Part 6 Flashcards
Life insurance agent Gloria meets with Yvan, a new client, to review his investor profile. Yvan is a well-known entrepreneur in his community. Despite the fact that his business is currently profitable, Gloria discovers that it has not always been the case; Yvan has been close to bankruptcy in the past and admits that there is still a possibility of this happening in the future.
Given Yvan’s situation, which type of investment should Gloria recommend?
a) An investment that can be cashed out quickly without a decrease in value.
b) An investment that provides leveraging opportunities
c) An investment that provides creditor protection.
d) An investment that provides broad diversification.
c) An investment that provides creditor protection.
Jennifer’s father said that when Jennifer graduates from university in four years. he would gift her $12,500 to invest in a segregated fund. Since Jennifer has her own savings of $8,000, she was curious to know whether or not she could match her father’s gift. What minimum annual rate of interest must her $8,000 in savings earn for her to be able to match her father’s $12,500 in four
years?
a) 10%
b) 12%
c) 14%
d) 16%
b) 12%
Tony, aged 54, invested $20,000 in a segregated fund contract in July of 2007. This contract had a 75% maturity guarantee and a 100% death benefit guarantee. Tony named his wife, Debbie, as the contract’s beneficiary, and Tony was responsible for triggering account resets when applicable. Tony passed away in October of 2017 when the account had a market value of $27.000. Debbie received a death benefit of $30,000. What would explain that Debbie received $30,000 instead of $27,000?
a) Tony’s contract matured in July of 2017 with a market value of $40,000.
b) Tony’s account had a market value of $40,000 at the time of his last reset.
c) Tony’s account had a market value of $30,000 at the time of his last reset.
d) Tony’s contract had a Guaranteed Minimum Withdrawal Benefit (GMWB).
c) Tony’s account had a market value of $30,000 at the time of his last reset.
Jean, who has just turned 53, plans to retire at age 63. However, he doesn’t think that the amount that will have accumulated in his RRSP by then will allow him to live comfortably until he receives his CPP/OPP and Old Age Security benefits. He currently has $15,000 to invest in a TSA consisting of an IVIC with a 10-year maturity and 100% maturity and death benefit guarantees. Jean wants to make absolutely sure he will have no less than $15,000 when he cashes in this investment in 10 years. Which reset option should the insurance agent recommend?
a) An IVIC with automatic reset each year.
b) An IVIC with automatic reset every two years.
c) An IVIC with voluritary reset every two years.
d) An IVIC with no reset but with lower management fees.
d) An IVIC with no reset but with lower management fees.
Five years ago, Lucrecia inherited $30,000 from an old uncle. Having no intention of ever using that money herself, she invested it in an equity segregated fund, hoping to get good returns for when she leaves it to her daughter Roxy, who is the named beneficiary on the contract. A sharp downturn in the stock market recently caused the value of Lucrecia’s fund to plummet below $25,000. Still, Lucrecia is secure in the knowledge that, if anything happened to her, Roxy would receive no less than $30,000. What feature unique to segregated funds gives Lucrecia this certainty?
a) The maturity guarantee.
b) The death benefit guarantee.
c) The right of rescission.
d) The CDIC coverage.
b) The death benefit guarantee.
Christine works as an office administrator. She is looking to buy her first house in the next two years, and is saving for the down payment in an RRSP account. When the time comes for her to buy a
house, Christine expects to have $20,000 available in the account for the down payment. Her entire RRSP account is invested in an aggressive mutual fund, which Christine hopes will provide high rates of return. What is wrong with Christine’s investment strategy?
a) Her down payment is in an RRSP.
b) Her fund selection does not fit her time horizon.
c) Her down payment is in a mutual fund.
d) $20.000 will not be large enough of a down payment.
b) Her fund selection does not fit her time horizon.
Sam began working as an engineer for a large company two years ago. His career is going well and he earns an excellent salary. He began a $5,000/year savings program. Although Sam is ready to accept short-term fluctuations for a better long-term return, one of his requirements for his savings is being able to withdraw the balance at any time if need be. His savings are invested in a conservative fund within an RRSP.
Which of the following conclusions can be drawn about Sam’s savings program?
a) It is adequate.
b) It is not adequate-it should be better diversified.
c) It is not adequate it should be better protected from potential creditors.
d) It is not adequate it would have been better to open a TFSA rather than an RRSP.
d) It is not adequate it would have been better to open a TFSA rather than an RRSP.
On June 23, 2016, a referendum was held in the United Kingdom (UK) to determine whether it would stay in the European Union. The outcome of the vote was in favour of leaving called the Brexit. However, there is uncertainty about what the vote will mean for the future of the country. Tim has invested an important part of his portfolio in UK bonds and faces economic risk, credit risk, and possibly foreign exchange risk for these investments.
How should Tim manage his risk in the future to minimize these kinds of risks?
a) Restrict his investments to those providing guarantees,
b) Decrease his risk tolerance and minimize investing in bonds.
c) Seek investments with an investor protection feature.
d) Allocate his investments so they are better diversified.
b) Decrease his risk tolerance and minimize investing in bonds.
Nancy lives in Abitibi and is proud to contribute to local economic development. She has invested a large part of her savings ($100,000) in the stocks of mining companies that operate in her region. To which of the following risks is Nancy most exposed?
a) Interest rate risk.
b) Inflation risk
c) Industry risk.
d) Liquidity risk
c) Industry risk.
Laurent is married with three children. Now 45, Laurent has no pension plan but has been making
RRSP contributions for the past 10 years through his insurance agent, who tells him he really should start saving more for his retirement. He recommends investing in a segregated fund offered by the insurer he represents. Laurent doesn’t know much about this type of investment and worries that he will lose all his money if the insurer runs into financial difficulties.
What protection should the agent talk about to reassure Laurent?
a) The protection offered by the Canadian Investor Protection Fund.
b) The protection offered by the Investor Protection Corporation.
c) The protection offered by the Canada Deposit Insurance Corporation.
d) The protection offered by Assuris.
d) The protection offered by Assuris.
Neil is an experienced investor. His investment portfolio is structured as follows:
o 25% Canadian equity funds
o 25% US dividend funds
o 25% global equity funds
o 25% fixed income investments
Neil also chose his funds so as to have investments in different sectors, such as financials and consumer goods. Which one of the following investor needs does Neil’s portfolio reflect and prioritize?
a) The need for diversification.
b) The need for a long-term investment.
c) The need for investment management.
d) The need for a tax-advantaged investment.
a) The need for diversification.
Erin is a young professional at the very beginning of her career. Eager to start an investment plan, she meets with a financial advisor. The advisor records Erin’s personal information. Occupation and income, and establishes her net worth. He then goes over different types of investments Erin may be interested in. She likes the tax advantages of RRSPs and decides to start contributing to a plan. Given Erin’s age, and because she has a long-term time horizon, the advisor recommends she invest solely in equity segregated funds. He provides Erin with the information folder and helps her review the Fund Facts for the funds he suggested. He then completes an application form with Erin and collects a cheque for the deposit. What did the advisor neglect to do?
a) Conduct a fact find to determine Erin’s situation.
b) Make a thorough assessment of Erin’s risk tolerance.
c) Schedule a reset so Erin’s contract can be issued.
d) Include some fixed-income funds in Erin’s portfolio
b) Make a thorough assessment of Erin’s risk tolerance.
The Québec Company CIM Inc. offers its employees a DBPP and has decided to set up a GRRSP for its employees. Below are some details pertaining to Donald, a company employee for many years?
• This year’s income amounts to $55,000
• Last year’s income amounted to $49,000
• No unused contribution room
• This year’s RRSP contribution limit stands at 18%
• Last year’s pension adjustment was $5,000
• This year’s pension adjustment is $5,500
What is the maximum amount Donald can invest in his employer’s GRRSP this year?
a) $4,900
b) $4,400
c) $3,820
d) $3,320
d) $3,320
Neil is an experienced investor. His investment portfolio is structured as follows:
25% Canadian equity funds
25% US dividend funds
25% global equity funds
25% fixed income investments
Neil also chose his funds so as to have investments in different sectors, such as financials and consumer goods. Which one of the following investor needs does Neil’s portfolio reflect and prioritize?
a) The need for diversification.
b) The need for a long-term investment.
c)The need for investment management.
d) The need for a tax-advantaged investment.
a) The need for diversification.
An examination of Marcel’s investment statements shows that all of his savings (representing more than $100,000) are invested in Apple stocks, because Marcel loves the company’s products What is Marcel’s most pressing need (as an investor) in light of this information?
a) Diversification.
b) Tax efficiency.
C)Creditor protection.
d) Income.
a) Diversification.
Nine years ago, Ontario resident Louise invested $50,000 in two segregated funds under the same non-registered IVIC: $25,000 in a Canadian dividend fund, and $25,000 in a growth equity fund. She named her son Derek as beneficiary. When Louise passed away last month, the IVIC had reached a value of $90,000. Within a matter of days, Derek was able to bypass probate and collect the full $90,000 value of the contract. Why was Derek able to receive the full value of the IVIC without paying probate fees?
a) Because of the death benefit guarantee.
b) Because the account was non-registered,
c) Because Derek was a named beneficiary.
d) Because the underlying funds were tax-advantaged.
c) Because Derek was a named beneficiary.
