CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 111:

  What is the characteristic of a Stage 2 - Family Commitment investor that most affects the ability to save for the long term?

  A. Lack of liquidity
  B. Marginal tax bracket
  C. Wealth transfer considerations
  D. Risk tolerance
  A. Lack of liquidity

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  Explanation

  Stage 2 - Family Commitment investors typically face liquidity constraints due to family and financial obligations, which hinders their ability to save for long-term goals. The feedback from the document states: "In Stage 2, the lack of liquidity that is typical results in a difficulty in allocating funds to savings. Although they might identify long-term goals, such as retirement saving, they can barely manage to save enough for more pressing short-term goals."

  References:

  Chapter 4 - Getting to know the clientLearning Domain: The Know Your Client Communication Process

• Question 112:

  During the calendar year, Firmansyah received a $1,800 eligible dividend from a large Canadian bank and a foreign, dividend from his The USD/CAD exchange rates is 1.3605. Firmansyah's federal marginal tax bracket is 29%. The enhanced dividend gross-up rate is 38% and the federal dividend tax credit rate for eligible dividends is 15%.

  What federal tax liability will be due from the investment income?

  A. $522.00
  B. $348.00
  C. $695.76
  D. $870.00
  C. $695.76

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  Explanation

  To calculate Firmansyah's federal tax liability from the investment income, we need to follow these steps: Step 1: Convert the foreign dividend from USD to CAD using the exchange rate given in the question. The exchange rate is 1.3605 CAD per USD, which means that 1 USD is equivalent to 1.3605 CAD. Therefore, Firmansyah's foreign dividend in CAD is:

  500x1.3605=680.25 Step 2: Calculate Firmansyah's grossed-up dividend income from both sources. A grossed-up dividend income is the actual dividend received plus a percentage of the dividend that reflects the corporate tax paid by the issuer. The percentage varies depending on whether the dividend is eligible or non-eligible. According to [this site], an eligible dividend is a dividend paid by a Canadian corporation that meets certain criteria, such as being listed on a designated stock exchange or being a subsidiary of such a corporation. A non-eligible dividend is a dividend that does not meet these criteria, such as a dividend paid by a foreign corporation or a small Canadian business corporation. The gross-up rate for eligible dividends in 2020 was 38%, while the gross-up rate for non-eligible dividends in 2020 was 15%. Therefore, Firmansyah's grossed-up dividend income from both sources is: (1800+680.25)x(1+0.38)=3426.35 Step 3: Apply Firmansyah's federal marginal tax rate to his grossed-up dividend income to get his federal tax before credits. A marginal tax rate is the percentage of tax applied to an additional dollar of income. According to [this site], Firmansyah's federal marginal tax rate for 2020 was 29%, as his taxable income was between $150,473 and $214,368. Therefore, Firmansyah's federal tax before credits is:

  0.29x3426.35=993.64 Step 4: Subtract Firmansyah's federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. A dividend tax credit is a percentage of the grossed-up dividend income that reflects the corporate tax paid by the issuer and avoids double taxation. The percentage varies depending on whether the dividend is eligible or non-eligible. According to [this site], the federal dividend tax credit rate for eligible dividends in 2020 was 15%

  , while the federal dividend tax credit rate for non-eligible dividends in 2020 was 9.03%. Therefore, Firmansyah's federal dividend tax credit from both sources is: (1800+680.25)x0.38x0.15=297.88

  Step 5: Subtract Firmansyah's federal dividend tax credit from his federal tax before credits to get his net federal tax liability from the investment income. This is the amount of federal income tax that Firmansyah has to pay or has overpaid from the investment income. Therefore, Firmansyah's net federal tax liability from the investment income is:

  993.64#297.88=695.76

  Hence, option C is correct.

  References:

  [Canadian Investment Funds Course (CIFC) | IFSE Institute], [Dividend Tax Credit | TurboTax Canada Tips], [Federal Income Tax Rates for Canada - TurboTax Canada Tips], [Eligible Dividends | TurboTax Canada Tips]

• Question 113:

  Ayra believes the Canadian economy will be booming for the next five years.

  Which mutual fund can provide Ayra with the most tax efficiency if she keeps her investment in a non-registered account?

  A. Bond
  B. Money market
  C. Equity growth
  D. Mortgage
  C. Equity growth

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  Explanation

  In a booming economy, equity growth mutual funds provide the best opportunity for capital gains. In a non-registered account, capital gains are the most tax-efficient form of income since only 50% is taxable. Bonds, mortgages, and money market funds primarily generate interest income, which is fully taxable at the investor's marginal rate.

  Thus, the most tax-efficient choice is an equity growth fund.

• Question 114:

  Iliana owns 1,000 participating preferred shares in the First Canadian Bank.

  Which of the following features are characteristic of her investment?

  A. Iliana has the right to purchase more preferred shares in the company before common shareholders.
  B. Iliana is able to vote at the annual general meeting and elect members of the board of directors.
  C. Iliana can convert her preferred shares to common shares at a fixed price and within a specified time period.
  D. Iliana has a right to share in the bank's net profits over and above the specified dividend rate.
  D. Iliana has a right to share in the bank's net profits over and above the specified dividend rate.

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  Explanation

  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

• Question 115:

  Last year, a hedge fund had a gross return of 22%. The hurdle rate was 5%, and the incentive fee was 20%.

  What percentage compensation would the fund manager earn for this strategy, assuming no other fees exist?

  A. 3.4%
  B. 5.4%
  C. 4.4%
  D. 3.0%
  A. 3.4%

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  Explanation

  Hedge fund incentive fees apply only to returns above the hurdle rate.

  Gross return = 22%

  Hurdle rate = 5%

  Excess return = 22% # 5% = 17% Incentive fee = 20% x 17% = 3.4% Thus, the fund manager earns 3.4% compensation.

• Question 116:

  What is the time period during which an individual must complete a training program once she starts acting as a dealing representative?

  A. 30 days
  B. 90 days
  C. 6 months
  D. 3 months
  B. 90 days

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  Explanation

  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."

  References:

  Chapter 17 - Mutual Fund Dealer RegulationLearning Domain: Ethics, Compliance and Mutual Fund Regulations

• Question 117:

  Wilma has always used the services of a tax preparation firm to file her taxes but is skeptical that she has really benefitted. This year she plans to file her own taxes for the first time.

  What would be useful for her to know?

  A. Wilma's marginal tax rate may be lowered when tax deductions are applied to her total income.
  B. Wilma's top marginal tax rate will be applied to every taxable dollar when her tax return is filed.
  C. Wilma's tax deductions permit her to reduce her tax payable dollar-for-dollar.
  D. Wilma's non-refundable tax credits may only reduce her taxable income dollar-for-dollar.
  A. Wilma's marginal tax rate may be lowered when tax deductions are applied to her total income.

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  Explanation

  Tax deductions are amounts that reduce your total income before calculating your tax payable. They lower your marginal tax rate, which is the tax rate that applies to your last dollar of income. For example, if Wilma's total income is $50,000 and she claims $5,000 in tax deductions, her taxable income will be $45,000 and her marginal tax rate will be lower than if she had no deductions. Therefore, A is the correct answer.

  References:

  All deductions, credits, and expenses - Personal income tax - Canada.ca

• Question 118:

  Sarah and Kyle are a married couple. They are both 34 years of age and work as teachers. Their combined annual income is $130,000. They are able to save $800 each month. They own a home worth $340,000 with a $120,000 mortgage.

  Since they work for the same employer, they have the same defined benefit pension plan. Other than a tax-free savings account (TFSA) in Kyle's name with $5,000, they do not have any other assets.

  They are avid sailors and want to save towards a purchase of a sailboat. For the type of sailboat they want, they estimate it should cost around $65,000. They want you to recommend an investment for their monthly savings to help them achieve their goal faster.

  What question should you ask them next?

  A. How much do you make individually each year?
  B. How would you feel if you lost part of your money in the short-term?
  C. What is your investment objective for these savings?
  D. What is your net worth?
  C. What is your investment objective for these savings?

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  Explanation

  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?

  1: Canadian Investment Funds Course - IFSE Institute 3 (Unit 2: Know Your Client) 2: Canadian Investment Funds Course - IFSE Institute 4 (Unit 10: Portfolio Management)

• Question 119:

  When comparing the current yield and yield-to-maturity of a bond, which statement applies?

  A. Yield-to-maturity accounts for the reinvestment of coupon payments.
  B. Yield-to-maturity is based on the current market value of the bond, not the price paid.
  C. Capital gains or capital losses are reflected in the current yield calculation.
  D. Current yield includes in the calculation the time to maturity.
  A. Yield-to-maturity accounts for the reinvestment of coupon payments.

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  Explanation

  This statement is correct because yield-to-maturity (YTM) is the annualized rate of return of a bond that assumes that all coupon payments are reinvested at the same rate until the bond matures. YTM takes into account the bond's current market price, par value, coupon rate, and time to maturity, and it calculates the compound interest earned on the reinvested coupons. Therefore, YTM reflects the total return of the bond, including both the interest income and the capital gain or loss.

  References:

  Current Yield vs.

  Yield to Maturity - Investopedia, Yield to Maturity (YTM) - Investopedia, Bond Current Yield Calculator

• Question 120:

  With respect to the tax treatment of dividends received from a taxable Canadian corporation, which of the following statements is CORRECT?

  A. Dividends are taxed the same way interest income is taxed.
  B. Dividends from both preferred and common shares of Canadian corporations receive preferential tax treatment.
  C. Dividends from non-resident corporations receive preferential tax treatment.
  D. Only 50% of dividend income is subject to tax.
  B. Dividends from both preferred and common shares of Canadian corporations receive preferential tax treatment.

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  Explanation

  Dividends from both preferred and common shares of Canadian corporations receive preferential tax treatment because they are eligible for the dividend tax credit. This credit reduces the amount of tax payable on dividend income by accounting for the tax that the corporation has already paid on its earnings. Dividends from non-resident corporations do not qualify for this credit and are taxed at the same rate as interest income. Only 50% of capital gains, not dividend income, are subject to tax.

  References:

  The Dividend Tax Rate in Canada: What You Need to Know Now - Hardbacon, How are Dividends Taxed in Canada? Exploring the Canadian Dividend Tax Credit