Mock Exams Flashcards
Sarah, a resident of Alberta, works for a federally regulated business that participates in a Pooled Registered Pension Plan (PRPP). Can Sarah contribute to the PRPP?
Yes because she lives in a province with the required registration.
Nazila, an analyst, has been hired by a pension fund to evaluate the performance of its investment managers. Which manager’s investment approach is likely to be identified as style drifting by Nazila?
GARP (Growth at a reasonable price)
What is a dollar cost averaging plan?
PPP, investing different amounts at a time
Market capitalization =
Number of Outstanding Shares x Current Share Price
How might a mutual fund representative adjust asset allocations for a less-wealthy client with strong emotional biases?
Moderate the biases to ensure long term financial security.
John adjusts the weights of different types of bonds within his portfolio based on his valuation opinions and relative valuations compared to historical norms. Which fixed-income investment philosophy does John practice?
Sector Trading. Words as proof. (Fixed-income, bond, weights)
what’s the limit on term to maturity of money market securities and money market mutual fund, respectively?
Security 365 days and Fund 90 days
As a financial advisor, Priya knowingly recommends a complex investment product to her elderly client, Mr. Singh, without adequately explaining its risks and potential drawbacks. Which primary values is Priya violating?
Duty of Care by failing to explain the risks
Compliance by recommending complex product with no disclosure
Sarah, a mutual fund manager, wants to protect her portfolio from potential market downturns. Which derivative strategy should she consider?
Buying a Put Option because a put option gives the investor the right to sell at a specific price before a specific time.
When can a mutual fund dealing representative legally backdate an order for a client?
Under NO circumstances.
Which decision is more likely to be influenced by short-term market trends rather than long-term investment goals?
Market-Timing Strategies
Alice holds four bonds: Bond X with a duration of 15, Bond Y with a duration of 8, Bond Z with a duration of 12, and Bond W with a duration of 10. If interest rates decrease by 0.5%, which bond is likely to experience the largest percentage increase in price?
BOND X with 15
What is a key difference between a mutual fund trust and a mutual fund corporation?
Mutual fund trusts issue units to investors, while mutual fund corporations issue shares.
Which regulatory body has adopted rules leading to a ban on back-end load or deferred sales charges on mutual funds?
Canadian Securities Administrators.
What role does inflation expectation play in determining interest rates?
Higher inflation expectations lead to higher interest rates.
What does it mean when you have a high Sharpe ratio?
Better risk adjusted return of the funds
If a financial advisor, Farid, deliberately withholds information about potential conflicts of interest arising from his personal financial dealings with a client, which primary value is Farid breaching?
Integrity which requires acting in an honest, fair, and transparent manner with clients.
Sarah is a retiree who wants to invest her savings in a GIC but is worried about inflation eroding her returns. Which type of GIC would be most suitable for Sarah?
Escalating-rate GICs increase the interest rate over the GIC’s term, helping to counteract the effects of inflation.
If the mutual fund sales rep ensures that the investment is suitable for the client, what type of responsibility is addressed?
Legal Responsibility
What is one of the primary challenges governments face in implementing fiscal policy?
Delays in recognizing economic problems and implementing solutions.
What is the point of “best practical approach”?
When a client completes their CIP (investment questions) and doesn’t feel comfortable with the outcome due to potential risk, investors must use approach.
Directional strategies involve
Betting on anticipated market movements
Which industry sectors have historically attracted significant foreign direct investment in Canada?
manufacturing, petroleum and natural gas industries.
When conducting research on this stock for potential inclusion in his own portfolio, what is a factor that sn investor may consider while using technical analysis?
Looking for a favourable chart pattern.
How does the Phillips curve explain the relationship between inflation and unemployment?
It suggests that higher inflation leads to lower unemployment, and vice versa.
When evaluating the risk associated with a portfolio of equities, which measure directly considers the variability of returns around the mean return?
Variance
Suppose a mutual fund invests heavily in zero-coupon bonds. How might the volatility of this fund compare to a typical bond fund?
Zero-coupon fund will have higher volatility.
Jessica, a registered representative, receives instructions from a client for a trade that is unsuitable. What action should Jessica take, according to CFR expectations?
Consult the supervisor or compliance department and document the outcome.
What is required for a complaint to be considered admissible in Quebec according to regulatory guidelines?
A complaint must be filed in writing, including reproach against a regulated person or identification of harm, to be considered admissible in Quebec.
Emma is interested in a high-risk, high-return investment strategy that involves concentrated portfolios with strong gains in earnings or stock price. Which investment philosophy should Emma consider?
Momentum Investing
What organization released the CFR (Client Focused Reforms) amendments to National Instrument 31-103?
Canadian Securities Administrators (CSA).
David works for a company that offers a flat benefit pension plan. After 20 years of service, he decides to retire. How will David’s pension amount be calculated?
Based on a fixed dollar amount per year of service.
What party should be notified of unusual transactions when money laundering is suspected?
FINTRAC
What does a real return of zero percent indicate in regard to purchasing power?
A real return of zero percent means that the investment’s purchasing power is maintained, as it keeps up with inflation.
If an investor seeks higher returns with moderate volatility, which investment option would be most suitable?
Money Market
Bond
Equity
Mortgage
Bond Fund
What portfolio management strategy involves shifting from one class of security to another depending on anticipated changes in the economy?
Market Timing
What is a notable feature of TFSA withdrawals regarding replacement/re-contribution?
There is no taxation on replaced amounts.
How to calculate assets?
Net Worth + Liabilities
What is a defining characteristic of a Life Annuity compared to a Life Income Fund (LIF)?
Life Annuities offer periodic payouts until death, while LIFs do not.
How does survivorship bias affect the perception of fund managers’ performance over longer investment periods?
It causes successful managers to appear as underperformers.
When calculating incentive fees for hedge fund managers, what is the purpose of using a high-water mark in conjunction with a hurdle rate?
It ensures that the manager is only paid an incentive fee on net new profits.
When contributing securities with an accrued capital gain to an RRSP, what tax implications does the contributor face immediately upon transfer?
Payment of capital gains tax on 50% of the accrued capital gain.
What is the primary factor influencing the price movement of preferred shares?
Interest rate changes.
If a taxpayer contributes to a spousal RRSP and also maintains their own RRSP, how does the contribution to the spousal RRSP affect their personal RRSP contribution limit?
It reduces their personal RRSP contribution limit dollar for dollar.
Andrea, who is 71 and unmarried with no children, is deciding how to manage her RRSP de-registration. She is concerned about managing her taxes and ensuring her savings last. Which option aligns best with her goals?
Transferring her RRSP proceeds to a RRIF and withdrawing minimum amounts annually.
In terms of diversification, which investment vehicle allows for the highest concentration of NAV invested in securities of any one issuer?
Hedge funds have the highest limit on the concentration of NAV invested in securities of any one issuer, as specified in the offering memorandum.
In the context of issuing new securities, what is meant by “shelf registration”?
Corporations can issue securities without the need for a prospectus.
Nazila recently joined XYZ Bank and will be responsible for providing investment advice to clients. If she is also authorized to sell mutual funds through an affiliated investment firm, how would her licensing be categorized?
Registered dealing representative at the affiliated investment firm.
What activities characterize the trough phase of the business cycle?
During the trough phase, interest rates typically fall, triggering increased consumer spending, lower inflation, and a rally in stock prices.
Negative Sharpe ratio ?
Underperformance against the benchmark.
What is the main concern regarding style drift in performance analysis?
Identifying manager skill.
How do higher domestic interest rates influence a country’s exchange rate?
They cause an increase in the exchange rate by attracting foreign capital seeking higher returns.
An investor demands twice the potential gain in return for taking on any level of risk. This behavior is most consistent with which emotional bias?
loss av
How will the death benefit be determined for an investor who passes away two years after purchasing a 10-year term segregated fund with a 75% death benefit and maturity guarantee?
The death benefit will be disbursed as the death percentage minus the market value.
Which factor affects the management expense ratio (MER) based on the type of assets managed by the fund?
the complexity of the investment.
Which type of Guaranteed Investment Certificate (GIC) would be suitable for an investor facing potential job loss?
Laddered
Michael wants to invest his retirement savings in a way that offers diversification and professional management. Which financial intermediary should he consider?
Pension fund
When must mutual funds submit unaudited financial statements to the securities commissions under the simplified prospectus system?
Semi-annually, within sixty days after the reporting date.
Why might defined contribution plans be more appealing to small employers compared to defined benefit plans?
They involve simpler administrative duties and predictable costs.
As part of the Know Your Client evaluation, assessing the suitability of investments falls under which component?
Financial condition.
james is analyzing different equity management styles for his investment portfolio. He wants to focus on companies with high and increasing return on equity (ROE) relative to the industry average. Which equity management style should James consider?
garp
1.Sensitivity of a security’s price to new information leading to changes in demand is which risk?
2.How do you eliminate it?
- Unique Risk (Specific Risk is alias)
- Diversifying portfolio
- The unique risk that a bond coupon will not be paid is which risk?
- How to eliminate?
- Default Risk
- Avoid Specializing in Corporate Bonds
3.
Changes in the overall market affecting an entire class of securities. Which risk and how to eliminate?
Market Risk or Systemic Risk, no way to eliminate.
Changes in the relative value of the currencies of the countries of investment is which risk and how to eliminate it?
Exchange rate risk, through Hedging
Changes in interest rates leading to changes in fixed-income securities prices. How to avoid ?
Interest Rate Risk, avoid specializing in fixed income securities.
You must provide the best client service possible is which responsibility?
Professional
You must ensure any investment you recommend or client order that you accept is suitable for the client is which responsibility?
Legal
You must place your client’s needs before your own needs (such as reaching a sales target) or those of your dealer is which responsibility?
Ethical
Attempting to profit by exploiting inefficiencies or differences in the pricing of related
stocks, bonds or derivatives in different markets is which strategy?
Relative-Value Strategy
Seeking to profit from unique events such as mergers, acquisitions, stock splits and
stock buybacks is which strategy?
Event-Driven Strategy
Betting on anticipated movements in the market prices of equities, debt securities, foreign
currencies and commodities is which strategy?
Directional Strategy
Emily wants to invest in a fund that allows her to diversify her portfolio without having to purchase all the stocks individually. Which type of fund would be most suitable for Emily’s needs?
ETF
Laura forms opinions on the valuation of specific bond sectors based on credit fundamentals, relative valuations, and technical factors like supply and demand. Which aspect of fixed-income investing does Laura focus on?
Sector Trading
What type of losses does the MFDA Investor Protection Corporation (MFDA IPC) cover for eligible customers?
Losses related to securities, cash balances, segregated funds held in an account of a MFDA dealer.
Which ethical value is compromised if a financial advisor recommends a complex derivative product without fully understanding its features, costs, and potential performance?
Due Diligence
Which type of mutual funds cannot use the simplified prospectus system under National Instrument 81-101?
Mutual funds that invest in real property
How do mutual fund trusts and mutual fund corporations differ in their redemption process?
Trusts redeem at net asset value, while corporations redeem at market value.
What does a quick ratio of less than 1:1 indicate about a company’s liquidity position?
The company is facing liquidity issues.
A client, hesitant to disclose their annual income, refuses to provide it during the account opening process. What should the mutual fund sales representative do?
Request Written Waiver of Information
What advantage can a mutual fund sales rep potentially gain from delivering exceptional customer service?
Upselling and product cross-selling opportunities.
What authority does the Privacy Commissioner have regarding PIPEDA?
The authority to receive and investigate complaints.
What type of information about material transactions is disclosed in the Annual Information Form (AIF)?
Particulars of any material contracts entered into by the issuer.
An AIF is a disclosure document intended to provide material information about a company and its business at a point in time in the context of its historical and possible future development. It describes the company, its operations and prospects, risks and other external factors that impact the company specifically.
Rachel believes she can predict and profit from market trends in equities, debt securities, and commodities. She is willing to take on high exposure to market trends. Which hedge fund strategy would be most suitable for Rachel?
Directional strategies involve betting on anticipated market movements, making them suitable for investors like Rachel who seek high exposure to market trends and aim to profit from directional movements.
Michael is studying mutual fund regulation in Québec. Which organization collaborates with the MFDA to ensure regulatory alignment and investor protection in the province?
The Autorité des marchés financiers collaborates with the MFDA to avoid regulatory duplication and maintain investor protection in Québec.
An investor, after suffering losses in a particular sector, becomes reluctant to invest in any stocks related to that sector, even when presented with compelling opportunities. What type of bias is the investor most likely demonstrating?
The investor’s tendency to generalize based on past negative experiences with a particular sector demonstrates representativeness bias. In the investment realm, a client may be presented with an investment opportunity that contains some elements representative of a good investment. The client’s desire to mentally classify the investment opportunity may cause him to classify what is really a poor investment opportunity as a good investment opportunity, based on the few elements that are representative of a good investment opportunity.
According to the life cycle hypothesis, what characteristic describes a client in the family commitment years?
Lack of liquidity
Which approach involves making frequent adjustments to asset allocation in response to short-term market movements?
Tactical asset allocation involves adjusting asset allocation based on short-term market movements, unlike strategic asset allocation, which focuses on long-term goals.
Suppose a mutual fund invests heavily in zero-coupon bonds. How might the volatility of this fund compare to a typical bond fund?
Zero-coupon bonds are known for their volatility, likely making a mutual fund investing in them more volatile compared to a typical bond fund.
John is considering investing in a fund that allows him to concentrate on long-term investment strategies without reserving liquid assets for redemptions. Which type of fund would suit John’s needs?
Closed-end funds offer flexibility for managers to focus on long-term strategies without the need to reserve liquid assets for redemptions, unlike open-end mutual funds.
Which of the following statements best illustrates the relationship between the arithmetic and geometric means when evaluating the performance of a security with uniform returns over multiple periods?
The arithmetic and geometric means are identical when returns are consistent across all periods.
What investment management style involves selecting equities with strong upward earnings movement using quantitative and technical analysis?
Momentum Investing
Alex buys a 3 month call option contract on shares of XYZ at a cost of $2. This contract gives Alex the right to buy shares of XYZ at $40 per share within the 3 month period. What is Alex’s profit if he exercises the call option 2 months later when the shares are trading at $50 per share?
In each contract there are usually 100 shares.
Profit = # of shares x [Market Price - Strike Price - Paid premium].
Profit= 100 [$50-$40-$2]= $800
What portfolio management strategy involves shifting from one class of security to another depending on anticipated changes in the economy?
Market Timing
What does a real return of zero percent indicate?
A real return of zero percent means that the investment’s purchasing power is maintained, as it keeps up with inflation.
Suppose a comparison universe contains both equity-based funds with a modest bond component and bond funds with small stock exposure. What challenge does this pose in performance evaluation?
It makes comparisons among funds with different risk profiles inaccurate.
What does beta measure
volatility
If a money market fund has an ending net asset value of $10,010,489 and an initial net asset value of $10,000,000, what is its current yield?
Current Yield = seven day yield x (365/7)
Seven day yield = [ending net asset value / initial net asset value] -1
Seven day yield = 0.0010489 => Current yield = 0.0547 or 5.47%.
Jordan contributed $2,000 to Taylor’s spousal RRSP this tax year. The previous two years, Jordan contributed $1,500 and $1,000, respectively. If Taylor withdraws $4,000 from the spousal RRSP this year, how will this withdrawal be taxed?
The taxation of withdrawals from a spousal RRSP in Canada depends on the “three-year attribution rule”. This rule states that if any contributions have been made to any spousal RRSP in the current year or the two preceding calendar years, withdrawals by the spouse will be attributed back to the contributor, in this case, Jordan.
Here, Jordan contributed $2,000 this tax year, $1,500 the previous year, and $1,000 two years ago. So, the total contribution in the current and two preceding years is $2,000 + $1,500 + $1,000 = $4,500.
Since Taylor is withdrawing $4,000 this year, which is less than the total contribution of $4,500 in the attribution period, the full $4,000 will be taxable to Jordan.
What triggering event requires a suitability determination according to MFDA rules?
MFDA rules consider a suitability determination necessary when securities are received into or delivered out of the client’s account.
What party should be notified of unusual transactions when money laundering is suspected?
Employees of mutual fund sales representatives, also are required to report these transactions within organizational guidelines. You must be able to recognize transactions that could be linked to money laundering or terrorist financing and report specific transactions according to your employer’s internal policies and procedures, which in turn may be reported to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) through your employer’s compliance unit.
Michael, a financial advisor, uses a portion of his client’s funds to invest in a personal business venture without obtaining the client’s consent. Which ethical value is violated by Michael’s actions?
Integrity
In a scenario where interest rates are expected to decline, which of the following bonds would likely experience the greatest increase in price?
A bond with a long term to maturity and a high coupon rate.
In what scenario is a nominee-name securities registration most beneficial?
When ease of transaction and protection against the dealer’s insolvency are prioritized.
Phillips curve. Based on this theory, what is the impact on inflation if unemployment continues to be low?
Inflation will be High
How often are GDP calculations made from the bank of Canada?
Quarterly
A minor purchases a mutual fund. Choose the action that the minor may take prior to reaching the age of majority.
Revoke the purchase
Indicate the type of account that requires a date of birth to be on file.
Registered Account
Derrick is meeting with four siblings who wish to pool their money for investment purposes. After completing the KYC information, he notes that two of the siblings have limited and two have expert investment knowledge, they all have similar risk profiles, investment time horizons and investment objectives. They would prefer maximum flexibility in trading authority. Determine the type of account that would meet their needs.
Joint Account
Emma’s elderly client has complete trust in her abilities. She has to reach a sales target for the month. She believes that an investment is suitable for him and persuades him to place an order. Identify the consideration that applies in evaluating her actions.
Ethical Responsibility
Identify an indirect investment from the following list.
A. A government invests in a new hospital.
B. A couple buys a rental property.
C. An avid investor buys shares in a new issue.
D. An overseas company pays the start-up cost for a new plant.
Capital savings can also be harnessed indirectly through the purchase of such representational items as stocks, bonds or mutual funds or through the deposit of savings in a financial institution.
What’s the minimum % a monkey market fund must invest in money market securities?
A Money market fund must invest at least 95% of their total net assets in money market securities.
according to National Instrument 81-102, what is the maximum term to maturity of securities included in money market funds investments portfolio?
less than 2 years
What is the underlying risk associated with long-term investing in money market funds?
A risk associated with long-term investing in money market funds is that these funds sometimes have a return that does not keep pace with inflation, thus eroding the purchasing power of the investment.
How often are capital gains on mortgage funds distributed?
Annually end of year
identify the document in which the principal investment objectives and policies of a mutual fund trust are set out.
Declaration of trust.
How are foreign dividends taxed?
Like Canadian Interest income at 100%
Select the usual minimum holding period required for an investor in a segregated fund to qualify for guarantees.
10 years
Calculate the minimum annual withdrawal amount for a 7% Guaranteed Minimum Withdrawal Benefit (GMWB) plan purchased for $200,000 with a current market value of $150,000.
A. $150,000.
B. $7,500.
C. $14,000.
D. $200,000.
The client purchases the plan, and the GMWB option gives the plan holder the right to withdraw a certain fixed percentage (7% is typical) of the initial deposit every year until the entire principal is returned, no matter how the fund performs.
What is the primary responsibility of the Bank of Canada?
Promoting the economic and financial welfare of Canada.
Which factor affects the management expense ratio (MER) based on the type of assets managed by the fund?
The complexity of the fund
What does a debt/equity ratio of less than 1:1 indicate about a company’s capital structure?
Company is financed mainly by equity
In the context of issuing new securities, what is meant by “shelf registration”?
Corporations can issue securities without the need for a prospectus.
