CSI CSI-IFC Online Practice Questions and Exam Preparation

CSI CSI-IFC Online Questions & Answers

• Question 61:

  A client has $950,000 in his RRSP account and $550,000 in his non-registered account held in nominee name with Tradewell Mutual Funds.

  In the event of his dealer, Tradewell Mutual Funds declaring insolvency, what is the total amount the client be eligible to receive from the Mutual Fund Dealers Association of Canada Investor Protection Corporation (IPC)?

  A. The client will not be eligible for any coverage.
  B. The client will be eligible for coverage of $950,000.
  C. The client will be eligible for coverage of $1,500.000.
  D. The client will be eligible for coverage of $550,000.
  B. The client will be eligible for coverage of $950,000.

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  Explanation

  The amount that the client will be eligible to receive from the IPC is $950,000. The IPC is a not-for-profit corporation that provides coverage to eligible clients of insolvent members of the Mutual Fund Dealers Association of Canada (MFDA).

  The IPC covers up to $1 million per account type per client for losses of securities, cash, and other property held by the insolvent member. The account types include RRSPs, RRIFs, TFSAs, RESPs, and non-registered accounts. Therefore, the client will be eligible for coverage of $950,000 for his RRSP account, which is the value of his securities and cash held by Tradewell Mutual Funds in his RRSP account. The client will not be eligible for any coverage for his non-registered account, as it is held in nominee name, meaning that the securities and cash are registered in the name of Tradewell Mutual Funds on behalf of the client. Nominee name accounts are not covered by the IPC, as they are not considered to be at risk in the event of insolvency. Therefore, option B is correct regarding the amount that the client will be eligible to receive from the IPC. The other options are not correct regarding the amount that the client will be eligible to receive from the

  IPC.

  Option A is false because the client will be eligible for some coverage, as his RRSP account is covered by the IPC.

  Option C is false because the client will not be eligible for coverage of $1.5 million, as his non-registered account is not covered by the IPC.

  Option D is false because the client will not be eligible for coverage of $550,000, as his non-registered account is not covered by the IPC.

  References:

  [IPC Coverage | IFIC], [IPC - Home], [IPC - Coverage]

• Question 62:

  What type of mutual fund seeks to provide a positive real rate of return, through both income and capital appreciation, by investing in a diversified portfolio of fixed income securities, as well as Canadian and foreign equity securities?

  A. Dividend
  B. Balanced
  C. Blue chip
  D. Mortgage
  B. Balanced

• Question 63:

  Last year Peter's earned income from employment was $50,000. Last year, after receiving a $2 per share in dividends from 500 shares in ABC Inc., a publicly-traded Canadian corporation, he sold his shares. The sale resulted in a capital gain of $15,000. Based on the tax rates mentioned above, what is Peter's net federal tax liability for the year? (Round to 2 decimal places).

  A. $9,953.30
  B. $9,193.69
  C. $9,113.53
  D. $9,696.15
  B. $9,193.69

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  Explanation

  To calculate Peter's net federal tax liability for the year, we need to follow these steps: Step 1: Calculate Peter's taxable income. This is the amount of income that is subject to federal income tax. It is equal to his earned income from employment plus his net capital gain plus his grossed-up dividend income. A net capital gain is 50% of the capital gain realized from selling an asset. A grossed-up dividend income is the actual dividend received plus a percentage of the dividend that reflects the corporate tax paid by the issuer. According to the image, the dividend gross-up rate is 15.02%. Therefore, Peter's taxable income is:

  50000+0.5x15000+(500x2)x(1+0.1502)=68251.00 Step 2: Apply the federal tax rates to Peter's taxable income according to the tax brackets shown in the image. The federal tax rates are progressive, meaning that higher income is taxed at higher rates.

  Therefore, Peter's federal tax before credits is:

  0.15x(48535#0)+0.205x(68251#48535)=11293.69 Step 3: Subtract the federal tax credits from Peter's federal tax before credits. A tax credit is an amount that reduces the tax payable by a taxpayer. There are two types of federal tax credits: non-refundable and refundable. Non-refundable tax credits can only reduce the tax payable to zero, but not below zero. Refundable tax credits can reduce the tax payable below zero, resulting in a refund to the taxpayer. In this question, we assume that Peter only has two non-refundable tax credits: the basic personal amount and the dividend tax credit. The basic personal amount is a fixed amount that every taxpayer can claim to reduce their taxable income. According to this site, the basic personal amount for 2021 is $13,808.

  The dividend tax credit is a percentage of the grossed-up dividend income that reflects the corporate tax paid by the issuer and avoids double taxation. According to this site, the federal dividend tax credit rate for eligible dividends in 2021 is 15.0198%. Therefore, Peter's federal tax credits are:

  0.15x13808+0.150198x(500x2)x0.1502=2100

  Step 4: Subtract Peter's federal tax credits from his federal tax before credits to get his net federal tax liability. This is the amount of federal income tax that Peter has to pay or has overpaid for the year.

  Therefore, Peter's net federal tax liability is:

  11293.69#2100=9193.69

  Hence, option B is correct.

  References:

  Federal Income Tax Rates for Canada - TurboTax Canada Tips, Capital Gains Tax in Canada | Wealthsimple, Dividend Tax Credit | TurboTax Canada Tips, Basic Personal Amount (BPA)

• Question 64:

  Which type of fixed income fund has a short duration, with the objectives of preserving capital and generating better current income than a money market fund?

  A. Preferred dividend fund
  B. Mortgage fund
  C. Short-term bond fund
  D. T-bill fund
  C. Short-term bond fund

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  Explanation

  A short-term bond fund combines characteristics of money market and bond funds, aiming to preserve capital while generating higher income than a money market fund due to its short duration. The feedback from the document states: "A short-term bond fund is part money market fund and part bond fund. You would expect its investment objectives to reflect this combination. A short-term bond fund's objectives are to preserve capital and generate better current income than is likely from a money market fund. Although there is some capital gain potential, you would not expect this to be a key objective given the short duration of this type of fixed-income fund."

  References:

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

• Question 65:

  What is a common characteristic of mutual funds?

  A. Each investor owns a portion of the fund's portfolio.
  B. A mutual fund can only hold securities from certain companies.
  C. Most mutual funds can only be purchased by sophisticated investors.
  D. Investors can only purchase whole units in the fund.
  A. Each investor owns a portion of the fund's portfolio.

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  Explanation

  A defining characteristic of mutual funds is that each investor owns a proportional interest in the fund's portfolio. The Investment Funds in Canada text explains that mutual funds pool investor money to purchase a diversified portfolio of securities, and each unitholder owns a fractional interest based on the number of units they hold.

  Options B and C are incorrect because mutual funds are not restricted to specific companies and are widely available to retail investors. Option D is incorrect because mutual fund units are typically sold in fractional amounts, allowing precise dollar investing.

  This ownership structure allows investors to benefit proportionally from income, capital gains, and losses generated by the portfolio. Therefore, Option A is the correct and fully CIFC-aligned answer.

• Question 66:

  Which of the following formulas correctly shows how taxable income is calculated?

  A. gross income less tax credits
  B. the sum of earned income and investment income
  C. total income less tax deductions
  D. the sum of income from all sources
  C. total income less tax deductions

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  Explanation

  According to the Canada Revenue Agency, taxable income is the amount used to calculate federal tax and provincial or territorial tax on the income tax return. Taxable income is calculated by subtracting tax deductions from total income.

  Total income is the sum of income from all sources, such as employment, business, investment, pension, and other income. Tax deductions are amounts that can be subtracted from total income to reduce the amount of income that is subject to tax. Some examples of tax deductions are RRSP contributions, child care expenses, moving expenses, and alimony payments. Tax credits are not subtracted from total income, but rather from the tax payable. Tax credits are amounts that can reduce the amount of tax owed or increase the amount of refund. Some examples of tax credits are basic personal amount, spouse or common-law partner amount, Canada workers benefit, and foreign tax credit. Therefore, the correct answer is C. total income less tax deductions.

  1: Line 26000 - Taxable income - Canada.ca 2

• Question 67:

  Sagira is a Compliance Officer with WealthPath Investments Inc., a registered mutual fund dealer. Sagira routinely answers inquiries from the firm's Dealing Representatives and offers guidance.

  Which of the following statements would Sagira likely agree is a permitted activity for Dealing Representatives to have with clients?

  A. Positions of influence are permitted if the terms and conditions of the regulator are met and the activity is approved by the dealer.
  B. Borrowing from clients is prohibited, but personal loans to clients may be offered.
  C. Purchasing real property from clients is permitted if there is a written agreement in place and the firm is party to the agreement.
  D. Authority granted to a Dealing Representative over a client's account or finances must be documented under a Power of Attorney.
  A. Positions of influence are permitted if the terms and conditions of the regulator are met and the activity is approved by the dealer.

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  Explanation

  A position of influence is an outside activity that places the Dealing Representative in a position of power or influence over a client or potential client, such as a trustee, executor, or director of a charitable organization. A position of influence may create a conflict of interest or a potential conflict of interest between the Dealing Representative and the client. Therefore, the MFDA rules require that a Dealing Representative must report any position of influence to the dealer and obtain the dealer's approval before engaging in such activity. The dealer must also ensure that the position of influence does not impair the Dealing Representative's ability to act in the best interests of the client and that the client is aware of the nature and extent of the position of influence12

  References:

  Canadian Investment Funds Course (CIFC) - Module 1: The Financial Services Industry -Section 1.3: Know Your Client (KYC)3 and web search results from search_web(query="positions of influence and mutual fund dealers association rules")12 3: (https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-1.pdf)

• Question 68:

  If the Consumer Price Index (CPI) was 140.6 last year and 146.9 this year, what was the inflation rate over the year?

  A. 4.12%
  B. 5.20%
  C. 4.48%
  D. 6.04%
  C. 4.48%

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  Explanation

  The inflation rate is calculated by subtracting the previous year's CPI from the current year's CPI, dividing by the previous year's CPI, and multiplying by 100. In this case:

  (146.9 - 140.6) / 140.6 = 6.3 / 140.6 # 0.0448 or 4.48%.

  The feedback from the document confirms: "To calculate the rate of inflation over a period of time one must subtract the CPI at the beginning of the period from the CPI at the end of the period and then divide the result by the CPI at the beginning of the period. In this example, the solution can be derived as follows: (146.9 - 140.6) / 140.6."

  References:

  Chapter 3 - Economic PrinciplesLearning Domain: An Introduction to the Mutual Funds Marketplace

• Question 69:

  Felipe is a Dealing Representative who is developing a non-registered investment solution for Laryssa. Felipe is debating between recommending either mutual fund trusts or mutual fund corporations. He wants to recommend an investment that reduces Laryssa's exposure to taxation.

  Which feature may influence his recommendation?

  A. Distributions from mutual fund corporations are not taxable to investors.
  B. Mutual fund trusts can only distribute capital gains and Canadian dividends.
  C. Capital losses may be distributed from mutual fund corporations.
  D. Any income received by a mutual fund corporation is distributed in the form of either capital gains or Canadian dividends.
  D. Any income received by a mutual fund corporation is distributed in the form of either capital gains or Canadian dividends.

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  Explanation

  A mutual fund corporation is a type of mutual fund structure that is organized as a corporation and issues different classes of shares to investors. A mutual fund corporation has the ability to allocate its income and expenses among the different classes of shares, and to distribute any income received by the corporation in the form of either capital gains or Canadian dividends. These types of distributions are taxed at lower rates than interest or foreign income, which may reduce the tax liability of the investors. A mutual fund corporation can also use capital losses to offset capital gains, and carry them forward or back to reduce taxable income in other years.

• Question 70:

  A husband wishes to transfer some of his non-registered mutual fund holdings to his wife, but wants to maintain trading authority over the transferred assets. He also wishes to ensure that should she die, the gift he is making will revert to him.

  What is the appropriate account type?

  A. Open a nominee account
  B. Open an account in his wife's name only
  C. Open a joint account
  D. Open a tenants in common account
  C. Open a joint account

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  Explanation

  A joint account allows the husband to retain trading authority and includes the right of survivorship, ensuring the assets revert to him if his wife dies. The feedback from the document states: "The husband would have no financial interest in a client name account, registered in his wife's name only. A nominee account would transfer trading authority to a dealer or third-party administrator. In a tenants in common account, each spouse would have trading authority over his/her portion of the account. Therefore, the husband's best option would be to open a joint account and retain full trading authority. A joint account would also offer the right of survivorship, which is not a feature of a tenants in common account."

  References:

  Chapter 17 - Mutual Fund Dealer RegulationLearning Domain: Ethics, Compliance and Mutual Fund Regulations