CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 1:

  What is a characteristic of joint investment accounts?

  A. They require the risk tolerance of all holders to be identical.
  B. They require at least one signature.
  C. They require a witness acknowledgement.
  D. They require an application for discretionary trading.
  B. They require at least one signature.

• Question 2:

  What type of shares offer its shareholders the opportunity to receive additional dividends if the company's profit exceeds a stated level?

  A. Redeemable preferred shares
  B. Cumulative preferred shares
  C. Convertible preferred shares
  D. Participating preferred shares
  D. Participating preferred shares

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  Explanation

  Participating preferred shares are a type of preferred shares that offer its shareholders the opportunity to receive additional dividends if the company's profit exceeds a stated level. These dividends are paid in addition to the fixed dividends that are normally paid to preferred shareholders. Participating preferred shares allow shareholders to benefit from both fixed and variable income streams, depending on the company's performance.

  References:

  Participating Preferred Stock Definition - Investopedia, Preferred Shares Explained | TD Direct Investing

• Question 3:

  Ken is a member of his employer's Defined Benefit Pension Plan (DBPP).

  Which of the following statements about Ken's plan is CORRECT?

  A. Contributions to the plan do not result in a Pension Adjustment (PA) for Ken.
  B. The amount Ken receives in retirement depends on the performance of the investments he has selected within the plan.
  C. The amount that Ken will receive at retirement is not guaranteed.
  D. Income received from the plan is eligible for pension income splitting even if Ken retires before 65.
  D. Income received from the plan is eligible for pension income splitting even if Ken retires before 65.

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  Explanation

  The statement that is correct about Ken's plan is option D. A defined benefit pension plan (DBPP) is a type of employer-sponsored retirement plan that promises to pay a specified amount of income to the plan member upon retirement. The amount of income is based on a formula that considers factors such as years of service, salary, and age. Income received from a DBPP is eligible for pension income splitting even if Ken retires before 65, meaning that he can transfer up to 50% of his eligible pension income to his spouse or common-law partner for tax purposes. This can reduce the overall tax payable by the couple if they are in different tax brackets. Therefore,

  option D is correct about Ken's plan. The other statements are not correct about Ken's plan.

  Option A is false because contributions to the plan do result in a Pension Adjustment (PA) for Ken, which is an amount that reduces his RRSP contribution room for the following year.

  Option B is false because the amount Ken receives in retirement does not depend on the performance of the investments he has selected within the plan; rather, it depends on the formula that determines his pension benefit.

  Option C is false because the amount that Ken will receive at retirement is guaranteed by the plan sponsor, unless the plan sponsor becomes insolvent or terminates the plan.

  References:

  [Defined Benefit Pension Plans | GetSmarterAboutMoney.ca], [Pension Income Splitting | GetSmarterAboutMoney.ca], [Pension Adjustment (PA) | GetSmarterAboutMoney.ca]

• Question 4:

  What term applies to unemployment created by a new technology that eliminates the need for subway train drivers?

  A. Structural
  B. Frictional
  C. Natural
  D. Cyclical
  A. Structural

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  Explanation

  Structural unemployment results from economic changes, such as technological advancements that reduce the demand for certain types of labor. The feedback from the document states: "Structural unemployment results from changes in the economy, such as technological advances that reduce the need for human labour."

  References:

  Chapter 3 - Economic PrinciplesLearning Domain: An Introduction to the Mutual Funds Marketplace

• Question 5:

  Greg is a Dealing Representative. As a part of his business building activity, Greg prepares several messages to post on his website and Facebook page.

  Which statement CORRECTLY describes this situation?

  A. Posting a sales communication to a website is prohibited by the Personal Information Protection and Electronic Documents Act (PIPEDA).
  B. Posting messages to Facebook is prohibited by Canada's Anti-Spam Law (CASL).
  C. Greg's messages must be approved by his dealer before he can publish or issue the communication.
  D. Greg must not discuss the investment performance, rankings, or ratings of a fund in his communication.
  C. Greg's messages must be approved by his dealer before he can publish or issue the communication.

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  Explanation

  According to the MFDA rules, any sales communication that is prepared by a Member or an Approved Person, such as Greg, must be approved by the dealer in writing prior to its publication, issuance, or use. A sales communication is any communication that is intended to promote the business of the Member or the Approved Person, or the sale of securities, including any communication on a website or a social media platform. The dealer must ensure that the sales communication is fair, balanced, and not misleading, and that it complies with the applicable laws and regulations12

  References:

  web search results from search_web(query="sales communication and mutual fund dealers association rules")12

• Question 6:

  Matthew is planning on making the following investments in December:

  

  Assuming all four investments have performed well throughout the year, which investment will trigger the highest unexpected taxes?

  A. JKL
  B. DEF
  C. ABC
  D. GHI.
  A. JKL

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  Explanation

  The correct answer is A. JKL, the non-registered international small-cap fund, because it is most likely to generate unexpected and fully taxable distributions at year-end. The Investment Funds in Canada course explains that mutual funds held in non-registered accounts are subject to taxation on distributions, even if the investor does not sell the fund. These distributions may include interest income, foreign income, dividends, and capital gains.

  International equity funds typically generate foreign-source income, which does not qualify for the Canadian dividend tax credit and is therefore fully taxable at the investor's marginal tax rate. In addition, international small-cap funds tend to have higher portfolio turnover, increasing the likelihood of realizing capital gains inside the fund. The CIFC curriculum emphasizes that "capital gains distributions are taxable to investors even when automatically reinvested," making them a common source of unexpected taxes. By contrast, DEF (Canadian dividend fund in a non-registered account) benefits from the dividend tax credit, reducing its tax burden. ABC and GHI are held in registered accounts, where income and capital gains are either tax-deferred or tax-sheltered, meaning no current tax consequences apply. The course specifically warns that purchasing funds late in the year in non-registered accounts can result in "buying a taxable distribution", especially with international equity funds.

• Question 7:

  As a measurement of risk, which of the following statements about beta is TRUE?

  A. A larger beta for a stock means it will outperform the market at any point in the business cycle.
  B. It is a relative measure that compares how an investment reacts to movements in a specific index.
  C. It is a ratio that compares a company's current rate of return to its average rate of return overtime.
  D. It corresponds to a stock's riskiness in relation to the frequency of dividend payments over a certain period of time.
  B. It is a relative measure that compares how an investment reacts to movements in a specific index.

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  Explanation

  Beta is a relative measure that compares how an investment reacts to movements in a specific index. A beta of 1 means that the investment moves in sync with the index. A beta greater than 1 means that the investment is more volatile than the index. A beta less than 1 means that the investment is less volatile than the index.

• Question 8:

  The following chart outlines data for various fund managers:

  

  Which manager likely has the highest return for a given level of risk?

  C. Manager
  D. Manager
  C. Manager

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  Explanation

  The correct answer is C. Manager D, because the Sharpe ratio is the primary measure used to evaluate risk-adjusted return, which is return earned per unit of total risk. The Investment Funds in Canada curriculum defines the Sharpe ratio as a tool that "measures how much excess return a portfolio generates relative to the risk taken." A higher Sharpe ratio indicates superior risk-adjusted performance. Manager D has the highest Sharpe ratio (+2) among all managers listed, meaning this manager generated the greatest excess return for each unit of risk, regardless of the portfolio's beta. Although Manager D has a higher beta (2.75), beta measures systematic market risk, not total volatility. The Sharpe ratio already accounts for total risk (standard deviation), making it the preferred comparison metric when the question asks for return for a given level of risk.

  Manager C has a positive Sharpe ratio (+1) but lower than Manager D, indicating inferior risk-adjusted performance. Managers A and B both have negative Sharpe ratios, which the CIFC text explains means the portfolio underperformed the risk-free rate, making them clearly inferior choices. The CIFC curriculum stresses that when comparing managers across different risk profiles, "the Sharpe ratio is the most appropriate measure." Since Manager D delivers the highest risk-adjusted return, Option C is the correct and fully CIFC-verified answer.

• Question 9:

  David had $10,000 in his investment account with Dynamic Investments, a mutual funds dealer. On June 28, David wants to buy 500 units in ABC Canadian Dividend Fund that has a Net Asset Value Per Unit (NAVPU) of $14.10. His friend Robert suggests that he may get a better price if he used the strategy of dollar-cost averaging. David then instructs his Dealing Representative to place a purchase order for 100 units on the first of every month starting July 1st for the next 5 months.

  The orders are executed at the following NAVPUs.

  July 01, $14.00

  Aug. 01, $14.50

  Sep. 01, $15.00

  Oct. 01, $14.25

  Nov. 01, $16.50

  Did David get a better purchase price following the dollar-cost averaging strategy compared to making a lump-sum purchase of 500 shares on Jun 28, 20xx?

  A. David got his 500 units at the same price as the lump sum price he would have paid.
  B. David got his 500 units at a lower price than the lump sum price he would have paid.
  C. David realizes that Dollar cost averaging is the best strategy for getting lower prices.
  D. David got his 500 units at a higher price than the lump sum price he would have paid
  D. David got his 500 units at a higher price than the lump sum price he would have paid

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  Explanation

  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

• Question 10:

  What risk type is prevalent regardless of the level of portfolio diversification or hedging?

  A. Market
  B. Default
  C. Unique
  D. Inflation
  A. Market

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  Explanation

  Market risk (systematic risk) cannot be eliminated by diversification or hedging; it affects all securities in the market (e.g., recessions, geopolitical events, interest rate changes).

  Default risk (B) relates to specific issuers of debt.

  Unique risk (C) is company-specific and can be diversified away.