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CFP Canada Exam Study 2024 Needs Updating > Ethics, Financial Math and Investments > Flashcards

Ethics, Financial Math and Investments Flashcards

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CFP® flashcards
1
Q

Areas of Financial Planning

A

F-I-I-T-R-E
Financial Management
Investment Planning
Insurance and Risk Management
Tax Planning
Retirement Planning
Estate Planning and Legal Aspects

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2
Q

Financial Management

A

Cash Flow

Net Worth Statements

Budget

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3
Q

Investment Planning

A

Manage the Clients Assets

clients investment experience

investment objectives

Time Horizons

Risk Tolerance

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4
Q

Insurance and Risk Management

A

Financial Loss Due to Death

Disability

critical illness

long term care needs

property damage and other risks

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5
Q

Tax Planning

A

Current and Future Tax Obligations

Minimize or Defer Taxation

Interest: Tax-deductible or non-deductible

Minimize Taxes at death

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6
Q

Retirement Planning

A

Financial Well Being after employment has stopped

expected lifestyle in retirement

current retirement assets,

planned savings

expected rates of return on investments

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7
Q

Estate Planning and Legal Aspects

A

payment of expenses and obligations at death

transfer of assets to beneficiaries

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8
Q

3 Basic Functions of Financial Planning

Collection

Analysis

Recommendation

A

Collect both Qualitative and Quantitative

Analysis: assess client situation, identifies and evaluates appropriate strategies, identify issues and opportunities, perform required calculations, develop projections,

Recommend …develop recommendations, PRIORITY, help meet client personal goals, needs and priorities, and optimize the client situation.

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9
Q

Letter of Engagement

C-C-C R-O-P-E-S Q-D-F

A
  1. Confidentiality
  2. Conflicts of Interest
  3. Compensation
  4. Responsibilities of the Client
  5. Outside Professionals must be compensated
  6. Process used for Financial Planning
  7. Expectations and Assumptions that will be used in Financial Plan
  8. Services to be provided
  9. Qualifications of the planner
  10. Documentation required from the client
  11. Future Meetings to review the plan.
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10
Q

Standards of Responsibility

4 Parts…What are they?

A
  1. Code of Ethics
  2. Rules of Conduct
  3. Fitness Standards
  4. Financial Planning Standards
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11
Q

Code of Ethics

Eight Principles

LIOC FCDP

Loyal Investment Officers Conduct

Financial Compliance Duties Personally

A

Duty of Loyalty

Integrity

Objectivity

Competence

Fairness

Confidentiality

Diligence

Professionalism

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12
Q

Rules of Conduct

Di4

A

Dishonesty

Integrity

Impugn

Inform

Illegal

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13
Q

Discretionary Authority - Professional Obligations to the Client

A

Funds

Disclosure

Planning

Ongoing

Lending

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14
Q

Client Relations

A

Terms

Material

Thorough

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15
Q

Withdrawal of Services

A

Notice

Departure

Transition

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16
Q

Client Property

A

Records

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17
Q

Professional Oversight

A

Supervision

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18
Q

Duties to Prospective Clients

A

Misleading

Prospective

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19
Q

Financial Planning Services

A

Judgment

Recommedations

Strategies

Laws

Competent

Refer

Scope

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20
Q

Use Of Technology NEW

A

Technology

Documented

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21
Q

Duty of Confidentiality

A

Confidential

Protect

Name

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22
Q

Relationship to FP Canada

A

Certification

Disciplinary

Reply

Cooperate

False

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23
Q

Fitness Standards

A

Bars to Certification

Personal or Business Bankruptcy

Revocation or suspension

Criminal Offence

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24
Q

Practice Standards

REGI ASRRII

or

REGI ASR2I2

A
  1. Role
  2. Engagement
  3. Goals Needs Priorities
  4. Gather Info
  5. Assess
  6. Identify and Evaluate
  7. Develop Recommendations
  8. Compile and Present Recommendations
  9. Discuss Implementation, Actions, Responsibilities, and Time Frames
  10. Implement the Recommendations
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25
Q

Rates of Return

A
  1. HPR
  2. Annualizing a HPR
  3. Real Rate of Return
  4. Real After-Tax Rate of Return
  5. Arithmetic Mean
  6. Geometric Mean
  7. Time-Weighted Rate of Return and IRR (Dollar Weighted)
  8. Effective, Annual Rate of Return
  9. Return on a Foreign Investment in Canadian Dollars
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26
Q

HPR Formula

A

HPR =E -B + Cash Flows

B

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27
Q

HPR Annualized

A

Step 1

HPR =E -B + Cash Flows
B

Step 2 TVM

PV -1, FV1.31 (interest from the previous step was 31%), PMT 0, N 2.5, CPT I/YR

Now N= 30 months/12 = 2.5

(or N= 238 days/365)

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28
Q

Real Rate of Return

A

r = 1 -inf

1+ inf

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29
Q

Real After-Tax Rate of Return

A

RATRR = (After tax return) -inf

1+ inf

Pretax Return x (1- MTR expressed as a decimal)

30
Q

Geometric Mean Return (IS AN ANNUAL COMPOUND ROR)

A

$1 x (1+r1)(1+r1)(1+r1)(1+r1)…(1+rn) 1/n -1

find (1+ r) portion then

(1.435) shit Yx shift 1/x - 1 = ANSWER

or

USE TVM

PV 1

FV 1.435

N = 2 (number of returns)

PMT 0

31
Q

Time Weighted ROR (IRR)

One investment made at the beginning

A
  1. Find the Geometric
  2. then TVM…FV is the Geometric return, PV 1, N # of returns, PMT 0
32
Q

Internal ROR (IRR)

A

Cf0….Cfn

Shift IRR

33
Q

Effective Annual Rate Conversions

Given 12% compounded Quarterly…Convert it?

Hint 2 ways

A
  1. 12/4 = 3, then 1.03 Shift yx 4 -1 = 12.55%

or

CALC 12, 1 I/YR, SHIFT EFF, 4 P/YR, SHIFT EFF = 12.55%

34
Q

Return on Foreign Investment in CDN$

A
  1. End (Foreign $) x Exchange Rate
    - Beg (Foreign $) x Exchange Rate
    = Profit (Loss) CDN $
  2. Percentage Return = Profit (Loss) CDN $
    Beg CDN $
35
Q

Banks

Schedule 1

Schedule 2

Schedule 3

A

Schedule 1 - Canadian Controlled, Big 6

Schedule 2 -Foreign-owned subsidiaries HSBC

Schedule 3 - Foreign Banks with Branches in Canada no Subsidiaries

36
Q

Government Regulators

A

OSFI

Provincial Securities Commissions

37
Q

Client Protection FUNDS

A

CDIC

CIPF

Assuris

38
Q

CDIC

A

Crown Corp Funded by Members

Crown Corp

Protects Depositors

Each Category $100,000 x 7

  1. one name
  2. joint name
  3. RRSPs
  4. RRIFs
  5. TFSAs
  6. RESPs
  7. Deposits for Prop Tax
39
Q

CIPF

Canadian Investor Protection Fund

A

Protect clients against bankruptcy

2 categories of accounts: general and separate

General Accounts…1 Million
i) total of all accounts in the name of the individual (cash and securities)

Separate Accounts…each 1 Mil…

i) Pension accts RRSPs RRIFs
ii) RESPs
iii) Testamentary Trusts

Joint accounts are split

180 Days to make a claim

40
Q

Assuris

A
  1. $200k DB or 85% of the promised benefit
  2. CSV up to $60,000 or 85% of the benefit
  3. up to $100k for non-Reg plans
  4. up to $100K for RRSPs RRIFs, pension policies
  5. Annuities, di policies…$2000 per month or 85%
  6. Ci $60k or 85% of the promised benefit
  7. Seg funds $60k or 85% of the promised benefit
41
Q

Economics

A

GDP…In Country…What’s been produced in Canada
…CIGNET (Spending Approach) or PERTI (Earnings Approach)

GNP…Citizens producing in the World

  • *Real GDP = Nom GDP**
  • *1 + Inf**
42
Q

Economic Policies

A

Fiscal Policy…Tax and Spending…Government

Monetary Policy…Money Supply and Interest Rates…BOC
Open Market Operations…Buy and Sell Securities,
Cash Management Techniques…Deposit and WIthdraw Cash

43
Q

BoC Details

A

Moral Suasion…BoC advice
Bank Rate…BoC to Banks
Prime Rate… Bank to Clients
Overnight Loan Rate… Between Banks

44
Q

Economic Indicators

A

SCHMMAC…LEADING

GRIP…COINCIDENT

UI3LP…LAGGING

45
Q

Investor Considerations

A

Risk Tolerance…Low Med High…Cons…Bal…Grow

Suitability…Safety, Income, Growth, Liquidity, Tax Savings and Tax Deferral

46
Q

Investor Profile

A

R2 L2 T2 U

Return Requirement
Risk Tolerance
Liquidity
Legal Issues
Time Horizon
Taxation
Unique Circumstances

47
Q

Types of Risk

A

Principal
Inflation
Liquidity
Interest Rates…(DURATION of a Bond)
Market (Systematic) (BETA)
Unique (Unsystematic)…(Business Risk) APLHA
Currency…(Foreign)
Total Risk (SD)
Credit Risk…(Rating CCC)

48
Q

Money Market Instruments

A

T-Bills…3 mo, 6 mo, 1 yr

Commercial Paper…up to 1 yr

Asset-Backed commercial paper…up to 1 yr

Bankers Acceptance BA…up to 1 yr

49
Q

T-Bill Yield

A

This is the Current Yield

End - Beg / Beg x 365/#days x 100

Can use prices or dollar values

Interest paid is the difference when the T Bill matures

50
Q

Bond Current Yield

A

CY = Annual Interest Income $ x 10
Purchase Price of Bond

*Annual interest x 100 = Annual Interest Income $

51
Q

Duration

A

Longest Term

Lowest Coupon Rate

Lowest YTM

52
Q

Modified Duration

A

Predicts a Percentage Change in the price of a bond

MD = Macaulay Duration
1 + Semi-Annual YTM (in decimals)

Strip Bonds and Coupons…Macaulay Duration is the # yrs (periods) to maturity

Coupon Bonds….

53
Q

Convertible Debenture 3 Calcs

A
  1. Conversion Value
    # common shares on conversion x MP
  2. Conversion Premium
    MP - Conversion Value
  3. % Conversion Premium
    Conversion Premium / Conversion Value
54
Q

Preferred Share Calc 2 Formula?

A

MP = Annual Dividend Income $ / Yield (as a decimal)

MP = DIV
YIELD

Yield = Annual Dividend Income $ / Purchase Price

YIELD = DIV
PP

55
Q

Warrants

A

Long term expiry

Often offered as a free sweetener on a new offering

fixed price and fixed period to offer…the right to buy not the obligation

could sell and buy common stocks

56
Q

Warrant and Option Calculations Similar 3

A
  1. Intrinsic Value = MP - Excercise Price
  2. Time Value = MP - Intrinsic Value
  3. Break-Even Value = Excercise Price + Cost of Warrant or Option
    - for put options….subtract the cost of the put premium
57
Q

Why Buy a Call?

A
  1. Leverage: Magnify % of the return
  2. Fix a future price.
  3. Hedge against a short sale
58
Q

Why Write Covered Call?

A
  1. The investor owns the underlying stock he is covering his position
    - Premium
    - Partial protection against a stock dropping
59
Q

Why Write A Naked Call?

A
  1. The investor does not own the underlying stock
    - Premium
60
Q

Motives for buying a Put Option?

A
  1. The investor does not own the underlying stock…they want the stock price to fall, so they can buy it cheaper and then resell it higher.
  2. If they own it…protection or insurance against the stock price falling.
61
Q

Motives for writing a Put Option?

A
  1. Premium
  2. The investor’s cost base is lowered by the amount of the premium.
62
Q

Forwards and Futures

A

Forward - Private Deals…no margin required

Futures - Traded on exchanges…margin required

63
Q

MF Risk/Return Chart High to Low

A

Specialty

Equity

Balanced

Fixed Income

Money Market

64
Q

Mutual Funds (Open-End Fund NOT ON THE EXCHANGE)

A

NAVPS = TA -TL/#CSO

65
Q

Variance…to get SD

A

Variance = (R1 - x)2<u> </u>+ (R2 - x)2 + (R3 - x)2 …..(Rn - x)n

N

SD = Square root of Variance

66
Q

Markowitz

A

Covariance and Correlation Relationship between securities

Move together then positively correlated

+1 no risk reduction

-1 Best risk reduction

67
Q

Markowitz

A

Efficient Frontier

Highest Return relative to the risk assumed (SD) on the portfolio

The line that connects the portfolios with the highest expected returns

See Sharpe

68
Q

Sharpe Rato

A

Sharpe Ratio = Rp - Rf / SD

is the % return above the Risk free rate

69
Q

Sharpe also developed CAPM

A

most efficient portfolio

asset allocation model…highest return relative to risk

Above beta and CAP line then leverage

70
Q

Jensen ALPHA to Judge Performance of Portfolio Managers

A

Er = Use Capm

then Determine Alpha

Alpha = Actual Return - Expected Return

Also Called Jensen Alpha

71
Q

Treynor Alpha uses Beta

better for people with diversified portfolios

A

Rp -Rf /B

72
Q
A

CFP Canada Exam Study 2024 Needs Updating (13 decks)

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