IFC Investment Funds in Canada (IFC) Exam Questions and Answers

Comprehensive and Detailed Explanation From Exact Extract:

The nominal rate of return is the return before adjustment for inflation, which is given as 2%. The real rate of return would be adjusted for inflation (2% - 1.5% = 0.5%), but the question asks for the nominal rate. The feedback from the document states:

"It is important to consider the effects of inflation on investments because we can isolate the difference between nominal and real returns. Investors are more concerned with the real rate of return – the return adjusted for the effects of inflation. A nominal return is a return that has not been adjusted for the impact of inflation. The approximate real rate of return is calculated as: Real Return = Nominal Rate - Annual Inflation Rate."

The Fund Facts document is a summary disclosure document that highlights key information about a mutual fund or an exchange-traded fund (ETF), such as the performance history, investments, fees, and risks. According to the Point of Sale (POS) disclosure rules, a Dealing Representative must provide and explain the Fund Facts document to the client before accepting an order to buy or switch a fund. This allows the client to make an informed investment decision and to know their rights.

References = Fund Facts | AMF - Autorité des marchés financiers, Fund Facts/ETF Facts - Fidelity, Understanding Fund Facts | GetSmarterAboutMoney.ca, IFSE CIFC Module 2: The Investment Industry, page 2-16.

According to the MFDA rules, a Member or an Approved Person cannot accept or act upon a general power of attorney or other similar authorization from a client in favour of the Member or Approved Person, unless the client is a spouse, parent, or child of the Approved Person and certain conditions are met. However, a Member or an Approved Person can accept a limited trading authorization from a client, which allows the Member or Approved Person to execute trades on behalf of the client, but not to engage in any discretionary trading. Therefore, Josephine can accept a limited POA from her brother, as long as she does not make any investment decisions without his consent.

References = Canadian Investment Funds Course (CIFC) - Module 1: The Financial Services Industry - Section 1.3: Know Your Client (KYC)1 and web search results from search_web(query="power of attorney and mutual fund dealers association rules")23

1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-1.pdf

The Annual Information Form (AIF) is a document that provides detailed information about a mutual fund, such as its history, structure, management, fees, expenses, risks, policies, and performance. The AIF also contains information regarding the Independent Review Committee (IRC) compensation, which is the amount of fees and expenses paid by the fund to the IRC members for their services. The IRC is a committee of independent individuals who oversee the fund manager’s decisions on conflict of interest matters and act in the best interests of the fund and its investors12

References = web search results from search_web(query="Independent Review Committee compensation")12 and Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.2: Mutual Funds3

3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf

According to the Canadian Investment Funds Course, capital gains distributions are the portion of the mutual fund trust’s net realized capital gains that are paid out to the unitholders. Capital gains distributions are not the same as capital gains from selling or redeeming units of the mutual fund trust, which are reported on a T5008 slip. Capital gains distributions are taxable in the year they are received, even if they are reinvested in additional units of the fund. The mutual fund trust will issue a T3 slip to report the amount and type of income that is allocated to each unitholder, including capital gains distributions. The unitholder must report this income on their tax return and pay tax on 50% of the capital gains distributions at their marginal tax rate.

Monetary policy is the process by which the central bank, in Canada’s case the Bank of Canada, influences the supply and demand of money in the economy, and thereby affects the level of interest rates, inflation, and economic activity. One of the main tools of monetary policy is the overnight rate, which is the interest rate that banks charge each other for short-term loans. The Bank of Canada sets a target for the overnight rate and adjusts it periodically to achieve its inflation target of 2%. By increasing or decreasing the overnight rate, the Bank of Canada affects the cost and availability of credit for consumers and businesses, and influences their spending and saving decisions. For example, if the Bank of Canada increases the overnight rate, it becomes more expensive to borrow money, which reduces the demand for loans and credit, and slows down economic growth and inflation. Conversely, if the Bank of Canada decreases the overnight rate, it becomes cheaper to borrow money, which increases the demand for loans and credit, and stimulates economic growth and inflation.

Comprehensive and Detailed Explanation From Exact Extract:

Asset allocation is the most critical decision for portfolio success, followed by sector weighting and then security selection. The feedback from the document states:

"The single most important decision, one that accounts for most of the success or failure of a portfolio, is the asset allocation decision, which is the selection of the classes of securities to be held and in what proportion to hold them. The next most important decision is the selection of the specific industries from which stocks will be selected: the portfolio’s sector weighting. The final decision is the security selection: the choice of which individual companies within the industry or sector to invest in."

According to the Canadian Investment Funds Course, an investment objective is the goal or purpose of investing money. An investment objective reflects the investor’s desired return, risk tolerance, time horizon, and liquidity needs. An investment objective is one of the key components of the know-your-client (KYC) information that a mutual fund representative must obtain and update from a client. The KYC information helps the representative to assess the suitability of any investment recommendation or trade instruction for the client2

In this case, Sarah and Kyle are a married couple who want to save towards a purchase of a sailboat. They are able to save $800 each month and have a tax-free savings account (TFSA) in Kyle’s name with $5,000. They want you to recommend an investment for their monthly savings to help them achieve their goal faster. Before you can make any recommendation, you need to gather more information about their investment objective for these savings. You need to know how much return they expect, how much risk they are willing to take, how long they plan to invest, and how easily they want to access their money. These factors will help you to determine the most suitable investment option for them.

Therefore, the question you should ask them next is C. What is your investment objective for these savings?

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.References:

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities, Section 5.2: Bond Pricing and Yield, page 5-61

Current Yield Definition - Investopedia2

A is correct because mortgage mutual funds typically pay monthly distributions of interest to their investors, as they invest in mortgages that generate regular interest income. If interest rates fall, the mutual fund’s net asset value per unit (NAVPU) will increase (B), not decline, as the value of the existing mortgages in the fund will rise. Mortgage mutual funds are suitable for low to moderate risk investors ©, not only for high risk investors, as they provide stable income and capital preservation. Mortgage mutual funds are not risk-free (D), even if the mortgages are National Housing Act (NHA) insured, as they still face credit risk, interest rate risk, and liquidity risk.

C is correct because the management expense ratio (MER) reflects the percentage of each dollar of fund assets that is used to pay for management services and operating expenses of a mutual fund. The MER includes various fees and expenses, such as management fees, administration fees, trailer fees, audit fees, legal fees, and taxes. The MER reduces the return of the fund, as it is deducted from the fund’s income and capital gains before they are distributed to investors. Mutual funds are not required to calculate the MER on a daily basis (A), but rather on an annual basis. Trailer and brokerage fees are included in the MER (B), not charged separately. Mutual fund performance is impacted by the MER (D), as it lowers the net return of the fund. Rates of return are published net of fees, but they do not reflect the impact of the MER on the fund’s performance.

According to the Canadian Investment Funds Course, inflation is the general increase in the prices of goods and services over time. Inflation reduces the purchasing power of money, meaning that a dollar can buy less in the future than it can today. Inflation also affects the returns of fixed income investments, such as bonds, which pay a fixed amount of interest and principal. If inflation is higher than expected, the real rate of return (the nominal rate minus inflation) of a bond will be lower than anticipated.

In this case, Pippa purchased a 15-year bond with a 7% coupon rate at the time of issuance. The bond is due to mature later this year. The general interest rate climate remained stable for the first 13 years of the bond’s term. However, especially over the past 18 months, both inflation and general interest rates have increased more than expected. This means that Pippa will receive less purchasing power from her bond’s interest and principal payments than she expected when she bought the bond. She will not experience a capital loss, as she will receive the full face value of $5,000 at maturity. She will also not benefit from a higher real rate of return, as inflation erodes the value of her fixed payments. She will not receive any capital appreciation, as the bond’s price does not change once it is held to maturity.

Therefore, the correct answer is C. The return of investment capital will have lower purchasing power than prior to investing.

Comprehensive and Detailed Explanation From Exact Extract:

Given Jeff’s low wealth level and strong emotional biases, the advisor should moderate and adapt to these emotional biases to ensure suitable investment recommendations. The feedback from the document states:

"Jeff has a relatively low level of wealth and strong emotional biases; that’s why the advisor should moderate and adapt to Jeff’s emotional biases."

Jabir will be eligible to open new client accounts and sell investments only upon formal confirmation from the regulator. Before he can start his activities as a dealing representative, he must complete the registration process, which includes passing the proficiency course, applying for registration through his dealer, and obtaining approval from the securities regulator in his jurisdiction. References: Guide to Broker-Dealer Registration

 According to the What Is a Call Option and How to Use It With Example - Investopedia, a call option is a contract that gives the buyer the right, but not the obligation, to buy an underlying stock at a specified price (the strike price) within a specified time period (the expiration date). The seller of a call option is obligated to sell the stock if the buyer exercises the option. Pierre buys a call option on a stock, which means he has the right to buy the stock if he exercises the option. He can also choose not to exercise the option or sell it before expiration.

According to the Canadian Investment Funds Course, a registered retirement income fund (RRIF) is a type of registered plan that provides a stream of income in retirement. A RRIF can be opened at any age, but it must be established by the end of the year the annuitant turns 71. A RRIF cannot accept any contributions, but it can receive transfers from other registered plans, such as RRSPs, PRPPs, RPPs, or other RRIFs. A RRIF has no maximum withdrawal limit, meaning that the annuitant can withdraw any amount from the plan at any time. However, a RRIF has a minimum withdrawal requirement, which is calculated based on the annuitant’s age or the age of their spouse or common-law partner. The minimum withdrawal must be paid out in the year following the year the RRIF is opened and every year thereafter. The minimum withdrawal is taxable as income in the year of receipt.

Therefore, the correct answer is C. Gregory’s account will be subjected to no maximum withdrawal limit but to an annual minimum withdrawal.

Comprehensive and Detailed Explanation From Exact Extract:

An annuity provides a steady income stream until the client’s death, suitable for someone with uncertain income sources and no interest in leaving a legacy. The feedback from the document states:

"The client needs a steady source of income from his investment. This rules out a ratio withdrawal plan and a life withdrawal plan. With a fixed-dollar withdrawal plan his capital could be exhausted before he dies. He should choose an annuity that will pay a fixed amount every year until his death. If he lives beyond the guaranteed term, the annuity will cease with his death, but this fact is not important as he does not wish to leave a legacy."

Comprehensive and Detailed Explanation From Exact Extract:

A rational investor seeks to maximize return for a given level of risk or minimize risk for a given level of return. The feedback from the document states:

"Given a choice between two investments with the same amount of risk, a rational investor would always take the security with the higher return. Given two investments with the same expected return, the investor would always choose the security with the lower risk. Investors are risk averse, but not all to the same degree. Each investor has a different risk profile."

Comprehensive and Detailed Explanation From Exact Extract:

The original capital contributed to a Registered Educational Savings Plan (RESP) is not taxed upon withdrawal, while other amounts, such as income or grants, are taxable to the beneficiary. The feedback from the document states:

"The original capital withdrawn from an RESP is not taxed; all other amounts are taxed in the hands of the beneficiary."

Current yield and effective yield are two ways of measuring the total return for money market funds. Current yield reflects the income earned on a money market fund for the most recent 14 day period, annualized. Effective yield incorporates the compounding effect of reinvesting the income earned on a money market fund over a year. Both current yield and effective yield are displayed in the performance reports of money market funds, as they provide different information to investors.

References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 4: Money Market Instruments, Section 5.4.3: Total Return for Money Market Funds1; CIFC prepkit, Chapter 5: Types of Investments, Question 5.4.3 2

 A life income fund (LIF) is a type of registered retirement income fund (RRIF) that can be used to hold locked-in pension funds as well as other assets for an eventual payout as retirement income. A LIF cannot be withdrawn in a lump sum and has minimum and maximum withdrawal amounts each year. A LIF can only be funded by transferring money from a locked-in retirement account (LIRA) or another LIF. Therefore, D is the correct answer. References: Life Income Fund (LIF): Definition and How Withdrawals Work - Investopedia, Retraite Québec - Characteristics of an LIF

The current yield of a bond is the annual interest payment divided by the current market price of the bond. The annual interest payment is the coupon rate multiplied by the par value of the bond. In this case, the annual interest payment is:

6.75%×10,000=675

The current market price of the bond is $9,200. Therefore, the current yield is:

9200675​×100%=7.34%

The current yield is higher than the coupon rate because the bond is selling at a discount, meaning that its market price is lower than its par value. This implies that the bond is offering a higher return than the prevailing market interest rate. However, the current yield does not take into account the capital gain or loss that will occur when the bond matures or is sold. A more accurate measure of the bond’s return is the yield to maturity (YTM), which is the annualized rate of return that accounts for both the interest payments and the price change of the bond over its remaining term.

A Canadian equity index fund is a type of mutual fund that invests in stocks that track a Canadian equity market index, such as the S&P/TSX Composite Index or the S&P/TSX 60 Index. These indices measure the performance of the largest and most liquid companies listed on the Toronto Stock Exchange (TSX). A Canadian equity index fund aims to replicate the returns of the index it follows, before fees and expenses. Therefore, this type of fund would be best for Karen, who has a long time horizon, is comfortable with risk and volatility, and is primarily interested in growth. She also wants a mutual fund that will closely match what she sees on the TSX. References: CIBC Canadian Equity Index ETF, Top Canadian Index Funds of 2023 | The Motley Fool Canada

The current ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations with its current assets. A higher current ratio indicates that the company has more current assets than current liabilities, which means it can meet its short-term obligations more easily. A lower current ratio indicates that the company has less current assets than current liabilities, which means it may face liquidity problems or default risk. Therefore, the information given in the question indicates that Truesteel is better able to meet its short-term financial obligations than Strongco. The current ratio does not necessarily reflect the profitability, market outlook, or debt financing of the companies. References: Current Ratio Explained With Formula and Examples, Current Ratio Formula, Current ratio

The correct answer is A. Indicates how much an investment’s performance fluctuates around its average historical return.

Standard deviation is a measure of how spread out the data points are from the mean value. It is calculated as the square root of the variance, which is the average of the squared differences from the mean. Standard deviation can be used to assess the volatility or risk of an investment by showing how much the returns deviate from the expected or average return. A higher standard deviation means that the investment has a wider range of possible outcomes, which implies more uncertainty and risk. A lower standard deviation means that the investment has a narrower range of possible outcomes, which implies more stability and consistency.

B. A standard deviation greater than one indicates a higher level of volatility than the market. This statement is incorrect because the standard deviation of an investment is not directly comparable to the standard deviation of the market, unless they have the same mean return. The standard deviation of an investment only measures the absolute variation of the returns, not the relative variation to the market. A better measure of the relative volatility of an investment to the market is beta, which is the ratio of the covariance of the investment and the market to the variance of the market.

C. Measures the systematic risk of an investment relative to a benchmark index. This statement is incorrect because the standard deviation of an investment does not distinguish between the systematic risk and the unsystematic risk. The systematic risk is the risk that affects the entire market or a large segment of the market, such as inflation, interest rates, or political events. The unsystematic risk is the risk that affects a specific investment or a small group of investments, such as management decisions, product quality, or lawsuits. The standard deviation of an investment captures both types of risk, whereas the beta of an investment only captures the systematic risk.

D. Standard deviation is also referred to as beta. This statement is incorrect because standard deviation and beta are different measures of risk. Standard deviation measures the absolute variation of the returns of an investment, whereas beta measures the relative variation of the returns of an investment to the market. Standard deviation is a measure of total risk, whereas beta is a measure of systematic risk.

A LIF is a type of registered retirement income fund that is used to hold and pay out locked-in pension funds. A LIF has both a minimum and a maximum withdrawal limit for each calendar year, which are determined by the federal or provincial pension legislation, the age of the annuitant, and the value of the fund. The minimum withdrawal limit is similar to that of a RRIF, but the maximum withdrawal limit is intended to ensure that the LIF provides income for the lifetime of the annuitant123

References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.4: Life Income Fund (LIF)4 and web search results from search_web(query="maximum withdrawal limit for LIF RRSP RRIF DPSP")123

4: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf

A Canadian equity index fund would be the most tax-efficient option for Xerxes. A Canadian equity index fund is a type of mutual fund that invests in a portfolio of Canadian stocks that track a specific market index, such as the S&P/TSX Composite Index. A Canadian equity index fund would be tax-efficient for Xerxes because it would generate mostly capital gains and eligible dividends, which are taxed at lower rates than interest income or foreign dividends. A Canadian equity index fund would also have low turnover and minimal distributions, which would defer taxes until Xerxes sells his units. The other options are less tax-efficient than a Canadian equity index fund. A target date fund is a type of mutual fund that adjusts its asset allocation over time based on a predetermined retirement date. A target date fund would be less tax-efficient than a Canadian equity index fund because it would have higher turnover and more distributions, which would trigger taxes every year. A target date fund would also invest in a mix of asset classes, such as bonds and foreign equities, which would generate interest income and foreign dividends that are taxed at higher rates than capital gains and eligible dividends. A bond fund is a type of mutual fund that invests in a portfolio of fixed-income securities, such as government bonds, corporate bonds, and mortgage-backed securities. A bond fund would be less tax-efficient than a Canadian equity index fund because it would generate mostly interest income, which is taxed at the highest rate among different types of investment income. A bond fund would also have regular distributions, which would trigger taxes every year. An asset allocation fund is a type of mutual fund that invests in a portfolio of other mutual funds that cover different asset classes, such as stocks, bonds, and cash equivalents. An asset allocation fund would be less tax-efficient than a Canadian equity index fund because it would have higher fees and more distributions, which would reduce the net returns and trigger taxes every year. An asset allocation fund would also invest in a mix of asset classes, some of which would generate interest income and foreign dividends that are taxed at higher rates than capital gains and eligible dividends. References: [Canadian Equity Index Funds], [Tax-Efficient Investing], [Target Date Funds], [Bond Funds], [Asset Allocation Funds]

Lenny would qualify for a partial OAS pension, because he meets the following criteria:

•He is 65 years old or older.

•He is a Canadian citizen or a legal resident at the time of his OAS pension application.

•He has resided in Canada for at least 10 years since the age of 18.

The amount of his partial OAS pension would be proportional to the number of years he has lived in Canada after the age of 18, divided by 40. For example, if he has lived in Canada for 15 years, he would receive 15/40 or 37.5% of the full OAS pension1

References = web search results from search_web(query="Old Age Security pension eligibility")

Know Your Client (KYC) requirements are ongoing obligations that advisors must fulfill to ensure that they provide suitable recommendations and services to their clients. KYC requirements include collecting and documenting information about the client’s personal and financial situation, investment objectives, risk tolerance, and investment knowledge. KYC requirements also include monitoring and updating the client’s information and investment performance on a regular basis. According to the Mutual Fund Dealers Association of Canada (MFDA), advisors must review the KYC information at least once every 36 months, or more frequently if there are any material changes in the client’s circumstances or needs1. Advisors must also monitor the investment performance of the client’s portfolio and compare it with the client’s expectations and goals. If the investment performance is not satisfactory or consistent with the client’srisk tolerance, advisors must take appropriate actions, such as rebalancing the portfolio, switching funds, or revising the investment strategy2. Therefore, Harold’s responsibility moving forward is to monitor the investment performance of Felicia’s lump sum investment and determine if it is on track to satisfy her financial needs for the next 5 years. He must also review her KYC information at least once every 36 months, or sooner if there are any changes in her situation or objectives. References:

MFDA Bulletin #0756-P - Know-Your-Client and Suitability1

MFDA Bulletin #0760-P - Monitoring of Investment Performance2

 A portfolio with a beta less than 1 would be suitable for Gregory, who is a conservative investor and wants to reduce his exposure to market risk. A beta less than 1 means that the portfolio is less volatile than the market index and tends to dampen its movements. This implies that the portfolio would fall less than the market in a downturn, but also rise less than the market in an upturn. A portfolio with a beta equal to 1 would move in the same direction and magnitude as the market, while a portfolio with a beta greater than 1 would be more volatile than the market and amplify its movements.

 Participating preferred shares are a type of preferred shares that give the holder a right to share in the issuer’s net profits over and above the specified dividend rate. This means that participating preferred shareholders may receive additional dividends if the issuer performs well. Iliana owns participating preferred shares in the First Canadian Bank, which means she has a right to share in the bank’s net profits over and above the specified dividend rate. References: Investment Funds in Canada (IFC) | Canadian Securities Institute

The marginal tax rate is the percentage of tax that an individual pays on the last dollar of income earned in a given year. It is also the tax rate that applies to any additional income earned in that year. The marginal tax rate varies depending on the individual’s income level and tax bracket. For example, if an individual’s taxable income for the year is $50,000 and the tax rate for that income bracket is 20%, then the marginal tax rate is 20%. This means that the individual pays 20% tax on the last dollar of income earned, as well as on any additional income earned above $50,000.

References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 6: Taxation, Section 5.6.1: Income Tax 1; CIFC prepkit, Chapter 5: Types of Investments, Question 5.6.1 2

 A commodity pool is a type of mutual fund that can invest in specified derivatives and forward contracts for commodities, such as grains, meats, metals, energy products, and coffee. A commodity pool allows investors to gain exposure to the commodity markets without having to buy or sell the physical commodities themselves. A commodity pool may also use leverage and hedging strategies to enhance returns and reduce risks. Therefore, B is the correct answer. References: Commodity Pool: Definition and How It Works - Investopedia, Canadian Investment Funds Course (CIFC) | IFSE Institute

Comprehensive and Detailed Explanation From Exact Extract:

Suitability ensures that recommendations align with the client’s unique situation and investment objectives, based on their personal and financial circumstances. The feedback from the document states:

"Suitability means ensuring that all recommendations are appropriate for the client’s unique situation and investment objectives. It also means that recommendations are based on a personal and financial knowledge of the client and knowledge of the investment products being recommended."

Discretionary trading is a type of trading activity where the advisor makes investment decisions on behalf of the client without obtaining the client’s prior consent for each transaction. Discretionary trading is only allowed if the client has signed a discretionary management agreement with the advisor and the advisor is registered as a portfolio manager. A limited authorization form (LAF) does not grant the advisor the authority to engage in discretionary trading. A LAF only allows the advisor to execute trades that are initiated by the client, such as pre-authorized contributions or withdrawals. Therefore, Khuyen has performed discretionary trading by switching Bao’s funds without consulting him, which is a violation of her registrant responsibilities and ethical standards. References:

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 2: The Sales Process, Section 2.4: Ethics and Compliance, page 2-161

Discretionary Trading Definition - Investopedia2

Comprehensive and Detailed Explanation From Exact Extract:

Specialty funds, due to their focused and often speculative investments, carry the highest expected risk and return among mutual funds. The feedback from the document states:

"The highest risk, highest expected return mutual fund is a specialty fund."

Guaranteed Income Supplement (GIS) and Allowance for the Survivor are both income-tested benefits that are part of the Old Age Security (OAS) program. They are designed to provide financial assistance to low-income seniors who meet certain eligibility criteria. GIS is a monthly payment that supplements the OAS pension for seniors whose income is below a certain threshold. Allowance for the Survivor is a monthly payment for low-income seniors aged 60 to 64 whose spouse or common-law partner has died and who have not remarried or entered into another common-law relationship. The benefit amounts for both GIS and Allowance for the Survivor depend on the income level of the recipient and are adjusted quarterly based on the Consumer Price Index. The higher the income, the lower the benefit amount, until it reaches zero at a certain income limit. Therefore, eligibility for both GIS and Allowance for the Survivor depends on income level.

Comprehensive and Detailed Explanation From Exact Extract:

Fund XYZ’s more consistent annual returns (less variation) reduce the likelihood of selling at a loss, especially in volatile markets. The feedback from the document states:

"After finding comparable funds with good long-term performance, look for funds with the best performance from year to year. In comparing two funds, the one with less variation in simple rates of return from year to year is a more consistent performer. Although equity funds are intended for the long-term, if liquidity is needed, the fund with a more consistent performance is less likely to be sold at a loss."

Comprehensive and Detailed Explanation From Exact Extract:

An individual can legally sell mutual funds only after receiving notification of registration from the securities administrator, not merely after completing exams or filing applications. The feedback from the document states:

"Despite receiving notification of successful completion of the required proficiency examination, filing a registration application and paying the required fee, an individual is not officially registered to sell mutual funds until notice has been received from the applicable securities administrator."

The “Client’s Interest First” standard requires that Dealing Representatives act in the best interest of their clients and place their clients’ interests before their own or their employer’s interests. This means that they must provide clear, accurate, and complete information to their clients about the mutual funds they recommend, including the costs and fees associated with them and how they affect the investment performance. Presenting a fund’s historical performance to anticipate its future return is misleading and does not serve the client’s interest. Using a risk-based approach to select a mutual fund is part of the suitability assessment, but it does not necessarily put the client’s interest first. Accurately documenting the KYC information is important for compliance purposes, but it does not ensure that the recommendation is in the client’s best interest.

A Canadian equity index fund is a type of mutual fund that invests in a basket of Canadian stocks that track the performance of a market index, such as the S&P/TSX Composite Index. A Canadian equity index fund can be a tax-efficient option for a non-registered account, because it can generate capital gains and eligible dividends, which are taxed at lower rates than interest income or foreign dividends. A bond fund, on the other hand, would produce mostly interest income, which is fully taxed at the marginal rate. An asset allocation fund or a target date fund would have a mix of different asset classes, such as bonds, stocks, and cash, and may not be as tax-efficient as a pure equity fund123

References = web search results from search_web(query="tax-efficient investment options in Canada")123 and Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.2: Mutual Funds4

4: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf

A nominee name account is a type of account where the dealer, not the client, is the registered owner of the mutual funds held in the account. The dealer holds the funds in trust for the client and acts as the nominee for the client. The client is the beneficial owner of the funds and retains all the rights and benefits associated with the ownership. The dealer is responsible for maintaining the records of the client’s transactions and holdings, and for providing the client with confirmations, statements, and tax slips.

References = Canadian Investment Funds Course, Unit 8: Mutual Fund Administration, Lesson 1: Account Registration, Section 8.1.2: Nominee Name Accounts1; CIFC prepkit, Chapter 8: Mutual Fund Administration, Question 8.1.2 2

Comprehensive and Detailed Explanation From Exact Extract:

For a spousal RRSP, KYC information is required only for the account holder (the wife) and those with trading authority, not the contributing spouse (the husband), who has no financial interest in the account. The feedback from the document states:

"The investment experience and knowledge of all individuals who have trading authority over the account should be obtained, as well as KYC information for anyone with a financial interest in the account. For spousal RRSPs, the contributing spouse does not have a financial interest in the account, so KYC information is required for the non-contributing spouse only."

Comprehensive and Detailed Explanation From Exact Extract:

Misrepresenting risks violates the MFDA Rule No. 2 requirement to deal fairly, honestly, and in good faith with clients. The feedback from the document states:

"MFDA Rule No 2 ‘Business Conduct’ sets out the standards applicable to all MFDA members and their respective dealing representatives. In this case, the representative has not dealt honestly with the client by misrepresenting information."

Comprehensive and Detailed Explanation From Exact Extract:

Loss aversion bias causes investors to hold onto unprofitable investments due to a stronger desire to avoid losses than to seek gains. The feedback from the document states:

"Loss aversion bias states that people generally feel a stronger impulse to avoid losses than to acquire gains. Loss aversion can prevent people from unloading unprofitable investments, even when they see little to no prospect of a turnaround."

Avoidance is a method of addressing conflict of interest by preventing it from occurring in the first place. Ethical Financial’s policies and procedures manual (PPM) require that Catarina decline the gift from Darlene, which is a potential source of conflict of interest. By doing so, Catarina avoids any appearance of favouritism or bias towards Darlene’s mutual fund family. (Canadian Investment Funds Course, Chapter 2, Section 2.3)

Trailer fees are ongoing fees that are paid by mutual fund managers to mutual fund dealers for providing ongoing services to their clients who hold units of their funds. Trailer fees are calculated as a percentage of the value of assets under management (AUM) of the clients who hold units of the fund. Trailer fees are paid out of the management fee that is charged by the mutual fund manager to cover the costs of operating and administering the fund. Therefore, option C is correct regarding mutual fund fees. The other options are incorrect. Option A is false because redemptions are not made from units held by investors to pay trailer fees; rather, trailer fees are paid out of the management fee that is deducted from the net asset value (NAV) of the fund. Option B is false because trailer fees are not only paid to mutual fund dealers when a purchase is made; rather, trailer fees are paid on an ongoing basis as long as the clients hold units of the fund. Option D is false because trading commissions are not paid from the management fee; rather, trading commissions are paid from the trading expense ratio (TER) that reflects the costs of buying and selling securities within the fund. References: [Mutual Fund Fees Explained | Wealthsimple], [Mutual Fund Fees | GetSmarterAboutMoney.ca], [Understanding Mutual Fund Fees | Investopedia]

Thomas must contribute to CPP based on his pensionable earnings, which are his income from employment or self-employment that are subject to CPP. However, he can deduct a basic exemption amount from his pensionable earnings, which is $3,500 for the year. Therefore, his contributory earnings are:

16,000−3,500=12,500

The CPP contribution rate is 5.95% for employees and self-employed workers. Therefore, Thomas must contribute:

12,500×5.95%=743.75

 Retractable preferred shares are those that give the holder the option to sell them back to the issuer at a predetermined price and date. This is the case for Evan, who can sell his shares back to Ingram at par value any time from now until September 1st two years from now.

A mutual fund trust is a type of unit trust that meets certain conditions under the Canadian Income Tax Act and is eligible for favourable tax treatment. A unit trust is a collective investment vehicle that holds assets and distributes profits to individual unit owners, also called unitholders, instead of reinvesting them in the fund. A mutual fund trust is not a corporation and does not have a board of directors or shareholders. It is also not a closed-end fund, which has a fixed number of shares that trade on an exchange. A mutual fund trust is an open-end fund, which can issue and redeem units at any time based on the net asset value of the fund.

The answer that you should tell Harry is that he should hold profitable investments as long as possible. A capital gain is the difference between the selling price and the purchase price of an asset when the selling price is higher than the purchase price. A capital gain is subject to tax only when it is realized, meaning that the asset is sold or disposed of. Therefore, one way to defer paying tax on capital gains is to hold profitable investments as long as possible and delay selling them until a future year. This allows the investor to postpone paying tax on the capital gain and benefit from the compounding effect of the investment returns. Therefore, option A is correct regarding how to defer paying taxes on capital gains. The other options are not correct or effective ways to defer paying taxes on capital gains. Option B is false because investing in mutual funds just before the dividend paying date does not defer paying taxes on capital gains; rather, it increases the taxable income of the investor by adding dividend income, which may be subject to a gross-up and a tax credit depending on the type of dividend. Option C is false because buying and selling investments actively does not defer paying taxes on capital gains; rather, it triggers more taxable events and increases the transaction costs of investing. Option D is false because holding unprofitable investments as long as possible does not defer paying taxes on capital gains; rather, it reduces the potential return of the portfolio and prevents the investor from using capital losses to offset capital gains from other sources. References: [Capital Gains Tax in Canada | Wealthsimple], [Capital Gains Tax: What It Is and How It Works in Canada], [Capital Gains Tax | GetSmarterAboutMoney.ca]

A material conflict of interest is a situation where a dealing representative or a mutual fund dealer has an interest that may affect their ability to act in the best interest of their clients, or that may influence their judgment or behaviour. A material conflict of interest may arise from various sources, such as compensation arrangements, personal or business relationships, or ownership interests. In this case, Manuel has described some information that may indicate a material conflict of interest, such as:

•His dealer represents many different mutual fund families, including their own: CF Group of Funds. This may create a bias or incentive for Manuel to recommend the CF equity fund over other funds that may be more suitable for his client, Stefania.

•The accounts are set-up in nominee name, which means that the dealer is the registered owner of the mutual funds and holds them in trust for the client. This may affect the client’s rights and benefits as the beneficial owner of the funds, such as voting rights, transferability, or access to information.

•The mutual funds are not transferable, which means that the client cannot move them to another dealer or fund family without selling them and incurring fees or taxes. This may limit the client’s flexibility and choice, and create a lock-in effect for the dealer.

•The fund does pay trailer fees, which are ongoing commissions paid by the fund manager to the dealer for the services and advice provided to the client. This may create a conflict of interest for Manuel, as he may receive a portion of the trailer fees as part of his compensation. This may influence his recommendation of the fund, as he may benefit from the client’s continued investment in the fund.

Manuel should disclose these potential material conflicts of interest to his client, Stefania, and explain how they may affect his recommendation of the CF equity fund. He should also ensure that his recommendation is based on the client’s needs, objectives, risk tolerance, and time horizon, and that he provides the client with the necessary information and documents, such as the fund facts, to make an informed decision.

References = Canadian Investment Funds Course, Unit 7: The Regulatory Environment, Lesson 1: The Regulatory Framework, Section 7.1.3: Material Conflicts of Interest1; CIFC prepkit, Chapter 7: The Regulatory Environment, Question 7.1.3 2

Dakota can send promotional emails to clients who have opted in to receive commercial electronic messages (CEMs). A CEM is any electronic message that encourages participation in a commercial activity, such as an email, a text message, or a social media message. Under Canada’s anti-spam legislation (CASL), Dakota must obtain consent from the recipients before sending CEMs, either explicitly (e.g., by asking them to sign up for a newsletter) or implicitly (e.g., by having an existing business relationship with them). Dakota must also identify himself and his dealer, provide contact information, and include an unsubscribe mechanism in every CEM. The other statements are incorrect. Dakota cannot make telemarketing calls to clients who are listed on the National Do Not Call List (DNCL). The DNCL is a list of telephone numbers of consumers who do not want to receive unsolicited telemarketing calls. Under the Telecommunications Act, Dakota must register with the National DNCL operator, subscribe to the National DNCL, and avoid calling any number on the list, unless he has express consent from the consumer or an exemption applies. Dakota cannot send promotional emails to clients who have opted into Harvest Wealth’s Do Not Call List. A Do Not Call List is a list of telephone numbers of consumers who do not want to receive telemarketing calls from a specific organization. Under the Telecommunications Act, Dakota must maintain an internal Do Not Call List for his dealer and respect the requests of consumers who ask not to be called by his dealer. However, this does not mean that he can send promotional emails to those consumers, as that would violate CASL. Dakota cannot make telemarketing calls to clients who have opted in to receive commercial electronic messages (CEMs). Opting in to receive CEMs does not imply consent to receive telemarketing calls, as they are different forms of communication governed by different laws . Dakota must obtain separate consent from the clients before making telemarketing calls to them, either explicitly or implicitly. References: [Canada’s anti-spam legislation], [National Do Not Call List]

One of the main reasons why different entities have securities created and sold is to raise funds for various purposes. Governments, for example, can issue securities such as bonds or treasury bills to finance public spending, such as infrastructure, education, health care, or social programs. By selling securities to investors, governments can borrow money at a lower cost than other sources of funding, and can also stimulate the economy and create jobs12

References = Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.1: Money Market Instruments3 and web search results from search_web(query="reasons for issuing securities")12

3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf

Comprehensive and Detailed Explanation From Exact Extract:

Foreign dividend income is taxed at the investor’s marginal tax rate without the benefit of a dividend tax credit, unlike Canadian dividend income, which qualifies for a tax credit. The feedback from the document states:

"Foreign dividend income is not eligible for any dividend tax credit, and is taxed at an investor’s marginal tax rate."

Comprehensive and Detailed Explanation From Exact Extract:

Financial circumstances are a critical component of the Know Your Client (KYC) process, as they determine the client’s ability to commit savings to investments and the level of risk they can assume. Mortgage documents provide insights into the client’s debt and obligations, which are essential for assessing financial circumstances. The feedback from the document states:

"Financial circumstances are an important consideration in judging the suitability of investments, because they determine the amount of savings clients can commit to investing and the level of risk they can assume. Marc’s client’s mortgage document will give Marc valuable insights into the level of debt and mortgage obligations his client has, helping in evaluating the client’s financial circumstances."

 A lifecycle fund is a type of asset-allocation fund that automatically adjusts its portfolio composition according to the investor’s age and risk tolerance. As the investor gets closer to their retirement date or target date, the fund shifts from more risky assets, such as stocks, to less risky assets, such as bonds and cash. This is done to reduce the volatility and preserve the capital of the fund as the investor approaches their withdrawal phase. Therefore, statement A is true about lifecycle funds. Statement B is false because different lifecycle funds may have different initial allocations depending on their target dates and risk profiles. Statement C is false because the asset allocation of a lifecycle fund changes over time according to a predetermined glide path that gradually reduces risk. Statement D is false because investor income is not the only basis for changing the asset allocation of a lifecycle fund; other factors, such as age, risk tolerance, investment objectives, and time horizon, are also considered. References: Life-Cycle Fund: How They Work, Examples, Lifecycle Funds | The Thrift Savings Plan (TSP), What Is a Lifecycle Fund? | The Motley Fool

The client mobility exemption is a provision in the National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations that allows a registered individual to continue dealing with a client who moves to another jurisdiction without having to register in that jurisdiction, subject to certain conditions. One of the conditions is that the individual must not have more than five clients in each of the other jurisdictions where they are not registered. Therefore, the client mobility exemption would apply to Lori’s situation, as she has five or fewer clients in Alberta, where she is not registered. The client mobility exemption would not apply to the other situations, as they do not meet the conditions for the exemption. For example, Olaf’s mutual fund dealer is not registered in New Brunswick, which is a requirement for the exemption. Sigrid’s brother-in-law is not an existing client who moved to another jurisdiction, but a new client who resides in a different jurisdiction. Karl has more than five clients in British Columbia, where he is not registered, which exceeds the limit for the exemption.

The question that you should ask Sarah and Kyle next is what is their investment objective for these savings. An investment objective is a statement that defines the purpose and goals of an investment. It helps investors and advisors select suitable investment products and strategies that match the investor’s needs and expectations. An investment objective typically considers factors such as risk tolerance, return expectations, time horizon, liquidity needs, tax situation, and personal preferences. Therefore, option B is the correct question to ask Sarah and Kyle next. The other options are not relevant or sufficient to determine their investment objective. Option A is related to their risk tolerance, but it is not the only factor that affects their investment objective. Option C is related to their net worth, but it does not indicate their purpose and goals for their savings. Option D is related to their income, but it does not reflect their return expectations or liquidity needs for their savings. References: [Investment Objective Definition], [Investment Objectives: What They Are and How to Use Them], [Investment Objectives | GetSmarterAboutMoney.ca]

Comprehensive and Detailed Explanation From Exact Extract:

Implicit costs of principal protected notes include performance participation caps, which limit the potential returns and are not always explicitly disclosed. The feedback from the document states:

"Implicit costs include fees borne by investors that may or may not be immediately visible and that may or may not be openly disclosed in the documents. Of the items listed, three are explicit costs, and only Performance Participation Caps are an implicit cost."

Comprehensive and Detailed Explanation From Exact Extract:

The secondary market involves trading previously issued securities between investors, enabling liquidity for those who initially purchased the securities. The feedback from the document states:

"The secondary market involves the resale of previously issued securities between investors. It enables investors who originally bought the investment products to sell them and obtain cash."

Based on Orel’s stated need, recommending an RRSP contribution is unsuitable because RRSP withdrawals are taxed as income and may affect Orel’s eligibility for government benefits. A TFSA is more suitable for Orel’s goal of developing emergency savings because TFSA withdrawals are tax-free and do not affect income-tested benefits.

Comprehensive and Detailed Explanation From Exact Extract:

A joint account allows the husband to retain trading authority and includes the right of survivorship, ensuring the assets revert to him if his wife dies. The feedback from the document states:

"The husband would have no financial interest in a client name account, registered in his wife’s name only. A nominee account would transfer trading authority to a dealer or third-party administrator. In a tenants in common account, each spouse would have trading authority over his/her portion of the account. Therefore, the husband’s best option would be to open a joint account and retain full trading authority. A joint account would also offer the right of survivorship, which is not a feature of a tenants in common account."

 Dollar-cost averaging is a strategy that involves investing equal amounts of money at regular intervals, regardless of the price of the security. By using dollar-cost averaging, investors may lower their average cost per share and reduce the impact of volatility on their portfolios. However, this strategy does not guarantee a better purchase price than making a lump-sum purchase. In this case, David got his 500 units at a higher price than the lump sum price he would have paid. His average cost per unit was $14.65, while the lump sum price was $14.10. Therefore, D is the correct answer. References: What Is Dollar-Cost Averaging?, What Is Dollar Cost Averaging?, Dollar-Cost Averaging: Definition and Examples

The bond fund should be contributed to Natasha’s RRSP from a tax efficiency perspective, because interest income from bonds is fully taxable at her marginal tax rate outside of an RRSP. By contributing the bond fund to her RRSP, Natasha can defer paying tax on the interest income until she withdraws it from her RRSP in retirement, when she may be in a lower tax bracket. The equity fund should be kept outside of her RRSP, because dividends and capital gains from equities receive preferential tax treatment compared to interest income. Dividends qualify for the dividend tax credit and capital gains are only 50% taxable. Furthermore, equities tend to have higher returns than bonds over the long term, which means that Natasha would have more after-tax income by keeping them outside of her RRSP. References: Registered Retirement Savings Plan (RRSP), Does it pay to invest in an RRSP? Here’s the math

Comprehensive and Detailed Explanation From Exact Extract:

Survivorship bias occurs when poor-performing funds are closed, excluding them from performance rankings and inflating the perceived performance of surviving funds. The feedback from the document states:

"All comparison universes also exhibit some degree of survivorship bias no matter how carefully the universes are constructed. Survivorship bias develops as defunct portfolios drop out and are excluded from rankings in subsequent quarters. A performance universe is essentially a universe of survivors."

The amount that the client will be eligible to receive from the IPC is $950,000. The IPC is a not-for-profit corporation that provides coverage to eligible clients of insolvent members of the Mutual Fund Dealers Association of Canada (MFDA). The IPC covers up to $1 million per account type per client for losses of securities, cash, and other property held by the insolvent member. The account types include RRSPs, RRIFs, TFSAs, RESPs, and non-registered accounts. Therefore, the client will be eligible for coverage of $950,000 for his RRSP account, which is the value of his securities and cash held by Tradewell Mutual Funds in his RRSP account. The client will not be eligible for any coverage for his non-registered account, as it is held in nominee name, meaning that the securities and cash are registered in the name of Tradewell Mutual Funds on behalf of the client. Nominee name accounts are not covered by the IPC, as they are not considered to be at risk in the event of insolvency. Therefore, option B is correct regarding the amount that the client will be eligible to receive from the IPC. The other options are not correct regarding the amount that the client will be eligible to receive from the IPC. Option A is false because the client will be eligible for some coverage, as his RRSP account is covered by the IPC. Option C is false because the client will not be eligible for coverage of $1.5 million, as his non-registered account is not covered by the IPC. Option D is false because the client will not be eligible for coverage of $550,000, as his non-registered account is not covered by the IPC. References: [IPC Coverage | IFIC], [IPC - Home], [IPC - Coverage]

Comprehensive and Detailed Explanation From Exact Extract:

Asset allocation should be reviewed when the investment environment changes to ensure it remains suitable for the client’s objectives. The feedback from the document states:

"In general terms, an equity weighting of less than 25% is considered conservative and more than 75% is considered aggressive. Only if the client is very aggressive should the weighting of his equity component reach 90%."

Dividends from a large public Canadian corporation are eligible for the dividend tax credit, which reduces the amount of tax payable on this type of income. The dividend tax credit is a non-refundable tax credit that recognizes that dividends are paid out of income that has already been taxed at the corporate level, and therefore should not be taxed again at the personal level. The dividend tax credit applies to both federal and provincial taxes, and the rates vary depending on the province or territory of residence12

References = Canadian Investment Funds Course (CIFC) - Module 4: Taxation - Section 4.1: Taxation of Investment Income3 and web search results from search_web(query="tax treatment of different types of investment income in Canada")12

3: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-4.pdf

The information that is typically included in the Letter of Engagement is the client’s responsibilities. A Letter of Engagement is a document that formalizes the relationship between a registered firm and its client by specifying the duties, responsibilities, and level of service that both parties agree to. It also outlines the fees and charges that apply to the client’s account, the scope and frequency of reporting and communication, and the process for resolving disputes or terminating the relationship. The client’s responsibilities may include providing accurate and complete information, reviewing statements and reports, informing of any changes in circumstances or objectives, and complying with applicable laws and regulations. Therefore, option A is correct regarding what information is typically included in the Letter of Engagement. The other options are not correct or relevant to the Letter of Engagement. Option B is false because the process for complaints is not typically included in the Letter of Engagement; rather, it is part of the Relationship Disclosure Information (RDI) that is provided to clients at account opening and updated as necessary. Option C is false because the investment objective is not typically included in the Letter of Engagement; rather, it is part of the Know Your Client (KYC) information that is collected from clients at account opening and updated as necessary. Option D is false because the payee for deposits is not typically included in the Letter of Engagement; rather, it is part of the account documentation that specifies how clients can deposit or withdraw funds from their accounts. References: [Letter of Engagement | IFIC], [Relationship Disclosure Information | IFIC], [Know Your Client (KYC) | IFIC]

Lydia can make an in-kind contribution of her mutual fund units to her RRSP, as long as the fund is eligible for RRSPs. The value of her contribution will be based on the fair market value of the units at the time of the transfer, which is $10,600. However, she will also trigger a deemed disposition of the units and realize a capital gain of $6,100 ($10,600 - $4,500), which is taxable in the year of the transfer.

References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.1: Registered Retirement Savings Plan (RRSP)1 and web search results from search_web(query="RRSP contribution in kind")

Gifts and benefits may be provided to a client if your employer is aware of the benefits and has given approval. This is one of the rules concerning conflicts of interest set by the MFDA. A conflict of interest is a situation where a person’s personal interests conflict with their professional obligations or duties. Gifts and benefits may create a conflict of interest if they influence or appear to influence the person’s judgment or actions. Therefore, the MFDA requires that any gifts and benefits given or received by a mutual fund dealer or its representatives must be disclosed to and approved by the dealer, and must not compromise or appear to compromise the dealer’s or representative’s integrity or objectivity. References: MFDA Bulletin #0756-P - Conflicts of Interest

Sales communication is any written or electronic communication that is intended to promote the sale of a mutual fund, or to influence a person to buy or sell a mutual fund. Sales communication includes any advertisement, brochure, report, newsletter, or other material that is distributed to existing or potential clients. A marketing brochure is an example of sales communication, as it is designed to inform and persuade clients about the features and benefits of a mutual fund. A prospectus, a fund facts, and an annual information form are not considered sales communication, as they are legal documents that provide essential information about a mutual fund, such as its investment objectives, strategies, risks, fees, and performance. These documents are required by securities regulators and must be delivered to investors before or after they purchase a mutual fund.

References = Canadian Investment Funds Course, Unit 7: The Regulatory Environment, Lesson 2: Sales Communication, Section 7.2.1: Definition and Scope of Sales Communication1; CIFC prepkit, Chapter 7: The Regulatory Environment, Question 7.2.1 2

 An exchange-traded fund (ETF) is a type of pooled investment security that operates much like a mutual fund. Typically, ETFs will track a particular index, sector, commodity, or other assets, but unlike mutual funds, ETFs can be purchased or sold on a stock exchange the same way that a regular stock can. ETFs have lower management expense ratios (MERs) compared to mutual funds because they are passively managed and do not incur high costs for research, analysis, and portfolio rebalancing. Therefore, this statement is true about ETFs. References: Exchange-Traded Fund (ETF) Explanation With Pros and Cons - Investopedia, The Best ETFs - Exchange Traded Funds Rankings | US News Investing

Technical analysis is the method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Xian-Li is using technical analysis to evaluate the companies in her portfolio.

Jasmine realizes interest income of $400 because she bought a strip bond, which is a bond that has its principal and coupon payments separated and sold individually. Jasmine bought the principal-stripped bond, also known as a zero-coupon bond, which pays no interest until maturity. The difference between the purchase price and the face value at maturity is considered interest income and is taxable in the year it is received. References: Strip Bonds: Definition, How They Work, Returns, and Example

Comprehensive and Detailed Explanation From Exact Extract:

Promising that a mutual fund’s NAVPU will increase by a certain amount is an illegal and unacceptable selling practice, as it implies guaranteed future performance. The feedback from the document states:

"There are a number of sales practices that are clearly illegal or otherwise unacceptable to securities regulators. A dealing representative may not make promises that the NAVPS or NAVPU of a fund will achieve a certain level or increase by any amount."

Comprehensive and Detailed Explanation From Exact Extract:

A mutual fund dealing representative must complete a training program within 90 days of starting to act in that role and be closely supervised for six months. The feedback from the document states:

"All mutual fund dealing representatives are required to complete a training program within 90 days from the day that they first start acting as a dealing representative and must be closely supervised for six months."

Comprehensive and Detailed Explanation From Exact Extract:

Treasury bills (T-bills) have short maturities and are sold at a discount, with the return being the difference between the purchase price and par value at maturity, without coupon interest. Marketable bonds, however, pay coupon interest. The feedback from the document states:

"Because T-bills have such short maturities, they do not pay any coupon interest; instead, they are sold to investors at a discount from par value. When the T-bill matures, you receive par value. The difference between the price paid and the par value represents your return."

Comprehensive and Detailed Explanation From Exact Extract:

Endowment bias leads investors to overvalue assets they own compared to similar assets they do not own. The feedback from the document states:

"People who are subject to endowment bias place more value on an asset they hold property rights to than on an asset they do not hold property rights to."

Comprehensive and Detailed Explanation From Exact Extract:

A mutual fund trust structure allows the fund to avoid taxation by distributing its income to unitholders. The feedback from the document states:

"The most common structure for mutual funds in Canada is the open-end trust. The trust structure allows a fund itself to avoid taxation. Any interest, dividends and capital gains income, net of the fund’s fees, expenses and capital losses, if passed to its unitholders each calendar year, will allow the trust to avoid being taxed on its income."

Comprehensive and Detailed Explanation From Exact Extract:

Gary’s decision to prioritize the client’s interests over meeting a sales target reflects his ethical responsibility. The feedback from the document states:

"Gary is fulfilling his ethical responsibility by placing his client’s needs ahead of his own need to reach a sales target. As the new fund is similar to the current investment, it would be an appropriate one for the client, so he would not be compromising his legal responsibility to ensure that all client orders are suitable."

Comprehensive and Detailed Explanation From Exact Extract:

Global equity funds can act as a hedge against a decline in the Canadian dollar’s value, increasing the investment’s value in Canadian dollars if the foreign currency strengthens. The feedback from the document states:

"Global mutual funds are attractive because they can provide a hedge against a decline in the relative value of the Canadian dollar. For example: if investors buy a Japanese fund, and then the value of the Canadian dollar falls relative to the yen, the Canadian dollar value of that investment will increase even if the value of the fund’s units in yen has remained unchanged."

Comprehensive and Detailed Explanation From Exact Extract:

The cash flow from operations to total debt ratio assesses a company’s ability to meet its debt obligations using cash generated from operations. The feedback from the document states:

"The cash flow from operations/total debt ratio gauges a company’s ability to repay the funds it has borrowed. A company’s annual cash flow should therefore be adequate to meet these commitments."

Comprehensive and Detailed Explanation From Exact Extract:

Risk refers to the potential volatility in returns or the range of possible future outcomes on the price of a security. This concept captures the uncertainty associated with a security’s future value, a fundamental aspect of investment analysis. The feedback from the document states:

"Risk is the potential volatility in returns or the range of possible future outcomes on the price of a security."

Interest income distribution is a type of income that a mutual fund pays to its investors from the interest earned on its fixed-income investments, such as bonds and mortgages. Interest income distribution is taxed as ordinary income at the investor’s top marginal tax rate, which is the highest tax rate that applies to their income bracket. Therefore, B is the correct answer. References: Interest Income and Taxes - Fidelity, Topic No. 403, Interest Received | Internal Revenue Service

According to the MFDA Rules, a Dealing Representative must not accept any purchase orders from a client until the Branch Manager or other designated person has reviewed and approved the New Client Application Form (NCAF) for the client. This is to ensure that the Dealing Representative has obtained and verified all the necessary information about the client, such as identity, investment objectives, risk tolerance, financial situation, and suitability of investments. The review and approval of the NCAF must be completed before any trades are executed for the client, unless there are exceptional circumstances that justify a delay. In this case, Quintin should have waited for Lupita’s approval of the NCAF before placing the purchase order for Reginald.

A is correct because Francis will receive $37,888 in Canadian dollars when he redeems the Funds. This is calculated by dividing the current proceeds from the redemption in US dollars by the current CAD/USD exchange rate and rounding to the nearest dollar. That is,

Comprehensive and Detailed Explanation From Exact Extract:

The S&P 500 is the appropriate benchmark for researching the largest listed public companies in the US market. The feedback from the document provides:

"Index: S&P 500, Description: The 500 largest publicly held companies that trade on U.S. markets, Performance uses: U.S. equity funds."

According to the Canadian Investment Funds Course, a stock exchange is a centralized and regulated market where securities of listed companies are traded between buyers and sellers. A stock exchange has strict listing requirements that companies must meet in order to be eligible for trading on the exchange. These requirements may include minimum capitalization, number of shareholders, financial reporting, corporate governance, and compliance with securities laws. A stock exchange also provides liquidity, transparency, and efficiency for the trading of securities.

An over-the-counter (OTC) market is a decentralized and unregulated market where securities that are not listed on a stock exchange are traded between dealers and brokers. An OTC market has no physical location, rather the trading is done through phone, email, or computer networks. An OTC market has lower listing requirements than a stock exchange, which makes it easier for smaller or newer companies to access capital. However, an OTC market also has less liquidity, transparency, and efficiency than a stock exchange.

Therefore, if Underground Airways Ltd. wants to take their privately owned corporation public through an initial public offering (IPO), they would have to weigh the pros and cons of listing on a stock exchange or the OTC market. One of the main considerations is that a stock exchange listing would provide them with greater market exposure and public confidence than listing on the OTC market. This is because a stock exchange listing signals that the company has met the high standards of the exchange and is subject to ongoing regulation and oversight. A stock exchange listing also attracts more investors, analysts, and media attention than an OTC listing. A stock exchange listing may also increase the value and liquidity of the company’s shares.

 Relationship Disclosure Information (RDI) is a document that provides important information about the nature and scope of the relationship between a registered firm and its clients. It covers topics such as the products and services offered by the firm, the fees and charges applicable to the client’s account, the risks associated with investing, the conflict of interest management policies of the firm, and the dispute resolution services available to the client. According to Section 14.2 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), registered firms must provide RDI to their clients before they purchase or sell securities for them or advise them to do so. Registered firms must also update RDI in a timely manner if there are any significant changes to it. To evidence that they have satisfied their RDI obligation, registered firms may retain a copy of the RDI in the client file with detailed notes to confirm that they have provided and explained RDI to their clients. This is one of the acceptable methods suggested byAlberta Securities Commission (ASC) in its presentation on RDI1. Delivering RDI only upon request or using a letter of engagement are not sufficient methods to comply with NI 31-103. Providing and explaining Fund Facts is a separate obligation under NI 31-101 Mutual Fund Distribution Rules. References: Relationship Disclosure Information August 2021, Relationship Disclosure Information, Relationship Disclosure Information

A custodian in mutual fund is a trust company, bank, or similar financial institution that is responsible for holding and safeguarding the securities owned within a mutual fund. The custodian also records and reports all transactions to the fund manager. The custodian does not oversee the general administration, construct and manage the portfolio, or calculate the NAVPU of the mutual fund. These are the roles of other entities such as the fund administrator, the fund manager, and the fund accountant.

References = Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.2: Mutual Funds1 and web search results from search_web(query="role of a custodian in mutual funds")23

1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-2.pdf

Comprehensive and Detailed Explanation From Exact Extract:

The inflation rate is calculated by subtracting the previous year’s CPI from the current year’s CPI, dividing by the previous year’s CPI, and multiplying by 100. In this case:

(146.9 - 140.6) / 140.6 = 6.3 / 140.6 ≈ 0.0448 or 4.48%.

The feedback from the document confirms:

"To calculate the rate of inflation over a period of time one must subtract the CPI at the beginning of the period from the CPI at the end of the period and then divide the result by the CPI at the beginning of the period. In this example, the solution can be derived as follows: (146.9 - 140.6) / 140.6."