CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 431:

  The portfolio manager of the High Income Fund has 90% of the mutual fund invested in bonds.

  What is a reason for holding bonds in a mutual fund portfolio?

  A. Bonds provide regular interest income which can be flowed out directly to investors.
  B. Bonds produce regular capital gain payments which result in preferential tax treatment for unitholders.
  C. Coupon payments paid by bonds from large Canadian corporations are eligible for preferential tax treatment.
  D. To increase the dividend yield and credit quality of the mutual fund
  A. Bonds provide regular interest income which can be flowed out directly to investors.

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  Explanation

  One of the main reasons for holding bonds in a mutual fund portfolio is to generate regular interest income, which can be distributed to the investors as cash or reinvested in more units of the fund. Bonds are debt securities that pay a fixed or variable rate of interest, called the coupon, to the bondholders until the maturity date, when the principal amount is repaid. The interest income from bonds can provide a steady source of cash flow for the fund and its investors, especially in low-interest-rate environments or when other sources of income, such as dividends or capital gains, are scarce or uncertain

• Question 432:

  Which statement best describes key differences between dividend funds and standard equity funds?

  A. Standard equity funds cannot invest in preferred shares
  B. Standard equity funds' objectives do not include capital preservation
  C. Standard equity funds' objectives do not include current dividend income
  D. Standard equity funds' objectives are based on a belief in market efficiency
  B. Standard equity funds' objectives do not include capital preservation

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  Explanation

  Standard equity funds focus on capital gains and may include dividend income, but unlike dividend funds, they do not prioritize capital preservation. The feedback from the document states:

  "A standard equity fund seeks to earn some combination of dividend income and capital gains from investment in Canadian common stocks. This objective appears to be similar to that of a preferred dividend fund. The difference between the two is that an equity fund usually has a much stronger capital gains focus. Note as well that equity funds make no specific attempt to preserve capital; in other words, equity funds are willing to put capital at substantially greater risk than preferred dividend funds."

  References:

  Chapter 12 -

  Riskier Mutual Fund ProductsLearning Domain: Analysis of Mutual Funds

• Question 433:

  Greg, one of your clients, has been advised by a friend to invest in open-end mutual funds. He is not sure about the differences between open and closed-end funds.

  What would you tell Greg about open-end funds?

  A. The number of units is not fixed, and varies with investor demand and redemption orders.
  B. Investors holding open-end funds can buy and sell their mutual funds anytime the stock market is open.
  C. Units are bought and sold amongst the unitholders.
  D. Initial shares in the mutual fund are allotted through an initial public offering (IPO)
  A. The number of units is not fixed, and varies with investor demand and redemption orders.

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  Explanation

  According to the Closed-End Funds vs. Open-End Funds: What's the Difference? - Investopedia, open-end funds are mutual funds that can issue an unlimited number of shares to investors. The number of units is not fixed, and varies with investor demand and redemption orders. Investors buy and sell open-end funds directly from the fund company at the net asset value (NAV) of the fund, which is calculated at the end of each trading day. Open-end funds are not traded on an exchange or in the secondary market.

• Question 434:

  Which of the following is generally considered personal information under PIPEDA?

  A. Work telephone number
  B. Business address
  C. Job title
  D. Credit history
  D. Credit history

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  Explanation

  An individual's credit history is personal information because it relates to the person's financial affairs. Business contact information used for employment purposes is generally excluded from the definition of personal information. Therefore, Option D is correct.

• Question 435:

  You are meeting a potential client, William, for the first time. He is a high net worth individual and you are keen to get his business.

  Which of the following would you consider the most important to create an impressive first impression on your potential client?

  A. your body language
  B. volume of your voice
  C. your words
  D. tone of your voice
  A. your body language

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  Explanation

  Your body language would be the most important to create an impressive first impression on your potential client. Body language is the non-verbal communication that includes your posture, gestures, facial expressions, eye contact, and physical distance. Body language can convey your confidence, enthusiasm, professionalism, and trustworthiness. According to research, body language accounts for 55% of the impact of a first impression, while tone of voice accounts for 38% and words account for only 7%. The other statements are less important than body language. Volume of your voice is part of your tone of voice, which can affect how your words are perceived by your potential client. However, volume alone is not enough to create an impressive first impression; you also need to consider your pitch, pace, and intonation. Your words are what you say to your potential client, which can include your introduction, your value proposition, and your questions. Your words are important to convey your message and establish rapport with your potential client. However, your words have less impact than your body language and tone of voice on your first impression. Tone of your voice is how you say your words, which can include your volume, pitch, pace, and intonation. Your tone of voice can influence how your potential client feels about you and your message. However, your tone of voice has less impact than your body language on your first impression.

  References:

  Unit 10: Sales Process, [The Importance Of Body Language In First Impressions]

• Question 436:

  Julia invested in ERF energy mutual fund three years ago. At that time, the price of the fund was $25.44 per unit. Over time, the unit price has dropped to $19.72, however Julia does not want to consider selling her investment until it returns to

  $25.44.

  What bias is she demonstrating?

  A. Availability
  B. Anchoring
  C. Representativeness
  D. Hindsight
  B. Anchoring

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  Explanation

  Anchoring bias occurs when an investor fixates on a reference point (e.g., purchase price) and refuses to sell until the investment returns to that level, even if conditions have changed. Julia anchors on $25.44, her purchase price, and won't sell at $19.72.

  Availability bias = reliance on recent/easy info.

  Representativeness = stereotyping based on limited traits.

  Hindsight bias = belief that past events were predictable.

  Thus, Julia demonstrates Anchoring bias.

• Question 437:

  A risk-averse investor is meeting with their advisor to discuss investment solutions. Traditionally, the investor has considered GICs only, but they are open to considering other alternatives.

  To what emotional bias is the investor most susceptible?

  A. Hindsight
  B. Status quo
  C. Loss aversion
  D. Endowment
  B. Status quo

• Question 438:

  All else being equal, which factor impacts fixed-income duration?

  A. Maturity term
  B. Dividend yield
  C. Tracking error
  D. Leverage risk
  A. Maturity term

• Question 439:

  Lydia wants to transfer units of her Sussex Growth Fund to her registered retirement savings plan (RRSP) as her RRSP contribution. The current market value is $10,600 and the cost of the units is $4,500.

  Which of the following statements is CORRECT?

  A. Lydia is only permitted to contribute cash to her RRSP not units of her mutual fund.
  B. Lydia's RRSP contribution will be valued at $4,500.
  C. Lydia's RRSP contribution will be valued at $10,600.
  D. Lydia will incur a capital gain of $4,500 from the contribution.
  C. Lydia's RRSP contribution will be valued at $10,600.

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  Explanation

  Lydia can make an in-kind contribution of her mutual fund units to her RRSP, as long as the fund is eligible for RRSPs. The value of her contribution will be based on the fair market value of the units at the time of the transfer, which is $10,600. However, she will also trigger a deemed disposition of the units and realize a capital gain of $6,100 ($10,600 - $4,500), which is taxable in the year of the transfer.

  References:

  Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.1: Registered Retirement Savings Plan (RRSP)1 and web search results from search_web(query="RRSP contribution in kind")

• Question 440:

  At the close of business, Great Lengths Equity Fund had total assets of $135 million and total liabilities of $10 million. They had 11 million units outstanding. In addition, their current assets totalled $13 million and current liabilities were $3 million.

  Which of the following statements regarding Great Lengths Equity Fund's net asset value per unit (NAVPU) is correct?

  A. The NAVPU is the total liabilities divided by the number of outstanding units.
  B. Current assets and current liabilities are used in the NAVPU calculation.
  C. There is not enough information available to calculate the NAVPU.
  D. Great Lengths Equity Fund's NAVPU is $11.36.
  D. Great Lengths Equity Fund's NAVPU is $11.36.

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  Explanation

  The net asset value per unit (NAVPU) of a mutual fund is calculated by dividing the net asset value (NAV) of the fund by the number of outstanding units. The NAV is the difference between the total assets and total liabilities of the fund.

  Current assets and current liabilities are not relevant for the NAVPU calculation. Therefore, Great Lengths Equity Fund's NAVPU is ($135 million - $10 million) / 11 million = $11.36.