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NEW QUESTION # 82
Which of the following statements regarding mutual fund fees is correct?
- A. Trailer fees are only paid to mutual fund dealers when a purchase is made.
- B. Trading commissions are paid from the management fee.
- C. The mutual fund dealer receives trailer fees based on the value of assets under management.
- D. Redemptions are made from units held by investors to pay trailer fees.
Answer: C
Explanation:
Explanation
Trailer fees are ongoing fees that are paid by mutual fund managers to mutual fund dealers for providing ongoing services to their clients who hold units of their funds. Trailer fees are calculated as a percentage of the value of assets under management (AUM) of the clients who hold units of the fund. Trailer fees are paid out of the management fee that is charged by the mutual fund manager to cover the costs of operating and administering the fund. Therefore, option C is correct regarding mutual fund fees. The other options are incorrect. Option A is false because redemptions are not made from units held by investors to pay trailer fees; rather, trailer fees are paid out of the management fee that is deducted from the net asset value (NAV) of the fund. Option B is false because trailer fees are not only paid to mutual fund dealers when a purchase is made; rather, trailer fees are paid on an ongoing basis as long as the clients hold units of the fund. Option D is false because trading commissions are not paid from the management fee; rather, trading commissions are paid from the trading expense ratio (TER) that reflects the costs of buying and selling securities within the fund.
References: [Mutual Fund Fees Explained | Wealthsimple], [Mutual Fund Fees | GetSmarterAboutMoney.ca],
[Understanding Mutual Fund Fees | Investopedia]
NEW QUESTION # 83
Yesterday, Mariana who is new to investing and purchased mutual funds for the very first time. She shared her excitement with her good friend, Julius. However, after Julius learned about her investment, he admits that he had a bad experience with mutual fund investing and 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 to change her mind and cancel her purchase order.
Which statement regarding the right of withdrawal is CORRECT?
- A. The Mutual Fund Dealers Association of Canada (MFDA) have written conduct rules regarding the right of withdrawal.
- B. The right of withdrawal for investors can be different depending on which province (or territory) the fund was purchased within.
- C. Mariana has to wait two business after her purchase order has been settled to exercise the right of withdrawal.
- D. The Canadian Securities Administrators (CSA) created legislation that addresses the right of withdrawal for investors.
Answer: B
Explanation:
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 Autorite des marches financiers - Mutual Funds - Buying and Selling2 British Columbia Securities Commission - Mutual Funds - Buying and Selling3
NEW QUESTION # 84
A client has $950,000 in his RRSP account and $550,000 in his non-registered account held in nominee name with Tradewell Mutual Funds.
In the event of his dealer, Tradewell Mutual Funds declaring insolvency, what is the total amount the client be eligible to receive from the Mutual Fund Dealers Association of Canada Investor Protection Corporation (IPC)?
- A. The client will not be eligible for any coverage.
- B. The client will be eligible for coverage of $550,000.
- C. The client will be eligible for coverage of $1,500.000.
- D. The client will be eligible for coverage of $950,000.
Answer: D
NEW QUESTION # 85
Nelson is a Dealing Representative with True Wealth Advisors Inc., a mutual fund dealer. Nelson follows proper procedures related to his firm's Relationship Disclosure Information (RDI). Which of the following CORRECTLY describes how Nelson is permitted to evidence that he satisfied his RDI obligation?
- A. Nelson can record detailed notes which confirm that he provided and explained the Fund Facts to the client within 2 days of the RDI.
- B. Nelson may retain a copy of the RDI in the client file with detailed notes to confirm that he provided and explained the RDI to the client.
- C. Nelson may deliver the RDI to clients who request it and keep detailed notes of the clients who were provided with the RDI.
- D. Nelson can formalize his relationship under the RDI using a Letter of Engagement that specifies duties, responsibilities, and level of service.
Answer: B
Explanation:
Explanation
Relationship Disclosure Information (RDI) is a document that provides important information about the nature and scope of the relationship between a registered firm and its clients. It covers topics such as the products and services offered by the firm, the fees and charges applicable to the client's account, the risks associated with investing, the conflict of interest management policies of the firm, and the dispute resolution services available to the client. According to Section 14.2 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), registered firms must provide RDI to their clients before they purchase or sell securities for them or advise them to do so. Registered firms must also update RDI in a timely manner if there are any significant changes to it. To evidence that they have satisfied their RDI obligation, registered firms may retain a copy of the RDI in the client file with detailed notes to confirm that they have provided and explained RDI to their clients. This is one of the acceptable methods suggested by Alberta Securities Commission (ASC) in its presentation on RDI1. Delivering RDI only upon request or using a letter of engagement are not sufficient methods to comply with NI 31-103. Providing and explaining Fund Facts is a separate obligation under NI 31-101 Mutual Fund Distribution Rules.
References: Relationship Disclosure Information August 2021, Relationship Disclosure Information, Relationship Disclosure Information
NEW QUESTION # 86
Which of the following statements about capital gains distributions from mutual fund trusts is correct?
- A. Capital gains from mutual fund distributions are 100% taxable.
- B. Capital gains distributions from a mutual fund trust are reported annually on a T3.
- C. Capital gains distributions are not a disposition and are therefore not taxable.
- D. Capital gains from mutual fund trusts are deferred until the investor exits the mutual fund.
Answer: B
NEW QUESTION # 87
Which of the following is a rationale for a portfolio manager to use a passive portfolio management strategy?
- A. The manager does not believe in using benchmarks.
- B. The manager believes he or she can outperform the market with his or her stock picking skills.
- C. The manager wishes to create capital gains in the mutual fund by frequently buying and selling stocks
- D. The manager believes that as the markets are fairly priced, it would be futile to look for mis-priced securities.
Answer: D
Explanation:
Explanation
D is correct because a passive portfolio management strategy is based on the assumption that the markets are efficient and that it is impossible or very difficult to consistently find mis-priced securities that can generate abnormal returns. A passive portfolio manager aims to replicate the performance of a market index or benchmark by holding a diversified portfolio of securities that mirrors the index or benchmark. A passive portfolio manager does not believe in using active strategies such as market timing, security selection, or sector rotation. The manager does not need to use benchmarks (A), as they are essential for measuring and evaluating the performance of a passive portfolio. The manager does not wish to create capital gains in the mutual fund by frequently buying and selling stocks (B), as this would incur higher transaction costs and taxes, and deviate from the index or benchmark. The manager does not believe he or she can outperform the market with his or her stock picking skills , as this would imply an active portfolio management strategy.
References: Investment Funds in Canada (IFC) | Canadian Securities Institute
NEW QUESTION # 88
Pippa purchased a 15-year bond with a face value of $5,000 and 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.
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 return as well.
- B. With capital appreciation at 7% annually, Pippa's capital gain will be reduced by inflation at maturity.
- C. The return of investment capital will have lower purchasing power than prior to investing.
- D. Due to inflation, Pippa will experience a capital loss once her bond reaches maturity.
Answer: C
Explanation:
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)
NEW QUESTION # 89
Last year Peter's earned income from employment was $50,000.
Last year, after receiving a $2 per share in dividends from 500 shares in ABC Inc., a publicly-traded Canadian corporation, he sold his shares. The sale resulted in a capital gain of $15,000.
Based on the tax rates mentioned above, what is Peter's net federal tax liability for the year? (Round to 2 decimal places).
- A. $9,696.15
- B. $9,113.53
- C. $9,953.30
- D. $9,193.69
Answer: D
Explanation:
Explanation
To calculate Peter's net federal tax liability for the year, we need to follow these steps:
Step 1: Calculate Peter's taxable income. This is the amount of income that is subject to federal income tax. It is equal to his earned income from employment plus his net capital gain plus his grossed-up dividend income. A net capital gain is 50% of the capital gain realized from selling an asset. 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. According to the image, the dividend gross-up rate is
15.02%. Therefore, Peter's taxable income is:
50000+0.5×15000+(500×2)×(1+0.1502)=68251.00
Step 2: Apply the federal tax rates to Peter's taxable income according to the tax brackets shown in the image. The federal tax rates are progressive, meaning that higher income is taxed at higher rates.
Therefore, Peter's federal tax before credits is:
0.15×(485350)+0.205×(6825148535)=11293.69
Step 3: Subtract the federal tax credits from Peter's federal tax before credits. A tax credit is an amount that reduces the tax payable by a taxpayer. There are two types of federal tax credits: non-refundable and refundable. Non-refundable tax credits can only reduce the tax payable to zero, but not below zero.
Refundable tax credits can reduce the tax payable below zero, resulting in a refund to the taxpayer. In this question, we assume that Peter only has two non-refundable tax credits: the basic personal amount and the dividend tax credit. The basic personal amount is a fixed amount that every taxpayer can claim to reduce their taxable income. According to this site, the basic personal amount for 2021 is $13,808.
The 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. According to this site, the federal dividend tax credit rate for eligible dividends in 2021 is 15.0198%. Therefore, Peter's federal tax credits are:
0.15×13808+0.150198×(500×2)×0.1502=2100
Step 4: Subtract Peter's federal tax credits from his federal tax before credits to get his net federal tax liability. This is the amount of federal income tax that Peter has to pay or has overpaid for the year.
Therefore, Peter's net federal tax liability is:
11293.692100=9193.69
Hence, option B is correct. References: Canadian Investment Funds Course (CIFC) | IFSE Institute, Federal Income Tax Rates for Canada - TurboTax Canada Tips, Capital Gains Tax in Canada | Wealthsimple, Dividend Tax Credit | TurboTax Canada Tips, Basic Personal Amount (BPA)
NEW QUESTION # 90
Which statement about unused registered retirement savings plan (RRSP) contribution room is CORRECT?
- A. It can be carried forward to future years.
- B. It may not be carried forward.
- C. It can be carried forward a maximum of seven years.
- D. It may not be more than the RRSP contribution limit for the year in which it is carried forward.
Answer: A
NEW QUESTION # 91
Jehona is a Dealing Representative with Vista Wealth Investments Inc., a mutual fund dealer in Ontario and Nova Scotia. Jehona has reviewed her client Sokol's account and wants to adjust the holdings andre-balance the portfolio. Which of the following statements about Jehona's permitted activities is CORRECT?
- A. If Jehona wants to execute trades for Sokol's account, Sokol must provide his specific authorization before the trades are entered.
- B. If Jehona wants to execute the trades without Sokol's pre-approval, Sokol must first appoint Jehona as his Power of Attorney.
- C. If Sokol has siqned a Limited Authorization Form, Jehona can process the trades in the account without Sokol's pre-approval.
- D. If Sokol has qiven Jehona discretionary tradinq authority, Jehona can process trades in the account without Sokol's pre-approval.
Answer: A
NEW QUESTION # 92
What do Guaranteed Income Supplement (GIS) and Allowance for the Survivor have in common?
- A. ability to defer benefits
- B. benefit amounts depend on individual contribution
- C. benefits start at the age of 65
- D. eligibility depends on income level
Answer: D
Explanation:
Explanation
Guaranteed Income Supplement (GIS) and Allowance for the Survivor are both income-tested benefits that are part of the Old Age Security (OAS) program. They are designed to provide financial assistance to low-income seniors who meet certain eligibility criteria. GIS is a monthly payment that supplements the OAS pension for seniors whose income is below a certain threshold. Allowance for the Survivor is a monthly payment for low-income seniors aged 60 to 64 whose spouse or common-law partner has died and who have not remarried or entered into another common-law relationship. The benefit amounts for both GIS and Allowance for the Survivor depend on the income level of the recipient and are adjusted quarterly based on the Consumer Price Index. The higher the income, the lower the benefit amount, until it reaches zero at a certain income limit.
Therefore, eligibility for both GIS and Allowance for the Survivor depends on income level.
References: Canadian Investment Funds Course, Chapter 5: Registered Plans1
NEW QUESTION # 93
Which of the following statements describes a feature of the Home Buyers' Plan (HBP)?
- A. Once you are required to repay the amounts back to your RRSP. any missed or incomplete payments are subject to tax.
- B. To qualify- as a first-time home buyer you or your spouse must never have previously owned a home
- C. A qualifying home must be purchased by December 31 of the year of withdrawal.
- D. If you have a spouse or common-law partner, each of you can withdraw up to JE50.000 from your registered retirement savings plans (RRSPs).
Answer: A
Explanation:
Explanation
The Home Buyers' Plan (HBP) is a program that allows eligible first-time home buyers to withdraw up to
$35,000 from their registered retirement savings plans (RRSPs) to buy or build a qualifying home without paying any tax on the withdrawal. The withdrawn amount must be repaid to the RRSP over a period of up to
15 years, starting from the second year after the withdrawal. If the required repayment for a year is not made, it is added to the taxpayer's income and subject to tax. Therefore, option B describes a feature of the HBP. The other options are not correct descriptions of the HBP. Option A is false because to qualify as a first-time home buyer, you or your spouse must not have owned and lived in another home as your principal place of residence during the four-year period before the date of withdrawal. Option C is false because a qualifying home must be purchased or built before October 1 of the year following the year of withdrawal. Option D is false because if you have a spouse or common-law partner, each of you can withdraw up to $35,000 from your RRSPs, not
$50,000. References: [Home Buyers' Plan (HBP)], [Home Buyers' Plan (HBP) - Canada.ca], [Home Buyers' Plan (HBP) | GetSmarterAboutMoney.ca]
NEW QUESTION # 94
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 specialize in one or two countries.
- D. They are always less risky than Canadian equity funds.
Answer: A
Explanation:
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
NEW QUESTION # 95
You are meeting a potential client, William, for the first time. He is a high net worth individual and you are keen to get his business. Which of the following would you consider the most important to create an impressive first impression on your potential client?
- A. your body language
- B. your words
- C. volume of your voice
- D. tone of your voice
Answer: C
NEW QUESTION # 96
Nelson is a Dealing Representative with True Wealth Advisors Inc., a mutual fund dealer. Nelson follows proper procedures related to his firm's Relationship Disclosure Information (RDI). Which of the following CORRECTLY describes how Nelson is permitted to evidence that he satisfied his RDI obligation?
- A. Nelson can record detailed notes which confirm that he provided and explained the Fund Facts to the client within 2 days of the RDI.
- B. Nelson may retain a copy of the RDI in the client file with detailed notes to confirm that he provided and explained the RDI to the client.
- C. Nelson may deliver the RDI to clients who request it and keep detailed notes of the clients who were provided with the RDI.
- D. Nelson can formalize his relationship under the RDI using a Letter of Engagement that specifies duties, responsibilities, and level of service.
Answer: B
NEW QUESTION # 97
Which of the following statements best describes dollar-cost averaging?
- A. It is the strategy of purchasing a set number of units of a mutual fund on a regular basis.
- B. It is a type of systematic withdrawal program.
- C. It is making lump-sum purchases when the market price for a mutual fund is low.
- D. It is buying a set dollar amount of a mutual fund on a regular basis
Answer: D
NEW QUESTION # 98
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