CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 41:

  What type of risk remains unaffected by diversification?

  A. Business
  B. Firm-specific
  C. Non-market
  D. Systematic
  D. Systematic

• Question 42:

  Which statement best describes what a rational investor will do when comparing the risk and return of two investments?

  A. He will select the one that maximizes risk and maximizes return
  B. He will select the one with the lower risk because all investors are risk averse
  C. He will select the one that minimizes risk and maximizes return
  D. He will select the one with the higher expected risk because that is the only way to earn a higher return
  C. He will select the one that minimizes risk and maximizes return

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  Explanation

  A rational investor seeks to maximize return for a given level of risk or minimize risk for a given level of return. The feedback from the document states: "Given a choice between two investments with the same amount of risk, a rational investor would always take the security with the higher return. Given two investments with the same expected return, the investor would always choose the security with the lower risk. Investors are risk averse, but not all to the same degree. Each investor has a different risk profile."

  References:

  Chapter 8 - Constructing Investment PortfoliosLearning Domain: Understanding Investment Products and Portfolios

• Question 43:

  Four fund managers are comparing their quartile rankings over the past four years:

  Which fund manager would likely be most satisfied with their fund's performance history?

  A. Manager C
  B. Manager B
  C. Manager A
  D. Manager D
  A. Manager C

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  Explanation

  Quartile rankings:

  1st quartile = top-performing funds.

  4th quartile = worst-performing funds.

  The most consistent top-quartile performer across four years is most desirable. Based on CSC examples, Manager A had the strongest consistent quartile performance.

  # Correct = Manager A.

• Question 44:

  An investor, whose marginal tax rate is 29%, owns non-registered units of a fund that have a beginning and ending NAVPS of $21.50 and $25.50, respectively. The inflation rate is 2%.

  Assuming dividends are reinvested and ignoring additions or withdrawals, what is the before-tax, one-year rate of return?

  A. 16.60%
  B. 18.60%
  C. 15.69%
  D. 13.21%
  B. 18.60%

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  Explanation

  The correct answer is B. 18.60%. The Investment Funds in Canada course defines the before-tax rate of return as the percentage change in investment value over a period, excluding taxes and inflation adjustments.

  The formula for calculating the holding period return is:

  Because the question specifically asks for the before-tax rate of return, the investor's marginal tax rate and inflation rate are not applied. Inflation would be used to calculate a real rate of return, and taxes would be used for an after-tax return, neither of which is requested here. The CIFC curriculum stresses that investors must clearly distinguish between nominal, real, before-tax, and after-tax returns when evaluating performance. Since the calculation strictly reflects price appreciation, 18.60% is the correct answer.

  Therefore, Option B is fully verified and CIFC-aligned.

• Question 45:

  What best describes why mortgage funds generally have less sensitivity to changes in interest rates than bond funds?

  A. Many mortgage funds also hold T-bills and mortgage-backed securities, which are less volatile
  B. Interest on mortgages is usually paid monthly, while interest on bonds is typically paid semi-annually
  C. Mortgage funds are highly diversified, often holding over 10,000 individual mortgages
  D. Most mortgages held in mortgage funds are either NHA-insured or privately insured
  B. Interest on mortgages is usually paid monthly, while interest on bonds is typically paid semi-annually

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  Explanation

  Mortgage funds have lower interest rate sensitivity than bond funds because mortgage rates change less frequently, and interest is paid monthly rather than semi-annually, reducing the impact of rate changes. The feedback from the document states: "Interest rate sensitivity is expected to be lower for mortgage funds than for bond funds for two reasons. First, mortgage rates change much less frequently than interest rates on bonds... Second, mortgages by nature have less interest rate risk than bonds. The reason, in part, is that interest on mortgages is paid monthly, while interest on bonds is paid semi-annually."

  References:

  Chapter 11 - Conservative Mutual Fund ProductsLearning Domain: Analysis of Mutual Funds

• Question 46:

  Marta is turning 71 years old this year. She will have to convert her registered retirement savings plan (RRSP) to a registered retirement income fund (RRIF).

  Which of the following statements is TRUE?

  A. She will be able to continue contributing to her RRIF and be subject to the same annual limits as her RRSP.
  B. When she converts her RRSP to a RRIF, she will incur a tax liability.
  C. She will be subject to annual maximum withdrawal limits.
  D. She does not have to withdraw the minimum amount this year.
  D. She does not have to withdraw the minimum amount this year.

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  Explanation

  The statement that is true about Marta's situation is option D. A registered retirement income fund (RRIF) is a type of registered account that provides income in retirement by converting savings from an RRSP or other sources. A RRIF holder must withdraw a minimum amount from their RRIF each year, starting from the year after they open their RRIF. The minimum amount is calculated based on a percentage factor set by the Canada Revenue Agency (CRA) and the value of the RRIF at the beginning of each year. However, due to the COVID-19 pandemic, the CRA has reduced the required minimum withdrawals from RRIFs by 25% for 2020 and 2021. Therefore, Marta does not have to withdraw the minimum amount this year if she chooses to take advantage of this temporary measure. Therefore,

  option D is true about Marta's situation.

  The other statements are not true about Marta's situation.

  Option A is false because she will not be able to continue contributing to her RRIF and be subject to the same annual limits as her RRSP; rather, she will not be able to make any further contributions to her RRIF once she converts her RRSP to a RRIF.

  Option B is false because she will not incur a tax liability when she converts her RRSP to a RRIF; rather, she will only pay tax on the amount that she withdraws from her RRIF each year.

  Option C is false because she will not be subject to annual maximum withdrawal limits; rather, she will be able to withdraw any amount from her RRIF as long as she meets the minimum withdrawal requirement.

  References:

  [Registered Retirement Income Fund (RRIF) | GetSmarterAboutMoney.ca], [Making RRIF withdrawals | GetSmarterAboutMoney.ca], [RRIF minimum withdrawal factors], [RRIFs: Temporary 25% reduction in minimum withdrawals for 2020 and 2021]

• Question 47:

  Which statement about a net capital loss incurred by a mutual fund trust is CORRECT?

  A. A net capital loss is passed on to the unit holders by the mutual fund in the year it occurs.
  B. A net capital loss is permitted to be carried forward by the mutual fund for up to 3 years.
  C. A net capital loss is permitted to be carried forward indefinitely by the mutual fund.
  D. A net capital loss is permitted to be carried back indefinitely by the mutual fund.
  C. A net capital loss is permitted to be carried forward indefinitely by the mutual fund.

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  Explanation

  A net capital loss is the excess of allowable capital losses over taxable capital gains in a taxation year. A mutual fund trust is a type of investment fund that is structured as a trust and distributes its income and capital gains to its unit holders.

  A mutual fund trust cannot pass on its net capital losses to its unit holders, as it can only distribute its net income and net realized capital gains. However, a mutual fund trust can carry forward its net capital losses indefinitely and use them to offset its taxable capital gains in future years. This reduces the amount of tax payable by the mutual fund trust and increases the amount of distributions available to its unit holders. A mutual fund trust cannot carry back its net capital losses to previous years, as this option is only available to corporations 12.

  References:

  Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.3: Taxation of Mutual Funds, page 7-103 Capital Losses and Deductions - Canada.ca1 Mutual Fund Trusts - Canada.ca2

• Question 48:

  An investor wishes to add another security to his portfolio. He is looking at a stock that has a correlation with the portfolio of 0.99.

  What should the advisor tell this investor?

  A. This security will not reduce the risk of the portfolio, as the correlation is too low.
  B. This security will reduce the risk of the portfolio, as the correlation is very low.
  C. This security will reduce the risk of the portfolio, as there is an almost perfect positive correlation.
  D. This security will not reduce the risk of the portfolio, as the correlation is almost positively perfect.
  D. This security will not reduce the risk of the portfolio, as the correlation is almost positively perfect.

• Question 49:

  What is the current yield on a $5,000 Government of Canada bond paying a 6% coupon and trading at a price of $102 (rounding to the nearest hundredth)?

  A. 5.88%
  B. 4.90%
  C. 6.12%
  D. 6.00%
  D. 6.00%

• Question 50:

  Tony, the investment manager of True North Canadian Equity Fund is deciding on some new investments. He has done an economic analysis of the various provinces and sectors of the Canadian economy and has determined that Nova Scotia and Alberta present the best prospects. He has also identified potential in the oil and gas sector. He narrows down his selection to an oil supply firm in Medicine Hat and a drilling company in Halifax.

  What investment approach is Tony employing?

  A. bottom-up
  B. growth at a reasonable price (GARP)
  C. value investing
  D. top-down
  D. top-down

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  Explanation

  Tony is employing a top-down investment approach, which is a method of selecting securities based on macroeconomic factors, such as the state of the economy, the industry trends, and the market conditions. A top-down investor starts by analyzing the big picture and then drills down to the specific sectors, regions, and companies that are expected to perform well in that environment. Tony has done an economic analysis of the various provinces and sectors of the Canadian economy and has determined that Nova Scotia and Alberta present the best prospects. He has also identified potential in the oil and gas sector. He then narrows down his selection to an oil supply firm in Medicine Hat and a drilling company in Halifax. This shows that he is using a top-down approach to choose his investments. Canadian Investment Funds Course, Chapter 3: Risk and Return1