CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 251:

  Nancy received a $160 taxable dividend from Can-Star Ltd., whose shares she holds in her non-registered account. Can-Star is a taxable Canadian corporation.

  What is the approximate amount of the dividend tax credit Nancy will receive on the shares?

  A. $94
  B. $24
  C. $33
  D. $61
  C. $33

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  Explanation

  Eligible Canadian dividends are grossed up by 38% and then receive a federal dividend tax credit of 15.02% of the taxable amount.

  For Nancy's $160 dividend: Grossed-up amount = $160 x 1.38 = $220.80

  Federal dividend tax credit = 15.02% x $220.80 = $33.15

  Thus, Nancy will receive a dividend tax credit of approximately $33.

• Question 252:

  Last year at age 70, Gregory opened a registered retirement income fund (RRIF). Recently, Gregory unexpectedly received a large cash gift and presently does not need to depend on any payments from his RRIF. He contacts his financial advisor Eric for guidance.

  Which of the following statements by his financial advisor would be CORRECT?

  A. Periodic contributions to a RRIF are permitted until Gregory reaches the age of 71.
  B. Withdrawals become mandatory within the first year of the plan being started.
  C. Gregory's account will be subjected to no maximum withdrawal limit but to an annual minimum withdrawal.
  D. Gregory must have attained the minimum age of 71 to open a RRIF.
  C. Gregory's account will be subjected to no maximum withdrawal limit but to an annual minimum withdrawal.

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  Explanation

  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.

  1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 9: Retirement)

• Question 253:

  A client wishes to deal with one registered representative for both banking services and mutual fund investments. The client would also like advice on determining where best to place their money to enhance their overall tax situation as they approach buying a home.

  Which individual is best suited for this service if the client's goal is to build a long-term advisor-client relationship?

  A. Senior account manager working at a credit union.
  B. Financial planner working at the insurance arm of a wealth management firm.
  C. Dealing representative at a large financial conglomerate offering several specialized business lines.
  D. Investment representative at a Robo-Advisor offering deposit products.
  C. Dealing representative at a large financial conglomerate offering several specialized business lines.

• Question 254:

  Which conduct standard addresses personal financial dealings with clients?

  A. Integrity
  B. Compliance
  C. Professionalism
  D. Confidentiality
  A. Integrity

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  Explanation

  The standard of integrity requires dealing honestly, fairly, and with good faith in all personal and professional interactions with clients, including personal financial dealings. Compliance (B) ensures adherence to laws, regulations, and firm policies. Professionalism (C) relates to competence and ethical conduct. Confidentiality (D) relates to safeguarding client information.

• Question 255:

  What party is responsible for ensuring that a public corporation's total number of outstanding common shares does not exceed its total number of authorized shares?

  A. Registrar
  B. Trustee
  C. Portfolio manager
  D. Distributor
  A. Registrar

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  Explanation

  A corporation's charter specifies the maximum number of authorized shares it may issue. The Registrar (provincial securities administrator) ensures compliance so that a public corporation does not issue more shares than authorized.

  Trustees oversee debt obligations.

  Portfolio managers manage investments.

  Distributors sell securities but do not regulate share issuance.

  Thus, the responsible party is the Registrar.

• Question 256:

  Every February, Reginald, a Dealing Representative, feels pressured by his Manager to generate new registered retirement savings plans (RRSP) and contributions to assist the branch in meeting broader business targets. Reginald is nearing the end of February, and he has a meeting with a new client, Orel. Orel wants to open a tax-free savings account (TFSA) to develop emergency savings because he does not want to worry about his withdrawals being taxed. Reginald suggests that if Orel were to contribute to an RRSP first, then the resulting tax savings could be used to fund a new emergency account.

  In relation to account suitability, what can be said about Reginald's advice?

  A. Recommending an investment solution that addresses two needs is putting Reginald's client's interest first
  B. Based on Orel's stated need, recommending an RRSP contribution is unsuitable.
  C. Reginald is putting the client's interest first by informing Orel why he should change his purpose for investing.
  D. By convincing Orel to contribute an RRSP, instead of a TFSA, Reginald has put his client's interest first.
  B. Based on Orel's stated need, recommending an RRSP contribution is unsuitable.

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  Explanation

  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.

• Question 257:

  What type of fund offers the highest expected risk and the highest expected return in terms of the risk-return trade-off between different types of mutual funds?

  A. Mortgage fund
  B. Canadian Equity fund
  C. Specialty fund
  D. Real estate fund
  C. Specialty fund

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  Explanation

  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."

  References:

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

• Question 258:

  Pierre wants to discuss the merits of a specific mutual fund with his Dealing Representative, Simone. There are no trailer fees associated with this fund. Simone is familiar with the mutual fund that Pierre is referring to, which is not offered by her dealer. They schedule an appointment to further discuss his investment portfolio.

  Which behaviour from Simone is ethical?

  A. Simone's ability to keep her knowledge current on competitors' investment offerings shows that she is putting her client's interest first.
  B. Knowing Pierre does not like that her dealer's funds have trailer fees, she chooses not to discuss the relationship between trailer fees and MER while making comparisons.
  C. When comparing her dealer's own mutual funds to the one Pierre discovered, Simone emphasizes the importance of similar net rates of return and minimizes the significance of management expense ratios (MERs).
  D. While comparing Fund Facts of the different mutual funds, Simone points out that not only are the fund management expenses different but so are the investor profiles for each fund.
  D. While comparing Fund Facts of the different mutual funds, Simone points out that not only are the fund management expenses different but so are the investor profiles for each fund.

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  Explanation

  While comparing Fund Facts of the different mutual funds, Simone points out that not only are the fund management expenses different but so are the investor profiles for each fund. This behaviour from Simone is ethical because it shows that she is providing accurate and complete information to Pierre and helping him make an informed decision based on his personal circumstances and objectives 4. Fund Facts is a document that summarizes key information about a mutual fund, such as its investment objectives, risks, fees, performance history, and investor rights 5. By comparing Fund Facts of different mutual funds, Simone can help Pierre understand how each fund differs in terms of its suitability, costs, and potential returns. The other behaviours from Simone are unethical because they do not serve Pierre's best interests or comply with professional standards. Simone's ability to keep her knowledge current on competitors' investment offerings does not necessarily show that she is putting her client's interest first. She may have other motives for researching other funds, such as trying to persuade Pierre to stay with her dealer's funds or finding new opportunities for herself 4. Knowing Pierre does not like that her dealer's funds have trailer fees, she chooses not to discuss the relationship between trailer fees and MER while making comparisons. This behaviour is unethical because it is misleading and omits relevant information that Pierre should know before investing 4. Trailer fees are fees paid by the fund manager to the dealer for the ongoing services provided by the dealer and its advisors to unitholders 5. Trailer fees are part of the management expense ratio (MER), which is the total cost of running and distributing a fund expressed as a percentage of its assets 5. Trailer fees and MERs affect the net returns of a fund and may create conflicts of interest between the advisor and the client 5. When comparing her dealer's own mutual funds to the one Pierre discovered, Simone emphasizes the importance of similar net rates of return and minimizes the significance of management expense ratios (MERs). This behaviour is unethical because it is biased and does not present a balanced view of the pros and cons of each fund 4. Net rates of return are not the only factor to consider when evaluating a fund's performance. MERs are also important because they reduce the fund's gross returns and may indicate how efficiently the fund is managed 5. A fund with a lower MER may have an advantage over a fund with a higher MER, all else being equal 5.

  References:

  Unit 2: Know Your Client, What's a good MER fee plus 3 strategies to avoid high fees - Bellvest

• Question 259:

  A mutual fund sales representative is under pressure to meet certain sales objectives. However, he consistently ignores these quotas when making client recommendations.

  Which standard of conduct has he followed?

  A. Provision of appropriate cautions for potentially unsuitable investments
  B. The obligations to put the client's interests first
  C. The obligation to keep client information confidential
  D. The maintenance of a high standard of professional knowledge
  B. The obligations to put the client's interests first

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  Explanation

  By ignoring sales quotas and prioritizing client needs, the representative adheres to the standard of putting the client's interests first. The feedback from the document states: "Priority of Client's

  Interest: The client's interest must be the foremost consideration in all business dealings. In situations where you may have an interest that competes with that of the client, the client's interest must be given priority."

  References:

  Chapter 18 - Applying Ethical Standards to What You Have LearnedLearning Domain: Ethics, Compliance and Mutual Fund Regulations

• Question 260:

  Which of the following is typical for a normal yield curve?

  A. short and long term rates are the same
  B. long term rates are lower than short term rates
  C. yields decline as term to maturity increases
  D. short term rates are lower than long term rates
  D. short term rates are lower than long term rates

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  Explanation

  A yield curve is a graphical representation of the relationship between the interest rates (or yields) and the term to maturity of different fixed income securities, such as bonds or debentures. A normal yield curve is upward sloping, meaning that the interest rates increase as the term to maturity increases. This is because investors typically demand higher compensation for lending their money for longer periods of time, as they face more uncertainty and risk. Therefore, a normal yield curve implies that short term rates are lower than long term rates.

  Canadian Investment Funds Course, Unit 5, Section 5.2