CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 181:

  Which client has demonstrated the endowment behavioural bias?

  A. Farida, who purchased shares in a real estate company based on the success of previous real estate company purchases
  B. Kendra, who believed that funds managed by a certain fund management company must be good quality since she often sees the advertisements
  C. Dave, who wants to sell his income property at a price that is higher than comparable properties in the area
  D. Peter, who chose to hold his mutual fund shares despite the fact that the shares had lost value, the prospects for the fund were poor and believing there are stronger alternative investments available
  C. Dave, who wants to sell his income property at a price that is higher than comparable properties in the area

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  Explanation

  The endowment bias occurs when investors place a higher value on assets they already own compared to the market value, simply because of ownership.

  Dave overvalues his property relative to the market.

  Farida = representativeness bias.

  Kendra = availability bias.

  Peter = status quo bias.

  Thus, Dave demonstrates endowment bias.

• Question 182:

  Danica is looking for a mutual fund to hold in her non-registered account that provides a regular stream of income with potential for capital growth. She is having difficulty distinguishing between bond funds and dividend funds.

  Which of the following statements is TRUE?

  A. The return of dividend funds relies only on interest rates; whereas with bond funds, the return also depends on the general direction of stock markets.
  B. When interest rates rise, the net asset value per unit (NAVPU) of bond funds decreases; whereas with dividend funds it rises.
  C. Bond funds receive fixed interest payments from most of their investments.
  D. Bond fund distributions receive more favorable tax treatment than that of dividend funds.
  C. Bond funds receive fixed interest payments from most of their investments.

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  Explanation

  C is correct because bond funds receive fixed interest payments from most of their investments, as they invest mainly in bonds and other fixed-income securities that pay a regular coupon rate. Dividend funds receive variable dividend payments from most of their investments, as they invest mainly in stocks and other equity securities that pay dividends based on the company's earnings and policies. The return of dividend funds does not rely only on interest rates (A), but also on other factors such as stock prices, earnings growth, dividend yield, and dividend payout ratio. The return of bond funds also depends on interest rates, as well as other factors such as credit quality, maturity, duration, and yield curve.

  When interest rates rise, the NAVPU of both bond funds and dividend funds decreases (B), not rises, as it lowers the present value of their future cash flows. Bond fund distributions do not receive more favorable tax treatment than that of dividend funds (D), but rather less favorable, as interest income is fully taxable at the investor's marginal tax rate while eligible dividends receive a dividend tax credit that reduces their taxable amount.

• Question 183:

  What type of unemployment is caused by a lack of skilled workers?

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

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  Explanation

  Structural unemployment occurs when there is a mismatch between available jobs and the skills of workers. This is exactly the case when there is a lack of skilled workers in the economy.

  Cyclical unemployment (A) arises during economic downturns.

  Frictional unemployment (C) is temporary, due to workers moving between jobs. Seasonal unemployment (D) arises in industries affected by seasonal patterns (e.g., agriculture, tourism).

• Question 184:

  Fabiola is an optometrist and an incorporated professional. She has fallen behind schedule regarding saving for retirement. She is considering opening an Individual Pension Plan (IPP).

  What provision might encourage her to use an IPP?

  A. When Fabiola files her personal tax return, she will be able to claim contributions as an eligible deduction.
  B. Her pension benefit is not pre-determined because it is based on the returns on investments which she chooses.
  C. Contributions to her IPP can be greater than what applies to contributions for registered retirement savings plans.
  D. Withdrawals will be taxable to the business, not to Fabiola, when she starts receiving her pension income.
  C. Contributions to her IPP can be greater than what applies to contributions for registered retirement savings plans.

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  Explanation

  An IPP is a registered, defined-benefit pension plan that provides a fixed retirement benefit to the person designated in the plan. It is similar to an RRSP, but with some differences in contribution limits, deductions, and tax benefits. One of the main advantages of an IPP is that it allows higher contribution limits than an RRSP, especially for older and higher-income individuals. The contributions are based on the actuarial calculations of the pension benefit, and are tax-deductible for the sponsoring corporation. The higher contribution limits can help Fabiola catch up on her retirement savings and reduce her taxable income123

  References:

  Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.3: Individual Pension Plan (IPP) and web search results from search_web(query="individual pension plan")123 (https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf)

• Question 185:

  On January 2nd of this year Evan purchased 500 preferred shares of Ingram Ltd. The preferred shares have a par value of $25 per share and a quarterly dividend of $0.98 per share. They also give Evan the option to sell the shares back to Ingram at par value any time from now until September 1st two years from now.

  What type of preferred shares does Evan own?

  A. retractable
  B. convertible
  C. participating
  D. redeemable
  A. retractable

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  Explanation

  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.

• Question 186:

  You are comparing the performance of ABC Equity Fund and XYZ Equity Fund to their benchmark. Indicate the correct statement.

  Return | Year 1 | Year 2 | Year 3 | 3 Year Compound Return

  Benchmark | -2.0% | 12.6% | 20.6% | 10.0%

  ABC Equity Fund | -10.0% | 16.0% | 24.0% | 9.0%

  XYZ Equity Fund | 8.0% | 9.0% | 10.0% | 9.0%

  A. Fund XYZ would have offered a lower likelihood of loss if a client needed to sell the investment
  B. Fund ABC showed greater consistency in its simple annual returns
  C. Fund ABC demonstrated a superior performance in a bearish market
  D. Fund XYZ offered less protection on the downside
  A. Fund XYZ would have offered a lower likelihood of loss if a client needed to sell the investment

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  Explanation

  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."

  References:

  Chapter 15 - Selecting a Mutual FundLearning Domain: Evaluating and Selecting Mutual Funds

• Question 187:

  What information does Fund Facts provide to potential investors?

  A. What the mutual fund is currently investing in.
  B. How to calculate the taxes owed from investment income.
  C. The portfolio management strategy that is used.
  D. The remuneration paid to the Independent Review Committee.
  A. What the mutual fund is currently investing in.

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  Explanation

  A Fund Facts document is a summary disclosure document that provides key information about a mutual fund, such as its investment objectives, risks, past performance, and fees. One of the information items that a Fund Facts document provides to potential investors is what the mutual fund is currently investing in, such as its top 10 holdings, asset mix, geographic allocation, and sector allocation. A Fund Facts document does not provide information on how to calculate taxes, portfolio management strategy, or remuneration of the Independent Review Committee.

  References:

  Fund facts guide | Sun Life Global Investments, Mutual Funds -Fund Facts | ScotiaFunds

• Question 188:

  What factor is irrelevant if an investor's primary objective focuses on generating capital gains?

  A. Coupon rate
  B. Risk tolerance
  C. Client knowledge
  D. Time horizon
  A. Coupon rate

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  Explanation

  If an investor's primary objective is capital gains, the focus is on growth through security selection and market timing rather than interest income.

  Coupon rate applies to fixed-income securities and is relevant to income-focused investors, not those pursuing capital gains.

  Risk tolerance, client knowledge, and time horizon remain highly relevant to any capital gains strategy.

  Thus, the irrelevant factor is coupon rate.

• Question 189:

  Which exemplifies the tendency of mutual fund companies to shut down poor performing funds?

  A. Standby underwriting
  B. Survivorship bias
  C. Short selling
  D. Standard lot
  B. Survivorship bias

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  Explanation

  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."

  References:

  Chapter 14 - Understanding Mutual Fund PerformanceLearning Domain: Evaluating and Selecting Mutual Funds

• Question 190:

  The owners of Underground Airways Ltd. want to take their privately owned corporation public through an initial public offering (IPO). They are speaking to a specialist from an investment dealer to determine whether it would be advisable to become listed on a stock exchange or the over-the-counter (OTC) market.

  In comparing the two options, which of the following considerations is TRUE?

  A. Underground would be subject to less stringent listing requirements if they chose the stock exchange as compared to the OTC market.
  B. If Underground chose to list on the OTC market, there would be no secondary market available for investors.
  C. Underground would still be directly involved in the trading of their shares on either market.
  D. A stock exchange listing would provide Underground with greater market exposure and public confidence than listing on the OTC market.
  D. A stock exchange listing would provide Underground with greater market exposure and public confidence than listing on the OTC market.

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  Explanation

  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.

  1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 5: Equity Securities)