CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 261:

  When you buy a put option, which of the following is TRUE?

  A. You have the right to sell a set number of shares at a set price.
  B. You have the right to purchase a set number of shares at a set price.
  C. You have the obligation to sell a set number of shares at a set price.
  D. You have the obligation to buy a set number of shares at a set price.
  A. You have the right to sell a set number of shares at a set price.

  ---

  Explanation

  A put option is a contract that gives the buyer the right, but not the obligation, to sell a set number of shares of an underlying asset at a set price within a specified time frame. The buyer of a put option expects the price of the underlying asset to fall below the strike price before the expiration date. Therefore, A is the correct answer.

  References:

  Put Option: What It Is, How It Works, and How to Trade Them, Put: What It Is and How It Works in Investing, With Examples, Put Options: Definition, Overview, and Example

• Question 262:

  Which statement CORRECTLY describes index mutual funds and traditional exchange-traded funds (ETFs)?

  A. Index funds use an active investment management style, whereas ETFs use a passive investment management style.
  B. Both types of funds are closed-end investments that are required to hold the same securities as the index at all times.
  C. The market price of an ETF must match its net asset value (NAV), whereas there can be discrepancy in the pricing of index funds.
  D. Both types of funds attempt to replicate the return of a specific market index, but their returns may not perfectly match the index.
  A. Index funds use an active investment management style, whereas ETFs use a passive investment management style.

  ---

  Explanation

  Index mutual funds and traditional exchange-traded funds (ETFs) are both types of investment funds that use a passive investment management style, which means they try to track the performance of a specific market index, such as the S&P/TSX Composite Index or the S&P 500 Index. They do so by holding the same securities as the index or a representative sample of them, and by adjusting their portfolio composition and weighting to reflect any changes in the index.

  However, both types of funds may not be able to exactly replicate the return of the index for various reasons, such as fees, expenses, tracking error, rebalancing frequency, dividend reinvestment, and cash holdings. Therefore, there may be some deviation or difference between the fund's return and the index's return, which is called tracking difference. Canadian Investment Funds Course, Chapter 4: Types of Investments1

• Question 263:

  What percentage are specialty funds in a portfolio with $84,000 in a Canadian Equity Fund, $22,000 in a Global Bond Fund, $10,000 in a Green Energy Fund, and $4,000 in a Crystal Resource Fund?

  A. 8.3%
  B. 11.7%
  C. 18.3%
  D. 3.3%
  C. 18.3%

• Question 264:

  Which of the following statements about nominee name accounts is TRUE?

  A. The dealer is the registered owner of the account and holds funds in trust for the client.
  B. Discretionary trading on a client's account, without specific instructions, is permitted.
  C. Holding accounts in nominee name means the client no longer needs to provide any trading instructions.
  D. A Limited Trading Authorization (LTA) is necessary since the dealer, and not the client, is the registered owner of the mutual funds.
  A. The dealer is the registered owner of the account and holds funds in trust for the client.

  ---

  Explanation

  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.

• Question 265:

  Which financial instruments trade primarily in an auction market?

  A. Equity initial public offerings
  B. Mutual funds
  C. ETFs
  D. Bonds
  D. Bonds

  ---

  Explanation

  Bonds are primarily traded in dealer markets (over-the-counter - OTC) rather than in organized auction exchanges like the major stock exchanges. In a dealer market, multiple dealers post prices at which they are willing to buy or sell securities, providing liquidity and making a profit from the bid-ask spread. The U.S. government bond market, for example, is a large over-the-counter dealer market.

• Question 266:

  Janine will celebrate her 71st birthday this year. She currently has a lot of money in a personal registered retirement savings plan (RRSP) and knows there are rules about what she can do with those funds.

  Which of the following is TRUE?

  A. She can convert her RRSP to a locked-in retirement income fund (LRIF).
  B. She can convert her RRSP to a registered retirement income fund (RRIF) this year or by December 31st of next year.
  C. She can take the entire amount in cash, with no tax consequences because her RRSP funds were tax-sheltered.
  D. She can purchase a registered term or life annuity.
  B. She can convert her RRSP to a registered retirement income fund (RRIF) this year or by December 31st of next year.

  ---

  Explanation

  A registered retirement savings plan (RRSP) is a retirement savings and investing vehicle for employees and the self-employed in Canada. Contributions to an RRSP are tax-deductible and grow tax-deferred until withdrawal. However, RRSPs have a maturity date of December 31st of the year in which the holder turns 71. By then, the holder must convert the RRSP to a registered retirement income fund (RRIF), purchase an annuity, or withdraw the funds in cash (subject to tax). Therefore, B is the correct answer.

  References:

  Registered Retirement Savings Plan (RRSP): Definition and Types, Registered Retirement Savings Plan (RRSP) - Canada.ca

• Question 267:

  Which of the following best describes implied needs of your clients?

  A. They are needs reflected by statements made by clients regarding problems and dissatisfactions.
  B. They are statements made by you showing readiness to solve a client's problem.
  C. They are statements made by clients expressing the desire for lower commissions.
  D. They are statements of wants and needs made by clients.
  A. They are needs reflected by statements made by clients regarding problems and dissatisfactions.

  ---

  Explanation

  Implied needs of your clients are needs reflected by statements made by clients regarding problems and dissatisfactions 1. For example, a client may say "I'm worried about outliving my savings" or "I don't understand how this investment works". These statements imply that the client has a need for retirement planning or financial education, respectively. Implied needs are different from explicit needs, which are statements of wants and needs made by clients 1. For example, a client may say "I want to save for my child's education" or "I need a low-risk investment". These statements express the client's goals and preferences clearly. Statements made by you showing readiness to solve a client's problem are not implied needs, but rather responses to implied needs 1. For example, you may say " I can help you create a retirement plan that suits your lifestyle" or " I can explain how this investment works and what are the benefits and risks". Statements made by clients expressing the desire for lower commissions are not implied needs, but rather objections or concerns that may arise during the sales process 2. For example, a client may say "Your fees are too high" or " I can get a better deal elsewhere". These statements may indicate that the client is not convinced of the value of your service or product, or that they are trying to negotiate a lower price.

  References:

  2: Know Your Client, Unit

  10: Sales Process

• Question 268:

  Which of the following statements about registered education savings plans (RESPs) is CORRECT?

  A. Contributions to RESPs are tax deductible.
  B. There is a yearly contribution limit per beneficiary.
  C. RESPs must be collapsed by the end of the 31st year of its starting date
  D. Contributed funds grow tax-free within the plan.
  D. Contributed funds grow tax-free within the plan.

  ---

  Explanation

  Contributed funds grow tax-free within the plan 3. This means that any income or capital gains earned by the investments in an RESP are not taxed until they are withdrawn 3. This allows the plan to grow faster than a taxable account with the same investments and contributions 3. The other statements are incorrect. Contributions to RESPs are not tax deductible 3. This means that you cannot deduct the amount you contribute to an RESP from your taxable income 3. However, you do not have to pay tax on the contributions when they are withdrawn from the plan 3. There is no yearly contribution limit per beneficiary, but there is a lifetime contribution limit of $50,000 per beneficiary 3. This means that you can contribute any amount to an RESP in any given year, as long as you do not exceed the lifetime limit for each beneficiary 3. RESPs must be collapsed by the end of the 35th year of its starting date 3. This means that you have up to 35 years to use the funds in an RESP for educational purposes or transfer them to another plan 3. If you do not use or transfer the funds by then, you have to close the plan and pay tax on the accumulated income portion 3.

  References:

  Unit 8: Retirement

• Question 269:

  How is a $10,000 withdrawal from a registered retirement savings plan (RRSP) taxed?

  A. As regular income
  B. As a deduction against other income
  C. At a set rate of 30%
  D. Based on the type of investment income type
  A. As regular income

  ---

  Explanation

  Withdrawals from an RRSP are taxed as regular income at the plan holder's marginal tax rate, regardless of the type of income earned within the plan. The feedback from the document states: "Contributions withdrawn from an RRSP are taxed as regular income at the plan holder's marginal tax rate."

  References:

  Chapter 6 - Tax and Retirement PlanningLearning Domain: The Know Your Client Communication Process

• Question 270:

  Pippa purchased a 15-year bond with a face value of $5,000 and 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.

  What is Pippa likely to experience from her bond?

  A. With the unanticipated rise in inflation, Pippa will benefit from a higher real rate of return as well.
  B. Due to inflation, Pippa will experience a capital loss once her bond reaches maturity.
  C. The return of investment capital will have lower purchasing power than prior to investing.
  D. With capital appreciation at 7% annually, Pippa's capital gain will be reduced by inflation at maturity.
  C. The return of investment capital will have lower purchasing power than prior to investing.

  ---

  Explanation

  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.

  1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 4: Fixed Income Securities)