tax Credit | TurboTax Canada Tips], [Federal Income Tax Rates for Canada – TurboTax Canada Tips], [Eligible Dividends | TurboTax Canada Tips]

NEW QUESTION 146
During the calendar year, Firmansyah received a $1,800 eligible dividend from a large Canadian bank and a foreign, dividend from his The USD/CAD exchange rates is 1.3605.
Firmansyah’s federal marginal tax bracket is 29%. The enhanced dividend gross-up rate is 38% and the federal dividend tax credit rate for eligible dividends is 15%.
What federal tax liability will be due from the investment income?

$522.00

$348.00

$695.76

$870.00

Explanation
To calculate Firmansyah’s federal tax liability from the investment income, we need to follow these steps:
* Step 1: Convert the foreign dividend from USD to CAD using the exchange rate given in the question.
The exchange rate is 1.3605 CAD per USD, which means that 1 USD is equivalent to 1.3605 CAD.
Therefore, Firmansyah’s foreign dividend in CAD is:
500*1.3605=680.25
* Step 2: Calculate Firmansyah’s grossed-up dividend income from both sources. A grossed-up dividend income is the actual dividend received plus a percentage of the dividend that reflects the corporate tax paid by the issuer. The percentage varies depending on whether the dividend is eligible or non-eligible.
According to [this site], an eligible dividend is a dividend paid by a Canadian corporation that meets certain criteria, such as being listed on a designated stock exchange or being a subsidiary of such a corporation. A non-eligible dividend is a dividend that does not meet these criteria, such as a dividend paid by a foreign corporation or a small Canadian business corporation. The gross-up rate for eligible dividends in 2020 was 38%, while the gross-up rate for non-eligible dividends in 2020 was 15%.
Therefore, Firmansyah’s grossed-up dividend income from both sources is:
(1800+680.25)*(1+0.38)=3426.35
* Step 3: Apply Firmansyah’s federal marginal tax rate to his grossed-up dividend income to get his federal tax before credits. A marginal tax rate is the percentage of tax applied to an additional dollar of income. According to [this site], Firmansyah’s federal marginal tax rate for 2020 was 29%, as his taxable income was between $150,473 and $214,368. Therefore, Firmansyah’s federal tax before credits is:
0.29*3426.35=993.64
* Step 4: Subtract Firmansyah’s federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. A dividend tax credit is a percentage of the grossed-up dividend income that reflects the corporate tax paid by the issuer and avoids double taxation.
The percentage varies depending on whether the dividend is eligible or non-eligible. According to [this site], the federal dividend tax credit rate for eligible dividends in 2020 was 15%, while the federal dividend tax credit rate for non-eligible dividends in 2020 was 9.03%. Therefore, Firmansyah’s federal dividend tax credit from both sources is:
(1800+680.25)*0.38*0.15=297.88
* Step 5: Subtract Firmansyah’s federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. This is the amount of federal income tax that Firmansyah has to pay or has overpaid from the investment income. Therefore, Firmansyah’s net federal tax liability from the investment income is:
993.64297.88=695.76
Hence, option C is correct. References: [Canadian Investment Funds Course (CIFC) | IFSE Institute],
[Dividend Tax Credit | TurboTax Canada Tips], [Federal Income Tax Rates for Canada – TurboTax Canada Tips], [Eligible Dividends | TurboTax Canada Tips]

NEW QUESTION 147
Manuel is a Dealing Representative for Commonwealth Financial Inc., a mutual fund dealer. His dealer represents many different mutual fund families available, including their own: CF Group of Funds. He is considering recommending a CF equity fund to one of his clients, Stefania. While describing details about the fund, he informs her that accounts are set-up in nominee name, and that their mutual funds are not transferable.
In addition, the fund does pay trailer fees.
What type of information has Manuel described about his potential investment recommendation?

The material conflict of interest

Features of a locked-in plan

Excessive trading

A Letter of Engagement

Explanation
A material conflict of interest is a situation where a dealing representative or a mutual fund dealer has an interest that may affect their ability to act in the best interest of their clients, or that may influence their judgment or behaviour. A material conflict of interest may arise from various sources, such as compensation arrangements, personal or business relationships, or ownership interests. In this case, Manuel has described some information that may indicate a material conflict of interest, such as:
*His dealer represents many different mutual fund families, including their own: CF Group of Funds. This may create a bias or incentive for Manuel to recommend the CF equity fund over other funds that may be more suitable for his client, Stefania.
*The accounts are set-up in nominee name, which means that the dealer is the registered owner of the mutual funds and holds them in trust for the client. This may affect the client’s rights and benefits as the beneficial owner of the funds, such as voting rights, transferability, or access to information.
*The mutual funds are not transferable, which means that the client cannot move them to another dealer or fund family without selling them and incurring fees or taxes. This may limit the client’s flexibility and choice, and create a lock-in effect for the dealer.
*The fund does pay trailer fees, which are ongoing commissions paid by the fund manager to the dealer for the services and advice provided to the client. This may create a conflict of interest for Manuel, as he may receive a portion of the trailer fees as part of his compensation. This may influence his recommendation of the fund, as he may benefit from the client’s continued investment in the fund.
Manuel should disclose these potential material conflicts of interest to his client, Stefania, and explain how they may affect his recommendation of the CF equity fund. He should also ensure that his recommendation is based on the client’s needs, objectives, risk tolerance, and time horizon, and that he provides the client with the necessary information and documents, such as the fund facts, to make an informed decision.
References = Canadian Investment Funds Course, Unit 7: The Regulatory Environment, Lesson 1: The Regulatory Framework, Section 7.1.3: Material Conflicts of Interest1; CIFC prepkit, Chapter 7: The Regulatory Environment, Question 7.1.3 2

NEW QUESTION 148
Rashad is a Dealing Representative with Investors Network Corp., a mutual fund dealer. Investors Network is registered in all provinces and territories of Canada and Rashad is registered in the Edmonton, Alberta branch. Rashad is told to provide his Branch Manager with a number of client files. The client files will be part of a compliance review by the applicable self-regulatory organization (SRO). Which regulator will review Rashad’s client files?

Canadian Securities Administrators (CSA)

Mutual Fund Dealers Association of Canada (MFDA)

Autorite de marches financiers (AMF)

Chambre de la securite financiere (CSF)

NEW QUESTION 149
Sheldon is a 25 year old graphic designer. He has just started working and saves regularly. Apart from his regular salary he also earns extra money from freelancing after office hours and during weekends. His earnings from his freelance work are sufficient for meeting his living expenses. He saves the entire amount of his salary. He has heard about lifecycle funds but has come to you for additional information.
Which of the following statement about lifecycle funds is TRUE?

As Sheldon gets older, the life cycle asset allocation changes from more risky to less risky.

All lifecycle funds start with equal allocations to cash, fixed income and equities before being re-balanced.

The asset allocation of a lifecycle fund is set based on the age demographic of its unitholders and remains the same for the time frame of the lifecycle fund.

Investor income is the only basis for changing the asset allocation of a lifecycle mutual fund.

NEW QUESTION 150
Sandra presently participates in her employer-sponsored defined contribution pension plan (DCPP). As contributions continue to be made into her plan, what can she expect?

Retirement benefits will be based on a prescribed formula that can be referenced from the plan’s terms and conditions.

The employer will solely make contributions to her DCPP based on a prescribed formula noted within her plan.

Her available registered retirement savings plan (RRSP) contribution room will be reduced by what is being contributed to her plan.

To ensure she has savings at retirement, the employer will choose stable investments to grow her retirement savings.

NEW QUESTION 151
Wilma has always used the services of a tax preparation firm to file her taxes but is skeptical that she has really benefitted. This year she plans to file her own taxes for the first time.
What would be useful for her to know?

Wilma’s marginal tax rate may be lowered when tax deductions are applied to her total income.

Wilma’s top marginal tax rate will be applied to every taxable dollar when her tax return is filed.

Wilma’s tax deductions permit her to reduce her tax payable dollar-for-dollar.

Wilma’s non-refundable tax credits may only reduce her taxable income dollar-for-dollar.

NEW QUESTION 152
Darryl has a diversified investment portfolio of mutual funds in a non-registered account with Investwell Mutual Funds, a mutual fund dealer. Darryl’s diversified portfolio is composed of 3 mutual funds. Each mutual fund is currently worth about $100,000. The ABC Canadian Equity Fund has a total return of 6%, the DEF Bond Fund has a total return of 8% and GHI Global Equity Fund has a total return of 10%. Darryl wants to make an in-kind contribution to his registered retirement savings plan (RRSP) account. He has unused RRSP contribution room of $60,000.
From a tax-efficient viewpoint, which funds contribute in-kind to his RRSP account?

Move the DEF Bond Fund to the RRSP.

Move the GHI Global Equity Fund to the RRSP

Move $20,000 from each of the three funds to the RRSP.

Move the ABC Canadian Equity Fund to the RRSP.

NEW QUESTION 153
Douglas, aged 73, won a lottery prize of $100,000 last week. Today he contacted Vincent, his Dealing Representative, with instructions to contribute the winnings to his registered retirement income fund (RRIF) account.
Which of the following statement about RRIF is CORRECT?

Deposits to RRIFs cannot be withdrawn for 5 years.

Deposits into RRIFs are not permitted.

Deposits to a RRIF entitle Douglas to a tax deduction.

Withdrawals from a non-qualifying RRIF are not taxable.

NEW QUESTION 154
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?

retractable

participating

convertible

redeemable

Mar-2024 FREE IFSE Institute CIFC PRACTICE QUESTIONS AND ANSWERS UPDATES [Q131-Q154]

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