Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CFP Canada Oct 2022 > Financial Management > Flashcards

Financial Management Flashcards

You may prefer our related Brainscape-certified flashcards:
CFP® flashcards
1
Q

Define Regret Aversion bias.

A
  1. Avoid making decisions for fear of experiencing regret.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are Accumulated Income Payments (AIPs) in RESPs?

A
  1. Payments made to subscriber when beneficiary doesn’t attend post-secondary education.
  2. If bene is 21 and plan has been open for 10 years, subscriber can withdraw from RESP.
  3. Can transfer up to $50,000 of AIPs to RRSP/spousal RRSP.
  4. Original con’t not taxed, but income earned has a 20% tax penalty.
  5. CESG must be returned to gov’t.
  6. If subscriber is withdrawing from RESP, plan must collapse by February of following year.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define Sunk-Cost bias.

A
  1. Follow through on an endeavor if we have already invested time, effort, or money into it, whether or not the current costs outweigh the benefits.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Define Hindsight bias.

A
  1. The belief that past events were predictable at the time they occurred.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are some of the beneficiary rules around family RESPs?

A
  1. Beneficiaries include only kids, siblings, grandkids, or anyone connected by blood (excluding nieces).
  2. Contributions can’t be made when beneficiary is older than 31.
  3. If one kid doesn’t attend post-secondary, earnings can be used by another kid in the plan.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are some of the beneficiary rules around individual RESPs?

A
  1. A replacement beneficiary can be named as long as they are under 21 and a sibling of the original beneficiary.
    OR
  2. Both the new and old beneficiary are under 21 and related by blood or adoption to the subscribers.
  3. If all beneficiaries are under 21, assets can be transferred to a family plan.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define Availability/Familiarity/Recency bias.

A
  1. Overestimate the likelihood of events that are more easily recalled given the recency with which they occurred or the emotional charge they hold.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are the 5 C’s of credit?

A
  1. Character - opinion of borrower’s trustworthiness.
  2. Capacity - ability to replay loan.
  3. Capital - amount of personal savings and assets.
  4. Conditions - how the funds will be used.
  5. Collateral - assets pledged as security (e.g. home).
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Define Disposition bias.

A
  1. Sell an asset that has accumulated in value and resist selling the asset that has fallen.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the Total Debt Service (TDS) Ratio calculation and its max?

A
  1. (Mortgage OR rent payments + property taxes + heating costs + 50% condo fees +debt payments (3% of CC balance) / gross family income.
  2. TDS max is 40%.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the due date to apply for CPP credit splitting?

A
  1. If married and divorced, must apply within 3 years or you will require spouse consent.
  2. If married and separated, no due date.
  3. If common-law partners, must apply within 4 years of separating.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the calculation for the blend and extend option on mortgages?

A
  1. A = current rate x months remaining
  2. B = new rate x months on new term
  3. C = new term
  4. [(A + B) / C] x 100
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is a Lifelong Learning Plan and what are some of the rules pertaining to it?

A
  1. Make non-taxable withdrawal from RRSP to cover educational costs.
  2. Annuitant/spouse must be in full-time training or post-secondary education.
  3. Up to $10,000 can be withdrawn each year over a 4-year period, but total amount withdrawn cannot exceed $20,000.
  4. Repayment starts 60 days after 5th year OR the year following the last year the student was enrolled.
  5. If repayment structure is not followed, withdrawals are treated as income.
  6. Can cancel LLP by repaying to RRSP.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the grant calculations for RDSPs?

A
  1. Income < $91,831: First $500, $3 for $1 contributed, $1,500 max. Next $1,000, $2 for $1 contributed, $2,000 max. Thus, $3,500 max.
  2. Income > $91,831: First $1,000, $1 for $1 contributed, $1,000 max.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is Specified Year for RDSPs?

A
  1. Doctor attests that bene is not likely to survive longer than 5 years.
  2. Becomes a SDSP.
  3. Can take up to $10,000 per year with no clawback.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the difference between an operating lease and a capital lease?

A
  1. Operating lease is similar to renting, as there is no intention of transferring ownership.
  2. Capital lease is similar to a loan, where the asset is treated as being owned by the lessee.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How does one become eligible for a RDSP?

A
  1. Be eligible for the Disability Tax Credit (DTC) - have a severe and prolonged physical/mental impairment.
  2. Resident of Canada.
  3. Less than 60 years of age.
  4. Valid SIN.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What 4 debts are not included in bankruptcy?

A
  1. Alimony and child support payments.
  2. Student loans.
  3. Court-ordered fines.
  4. Debts arising from fraud.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Define Anchoring bias.

A
  1. Rely heavily on one piece of information when making a decision.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What does the federal government contribute to a RDSP?

A
  1. CDSG (grant) - $3,500 annually, $70,000 lifetime.
  2. CDSB (bond) - low income only; $1,000 annually, $20,000 lifetime.
  3. Must remain invested for 10 years to avoid clawback (AHA)
  4. Gov’t con’t only available until end of bene’s 49th year.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the tax consequences of an Informal Trust Account?

A
  1. Adult sets up ITA on behalf of minor child to invest/manage.
  2. Interest, dividend attributed to contributor at their MTR.
  3. Capital gains attributed to beneficiary.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the formula for Real Rate of Return?

A
  1. RRR = [(Stated interest rate - inflation) / (1 + inflation)]
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What assets can be held in a TFSA or RRSP?

A
  1. Cash
  2. Mutual funds
  3. Stocks
  4. GICs
  5. Bonds
  6. Certain shares of small business corporations
  7. ETFs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is an Education Assistance Payment (EAP) for RESPs?

A
  1. Made of funds from gov’t grants and income earned (interest, dividends, capital gains) in plan.
  2. Beneficiary receives T4A as EAP is treated as taxable income.
  3. For full-time studies, max withdrawal in first 13 weeks of program is $5,000, no limit after on EAP.
  4. For part-time studies, max withdrawal for a 13 week period is $2,500.
  5. Can receive EAP up to 6 months post-completion of qualified educational program.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are some of the rules pertaining to the death of a TFSA holder?

A
  1. Successor holder can only be spouse/common-law partner - transfer to survivors’ TFSA or change name on TFSA to surviving spouse.
  2. Value of TFSA at death can be transferred tax-free.
  3. If beneficiary is someone other than spouse, the account ceases to be a TFSA.
  4. Any payments from deceased’s TFSA (after death) made to beneficiaries is taxable.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is a reverse mortgage?

A
  1. Allows a Canadian homeowner to take payments from a financial institution from the equity built-up in their home. They and their spouse must be 55+.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What are some rules about RDSP contributions?

A
  1. Con’t not tax deductible
  2. Anyone can contribute with holder’s written consent.
  3. No annual con’t limits, but lifetime limit of $200,000.
  4. Can con’t until bene dies, Dec 31 of 59th birthday, loses DTC or no longer Canadian resident.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Define Affinity bias.

A
  1. Drawn to people, things, or decisions that one views as similar to themselves.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What are some general strategies to manage credit?

A
  1. Pay down high interest debt first.
  2. Pay down all non-tax deductible debt or convert to tax-deductible.
  3. Eliminate credit card debt by due date.
  4. Consolidate small-high interest loans into one loan.
  5. Shorten term of loan/mortgage.
  6. Allocate future cash flows for loan/mortgage.
  7. Maintain good credit record.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What are the 2 major differences between leasing and financing a car?

A
  1. Leases are tax deductible if you lease your vehicle to earn income.
  2. Leasing provides you with a lower monthly payment.
31
Q

What are 3 debt elimination strategies that individuals can use to better manage debt and minimize interest payments?

A
  1. Repay debt with the highest interest rate first (usually CCs).
  2. Refinance mortgage at better rate, if possible, to blended payments.
  3. Consolidate debts to lowest interest rate debt, if possible.
32
Q

Define Overconfidence bias.

A
  1. Be overly sure of oneself and their ideas.
33
Q

What is the Canada Education Savings Grant (CESG)?

A
  1. Assisted contribution made by ESDC.
  2. Gov’t matches 20% of first $2,500 ($500 max) each year for child under 18.
  3. Gov’t will match up to $5,000 ($1,000 max) in one given year if there is carryforward.
  4. Lifetime limit of $7,200.
  5. No grant available after age 17.
  6. To get grants at 15 and 16, plan must have $2,000 or 4 years of con’t.
34
Q

Who can open a TFSA?

A

An individual age 18+ who has a SIN (can include non-resident who has a SIN).

35
Q

What is the difference between Power of Sale and Foreclosure?

A
  1. Power of Sale - enables lender to have the property sold off without taking possession. Proceeds that exceed outstanding amount on mortgage is used pay claims of creditors. Any remaining balance belongs to borrower.
  2. Foreclosure - Lenders sues for possession of property and payment of debt. Usually occurs when market value of property is lower than debt level to hold and hope value recovers.
36
Q

Define Conservatism bias.

A
  1. Individual holds onto a belief and does not update their belief.
37
Q

Who is eligible and what is the Canada Learning Bond (CLB)?

A
  1. Income < $50,000 gets you $500 in first year, $100/year after.
  2. Maximum CLB of $2,000 up to age 15.
38
Q

Provide a description of a secured line of credit.

A

An account with a maximum balance that a borrower can drawn down on-demand. As money is withdrawn, interest is accrued and calculated on a daily closing balance but charged at the end of each month.

39
Q

Define Confirmation bias.

A
  1. Interpret info in a way that confirms one’s preconceptions.
40
Q

Define Representativeness bias.

A
  1. When someone is confronted with a new circumstance, their first thought is to fit it within their internal classification system.
41
Q

What are some contribution rules surrounding RESPs?

A
  1. Lifetime limit of $50,000 per beneficiary, no annual limit.
  2. Contributions are permitted until youngest beneficiary is 31.
  3. Plan must collapse within 35 years of its start date.
  4. Contributions aren’t tax deductible.
42
Q

What typical biases are men and women susceptible too?

A
  1. Men: overconfidence, loss aversion, availability, cognitive dissonance.
  2. Women: endowment, status quo, representativeness, regret aversion.
43
Q

Define Cognitive Dissonance bias.

A
  1. When presented with info that conflicts with pre-existing beliefs (and causes mental discomfort), people will go to great lengths to convince themselves they have made the right decision.
44
Q

When would an individual have to immediately repay their HBP withdrawal amount?

A
  1. Death.
  2. Becomes a non-resident.
45
Q

What are general rules in Canada pertaining to mortgage down payments?

A
  1. Conventional mortgage - 20% down payment.
  2. 1-500K = 5%.
  3. 500K-1M = 10%.
  4. 1M+ = 20%.
  5. Rental properties must have 20% down.
  6. All mortgage loans are blended payments - principal + interest.
  7. Semi-annual compounding.
46
Q

What are the withdrawal options from a RDSP?

A
  1. Lifetime Disability Assistance Payments (LDAPs) - recurring annual payments until bene’s death. Can begin whenever, but must start by Dec 31 of 60th birthday.
  2. Disability Assistance Payments (DAPs) - periodic lump sum payments paid to bene.
  3. Subject to AHA.
47
Q

What is the difference between open and closed mortgages?

A
  1. Open - allow for prepayments at any time (higher rate).
  2. Closed - restricts prepayments beyond certain levels and subject to penalties (lower rate).
48
Q

Provide details and rules surrounding the Home Buyers Plan (HBP).

A
  1. Max withdrawal is $35,000 from RRSP.
  2. Qualified first-time home owner if you haven’t owned a home within the past 4 years.
  3. Withdrawal is not taxable, but must be repaid in annual installments over a max of 15 years.
  4. Purchase of home must be completed before Oct 1 of year following the year of RRSP withdrawal.
49
Q

What are the 2 ownership options for properties?

A
  1. Joint tenancy - the surviving individual inherits full ownership.
  2. Tenancy in common - the deceased’s ownership interest would pass to their estate (not surviving individual).
50
Q

What is a Bridge loan?

A
  1. Sum of money lent to cover time between transactions, typically buying of one house and the selling of another.
51
Q

Define Endowment bias.

A
  1. People place more value on the asset they hold than they do not hold.
52
Q

What are the 2 components of a HELOC?

A
  1. Max amount is 80% of property value. 65% for LOC and 15% for mortgage component.
53
Q

What are the 8 types of credit?

A
  1. Installment - fixed repayment schedule and a declining balance (e.g. one-time loan)
  2. Revolving - allows borrower to draw up to a max amount/credit limit.
  3. Unsecured - higher risk for lender (can be installment/revolving).
  4. Secured - lower risk lending since collateral is being held against loan (e.g. HELOC, car loans).
  5. Open - has no maturity date (e.g. LOC, CC).
  6. Closed - Has finite life (e.g. mortgages, fixed-term loans).
  7. Fixed-rate - fixed rate of interest for life.
  8. Variable-rate - has rate of interest that fluctuates with prime rate.
54
Q

What is the equity ratio formula?

A
  1. (assets - liabilities) / assets.
55
Q

Who can be the subscriber of a RESP?

A
  1. Only spouses can be joint subscribers of a RESP.
  2. Grandparents can be subscribers of another RESP for the same kids.
  3. You can be the subscriber and beneficiary of your own plan.
  4. Must be a resident of Canada to open a RESP.
56
Q

What is the Gross Debt Service (GDS) Ratio calculation and its max?

A
  1. (Mortgage OR rent payments + property taxes + heating costs + 50% condo fees / gross family income.
  2. Max is 32%.
57
Q

Define Illusion of Control bias.

A
  1. Overestimation of one’s control over external events.
58
Q

Define Framing bias.

A
  1. Draw different conclusions from different presentations of the same info.
59
Q

What are three common factors for employees and self-employed individuals that are used by the CRA to determine a persons classification?

A
  1. Employees:
    - Work a set number of hours per week.
    - Supervised.
    - Member of benefits plan.
    - Use of company supplies/equipment.
    - Told what to do each step of the way.
  2. Self-employed:
    - Agree to get job done with no specific time commitments per day.
    - Not supervised.
    - Use your own equipment.
    - Provide services to more than one company.
    - Issue invoices and receive payment.
60
Q

What are the repayment rules around HBP?

A
  1. Repayments must begin no later than the second year following the withdrawal or by March 1 of the third year
  2. If you fail to contribute the minimum, the amount is included as income that year.
61
Q

What are some biases financial planners are susceptible too?

A
  1. Curse of knowledge.
  2. Empathy gap.
  3. Framing effect.
  4. Naïve realism.
  5. Illusion of transparency.
62
Q

Define Self-Attribution bias.

A
  1. Claim more responsibility for successes than failures.
63
Q

What are the 3 continuums?

A
  1. Idealism vs. Pragmatism:
    Susceptible to: overconfidence, optimism, availability, self-attribution, illusion of control, confirmation, recency, and representativeness.
  2. Framing vs. Integrating:
    Susceptible to: anchoring, conservatism, mental accounting, framing, and ambiguity aversion.
  3. Reflecting vs. Realism:
    susceptible to: cognitive dissonance, loss aversion, endowment, self-control, regret aversion, status quo, and hindsight.
64
Q

When is PMT +/- in a TVM question?

A
  1. Positive when money is flowing to the client.
  2. Negative when money is flowing away from the client.
65
Q

By when must you make a second HBP withdrawal if needed?

A
  1. 30 days after taking possession of home.
  2. January 31 of year following first withdrawal.
66
Q

Define Self-Control bias.

A
  1. Choose actions that provide gratification in the short-term over the long-term.
67
Q

Besides an RESP, what are 2 other savings options available for people looking to save money for a child’s education.

A
  1. Non-registered account (easy to set up, simple to understand and flexible - taxes though).
  2. TFSA (allows assets to grow tax-free and be withdrawn in future with no tax implications).
  3. Trust (good way to manage, control and protect funds - giving parents peace of mind that funds will be used as intended).
68
Q

Define Loss Aversion bias.

A
  1. People would rather avoid losses than experience gains.
69
Q

Define Outcome bias.

A
  1. Judge a decision by its eventual outcome instead of based on the quality of the decision at the time it was made.
70
Q

How is the CPP disability pension calculated?

A
  1. a flat rate component plus 75% of the individuals CCP retirement pension to a max of $1,335.83 per month.
71
Q

What is the penalty (and calculation) for refinancing a mortgage?

A
  1. Interest Rate Differential vs. 3 months interest (higher amount is paid by borrower).
  2. 3MI - outstanding mortgage balance x existing mortgage interest rate x 3/12.
  3. IRD - outstanding mortgage balance x differential rate x time remaining in years (on mortgage term).
72
Q

Define Status Quo bias.

A
  1. When presented with a wide variety of options, tend to stick with the same things.
73
Q

What is the acronym for emotional (LOSERS) and cognitive biases (perseverance = CCCRIH, info = FAMA)?

A
  1. Emotional:
    L oss aversion
    O verconfidence
    S elf control
    E ndowment
    R epresentativeness
    S tatus quo
  2. Cognitive (perseverance):
    C ognitive dissonance
    C onservatism
    C onfirmation
    R egret aversion
    I llusion of control
    H indsight
  3. Cognitive (info):
    F raming
    A nchoring
    M ental accounting
    A vailability
74
Q

What are 3 situations where your LLP must be repaid in less than 10 years?

A
  1. You die.
  2. You become a non-resident of Canada.
  3. You turn 71.

CFP Canada Oct 2022 (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions