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Sample Question 4
Maxine is a portfolio manager who 15 years ago, purchased 100 shares of Never2Tacky, asocial media corporation for Aspirations Global Technology Fund. She purchased the stockwhen it was trading at $10. Last year, the peak market price was $120. Presently, it istrading at $99. News agencies are now reporting that additional regulations regardingsocial media companies are about to be agreed upon by G7 countries. Maxine isconcerned the market value of Never2Tacky is going to drop. She buys a put option with anexercise price of $95 with an expiry of 9 months.What type of strategy is Maxine using?
A. Speculating B. Modern portfolio theory C. Passively managing D. Hedging
Answer: D
Explanation: A put option is a contract that gives the buyer the right, but not the obligation,
to sell a certain amount of an underlying security at a specified price within a specified time frame. A put option increases in value as the price of the underlying security decreases,
and vice versa. Therefore, buying a put option can be used as a hedging strategy to protect
against downside risk or loss in the value of the underlying security. In this case, Maxine is
using a put option to hedge against the potential drop in the market value of Never2Tacky
due to the regulatory changes. If the price of Never2Tacky falls below $95, she can
exercise the put option and sell her shares at $95, limiting her loss. If the price of
Never2Tacky stays above $95, she can let the put option expire and keep her shares,
paying only the premium for the option. Buying a put option is not speculating, as it does
not involve taking a high-risk position in anticipation of a favorable outcome. It is also not
related to modern portfolio theory or passive management, which are different concepts in
investment analysis. References: Put Option: What It Is, How It Works, and How to Trade
Them, Put Options: What They Are and How They Work, Put: What It Is and How It Works
in Investing, With Examples
Sample Question 5
Bernadette has a high-paying job and is in the top tax bracket. She recently received apayment of $5 million upon the settlement of her uncle’s estate. Bernadette would like toinvest her inheritance in financial products that would not only grow her money but is alsoincome tax friendly. Which of the following would provide the most favourable tax treatment?
A. Dividends received from a large foreign corporation. B. Coupon payments from Government of Canada bonds. C. Capital gains from a large Canadian corporation. D. Eligible dividends from a publicly-listed Canadian corporation
Answer: D
Explanation: Eligible dividends from a publicly-listed Canadian corporation would provide
the most favourable tax treatment for Bernadette, who is in the top tax bracket. Eligible
dividends are subject to a lower tax rate than other types of income because they qualify
for the enhanced dividend tax credit. This credit is intended to reduce the double taxation of
corporate income, which occurs when a corporation pays tax on its earnings and then
distributes those earnings to its shareholders, who also pay tax on them. Dividends
received from a large foreign corporation do not qualify for the dividend tax credit and are
taxed at the same rate as interest income. Coupon payments from Government of Canada
bonds are also fully taxable as interest income. Capital gains from a large Canadian
corporation are taxed at a lower rate than interest income, but higher than eligible
dividends, because only 50% of the gain is included in taxable income. References: Capital
gains, interest and dividends: How they’re taxed in Canada, How Are Dividends Taxed in
Canada?
Sample Question 6
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 newaccount, Reginald agreed toaccept Quintin's investment recommendation and placed a purchase order to buy units ofthe Global Maximum Value Equity fund.Quintin informed his Branch Manager Lupita about this new account on the same day thepurchase order was received. Lupita told Quintin that she would complete her review of theNew Client Application Form (NCAF) by no later than tomorrow.Which statement regarding this new account opening is CORRECT?
A. Quintin cannot accept purchase orders from a client until Lupita completes her review ofthe NCAF. B. Lupita has two business days from the date of opening the new account to approve theNCAF completed by Quintin. C. Quintin and Lupita are both following proper procedure regarding new account openingsand purchase orders. D. Unless Quintin is presently under probation, he does not need Lupita's approvalregarding the NCAF.
Answer: A
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)
Sample Question 7
With respect to the tax treatment of dividends received from a taxable Canadiancorporation, which of the following statements is CORRECT?
A. Dividends are taxed the same way interest income is taxed. B. Dividends from both preferred and common shares of Canadian corporations receivepreferential tax treatment. C. Dividends from non-resident corporations receive preferential tax treatment. D. Only 50% of dividend income is subject to tax.
Answer: B
Explanation: Dividends from both preferred and common shares of Canadian corporations
receive preferential tax treatment because they are eligible for the dividend tax credit. This
credit reduces the amount of tax payable on dividend income by accounting for the tax that
the corporation has already paid on its earnings. Dividends from non-resident corporations
do not qualify for this credit and are taxed at the same rate as interest income. Only 50% of
capital gains, not dividend income, are subject to tax. References: The Dividend Tax Rate
in Canada: What You Need to Know Now - Hardbacon, How are Dividends Taxed in
Canada? Exploring the Canadian Dividend Tax Credit
Sample Question 8
Megan purchases a treasury bill for $98,200. When it matures for $100,000, how doesMegan treat the $1,800 difference?
A. as interest income B. as a capital gain C. as a dividend D. as return of capital
Answer: A
Explanation: A treasury bill is a short-term debt instrument issued by the government at a
discount from its face value and redeemed at par value at maturity. The difference between
the purchase price and the face value is the interest income earned by the investor.
Therefore, Megan treats the $1,800 difference as interest income for tax purposes. Interest
income is fully taxable at the investor’s marginal tax rate in the year it is received. Megan
does not report any capital gain, dividend, or return of capital from the treasury bill.
References: Canadian Investment Funds Course, Unit 5, Section 5.2
Sample Question 9
Your client, Kimberly has investments in both registered and non-registered plans. Whichof the following investment strategies is best suited for Kimberly from a tax perspective?
A. Include investments paying capital gains in the registered plan and foreign payinvestments in the non-registered plan. B. Include domestic pay assets in the registered plan and foreign pay assets in the nonregisteredplan. C. Include interest paying investments in the registered plan and dividend payinginvestments in the non-registered plan. D. Include dividend paying investments in the registered plan and interest payinginvestments in the non-registered plan.
Answer: C
Explanation: According to the Canadian Investment Funds Course, different types of
investment income are taxed differently in Canada. Interest income is fully taxed at the
marginal rate, while dividend income is favourably taxed with a dividend tax credit. Capital
gains are taxed on 50% of the gain at the marginal rate, and foreign income is subject to
withholding tax. Therefore, a tax-efficient strategy is to include interest paying investments,
such as bonds or GICs, in the registered plan, where they can grow tax-deferred until
withdrawal. Dividend paying investments, such as Canadian stocks or ETFs, should be
included in the non-registered plan, where they can benefit from the lower tax rate and the
dividend tax credit. Foreign income should also be avoided in the non-registered plan,
unless it is held in a U.S. dollar account or a foreign currency hedged ETF, to reduce the
impact of withholding tax and currency fluctuations.
References: 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 9: Retirement)
Sample Question 10
Saheed is a retiree who is considering splitting his pension income with his wife, Minu.Which of the following outcomes may occur if he shares his pension benefits?
A. Whether the couple saves on income tax will be dependent on Minu's marginal tax rate. B. Minu will be exposed to a pension adjustment (PA) if she receives income from hispension. C. This is a form of tax evasion and is therefore considered illegal based on income taxlegislation. D. Regardless of how much income each person reports, the total amount of income taxeswill not change.
Answer: A
Explanation: Whether the couple saves on income tax will be dependent on Minu’s
marginal tax rate. Pension income splitting is a tax planning strategy that allows a spouse
or common-law partner who receives eligible pension income to allocate up to 50% of that
income to their spouse or common-law partner1. This may result in tax savings if the
transferring spouse or common-law partner is in a higher tax bracket than the receiving
spouse or common-law partner1. The tax savings depend on the difference between the
marginal tax rates of the spouses or common-law partners1. The other statements are
incorrect. Minu will not be exposed to a pension adjustment (PA) if she receives income
from Saheed’s pension. A PA is a measure of the value of benefits accrued in a registered
pension plan or deferred profit sharing plan during a calendar year2. It reduces the RRSP
contribution room of the plan member, not the spouse or common-law partner who receives
part of their pension income2. Pension income splitting is not a form of tax evasion and is
not illegal based on income tax legislation. It is a legitimate way to reduce taxable income
and taxes payable by shifting income from a higher-income spouse or common-law partner
to a lower-income spouse or common-law partner1. Pension income splitting may change
the total amount of income taxes paid by the couple, depending on their marginal tax
rates. If the transferring spouse or common-law partner is in a higher tax bracket than the receiving spouse or common-law partner, pension income splitting may lower their
combined taxes payable1. However, if they are in the same tax bracket, pension income
splitting may not have any effect on their taxes payable1. References: Pension income
splitting, Pension adjustment
Sample Question 11
Malik has been saving money for retirement but he is worried about the impact inflationmay have on the value of his savings. He wants to purchase a bond that will give him asteady stream of income that is greater than the inflation rate. He has found a bond issuedby a major airline with a market price of $9,200, a par value of $10,000, and a coupon rateof 6.75%. What is the current yield of this bond?
A. 7.34% B. 6.75% C. 6.25% D. 6.21%
Answer: A
Explanation: The current yield of a bond is the annual interest payment divided by the
current market price of the bond. The annual interest payment is the coupon rate multiplied
by the par value of the bond. In this case, the annual interest payment is:
6.75%×10,000=675
The current market price of the bond is $9,200. Therefore, the current yield is:
9200675×100%=7.34%
The current yield is higher than the coupon rate because the bond is selling at a discount,
meaning that its market price is lower than its par value. This implies that the bond is
offering a higher return than the prevailing market interest rate. However, the current yield
does not take into account the capital gain or loss that will occur when the bond matures or
is sold. A more accurate measure of the bond’s return is the yield to maturity (YTM), which is the annualized rate of return that accounts for both the interest payments and the price
change of the bond over its remaining term.
References:
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income
Securities, Section 5.2: Bond Pricing and Yield, page 5-61
Current Yield Definition - Investopedia2
Sample Question 12
Which of the following statements is TRUE about inflation?
A. Inflation results in a redistribution of income from borrowers to lenders. B. Generally inflation will benefit those who are living on investment income. C. Purchasing power rises as inflation rises. D. An increase in the inflation rate could mean investors have less money to invest.
Answer: D
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:
Which among the following BEST describes a company's retained earnings statement?
A. a company's financial position at a specific point in time B. the amount of money contributed to the company by its shareholders or owners C. the amount of profit that is reinvested in the company D. the earnings and expenses of a business over a period of time
Answer: C
Explanation: A company’s retained earnings statement is a financial statement that shows
how the company’s net income is distributed between dividends paid to shareholders and
retained earnings, which are the amount of profit that is reinvested in the company.
Retained earnings are part of the company’s equity, and they reflect the accumulated
earnings that the company has generated over its history, minus any dividends or
distributions. Retained earnings can be used by the company for various purposes, such as
expanding its operations, developing new products, paying off debt, or buying back
shares1
References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 3:
Which statement CORRECTLY describes index mutual funds and traditional exchangetradedfunds (ETFs)?
A. Index funds use an active investment management style, whereas ETFs use a passiveinvestment management style. B. Both types of funds are closed-end investments that are required to hold the samesecurities as the index at all times. C. The market price of an ETF must match its net asset value (NAV), whereas there can bediscrepancy in the pricing of index funds. D. Both types of funds attempt to replicate the return of a specific market index, but theirreturns may not perfectly match the index.
Answer: A
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
Sample Question 15
Which of the following money market securities have the highest degree of risk for theinvestor?
A. Bankers' Acceptances B. Commercial Paper C. Treasury Bills D. Municipal Short-Term Paper
Answer: B
Explanation: Commercial paper is a type of money market security that is issued by
corporations and financial institutions to raise short-term funds. Commercial paper has a
maturity of less than one year, typically between 30 and 90 days. Commercial paper is
unsecured, meaning that it is not backed by any collateral or guarantee. Therefore,
commercial paper has the highest degree of risk for the investor among the four types of
money market securities listed, as it depends on the creditworthiness and liquidity of the
issuer. If the issuer defaults or faces financial difficulties, the investor may lose part or all of
their principal. Commercial paper also has a higher interest rate than other money market
securities to compensate for the higher risk.
The other types of money market securities are:
Bankers’ acceptances: These are negotiable instruments that are issued by a bank
on behalf of a client who needs to finance international trade transactions.
Bankers’ acceptances have a maturity of less than one year, usually between 30
and 180 days. Bankers’ acceptances are secured by the bank’s guarantee and the
underlying goods or services that are being traded. Therefore, bankers’
acceptances have a lower degree of risk for the investor than commercial paper,
as they are backed by the bank’s creditworthiness and the value of the trade
transaction.
Treasury bills: These are short-term debt obligations that are issued by the federal
government to finance its operations and programs. Treasury bills have a maturity
of less than one year, usually between 3 and 12 months. Treasury bills are
considered risk-free investments, as they are backed by the full faith and credit of
the government. Therefore, treasury bills have the lowest degree of risk for the
investor among the four types of money market securities listed, as they have
virtually no default risk or liquidity risk. Treasury bills also have the lowest interest
rate among the four types of money market securities, as they reflect the risk-free
rate of return.
Municipal short-term paper: These are short-term debt instruments that are issued by municipalities or other local governments to finance their capital projects or
operating expenses. Municipal short-term paper has a maturity of less than one
year, usually between 30 and 270 days. Municipal short-term paper is secured by
the taxing power and revenue sources of the issuing municipality or government.
Therefore, municipal short-term paper has a lower degree of risk for the investor
than commercial paper, as it is backed by the ability and willingness of the issuer
to levy taxes and collect revenues.
References:
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income
Derek submits an order to sell 300 units of the Evergreen Canadian Mortgage Fund at 8:00p.m. EST on Friday, January 6. His proceeds will be based on the net asset value per unit(NAVPU) for which day (assume no holidays)?
A. Friday, January 6 B. Monday, January 9 C. Tuesday, January 10 D. Wednesday, January 11
Answer: B
Explanation: Mutual fund orders placed after the market closes are processed using the
next business day's net asset value per unit (NAVPU). Since Derek submitted his sell order
at 8:00 p.m. EST on Friday, January 6 (after the close of the markets), his proceeds will be
based on the NAVPU for Monday, January 9, the next business day.
References: This information is consistent with the standard practice for mutual fund
transactions as outlined in the Canadian Investment Funds Course (CIFC). The CIFC
Jabir recently joined Prosper Wealth Inc. and is looking forward to being a DealingRepresentative for the firm. Which of the following statements CORRECTLY describe whenJabir will be eligible to open newclient accounts and sell investments?
A. Upon registration application by the dealer B. Upon employment with the dealer C. Upon formal confirmation from the regulator D. Upon passing the proficiency course
Answer: C
Explanation: Jabir will be eligible to open new client accounts and sell investments only
after he receives formal confirmation from the securities regulator that he is registered as a
Dealing Representative. This is because registration is a legal requirement for anyone who
trades securities or advises clients on securities in Canada, unless an exemption applies.
Registration helps protect investors by ensuring that only qualified and competent
individuals and firms can conduct securities related business. Jabir must also meet the
proficiency, solvency, and suitability requirements for registration, as well as comply with
the ongoing obligations of a registrant. Passing the proficiency course and being employed
by the dealer are necessary but not sufficient conditions for registration. The dealer must
apply for registration on behalf of Jabir and wait for the regulator’s approval.
References: Canadian Investment Funds Course, Unit 1, Section 1.2
Sample Question 18
One of your clients, Rakesh, had a portfolio composed of 60% ABC Equity Fund and 40% ABC Bond Fund. Since equities were performing much better than fixed income, he hadincreased his holdings in ABC Equity Fund to 70% and had reduced his holding in ABCBond Fund to 30% of his portfolio.After benefitting the growth in his ABC Equity Fund for over 2 years, Rakesh isuncomfortable with this heavy exposure to equity funds and decides to rebalance hisportfolio back to 60% of ABC Equity Fund and 40% of ABC Bond Fund.He instructs you to switch 10% of the portfolio from the ABC Equity Fund to the ABC BondFund.Which of the following statements is CORRECT?
A. Rakesh will not be subjected to a switch fee if it is outlined in the prospectus. B. Rakesh will not be subjected to a switch fee if his equity fund is a no-load fund. C. Rakesh will not be subjected to a switch fee if his original units were purchased with a sales charge. D. Rakesh will not be subjected to a switch fee if his equity fund is a low-load fund.
Answer: A
Explanation: Rakesh will not be subjected to a switch fee if it is outlined in the prospectus.
A switch fee is a charge that may apply when an investor switches from one fund to
another within the same fund family. The prospectus is the legal document that provides
information about the fund, including its fees and charges. If the prospectus states that
there is no switch fee or that there are certain conditions under which the switch fee is
waived, then Rakesh will not have to pay a switch fee. The type of fund (no-load, low-load,
or sales charge) does not determine whether there is a switch fee or not, as different fund
families may have different policies regarding switch fees. References: Mutual Fund Fees,
Prospectus
Sample Question 19
Yesterday, Mariana who is new to investing and purchased mutual funds for the very firsttime. She shared her excitement with her good friend, Julius. However, after Julius learnedabout her investment, he admits that he had a bad experience with mutual fund investingand that he lost money. Mariana regrets not talking to Julius prior to making her decision.Her feelings of enthusiasm have changed to fear. She is wondering if it is too late tochange her mind and cancel her purchase order.Which statement regarding the right of withdrawal is CORRECT?
A. The right of withdrawal for investors can be different depending on which province (orterritory) the fund was purchased within. B. The Canadian Securities Administrators (CSA) created legislation that addresses theright of withdrawal for investors. C. The Mutual Fund Dealers Association of Canada (MFDA) have written conduct rulesregarding the right of withdrawal. D. Mariana has to wait two business after her purchase order has been settled to exercisethe right of withdrawal.
Answer: A
Explanation: The right of withdrawal is a statutory right that allows investors to cancel their
purchase order of mutual funds within a specified period of time and receive a refund of the
amount they paid. The right of withdrawal is also known as the cooling-off period or the
rescission right. The right of withdrawal for investors can be different depending on which
province (or territory) the fund was purchased within, as each jurisdiction has its own
securities legislation and regulations that govern the mutual fund industry. For example, in
Ontario, the right of withdrawal is two business days after receiving the simplified
prospectus or the fund facts document, whichever is later1. In Quebec, the right of
withdrawal is two business days after receiving the simplified prospectus or confirmation of
purchase, whichever is later2. In British Columbia, the right of withdrawal is 48 hours after
receiving confirmation of purchase3. Therefore, Mariana may still be able to exercise her
right of withdrawal, depending on where she bought her mutual funds and when she
received the required documents. References:
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 3: The
Regulatory Environment, Section 3.2: The Right of Withdrawal, page 3-54
Ontario Securities Commission - Mutual Funds - Buying and Selling1
Autorité des marchés financiers - Mutual Funds - Buying and Selling2
British Columbia Securities Commission - Mutual Funds - Buying and Selling3
Sample Question 20
Jacinta is a Dealing Representative with WealthSource Partners Inc., a mutual fund dealerregistered in Ontario. Jacinta meets with her friend Saabir, who is a licensed insuranceagent. Saabir asks Jacinta fora list of Jacinta's clients so that Saabir can reach out to them to ensure that their insuranceneeds are being met. Which of the following statements about Jacinta sharing the list withSaabir is CORRECT?
A. If Saabir obtains prior consent from Jacinta to use the clients' personal information for areasonable purpose, Saabir can contact the clients to inquire about their insurance needs. B. If Saabir promptly discloses that he has collected the clients' personal information fromJacinta without their consent, Saabir can use the information for a new stated purpose. C. If Jacinta determines that there is a reasonable purpose for sharing the list with Saabir,she can disclose the information to Saabir without obtaining prior consent from the clients. D. If Jacinta shares the list with Saabir without obtaining the clients' prior consent, she willbe in breach of the Personal Information Protection and Electronic Documents Act(PIPEDA).
Answer: D
Explanation:
The correct answer is D. If Jacinta shares the list with Saabir without obtaining the clients’
prior consent, she will be in breach of the Personal Information Protection and Electronic
Documents Act (PIPEDA).
PIPEDA is the federal privacy law for private-sector organizations in Canada. It sets out the
ground rules for how businesses must handle personal information in the course of their
commercial activity. One of the key principles of PIPEDA is consent. This means that
organizations must obtain meaningful consent from individuals before collecting, using, or
disclosing their personal information, unless an exception applies. Consent must be
obtained for the original purpose of collecting the information, and for any new purpose that
arises later. Consent can be express or implied, depending on the sensitivity of the
information and the reasonable expectations of the individual.
In this scenario, Jacinta’s clients’ personal information is sensitive, as it relates to their
financial situation and investment goals. Jacinta’s clients would not reasonably expect that
their information would be shared with Saabir, who is not affiliated with WealthSource
Partners Inc., for the purpose of marketing insurance products. Therefore, Jacinta must
obtain express consent from her clients before disclosing their information to Saabir. If she
does not, she will violate PIPEDA and risk legal action from her clients or from the Office of
the Privacy Commissioner (OPC).
Sample Question 21
Preston has been working for Thompson Industries for just over a year and has been partof Thompson's deferred profit sharing plan (DPSP) program from his start date. Prestonwants to know more aboutthese types of plans.What would you tell Preston about DPSPs?
A. The employer is obliged to make DPSP contributions for an amount equal to employeecontributions. B. Once the plan is set up, the employer is obliged to make plan contributions each year. C. DPSP contributions are tax-deductible to the employer. D. Investment growth within the plan is taxable each year.
Answer: C
Explanation: A DPSP is a type of registered plan that allows employers to share their
profits with their employees. Employees do not contribute to a DPSP, and they do not pay
taxes on the contributions until they withdraw them. Employers can deduct their
contributions to a DPSP from their taxable income, subject to certain limits and conditions.
References = IFSE CIFC Module 6: Registered Plans, page 6-12. Contributing to a
deferred profit sharing plan - Canada.ca
Sample Question 22
Patrick is a portfolio manager for the HyperTally Growth Fund. It has generated anannualized rate of return of 10% this past year. However, with the anticipation of very highinflation to soon occur, there is also an expectation of higher interest rates. Patrick isconcerned about the future returns of existing stocks within the fund. What may Patrick doto protect against the market value of the fund dropping?
A. Agree to buy forward contracts where he is in the "long' position. B. Buy call options for the existing stocks stored within the fund. C. Avoid the use of derivatives because they are speculative in nature. D. Purchase put options for the fund's existing assets.
Answer: D
Explanation: A put option is a contract that gives the buyer the right, but not the obligation,
to sell an underlying stock at a specified price (the strike price) within a specified time
period (the expiration date). The seller of a put option is obligated to buy the stock if the
buyer exercises the option. Patrick can purchase put options for the fund’s existing assets,
which means he can lock in a minimum selling price for his stocks in case the market value
drops below the strike price. This way, he can protect against potential losses and hedge
his portfolio against market risk. References: What Is a Put Option and How to Use It With
Example - Investopedia, How to Hedge With Stock Index Futures - Investopedia
Sample Question 23
Pippa purchased a 15-year bond with a face value of $5,000 and a 7% coupon rate at thetime of issuance. The bond is due to mature later this year. The general interest rateclimate remained stable for the first 13 years of the bond's term. However, especially overthe past 18 months, both inflation and general interest rates have increased more thanexpected.What is Pippa likely to experience from her bond?
A. With the unanticipated rise in inflation, Pippa will benefit from a higher real rate of returnas well. B. Due to inflation, Pippa will experience a capital loss once her bond reaches maturity. C. The return of investment capital will have lower purchasing power than prior to investing. D. With capital appreciation at 7% annually, Pippa's capital gain will be reduced by inflationat maturity.
Answer: C
Explanation: According to the Canadian Investment Funds Course, 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 in the future than it can today. Inflation
also affects the returns of fixed income investments, such as bonds, which pay a fixed
amount of interest and principal. If inflation is higher than expected, the real rate of return
(the nominal rate minus inflation) of a bond will be lower than anticipated.
In this case, Pippa purchased a 15-year bond with a 7% coupon rate at the time of
issuance. The bond is due to mature later this year. The general interest rate climate
remained stable for the first 13 years of the bond’s term. However, especially over the past
18 months, both inflation and general interest rates have increased more than expected.
This means that Pippa will receive less purchasing power from her bond’s interest and
principal payments than she expected when she bought the bond. She will not experience
a capital loss, as she will receive the full face value of $5,000 at maturity. She will also not
benefit from a higher real rate of return, as inflation erodes the value of her fixed payments.
She will not receive any capital appreciation, as the bond’s price does not change once it is
held to maturity.
Therefore, the correct answer is C. The return of investment capital will have lower
purchasing power than prior to investing.
References: 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 4: Fixed Income
Securities)
Sample Question 24
Sean purchases 500 units of Penn Canadian Equity Fund when the net asset value per unit(NAVPU) is $16.70. On December 15, the mutual fund’s NAVPU is $21. On December 16,the mutual fund declares a distribution of $1.25 per unit. Sean’s distribution is immediately reinvested and he purchases additional units of the mutual fund.Which of the following statements about the effect of the distribution is correct?
A. After the distribution. Sean will have J&625 in cash and JB8.350 worth of the PennCanadian Equity Fund. B. The total value of Sean's mutual fund holdings after the distribution and reinvestment is§9,875. C. The NAVPU of the mutual fund does not change after the distribution since Seanreinvests his distribution and purchases additional units. D. Sean's distribution is reinvested at a NAVPU of $19.75 and he receives approximately31.65 additional units.
Answer: D
Explanation: Sean’s distribution is reinvested at a NAVPU of $19.75 and he receives
approximately 31.65 additional units. When a mutual fund declares a distribution, it reduces
its NAVPU by the amount of the distribution per unit. In this case, the NAVPU drops from
$21 to $19.75 after the distribution of $1.25 per unit. Sean’s distribution is $625 ($1.25 x
500 units), which he reinvests in the mutual fund at the new NAVPU of $19.75. He receives
additional units. The total value of Sean’s mutual fund holdings after the distribution and
reinvestment is
(500+31.65)×19.75=$10,500
, not $9,875. The NAVPU of the mutual fund does change after the distribution, regardless
of whether Sean reinvests his distribution or not. References: [Unit 7: Mutual Funds
Administration]
Sample Question 25
Danica is looking for a mutual fund to hold in her non-registered account that provides aregular stream of income with potential for capital growth. She is having difficultydistinguishing between bond funds and dividend funds. Which of the following statementsis TRUE?
A. The return of dividend funds relies only on interest rates; whereas with bond funds, thereturn also depends on the general direction of stock markets. B. When interest rates rise, the net asset value per unit (NAVPU) of bond funds decreases;whereas with dividend funds it rises. C. Bond funds receive fixed interest payments from most of their investments. D. Bond fund distributions receive more favorable tax treatment than that of dividend funds.
Answer: C
Explanation: C is correct because bond funds receive fixed interest payments from most
of their investments, as they invest mainly in bonds and other fixed-income securities that
pay a regular coupon rate. Dividend funds receive variable dividend payments from most of
their investments, as they invest mainly in stocks and other equity securities that pay
dividends based on the company’s earnings and policies. The return of dividend funds
does not rely only on interest rates (A), but also on other factors such as stock prices,
earnings growth, dividend yield, and dividend payout ratio. The return of bond funds also
depends on interest rates, as well as other factors such as credit quality, maturity, duration,
and yield curve. When interest rates rise, the NAVPU of both bond funds and dividend
funds decreases (B), not rises, as it lowers the present value of their future cash flows.
Bond fund distributions do not receive more favorable tax treatment than that of dividend
funds (D), but rather less favorable, as interest income is fully taxable at the investor’s
marginal tax rate while eligible dividends receive a dividend tax credit that reduces their
taxable amount. References: Canadian Investment Funds Course (CIFC) | IFSE Institute
Sample Question 26
The Mutual Fund Dealers Association of Canada (MFDA) has strict rules concerningconflicts of interest. Which of the following is TRUE?
A. Gifts and benefits may be provided to a client if your employer is aware of the benefitsand has given approval. B. Activities that do not relate specifically to your employer need not be reported. C. Only actual conflicts must be reported to your employer. Potential conflicts need not bereported because they have not happened yet. D. Borrowing money from a client will always be acceptable provided there is a writtencontract detailing the nature of the agreement.
Answer: A
Explanation: Gifts and benefits may be provided to a client if your employer is aware of
the benefits and has given approval. This is one of the rules concerning conflicts of interest
set by the MFDA. A conflict of interest is a situation where a person’s personal interests
conflict with their professional obligations or duties. Gifts and benefits may create a conflict
of interest if they influence or appear to influence the person’s judgment or actions.
Therefore, the MFDA requires that any gifts and benefits given or received by a mutual
Sample Question 27
Gershon is a Dealing Representative and he opens a new account for his client, Isaac.Gershon collects the necessary information from Isaac in order to designate the TrustedContact Person (TCP) for Isaac’s account. Which of the following statements about Isaac’sTCP is CORRECT?
A. The TCP is an alternative to a Power of Attorney (PQA) and has the authority to makechanges to Isaac's account and direct trading. B. The TCP is an alternative authority on Isaac's account that has the power to place atemporary hold on Isaac's account to disallow trading. C. The TCP is the person whom Gershon can speak to if he becomes concerned aboutIsaac's mental capacity to make financial decisions. D. The TCP is the person who is designated with authority to direct financial dealings forIsaac's account and make financial decisions.
Answer: C
Explanation: A Trusted Contact Person (TCP) is someone that an investor authorizes their
brokerage firm to contact in limited circumstances, such as if the broker has trouble
reaching the investor or has a reasonable belief that the investor’s account may be
exposed to possible financial exploitation. A TCP does not have the authority to make
changes to the investor’s account or direct trading, unlike a Power of Attorney (POA). A
TCP also does not have the power to place a temporary hold on the investor’s account,
which is a decision made by the brokerage firm. Therefore, C is the correct answer.
References: What is a Trusted Contact Person and why you should name one, Do You
Need A ‘Trusted Contact’ To Help Protect You?, Investor Bulletin: Please Consider Adding
a Trusted Contact Person to Your Account
Sample Question 28
Which of the following best describes implied needs of your clients?
A. They are needs reflected by statements made by clients regarding problems anddissatisfactions. B. They are statements made by you showing readiness to solve a client's problem. C. They are statements made by clients expressing the desire for lower commissions. D. They are statements of wants and needs made by clients.
Answer: A
Explanation: Implied needs of your clients are needs reflected by statements made by
clients regarding problems and dissatisfactions1. For example, a client may say “I’m
worried about outliving my savings” or “I don’t understand how this investment works”.
These statements imply that the client has a need for retirement planning or financial
education, respectively. Implied needs are different from explicit needs, which are
statements of wants and needs made by clients1. For example, a client may say “I want to
save for my child’s education” or “I need a low-risk investment”. These statements express
the client’s goals and preferences clearly. Statements made by you showing readiness to
solve a client’s problem are not implied needs, but rather responses to implied needs1. For
example, you may say “I can help you create a retirement plan that suits your lifestyle” or “I
can explain how this investment works and what are the benefits and risks”. Statements
made by clients expressing the desire for lower commissions are not implied needs, but
rather objections or concerns that may arise during the sales process2. For example, a
client may say “Your fees are too high” or “I can get a better deal elsewhere”. These
statements may indicate that the client is not convinced of the value of your service or
product, or that they are trying to negotiate a lower price. References: Unit 2: Know Your
Client, Unit 10: Sales Process
Sample Question 29
What information can be found from a simplified prospectus instead of Fund Facts?
A. Costs associated with mutual fund investing. B. A summary of the top 10 investment holdings. C. The investment strategies that are being used or proposed to be used. D. Investor rights regarding cancelling an order.
Answer: C
Explanation: A simplified prospectus is a legal document that provides essential
information about a mutual fund, such as its investment objectives, strategies, risks, fees,
performance, and distribution policy. A simplified prospectus also contains information
about the fund manager, the dealer, and the rights of investors. A fund facts is a summary
document that highlights the key information from the simplified prospectus in a concise
and easy-to-read format. A fund facts is delivered to investors before or at the time of
purchase of a mutual fund12
One of the information that can be found from a simplified prospectus instead of fund facts
is the investment strategies that are being used or proposed to be used by the mutual fund.
The investment strategies describe how the fund manager intends to achieve the fund’s
investment objectives, such as the types of securities, markets, sectors, or styles that the
fund will invest in, the asset allocation or diversification policy, the use of derivatives or
leverage, or the criteria for selecting or selling securities. The investment strategies may
also include any restrictions or limitations that the fund must follow, such as the minimum
or maximum exposure to certain securities, markets, or sectors, or the adherence to any
ethical, environmental, social, or governance (ESG) principles. The investment strategies
provide investors with a detailed and comprehensive understanding of how the fund
operates and what risks it may entail34
The other options are not correct, as they can be found in both the simplified prospectus
and the fund facts. The costs associated with mutual fund investing include the sales
charges, trailing commissions, management fees, operating expenses, and taxes that
investors may have to pay when they buy, hold, or sell a mutual fund. These costs are
disclosed in both documents, as they affect the returns and performance of the fund12 A
summary of the top 10 investment holdings shows the largest positions that the fund holds
in its portfolio, such as the names and percentages of the securities, markets, or sectors
that the fund invests in. This summary gives investors a snapshot of the fund’s composition
and diversification, and it is updated regularly in both documents12 Investor rights
regarding cancelling an order refer to the right of withdrawal and the right of rescission that
investors have when they purchase a mutual fund. The right of withdrawal allows investors
to cancel their purchase within two business days of receiving the fund facts or the
confirmation of purchase, and receive a refund of the purchase price or the market value of
the fund, whichever is less. The right of rescission allows investors to cancel their purchase
within 48 hours of receiving the confirmation of purchase, if they did not receive the fund
facts before or at the time of purchase, and receive a refund of the purchase price or the
market value of the fund, whichever is less. These rights are explained in both documents,
as they protect the interests of investors12
References = Canadian Investment Funds Course, Unit 6: Mutual Funds, Lesson 4: Mutual
Fund Disclosure Documents, Section 6.4.1: Simplified Prospectus 1; Canadian Investment
Funds Course, Unit 6: Mutual Funds, Lesson 4: Mutual Fund Disclosure Documents,
Sylvia decided to use the savings from her bank account to purchase a 5-year bond. Theface value of the bond is $10,000, the market price is $9,230 and the coupon rate is 7%.What is the current yield on the bond? Round to 2 decimal places.
A. 7.00% B. 7.25% C. 7.58% D. 7.75%
Answer: C
Explanation: The current yield on a bond is the annual interest payment divided by the
current market price of the bond. In this case, the annual interest payment is 7% of the face
value, which is $700. The current market price of the bond is $9,230. Therefore, the current
yield is:
9230700×100%=7.58%
The current yield is different from the coupon rate, which is the annual interest payment
divided by the face value of the bond. The coupon rate does not change over the life of the
bond, but the current yield changes as the market price of the bond fluctuates. References:
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income
Securities, Section 5.2: Bond Pricing and Yield, page 5-61
Current Yield Definition - Investopedia2
Sample Question 31
Russell is a Dealing Representative with Wealth Quest Strategies Ltd., a mutual funddealer and member of the Mutual Fund Dealers Association of Canada (MFDA). Russell isdeveloping his website toinclude sales content on a Target Date Fund. Which of the following is Russell permitted toinclude on his website about the Target Date Fund?i. the asset mix through the life of the fund until the future dateii. the expected decline in the fund's risk level as the fund reaches its target dateiii. the guaranteed return that the client will receive on the future dateiv. a graphic illustration of the fund's promised growth on target date
A. i and ii B. i and iii C. ii and iv D. iii and iv
Answer: A
Explanation: A target date fund is a type of mutual fund that adjusts its asset allocation
and risk level according to a predetermined future date, such as retirement or college
education. A target date fund typically starts with a higher proportion of stocks and a lower
proportion of bonds and cash, and gradually shifts to a more conservative mix as the target
date approaches. This is called the fund’s glide path, which shows the asset mix through
the life of the fund until the future date. Russell is permitted to include this information on
his website, as it is factual and relevant to the fund’s characteristics and suitability. Russell
is also permitted to include information about the expected decline in the fund’s risk level
as the fund reaches its target date, as this is part of the fund’s objective and strategy.
However, Russell is not permitted to include any information that implies or suggests that
the target date fund offers a guaranteed return or a promised growth on the future date, as
this would be misleading and inaccurate. Target date funds are not guaranteed
investments, and their performance depends on the market conditions and the fund
manager’s decisions. Russell must not make any false or exaggerated claims about the
target date fund’s benefits or returns on his website.
References: Canadian Investment Funds Course, Chapter 7: Know Your Product1
Sample Question 32
Which of the following statements about your mutual fund registration is CORRECT?
A. You can sell mutual funds anywhere in Canada as long as you are registered with oneof the provincial or territorial securities commissions. B. Your online application must be reviewed and approved by your mutual fund dealerbefore you can begin to sell mutual funds. C. You must renew your registration through the online NRD system every two years. D. You must inform the regulatory authorities of any material or significant changes to yourpersonal circumstances.
Answer: D
Explanation: According to the Registered Investments (RIs) - Canada.ca, you must inform
the regulatory authorities of any material or significant changes to your personal
circumstances, such as a change of name, address, or employment status. You must also
report any disciplinary actions, criminal charges, or civil lawsuits that may affect your suitability as a registrant. Failing to do so may result in suspension or revocation of your
registration.
Sample Question 33
Bernadette has a high-paying job and is in the top tax bracket. She recently received apayment 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 alsoincome tax friendly.Which of the following would provide the most favourable tax treatment?
A. Coupon payments from Government of Canada bonds. B. Dividends received from a large foreign corporation. C. Capital gains from stock investments. D. Dividends from a large public Canadian corporation.
Answer: D
Explanation: Dividends from a large public Canadian corporation are eligible for the
dividend tax credit, which reduces the amount of tax payable on this type of income. The
dividend tax credit is a non-refundable tax credit that recognizes that dividends are paid out
of income that has already been taxed at the corporate level, and therefore should not be
taxed again at the personal level. The dividend tax credit applies to both federal and
provincial taxes, and the rates vary depending on the province or territory of residence12
Sven owns preferred shares that give him the option to sell his holdings back to the issuingcompany at a predetermined price and within a specified time. What type of preferredshares does Sven own?
A. retractable B. participating C. convertible D. redeemable
Answer: A
Explanation: A is correct because retractable preferred shares are a type of preferred
shares that give the holder the option to sell the shares back to the issuer at a
predetermined price and within a specified time. This feature provides the holder with more
flexibility and protection against interest rate fluctuations. Participating preferred shares (B)
are a type of preferred shares that give the holder the right to receive additional dividends if
preferred shares that give the holder the option to convert the shares into common shares
of the issuer at a predetermined ratio and price. Redeemable preferred shares (D) are a
type of preferred shares that give the issuer the option to buy back the shares from the
holder at a predetermined price and within a specified time. References: Canadian
Investment Funds Course (CIFC) | IFSE Institute
Sample Question 35
Xian-Li believes she is a sophisticated investor. She has constructed her own portfolio andhas had some success. She does not believe in studying a company’s details such asearnings, expenses, or assets. She is more concerned with patterns in a company’s stockprice over time. She believes patterns form and can be used to predict future movements inthe market.How does Xian-Li evaluate the companies in her portfolio?
A. fundamental analysis B. flowchart analysis C. technical analysis D. value analysis
Answer: C
Explanation: Technical analysis is the method of evaluating securities by analyzing the
statistics generated by market activity, such as past prices and volume. Technical analysts
do not attempt to measure a security’s intrinsic value, but instead use charts and other
tools to identify patterns that can suggest future activity. Xian-Li is using technical analysis
to evaluate the companies in her portfolio. References: Canadian Investment Funds
Course (CIFC) | IFSE Institute
Sample Question 36
Charlotte has received proceeds from a deceased family member’s estate. Charlottedecides to visit Malik, who’s a Dealing Representative at her bank. She tells Malik, shedoes not know much about trading ETFs, but she wants to invest in ETFs. Charlotte saysshe feels fortunate to have this money and that she’s not worried about losing it becauseshe never planned on having any of it.What element of the Know Your Client (KYC) information has Malik been able to learn?
A. Risk Profile B. Risk Capacity C. Risk Preference D. Risk Tolerance
Answer: C
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
Your client, James, would like to work beyond the normal retirement age. He comes to you
for advice on his registered retirement savings plan (RRSP). What are the rules regarding
terminating an RRSP?
James must terminate the plan by the end of the year he turns 65.
James must terminate the plan by the end of the year he turns 67.
James must terminate the plan by the end of the year he turns 70.
James must terminate the plan by the end of the year he turns 71.
Answer: D
According to the Canadian Investment Funds Course, an RRSP is a retirement savings
plan that allows individuals to defer taxes on their contributions and investment income until
they withdraw the funds. However, an RRSP cannot be held indefinitely and must be
terminated by the end of the year the annuitant turns 71. At that point, the annuitant has
three options to withdraw the funds from the RRSP:
Make a lump-sum withdrawal, which is subject to withholding tax and income tax.
Convert the RRSP to a registered retirement income fund (RRIF), which provides
a steady stream of income with a minimum amount that must be withdrawn each
year.
Purchase an annuity, which offers a guaranteed income for life or for a specified
period.
References: 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 9: Retirement)
Sample Question 37
Which of the following statements about global equity funds is TRUE?
A. They may invest in all countries including the investment fund manager's home country. B. They must invest almost exclusively outside of the Americas. C. They are always less risky than Canadian equity funds. D. They specialize in one or two countries.
Answer: A
Explanation: Global equity funds are a type of investment fund that invests in equity
securities of companies from different countries around the world, including the investment
fund manager’s home country. Global equity funds aim to provide diversification and
growth potential by taking advantage of the opportunities and risks in various markets and
regions. Global equity funds may have different geographic, sectoral, or thematic focuses,
depending on their investment objectives and strategies. Global equity funds are different
from international equity funds, which invest only in countries outside of the investment
fund manager’s home country. Global equity funds are also different from regional or
country-specific equity funds, which specialize in one or a few countries or regions. Global
equity funds may have higher risk than domestic equity funds, as they are exposed to
currency risk, foreign market risk, political risk, and regulatory risk.
References: Canadian Investment Funds Course, Chapter 4: Types of Investments1
Exam Code: CIFCExam Name: Canadian Investment Funds Course ExamLast Update: May 13, 2024Questions: 224
