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LOA GOD MODE > Olivers > Flashcards

Olivers Flashcards

1
Q

The latest impact of the baby-boomer generation on the financial industry is the:

A

Shift to a wealth advisory approach

The changing needs of this large segment of the population must be considered when looking at financial planning and wealth management. Baby-boomers are looking for advice when making decisions about their assets and retirement.

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2
Q

FATCA was enacted by the ______ and FATCA applies to ___________.

A

USA

All countries

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3
Q

Wealth management focuses on all of the following, except:

A. A deeper connection between advisor and client

B. Creating customized plans for clients

C. Offering a wide array of products and services

D. The needs of high-net-worth investors

A

D. The needs of high-net-worth investors

Rationale :
Wealth management has been expanded to include a broader client base, a larger variety of products, and a deeper client-advisor relationship.

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4
Q

What demographic sector makes up the largest portion of the population, and also has the largest net worth?

A

The Baby Boomers

Rationale :
Aging baby boomers (born between 1946-65) are having a major effect on the financial services industry. They make up the largest part of the demographic in Canada with about 9.5 million people. Most high-net individuals (>$1,000,000 in assets) are over the age of 55.

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5
Q

Identify the standard that is not included in the Registrant Code of Ethics and Standard of Conduct.
A. Fiduciary duty
B. Confidentiality
C. Duty of care
D. Professionalism

A

A. Fiduciary duty

Rationale :
The Registrant Code of Ethics and Standards of Conduct:
1. Registrants must use proper care and exercise independent professional judgment.
2. Registrants must conduct themselves with trustworthiness and integrity, and act in an honest and fair manner in all dealings with the public, clients, employers, and colleagues.
3. Registrants must and should encourage others to conduct business in a professional manner that will reflect positively on themselves, their firms, and their profession, and should maintain and improve their professional knowledge and that of industry colleagues.
4. Registrants must act in accordance with the Securities Acts) of their province or provinces in which registration is held and the requirements of all Self-Regulatory Organizations (SROs) of which their firm is a member.
5. Registrants must hold client information in the strictest confidence.

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6
Q

Identify the factor that is not listed as one of the typical strengths of codes of ethics.
A. They act as social contracts.
B. They ensure ethical conduct.
C. They provide rules for firm accountability.
D. They aid in making decisions around ethical dilemmas.

A

B. They ensure ethical conduct.

Rationale :
The strengths of a code of ethics:
• Provides clear guidance for the actions of the group’s members;
• Forms a “social contract” for the workplace;
• Emphasizes accountability on part of individual or firm; and
• Signals that the company or industry is prepared to state values.

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7
Q

In which situation might a wealth manager have to resign?

A

If the principal asks the agent to act in a way that compromises the best interests of the principal

Rationale :
Fiduciary duty requires agents to act in the best interest of the principal or client. If the principal asks the agent to compromise this responsibility, the agent may no longer be able to continue the professional relationship.

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8
Q

Canadian Securities regulators prescribe a(n):
A. Rules-based approach to regulation
& B. Ethics-based approach to regulation
C. People-based approach to regulation
D. Balanced approach to rules based versus ethics based regulation

A

D. Balanced approach to rules based versus ethics based regulation

Rationale :
Current Canadian securities regulations prescribe a balanced approach to rules-based regulation versus ethics-based regulation.

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9
Q

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act:
A. Is an IIROC policy
B. Is as part of the KYC process
C. Is federal legislation
D. Is a United Nations rule

A

C. Is federal legislation

Rationale :
Federal and International Requirements- The Proceeds of Crime (Money Laundering) and Terrorist Financing Act
(2002) requires that the client verify their identity and report any suspicious transactions in order to protect the financial system from being used to conceal the proceeds of crime or finance terrorism. Firms can verify identify by asking to see valid ID or by having a cheque from the client clear the Canadian Clearing System.

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10
Q

The required return on investments must take into account the client’s:

A

• Current and expected financial situation;
• Current and expected spending levels:
• Investable assets;
• Expected additions to the portfolio; and
• Taxes and inflation.

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11
Q

Liquidity is usually required for one of three reasons:

A

• Ongoing income needs;
• Emergencies: the recommended reserve for emergencies is three to six months’ living expenses; and
• Anticipated significant purchases

Liquidity is more about having funds available to meet current and short-term needs, rather than future ones.

It’s important to differentiate between immediate liquidity needs (like known, pending expenses) and future planning, which does not require immediate liquidity. Remember, liquidity is about now and the near future, not the distant future.

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12
Q

Methods to improve cash flow include:

A
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13
Q

Tenancy in Common

A

Land owned by two or more individuals. On death of one owner, the interest of that party passes to their heirs and not to the other owners) of the property.

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14
Q

If a borrower defaults on a Canada Mortgage and Housing Corporation (CMHC)-insured mortgage, the lender has the option to:

A
  • retaining the property,
  • calling on a personal covenant of the borrowers,
  • claiming under the insurance policy.
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15
Q

When the purchaser of a home takes over the existing mortgage, the mortgage is said to be:

A

Assumable;

Occasionally it may be possible for a buyer to take over an existing mortgage from the seller if it is an assumable mortgage and they qualify. This may be a desirable feature if the mortgage has a low interest rate, which would improve the liquidity of the house if interest rates have increased.

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16
Q

CMHC is only available to ________________

A

approved lenders;

Authorized by the National Housing Act (NHA), CMHC (a Crown corporation owned by the federal government) provides insurance to lenders against principal and interest losses arising from mortgage default on various types of loans. A significant player in the multi-unit residential market, CMHC insures mortgage loans made for the purchase, repair, and conversion or refinancing of existing rental housing projects. CMHC insurance is available only to approved lenders

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17
Q

Mortgage-backed securities are associated with:

A

Life insurance companies;

Life insurance companies are involved in the residential mortgage market through mortgage-backed securities (MBS). MBS offer attractive yields and liquidity.

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18
Q

When a debtor defaults on a mortgage in Québec, there are two means of legal recourse.

A

Taking in Payment: The property is taken as full payment of the claim and the creditor becomes the owner of the property.

Sale by Judicial Authority: A formal process, whereby the court determines the terms of sale.

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19
Q

What is the result of semi-annual compounding of interest rates on mortgages?

A

The effective interest rate is slightly higher than the nominal rate;

Rationale:
Semi-Annual Compounding: This means that the interest portion of the mortgage can only be compounded semi-annually. For example, a 10% nominal rate is really a 5% rate compounded twice per year for an effective rate of 10.25%.

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20
Q

What mortgage feature allows the borrower to take an existing mortgage with them when moving to a new home?

A

Portable;

a CMHC mortgage may even be transferred to a new home and subject to an appraisal of the new property without having to pay a premium.

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21
Q

If the borrower defaults on a mortgage, which remedy is quick, does not involve the courts, and does not require that the lender take possession of the property?

A

Power of sale:

Once the borrower is notified, the lender is able to sell off the property without taking possession, usually by offering it for sale. Any excess is used to satisfy other creditors, and the balance paid to the borrower. This remedy is quick, does not involve the courts, and does not require taking title.

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22
Q

To ensure borrowers are able to meet payments if the economic situation changed; mortgages must be stress-tested. What parameters are used to test mortgage applicants of high-ratio mortgages before approving them?

A

All high-ratio borrowers are required to meet TDS and GDS ratios using the Bank of Canada’s 5-vear posted rate.

  • All conventional borrowers are required to meet the TDS and GDS ratios using the higher of:
  • The Bank of Canada **5-vear posted rate: and
  • The lender’s contract rate + 2%**.
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23
Q

Under what jurisdiction does divorce fall?

A

Divorce is the exclusive jurisdiction of the federal government. The Divorce Act was most recently updated in 1985

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24
Q

What is the solemnization of marriage?

A

Legal marriage ceremony;

Every province has legislation dealing with the “solemnization of marriage” within that province, enabling provinces and territories to determine some of their own requirements to become legally married.

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25
How is "separation of property regime" best defined?
The spouse who holds title on it owns property.
26
An __________ declares that a marriage was null and void for a reason existing at the time of the marriage and is regarded as having never occurred.
annulment
27
A ___________ marriage is based on facts discovered subsequent to marriage, but existing at the time of marriage. Reasons for __________ marriages include impotence, non-consummation of the marriage, non-consent, noncompliance with statutory formalities
voidable
28
_______________ are used by couples who choose to cohabit and are not legally married.
Cohabitation agreements
29
What is the purpose of a judicial separation?
**To allow a couple to separate without the permanency of divorce** - A decree of judicial separation is similar to that of a divorce as it relates to the division of property and responsibilities. Such decrees are not issued in Ontario. * This decree does not affect the status of either party, and so provides for the possibility of reconciliation. * Judicial separation allows for interim support and custody; disposition of property is best dealt with via divorce.
30
What asset is considered the most valuable and important asset to most families for most of their lives?
Human capital defined as the present value of future earnings, net of taxes and deductions. Protecting and enhancing the value of human capital is the most important task of wealth preservation
31
What is the efficient frontier?
The set of portfolios with the greatest return for a given standard deviation (SD) The efficient frontier is the level of highest expected return for the level of risk.
32
the difference between pure risk and speculative risk.
Speculative risk is an **investment** concept (loss or gain) pure risk is an **insurance concept**. (no gain possibility)
33
The concept of diversification involves the strategic distribution of different assets or asset classes in a portfolio. What does the concept of time diversification attempt to distribute?
Years Time diversification is based on the premise that returns equal to the average over time, so that standard deviation and risk both fall as a function of time. As a result, it is safer to hold debt over the short term and equities over the long term
34
Positive correlation ____________ risk when it is between two assets, but ___________ risks when it is between an asset and a liability or expense.
increases decreases
35
The two most valuable assets when evaluating an individual's net worth are:
Human capital (1st) and the family home (2nd most valuable)
36
What is the fundamental weakness of every measure of risk?
Risk data is historical
37
What type of distribution is typical of equity returns on a major stock exchange?
**Lognormal distribution** is the concept that many financial assets cannot lose more than 100% of their value, whereas the upside is theoretically unlimited. Equity returns on major stock exchanges are usually lognormally distributed.
38
What is an alternative risk measure to standard deviation (SD)?
Shortfall risk Shortfall risk is the risk of not meeting a goal. It may be related to standard deviation, but not necessarily. Shortfall risk is **more comprehensive than standard deviation** because it includes the risk of not reaching one's objectives. Shortfall risk can be expressed as the likelihood of failure of a financial or investment plan as a whole.
39
With what asset class is diversification most effective?
Common shares
40
On what type of risk, are the mortality and disability tables used by insurance companies, based?
Pure risk Pure risk is quantified as the likelihood of loss in relation to value based on statistical research. Insurance companies use mortality and disability tables to measure the pure risk.
41
If a taxpayer is not able to claim a tax credit for the full amount of a charitable donation in the current year, the excess can be carried forward for the next:
5 years
42
Adam received a T3, T4, T4A, and T5 in the mail early in the year. When completing his income tax return, what slip will provide Adam with information on income paid to him from the income trust he holds in his non-registered investment account?
T3 T3 slip: which reports Trust Income Allocations and Designations (e.g., interest, dividends and capital gains) earned on investments held by the taxpayer. Unit holders of unincorporated mutual funds held outside a registered plan receive this slip.
43
When calculating taxable income, a taxpayer begins with their gross earned income and subtracts allowable deductions, special deductions, and then applies any allowable tax credits. Identify the expense, that if applicable, would be considered an allowable deduction.
Allowable deductions include: RRSP and PP contributions, professional and union dues, childcare expenses, moving expenses, investment management fees, deductible interest, and oil and gas flow-through expenses.
44
Identify the easiest and most commonly used income-splitting strategy for spouses.
The higher-income spouse pays all family living expenses. To save taxes, the higher-income spouse should pay all the family's expenses and the lower-income spouse should invest as much of his or her income as possible. Investment income earned by the lower-paid spouse will be taxed at a lower rate than that earned by the higher-income spouse
45
Income splitting means diverting income from a family member in a high tax bracket to a family member in a lower tax bracket. Income splitting can legitimately be accomplished by:
* Paying a Salary (or Profits) to Family Members * Paying Allowance to Working Child * Transferring Money to Cover Interest on Investment Loans * Swapping Assets with Family Member * Splitting Investment Income among Family Members * Generating Capital Gains in Hands of Children * Giving Funds to Adult Child * Using Inter Vivos / Living Trusts * Making Corporate Loan to Related Student * Transferring Assets before Leaving the Country * Using a Loan or Transfer to a Spouse-Controlled Corporation * Small Business Corporations * Transferring Capital Losses to Spouse * Transferring Personal Tax Credits * Investing Inheritances in the Right Name * Investing Government Benefits Paid to Child in Child's Name * Reporting the Spouse's Dividends on the Client's Tax Return * Splitting Retirement Income * Sharing CPP/QPP Income Between Spouses
46
Identify the taxable employee benefits.
* Part of the personal use of a company car * A recreational or fitness club if the membership does not pertain to business * Interest-free or low-interest loans to an employee when the interest paid by the employee within 30 days of year-end is greater than the prescribed interest rate for the year * Costs related to financing a home in a new location and employee that is moving for the sake of work. * Employer-paid premiums for group term life insurance. * Disability income insurance benefits received by the employee in excess of his contributions are taxable as employment income * Employer-paid premiums for group term life insurance are a taxable benefit. Self-improvement courses paid by the employer on behalf of the employee
47
Joe can pass his canola farm to his grandson, Gary, on a tax-free basis, if:
Joe is farming on the property. A tax-free rollover of a qualified farm property to a child or grandchild is allowed if the property was used for farming prior to the transfer by the taxpayer.
48
Amanda's employer provides her with a car to visit clients on-site, which is a requirement of her job. Amanda's employer owns the car, calculated the standby charge for her based on the kilometres she drove, and applied the appropriate reductions. The total came to $1,400 for the year. Select the statement that is true concerning how the $1,400 standby charge is treated for tax purposes.
Amanda is required to add $1,400 to her taxable income. Rationale A standby charge must be included in the employee's income when an employer-owned car is provided for an employee's personal use.
49
50
Select the statement that is true regarding defined-contribution plans.
The employer matches the contributions of the employee to the plan.
51
From what factor is a company's value derived, according to Miller and Modigliani?
Cash flow
52
For what reason should a portfolio manager or advisor rebalance an asset mix?
The advisor's risk tolerance changes
53
Identity the statement that is correct concerning taxation when an employer pays an employee's long-term disability (LTD) premium.
The LTD benefits paid to the employee are taxable.
54
Spouses can apply to share their _____ retirement pension payments if both partners are at least _____ years old and each has applied for a pension.
CPP 60
55
What two accounting standards are considered acceptable for listed companies to use when preparing their financial statements?
Global Accepted Accounting Principles (GAAP) and International Financial Reporting Standards
56
Calculate the time-weighted return for the following portfolio.
8.47%
57
What amount of tax is applied when benefits are paid to a beneficiary of a Retirement Compensation Arrangement (RCA)?
Marginal Tax Rate (MTR)
58
Identify the statement that is true regarding the secondary mortgage market.
NHA-insured mortgages trade near the level of government bond interest rates.
59
What type of account provides the highest level of functional integration for an individual account?
Unified managed account (UMA)
60
What additional guarantee do Guaranteed Minimum Withdrawal Benefit (GMWB) products offer that segregated funds do not?
Income guarantee
61
Valesquez is most interested in the earnings of the companies in which he holds shares. Select the statement that is true of Valesquez.
He is interested in growth stocks and he is interested in stocks with high price-to-book (P/B) ratios.
62
A taxpayer earning $50,000 a year donates $9,000 to a qualified charitable organization. Calculate her federal tax credit.
Rationale: Charitable donations entitle the taxpayer to a two-tier credit. The first $200 of donations provide a 15% federal tax credit and the balance provides 29%. 15% × $200 = 30 29% × $8,800 = 2,552 Total = $2,582
63
Which tvoe of asset allocation is the most important investment decision of the entire investment process?
Tactical
64
What is the difference between efficient diversification and naive diversification?
Efficient diversification focuses on selecting securities based on correlation, whereas naive diversification believes that the greater the number of any types of securities, the greater the diversitication.
65
What is the downcide of a low.turnover mutuel fund?
Deferred tax liability
66
Identify the statement that is true regarding Workers' Compensation?
It covers work-related injuries onlv.
67
Gerald's pre-retirement expenses are around $150,000 per year. What would his estimated retirement budget be?
Rationale: 70-80% of Gerald's pre-retirement budget is $105,000-$120,000.
68
What is terminal funding?
Additional voluntary funding of an IPP at retirement
69
The Retained Earnings statement links the bottom line on the _________ with the bottom line of the __________ at a specific point in time
Balance sheet Income statement
70
In order to be eligible for the Lifetime Capital Gains Exemption (LCGE) upon the disposition of a Canadian Controlled Private Corporation (CCPC), the CCPC must have been held by the taxpayer or a relative to the taxpayer thru the ___ months immediately preceding disposition.
24
71
A blend-and-extend option is best in periods of _____ interest rates.
Low
72
Identify the statement that is true with regard to annuities.
A straight life annuity provides the largest amount of guaranteed income per dollar of premium paid.
73
Identify the appropriate investment goal.
To pay off the mortgage on the principal property within 10 years
74
An advisor calculates the Sharpe ratio for one of their clients' equity allocations and determines that it is positive. Select the statement that correctly describes the meaning of a positive Sharpe ratio.
The client's equity return was greater than the risk-free return
75
Martha has set a goal to have $50,000 saved up for a new car in five years. At an interest rate of 5% annually, what will Martha's monthly payments need to be to achieve her goal?
Rationale P/Y = 12; N = 60 (5 x 12); I= 5; PV = 0; FV = 50000. Solve for PMT = -735.23.
76
What type of asset allocation adjusts the portfolio, either on a set regular basis or after a major change in the market?
Rebalancing
77
Which type of Exchange Traded Fund (ETF) replaces the need for recourse margin debt?
Inverse
78
Which feature of an insurance policy corresponds to an "out of the money" option?
Deductible
79
Select the statement that is true regarding the relationship between portfolio duration and dollar duration.
Both portfolio and dollar duration are approximate measures.
80
Identify the candidate that would be most likely to perform sector analysis.
Ray, an equity analyst
81
Janet and her husband, Ralph, are interested in investing in debt securities with the aim of turning their savings into the down payment on their first home. What type of strategy would be most appropriate for them?
Cash-flow matching
82
What is the essential difference between an equity forward and an equity range forward?
Selling price
83
George has invested in an income trust based on the sale of lumber. What kind of income trust is this?
Royalty trust
84
Measuring the rate of return of individual securities and the portfolio as a whole does NOT enable the wealth manager to:
Understand the client's risk tolerance
85
The Capital Asset Pricing Model (CAPM)-beta of the market portfolio is
1
86
What income or asset would not be considered a "right or thing" upon death?
Interest accrued on an investment
87
What is not a reason for setting up a spousal trust?
Managing assets on behalf of third generation
88
Sandra's investment portfolio had a market value of $57,000 at the end of June this year and a market value of $88,000 at the end of December. What is the six-month return on Sandra's portfolio?
54.39%
89
The amount of contributions made or the value of benefits accruing to a member of an employer-sponsored retirement plan for a calendar year is defined as the:
Pension Adjustment (PA)
90
What type of hedge fund has the highest risk?
Directional
91
Valerie is an investment advisor (IA) and she has made it her priority to **treat all her clients fairly, equally, and honestly**. As a result, Valerie's clients are extremely happy and **regularly bring her more business**. This relationship is an example of
A unified value system
92
gpt explain - Three banks offer three different nominal rates on advertised savings accounts. Which bank offers the highest effective annual interest rate (EAR)?
93
94
A client's portfolio returns 2% with a standard deviation of 1% and the portfolio's benchmark returns 9% with a standard deviation of 7%. The risk-free rate is 6%. Based on the Sharpe ratio, the client's portfolio:
Underperformed the benchmark
95
gpt
96
The success of a particular investment style is most related to:
Market cycle
97
What item is not a common covenant of separation agreements?
Income-tax consequences
98
99
A debt security has an expected return of 7.0%, and the return rate on T-bills is 3.5%. What is the risk premium for this security?
100
Lonnie will turn 18 on June 1 next year. What is the earliest date that Lonnie's parents will not be liable for attribution on any type of income on money or property given to Lonnie by them?
December 31 this vear
101
BAM mutual fund has a beta of 1.4. What does this mean?
BAM is riskier than its benchmark index.
102
What type of risk is likely to increase as the investor ages?
Inflation risk
103
What is the Factor of 9?
A formula used to determine the pension adjustment amount for a given year in a defined benefit pension plan, based on the assumption that $1 of annual pension requires $9 of funding.
104
What is the par value on a two-year strip bond that is traded at $89.60 to yield 7.5%?
$100.00 per share
105
The concept that joint tenants must be in possession of land concurrently is known as:
Unity of time
106
107
What is a drawback to a trust?
Trusts are expensive to establish and maintain.
108
An employee stock option results in a taxable benefit when it:
Is exercised
109
What does "conducting emotional discovery" mean?
A. Discussing finances in terms of the client's life issues
110
A barbell portfolio contains:
A combination of bonds of short duration with bonds of long duration
111
What is the rationale for the fees charged by some employee stock option plans?
Administration costs
112
In portfolio theory, what is risk defined as?
The volatility of returns
113
114
What is not a tax-planning opportunity of flow-through shares?
115
Performance measurement and performance evaluation are part of the:
Portfolio appraisal
116
What is the name of the measurement that equates the end value of a portfolio, the beginning value, and all cash fows?
117
The ____________ return measures the cumulative performance of the portfolio's investments.
time-weighted This return is calculated using the total portfolio return formula to measure each return for the sub-periods between cash flows; then the total time-weighted return is calculated. Since the time-weighted rate of return does not consider the individual timing of client
118
What rate of return provides the best measurement if a client wants to compare his or her returns to another portfolio or to a portfolio benchmark?
Time-weighted rate of return Rationale: Since the time-weighted rate of return does not consider the individual timing of client activities, this return can be used as a benchmark against other security returns or indexes.
119
Performance appraisal involves:
120
The average return on a portfolio is 11%, with a standard deviation of 9%. T-bills have an average return of 2.5%. The benchmark for this portfolio has a Sharpe ratio of 0.65. The portfolio:
Is outperforming the benchmark on a risk-adjusted basis
121
Performance benchmarks are typically:
A basis of comparison and portfolio index.
122
The portfolio report generally includes:
123
A good benchmark has the following characteristics:
124
What calculations are used to measure risk-adjusted return?
Sharpe ratio and alpha
125
What information is not required to calculate the holding-period return of a security or a portfolio?
126
What style of benchmark can be used to compare not only portfolio returns, but also shifts in portfolio management style?
Sharpe benchmarks: these are very technical benchmarks that are created using multiple regression analysis. These can be used to compare not only returns, but also shift in portfolio management style
127
The ___________ measures the excess average return per unit of total risk for a given time period.
Sharpe ratio
128
Dante's portfolio returned 8% last year. The T-bill rate was 2%. Dante's portfolio had a beta of 1.1. Calculate the Treynor ratio on Dante's portfolio.
129
If several portfolios are compared, and they all have positive Sharpe ratios, the portfolio with the highest Sharpe ratio has:
Superior performance Comparing the Sharpe ratio of a product to that of another product or to the benchmark determines whether the product out- or underperforms the other product or benchmark on a risk-adjusted basis. A positive ratio indicates a higher performance.
130
_________ represents the return that exceeds the risk taken to earn it.
Alpha
131
The Net Asset Value (NAV) of a mutual fund is calculated by:
Dividing the value of the total portfolio (assets - liabilities) by the number of shares outstanding.
132
What category is not a major strategic category of hedge funds?
Fund of funds
133
Three Major Hedge-Fund Categories
134
What category does not represent a relative-value hedge fund strategy?
Merger arbitrage
135
Identify the risks when investing in an ETF.
ETFs have a roll risk that could cause them to lose value.
136
Identify the type of dynamic portfolio hedge.
Constant proportion portfolio insurance structure
137
Three reasons to include hedge funds in a portfolio:
1. To increase returns without increasing risk; 2. To decrease risk without decreasing returns; and 3. To increase the absolute return.
138
Calculate the market model alpha for a hedge fund that has a market model beta of 1.25, and average return of 9%. Assume the average return on the benchmark index is 7.5%.
-3.75%
139
Funds of funds (FoFs)
Funds of funds (FoFs) - Are mutual funds that invest in other mutual funds. Most Fos are designed to appeal to a certain risk tolerance (e.g., conservative)
140
Disadvantages of ETFs for retail investors:
* Potential to trade at a discount to net asset value; * Potential for larger tracking errors; and * No guarantee of liquidity.
141
What party is responsible for verifying the Net Asset Value (NAV) of each security in a hedge fund?
Fund administrator The fund administrator verifies the value of each security to calculate the net asset value (NAV) per unit, and processes subscriptions and redemptions.
142
Index-linked managed products can result in capital gains for the investor due to:
Rebalancing Index-linked managed products create capital gains because of the rebalancing required to stay in line with the underlying index.
143
What hedge-fund trading strategy invests simultaneously in long and short positions in companies involved in a merger or acquisition?
Risk arbitrage
144
In what type of fund do investors own the securities directly?
Separately managed portfolios Separately managed- Accounts are managed on a segregated basis, allowing the investor to own individual securities
145
What kind of option gives its owner the right, but not the obligation, to buy an asset at a specified price on or before a specified future time?
Call
146
What name is given to a wealth-management approach in which the wealth manager makes asset-allocation decisions and oversees investment specialists who make specialized investment decisions?
Overlay management Overlay management places multiple managed investment products under a single manager. The manager is said to "overlay" his or her expertise over several products that are already managed by other managers.
147
Define ETF roll risk.
An ETF uses futures contracts to replicate the performance of the underlying index or reference asset.
148
What is a common characteristic of synthetic, leveraged and inverse ETFs?
149
The differences between a standard ETFs and a leveraged ETF structure include:
150
How are commodity-based ETFs created and redeemed?
151
Select the statement that is true regarding tax implications on the distribution of foreign income.
152
Which of the following forms should Canadians who own foreign property with a value of $100,000 or more complete?
T1135
153
Hedge funds are issued via:
Offering Memorandum Hedge funds are issued via an offering memorandum (rather than a prospectus), which is a legal document that outlines the investment's objectives, risk, and terms.
154
Select the statement that is true regarding taxable capital gains in a managed product.
Managed products are not subject to tax. With managed products, taxable capital gains can arise without the client selling the managed product, when equities are bought and sold within the fund by the fund manager.
155
A strip bond with a maturity date of June 1, 2029 is said to be trading at:
A discount Rationale: Strip bonds (made up of coupons and residuals) are zero-coupon bonds that are sold at a discount and mature at their face value.
156
A call feature on a corporate bond allows:
The issuer of the bond to buy back the debt at the call price prior to maturity. Any options on the bond, including the call feature give the issuer the right to buy back the issue prior to the maturity date
157
The feature that differentiates real-return bonds from regular bonds is that:
Real return bonds are indexed to inflation. Rationale: Real return bonds (RBs) pay interest throughout their life and repay the original principal on maturity (like conventional bonds); however, the payments on RBs are adjusted for inflation (unlike conventional bonds).
158
A bond's duration reflects both its term-to-maturity and its coupon rate. A bond's duration is always:
Shorter than its term-to-maturity, unless the bond is a zero-coupon bond. 1. Macaulay Duration - The weighted-average term-to-maturity of the cash flow from a bond. The weighting is based on the present value of each cash flow, divided by the price. * A zero-coupon bond has Macaulay duration equal to the bond's term-to-maturity. * The Macaulay duration of a coupon bond is always less than its term-to-maturit
159
Nancy has a bond with embedded options in her portfolio. The bond's yield has been dropping steadily. Identify the statement that is true concerning Nancy's bond.
The lower the yield, the more likely it is that the bond will be called.
160
Government of Canada bonds are free of risk.
Credit Government of Canada bonds are the only debt securities considered to be free of credit risk, therefore bearing a AAA rating.
161
A yield-curve graph demonstrating a term structure of interest rates when short-term interest rates are greater than long-term rates would be a (n):
Inverted curve
162
Bond A and Bond B are both three-year bonds with the same yield; however, Bond A has a coupon rate of 5% and Bond B has a coupon rate of 3.5%. Which bond is a more volatile investment?
Bond B
163
A two-year strip bond was purchased on October 12, 2020, for $92.25 to yield 7%. Calculate the interest on the bond for 2020.
$1.42
164
Marianne buys a number of T-bills as part of her investment portfolio. Which of the following is the indenture?
Debt contract A debt security is a contract, often an indenture, between the borrower (issuer) and the lender (investor).
165
When bond yields increase, bond prices decrease. This statement applies to
All option-free bonds For all option-free bonds, yields are inversely related to prices (e.g., when the yield of the bond increases, the price decreases, and vice versa).
166
Identify the investment that is not a type of money market security.
Strip bond Strip bonds (made up of coupons and residuals) are zero-coupon bonds that are sold at a discount, and mature at their face value. Strip bonds have been divided into separate interest (coupon) and principal (residual) payment components for the market.
167
A four-year, 4%, semi-annual bond, yielding 6.5%, has Macaulay duration of 7.8. What is its modified duration?
168
Convexity measures the relationship between a bond's ________ and ___________
Yield; price
169
The optimized sampling approach is a type debt-security strategy.
Indexation An indexed portfolio tracks a particular index that has been chosen according to the client's investment and personal criteria. The optimization sampling approach uses mathematical programming based on the investor's objectives and constraints to choose securities.
170
A 7%, $1,000-face-value bond is purchased for $1,045.50. Calculate the current yield.
171
Bonds are priced in relation to the benchmark based on:
Yield spread All bond market issues are priced in relation to benchmark issues on a yield spread basis. Short positions in benchmark issues are typically used to hedge long positions in other debt issues as a protection against market risk.
172
Calculate the taxable interest on a four-year strip bond that was purchased at $76.98 to yield 4%. Assume tha it was bought at the beginning of the tax year.
$3.08
173
What term is used to describe the deviation of the gross return of an index mutual fund relative to its index?
Tracking error
174
What is the minimum rating required the by Dominion Bond Rating Service (DBRS) for debt securities to be considered investment grade?
BBB (low)
175
T-bills are issued by governments, for terms to maturity of:
3, 6, and 12 months
176
Typical terms to maturity for Bankers' Acceptances (BAs) are:
177
What does an inverted yield curve suggest about interest rates over time?
Short-term interest rates are greater than long-term
178
Through which tools can the bank of Canada influence the economy using monetary policy?
Interest rate policy and open-market operations
179
In the event of a company's liquidation, in what order would corporate liabilities be distributed?
Secured debt, capital securities, preferred shares
180
The most popular passive investment strategy is:
Indexing An indexed portfolio tracks the performance of a specific market index.
181
_______ dividends may be paid because of unusually favourable circumstances and may not be repeated.
extra
182
If you subtract inventories from current assets and divide by current liabilities, you are measuring:
Liquidity
183
The price-to-book ratio is used in the _________ of ratio analysis.
Value Relative valuation models - compare one or more of the stock's value ratios (e.g., price-earnings or price-to-book ratios) to a benchmark value to determine the intrinsic value.
184
Which type of forecasting method analyzes the causes of price movements?
Fundamental analysis
185
Stock ABC has a high price-to-book ratio and large market capitalization. What type of stock is ABC?
Large-cap growth
186
Non-style-based approaches focus on stocks with the best chance of meeting any particular objective. Three non-style-based approaches:
**Pure fundamental** - Analysis of company's historical and expected future financial performance and valuation to determine the intrinsic value of the stocks. **Pure quantitative** - Historical fundamental data and statistical analysis to identify the best stocks according to pre-determined criteria. **Pure technical** - Analysis of historical market action to determine expected future price trends.
187
Identify the objective that technical analysis cannot fulfill.
To indicate causes for price fluctuations
188
Voting Privileges A feature of holding common shares include voting privileges:
189
Identify the statement concerning corporate payout policies that is true in an efficient market.
The value of a company is independent of whether the payout of free cash flow (FC) is done via dividends or common share repurchases. Cash flow that can be paid out to its equity investors is a function of its Free Cash Flow (FF). In a perfect market, it should not matter whether FC is paid out as dividends or common-share repurchases. However, imperfections in the market do affect a company's payout policy.
190
What is a benefit of a rebalancing strategy when the asset mix drifting away from the target mix?
191
Two key factors that determine the SAA are the:
1. Investment objectives; and 2. Capital market expectations.
192
What activity makes portfolio rebalancing necessary?
Market price changes Changes in the market will cause the asset mix of a portfolio to diverge from the SAA; periodic rebalancing of the portfolio is required

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