Which of the following Dealing Representatives has CORRECTLY fulfilled their suitability obligation?
Answer(s): B
Kiri has correctly fulfilled his suitability obligation by matching the risk-return profile of the fund with the personal circumstances of his client. The Conservative Bond Fund is a low-risk, low-return fund that pays regular interest income to investors. Myrtle's investment objective is "income", which means she wants to receive steady income from her investments and preserve her capital. Therefore, Kiri's recommendation is reasonably suitable for Myrtle in all the circumstances. (Canadian Investment Funds Course, Chapter 2, Section 2.3)Canadian Investment Funds Course, Chapter 2, Section 2.3: Conflicts of InterestIFSE Institute: Suitability Obligations1SFC: Frequently Asked Questions on Compliance with Suitability Obligations2
Terri, 30 years old, is the marketing manager at Provincial Winery with an average annual income of $60,000. Her spouse Yvette, 28 years old, is a project manager with a telecommunications firm earning$70,000 per year. You are helping them to organize their investments and are trying to assess their financial resources.Which of the following is the best question to ask?
One of the steps in the Know Your Client (KYC) rule is to assess the client's financial resources, which include their income, assets, liabilities, and net worth. Asking about pension plans at work is a relevant question to determine the client's sources of income and potential retirement savings. Pension plans can also affect the client's risk tolerance and investment objectives, as they may provide a stable and guaranteed income in the future. Asking about children, money needs, and investment experience are also important questions, but they relate to other aspects of the KYC rule, such as personal circumstances, time horizon, and investment knowledge.
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 1: The Investment Funds Industry, Section 1.4: The Know Your Client (KYC) Rule, page 1-111Know Your Client (KYC) Definition - Investopedia
Lucas is 60 years old and continues to work. He presently is a plan holder of a registered retirement savings plan (RRSP). He is considering changing his RRSP to a registered retirement income fund (RRIF).Which of the following statements is CORRECT?
A registered retirement income fund (RRIF) is a type of registered plan that provides a stream of income in retirement. A RRIF can be created by converting an RRSP, but once the conversion is done, the plan holder can no longer make contributions to the RRSP or the RRIF. Therefore, any unused RRSP contribution room is lost after the conversion. The other statements are incorrect because:A . There is a minimum age to be an annuitant to a RRIF, which is 71 years old. However, a plan holder can convert an RRSP to a RRIF at any age before 71.C . Minimum withdrawals are required to start in the year following the year the RRIF was established, not in the current calendar year.D . Investments that qualify as an eligible investment for a RRIF are the same as for an RRSP, such as mutual funds, stocks, bonds, GICs, etc.
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 6: Registered Plans, Section 6.2:Registered Retirement Income Fund (RRIF), page 6-81Registered Retirement Income Fund (RRIF) - Canada.ca2
Sylvia decided to use the savings from her bank account to purchase a 5-year bond. The face value of the bond is $10,000, the market price is $9,230 and the coupon rate is 7%.What is the current yield on the bond? Round to 2 decimal places.
Answer(s): C
The current yield on a bond is the annual interest payment divided by the current market price of the bond. In this case, the annual interest payment is 7% of the face value, which is $700. The current market price of the bond is $9,230. Therefore, the current yield is:9230700 ×100%=7.58%The current yield is different from the coupon rate, which is the annual interest payment divided by the face value of the bond. The coupon rate does not change over the life of the bond, but the current yield changes as the market price of the bond fluctuates.
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities, Section 5.2: Bond Pricing and Yield, page 5-61Current Yield Definition - Investopedia2
Danny is a Dealing Representative for Everbright Investments. He met with his client Adele, who has $1,000,000 to invest. During their meeting Danny determines that Adele has a high-risk profile. In addition, he learns that she has an excellent understanding of equities and how volatile they can be. Danny is considering recommending growth funds specifically, and making a recommendation from the following investment options:Based on the information provided, which mutual fund should Danny recommend?
Answer(s): D
Adele has a high-risk profile and an excellent understanding of equities. Therefore, it would be appropriate for Danny to recommend growth funds. However, since Adele has $1,000,000 to invest, it would be prudent to diversify her investments and invest equally in all 3 funds. This way, she can benefit from the exposure to different regions and sectors, and reduce the impact of market fluctuations on her portfolio. Based on the table, all 3 funds have the same 5-year annualized returns net of MER, which is 15%. However, they have different MERs and Sharpe ratios. The MER is the fee charged by the fund manager for managing the fund, and the Sharpe ratio is a measure of risk- adjusted return. A lower MER means a lower cost for the investor, and a higher Sharpe ratio means a higher return per unit of risk. Therefore, investing equally in all 3 funds would allow Adele to achieve a balanced trade-off between cost and performance.
Canadian Investment Funds Course (CIFC) Study Guide, Chapter 4: Mutual Funds, Section 4.2: Types of Mutual Funds, page 4-6Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities, Section 5.5: Risk-Return Trade-Offs, page 5-14Sharpe Ratio Definition - Investopedia
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