IFC Investment Funds in Canada (IFC) Exam Questions and Answers

This statement is correct because yield-to-maturity (YTM) is the annualized rate of return of a bond that assumes that all coupon payments are reinvested at the same rate until the bond matures. YTM takes into account the bond’s current market price, par value, coupon rate, and time to maturity, and it calculates the compound interest earned on the reinvested coupons. Therefore, YTM reflects the total return of the bond, including both the interest income and the capital gain or loss.

References = Current Yield vs. Yield to Maturity - Investopedia, Yield to Maturity (YTM) - Investopedia, Bond Current Yield Calculator

Stage 2 – Family Commitment investors typically face liquidity constraints due to family and financial obligations, which hinders their ability to save for long-term goals. The feedback from the document states:

"In Stage 2, the lack of liquidity that is typical results in a difficulty in allocating funds to savings. Although they might identify long-term goals, such as retirement saving, they can barely manage to save enough for more pressing short-term goals."

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.

Mutual fund orders placed after the market closes are processed using the next business day's net asset value per unit (NAVPU). Since Derek submitted his sell order at 8:00 p.m. EST on Friday, January 6 (after the close of the markets), his proceeds will be based on the NAVPU for Monday, January 9, the next business day.

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")

Liquid alternative funds (liquid alts) are designed to offer more flexibility in using short sales, leverage, and derivatives compared to traditional mutual funds, but with less freedom than hedge funds. The feedback from the document states:

"Liquid alts, also known as alternative mutual funds, were recently introduced into Canada, and are allowed greater use of short sales, leverage, and derivatives compared to regular mutual funds, but not to the same extent as hedge funds."

Direct investment means the investor owns the asset directly, e.g., real estate property, stocks, or bonds held personally.

Mutual funds (B) are indirect investments since they pool money.

Government bonds (C) can be direct if held individually, but in CSC context, examples of direct investments often emphasize real estate ownership as the clearest form.

Advisor purchases stocks for a client (D) is indirect because the advisor acts on behalf of the client.

Gifts and benefits may be provided to a client if your employer is aware of the benefits and has given approval. This is one of the rules concerning conflicts of interest set by the MFDA. A conflict of interest is a situation where a person’s personal interests conflict with their professional obligations or duties. Gifts and benefits may create a conflict of interest if they influence or appear to influence the person’s judgment or actions. Therefore, the MFDA requires that any gifts and benefits given or received by a mutual fund dealer or its representatives must be disclosed to and approved by the dealer, and must not compromise or appear to compromise the dealer’s or representative’s integrity or objectivity. References: MFDA Bulletin #0756-P - Conflicts of Interest

Dustin needs to ensure that his recommendation is suitable for the new joint account, which may have a different risk profile than the individual accounts of Salvatore and Harriet. A joint account is an account that is owned by two or more people who share the rights and responsibilities of the account. A joint account may have different investment objectives, time horizon, risk tolerance, and financial situation than the individual accounts of the joint owners. Therefore, Dustin needs to conduct a know your client (KYC) process for the joint account and determine the appropriate risk profile for the account, based on the collective responses of Salvatore and Harriet. The risk profile of the joint account will guide Dustin in recommending suitable investment products and services that match the goals and needs of the joint owners

The statement that is correct about Ken’s plan is option D. A defined benefit pension plan (DBPP) is a type of employer-sponsored retirement plan that promises to pay a specified amount of income to the plan member upon retirement. The amount of income is based on a formula that considers factors such as years of service, salary, and age. Income received from a DBPP is eligible for pension income splitting even if Ken retires before 65, meaning that he can transfer up to 50% of his eligible pension income to his spouse or common-law partner for tax purposes. This can reduce the overall tax payable by the couple if they are in different tax brackets. Therefore, option D is correct about Ken’s plan. The other statements are not correct about Ken’s plan. Option A is false because contributions to the plan do result in a Pension Adjustment (PA) for Ken, which is an amount that reduces his RRSP contribution room for the following year. Option B is false because the amount Ken receives in retirement does not depend on the performance of the investments he has selected within the plan; rather, it depends on the formula that determines his pension benefit. Option C is false because the amount that Ken will receive at retirement is guaranteed by the plan sponsor, unless the plan sponsor becomes insolvent or terminates the plan. References: [Defined Benefit Pension Plans | GetSmarterAboutMoney.ca], [Pension Income Splitting | GetSmarterAboutMoney.ca], [Pension Adjustment (PA) | GetSmarterAboutMoney.ca]

According to the MFDA rules, any sales communication that is prepared by a Member or an Approved Person, such as Greg, must be approved by the dealer in writing prior to its publication, issuance, or use. A sales communication is any communication that is intended to promote the business of the Member or the Approved Person, or the sale of securities, including any communication on a website or a social media platform. The dealer must ensure that the sales communication is fair, balanced, and not misleading, and that it complies with the applicable laws and regulations12

References = web search results from search_web(query="sales communication and mutual fund dealers association rules")12

The Do Not Call List (DNCL) is a national registry of personal telephone numbers that consumers can register to reduce the number of unsolicited telemarketing calls they receive. Telemarketers are required to subscribe to the DNCL and avoid calling the numbers on the list, unless they have an exemption. One of the exemptions is for existing business relationships, which means that a telemarketer can call a consumer who has purchased a product or service from them or their employer within the last 18 months, or who has made an inquiry or application within the last six months. Therefore, Kendrick is still eligible to contact Chandra, who is an existing client of Oak Solid Financial, even if she is on the DNCL registry. However, Kendrick must respect Chandra’s right to request that he stop calling her and remove her number from his contact list.

Canadian Investment Funds Course, Chapter 1: The Canadian Financial Services Industry1, National Do Not Call List - Canada.ca2

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.

Loss aversion bias causes investors to hold onto unprofitable investments due to a stronger desire to avoid losses than to seek gains. The feedback from the document states:

"Loss aversion bias states that people generally feel a stronger impulse to avoid losses than to acquire gains. Loss aversion can prevent people from unloading unprofitable investments, even when they see little to no prospect of a turnaround."

 Dollar-cost averaging is a strategy that involves investing equal amounts of money at regular intervals, regardless of the price of the security. By using dollar-cost averaging, investors may lower their average cost per share and reduce the impact of volatility on their portfolios. However, this strategy does not guarantee a better purchase price than making a lump-sum purchase. In this case, David got his 500 units at a higher price than the lump sum price he would have paid. His average cost per unit was $14.65, while the lump sum price was $14.10. Therefore, D is the correct answer. References: What Is Dollar-Cost Averaging?, What Is Dollar Cost Averaging?, Dollar-Cost Averaging: Definition and Examples

Implicit costs of principal protected notes include performance participation caps, which limit the potential returns and are not always explicitly disclosed. The feedback from the document states:

"Implicit costs include fees borne by investors that may or may not be immediately visible and that may or may not be openly disclosed in the documents. Of the items listed, three are explicit costs, and only Performance Participation Caps are an implicit cost."

Rights of survivorship means that if one account holder dies, their share of the assets automatically transfers to the surviving holder(s).

This feature is available in joint non-registered accounts.

Registered accounts (A) (e.g., RRSP, TFSA) are individual accounts and cannot be opened jointly with rights of survivorship.

Trust accounts (B) follow trust law, not survivorship rules.

Corporate accounts (D) belong to the company, not individuals.

The Home Buyers’ Plan (HBP) is a program that allows eligible first-time home buyers to withdraw up to $35,000 from their registered retirement savings plans (RRSPs) to buy or build a qualifying home without paying any tax on the withdrawal. The withdrawn amount must be repaid to the RRSP over a period of up to 15 years, starting from the second year after the withdrawal. If the required repayment for a year is not made, it is added to the taxpayer’s income and subject to tax. Therefore, option B describes a feature of the HBP. The other options are not correct descriptions of the HBP. Option A is false because to qualify as a first-time home buyer, you or your spouse must not have owned and lived in another home as your principal place of residence during the four-year period before the date of withdrawal. Option C is false because a qualifying home must be purchased or built before October 1 of the year following the year of withdrawal. Option D is false because if you have a spouse or common-law partner, each of you can withdraw up to $35,000 from your RRSPs, not $50,000. References: [Home Buyers’ Plan (HBP)], [Home Buyers’ Plan (HBP) - Canada.ca], [Home Buyers’ Plan (HBP) | GetSmarterAboutMoney.ca]

According to the Canadian Investment Funds Course, an investment objective is the goal or purpose of investing money. An investment objective reflects the investor’s desired return, risk tolerance, time horizon, and liquidity needs. An investment objective is one of the key components of the know-your-client (KYC) information that a mutual fund representative must obtain and update from a client. The KYC information helps the representative to assess the suitability of any investment recommendation or trade instruction for the client2

In this case, Sarah and Kyle are a married couple who want to save towards a purchase of a sailboat. They are able to save $800 each month and have a tax-free savings account (TFSA) in Kyle’s name with $5,000. They want you to recommend an investment for their monthly savings to help them achieve their goal faster. Before you can make any recommendation, you need to gather more information about their investment objective for these savings. You need to know how much return they expect, how much risk they are willing to take, how long they plan to invest, and how easily they want to access their money. These factors will help you to determine the most suitable investment option for them.

Therefore, the question you should ask them next is C. What is your investment objective for these savings?

 1: Canadian Investment Funds Course - IFSE Institute 3 (Unit 2: Know Your Client) 2: Canadian Investment Funds Course - IFSE Institute 4 (Unit 10: Portfolio Management)

The Personal Information Protection and Electronic Documents Act (PIPEDA) is a federal law that imposes requirements on the collection, use, and disclosure of personal information by organizations in the private sector that are subject to federal regulation, such as banks, telecommunications, transportation, and broadcasting. PIPEDA also applies to organizations that operate in provinces or territories that do not have substantially similar privacy legislation, such as Alberta, British Columbia, and Québec. PIPEDA does not apply to consumers, departments and agencies of the Government of Canada, or departments and agencies of provincial governments, as they are governed by other privacy laws or regulations12

References = Canadian Investment Funds Course, Unit 7: The Regulatory Environment, Lesson 3: Privacy Legislation, Section 7.3.1: Personal Information Protection and Electronic Documents Act (PIPEDA) 1; Office of the Privacy Commissioner of Canada website

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 objectives4. Fund Facts is a document that summarizes key information about a mutual fund, such as its investment objectives, risks, fees, performance history, and investor rights5. 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 herself4. 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 investing4. Trailer fees are fees paid by the fund manager to the dealer for the ongoing services provided by the dealer and its advisors to unitholders5. 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 assets5. Trailer fees and MERs affect the net returns of a fund and may create conflicts of interest between the advisor and the client5. 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 fund4. 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 managed5. A fund with a lower MER may have an advantage over a fund with a higher MER, all else being equal5. References: Unit 2: Know Your Client, What’s a good MER fee plus 3 strategies to avoid high fees - Bellvest

Lenny would qualify for a partial OAS pension, because he meets the following criteria:

•He is 65 years old or older.

•He is a Canadian citizen or a legal resident at the time of his OAS pension application.

•He has resided in Canada for at least 10 years since the age of 18.

The amount of his partial OAS pension would be proportional to the number of years he has lived in Canada after the age of 18, divided by 40. For example, if he has lived in Canada for 15 years, he would receive 15/40 or 37.5% of the full OAS pension1

References = web search results from search_web(query="Old Age Security pension eligibility")

Capital gains are realized when an investor sells a fund at a profit. Selling units at $18.80 (purchased at $17.60) triggers a taxable capital gain in a non-registered account. The feedback from the document states:

"Capital gains are generated when an investor sells an investment for more than the price paid; for example, selling a stock at a profit will generate a capital gain. Capital gains are not realized when an investment goes up in price; a sale must occur."

Sabrina’s RRSP contribution room for Year 3 is $24,270. This is because the maximum contribution limit for Year 3 is $24,270 and Sabrina has always maximized her RRSP contributions, so she has no carry-forward room available.

Canadian Investment Funds Course, Chapter 5: Registered Plans

The endowment bias occurs when investors place a higher value on assets they already own compared to the market value, simply because of ownership.

Dave overvalues his property relative to the market.

Farida = representativeness bias.

Kendra = availability bias.

Peter = status quo bias.

Thus, Dave demonstrates endowment bias.

Direct use of capital savings involves investing in tangible projects or assets, such as constructing infrastructure or facilities. Building a new factory is a direct application of capital savings. The feedback from the document states:

"Capital savings are used directly by, for example, a couple investing their savings in a home; a government investing in a new highway or hospital; or a domestic or foreign company paying start-up costs for a plant to produce a new product."

 A life income fund (LIF) is a type of registered retirement income fund (RRIF) that can be used to hold locked-in pension funds as well as other assets for an eventual payout as retirement income. A LIF cannot be withdrawn in a lump sum and has minimum and maximum withdrawal amounts each year. A LIF can only be funded by transferring money from a locked-in retirement account (LIRA) or another LIF. Therefore, D is the correct answer. References: Life Income Fund (LIF): Definition and How Withdrawals Work - Investopedia, Retraite Québec - Characteristics of an LIF

To protect against a market decline, purchasing put options on an index fund like the iShares S&P/TSX 60 allows the portfolio to offset losses by gaining value if the market falls. The feedback from the document states:

"A fund manager may have experienced a rapid growth in the value of her portfolio, but is concerned that the market may fall. To protect herself against a fall in value, she purchases put options on the iShares S&P/TSX 60 Index Fund (i60s). If the market declines, the fall in value of the portfolio is offset by an increase in the value of the put options."

The dividend tax credit for Canadian dividends is calculated based on the grossed-up dividend amount. For eligible dividends, the gross-up is 38%. The taxable amount for $1,200 in dividends is $1,200 × 1.38 = $1,656. The dividend tax credit is 15.02% of the grossed-up amount: $1,656 × 15.02% = $248.73. The feedback from the document confirms:

"The taxable amount of the dividend is the income received plus a 38% gross-up amount. In this example, $1,200 + ($1,200 × 38%) = $1,656. The dividend tax credit is 15.02% of the grossed-up amount, in this example, $1,656 × 15.02% = $248.73."

Variance measures the dispersion of returns around the mean; lower variance indicates greater stability and less volatility. Adding a security with low variance and low correlation to the portfolio reduces overall risk .

High standard deviation = higher risk.

High beta = greater sensitivity to market moves .

Low alpha = underperformance, not risk reduction.

Thus, the feature that reduces portfolio risk is Low variance.

Canadian preferred share funds distribute income in the form of eligible Canadian dividends, which are tax-advantaged through the dividend tax credit.

In contrast:

U.S. preferred dividends are taxed as foreign income, fully taxable without credits.

Mortgage and bond funds generate interest income, which is fully taxable at the investor’s marginal rate.

Therefore, the most tax-advantaged distribution comes from a Canadian preferred share fund.

An annuity provides a steady income stream until the client’s death, suitable for someone with uncertain income sources and no interest in leaving a legacy. The feedback from the document states:

"The client needs a steady source of income from his investment. This rules out a ratio withdrawal plan and a life withdrawal plan. With a fixed-dollar withdrawal plan his capital could be exhausted before he dies. He should choose an annuity that will pay a fixed amount every year until his death. If he lives beyond the guaranteed term, the annuity will cease with his death, but this fact is not important as he does not wish to leave a legacy."

A treasury bill is a short-term debt instrument issued by the government at a discount from its face value and redeemed at par value at maturity. The difference between the purchase price and the face value is the interest income earned by the investor. Therefore, Megan treats the $1,800 difference as interest income for tax purposes. Interest income is fully taxable at the investor’s marginal tax rate in the year it is received. Megan does not report any capital gain, dividend, or return of capital from the treasury bill.

Canadian Investment Funds Course, Unit 5, Section 5.2

The custodian, typically a trust company, receives and holds all funds from investors and other sources, managing the fund’s assets and expenses. The feedback from the document states:

"The Custodian. When a mutual fund is established, a separate organization, most often a trust company, is appointed as the fund’s custodian. The custodian receives and holds the fund’s money obtained from all sources – investors buying the fund’s units or shares, income earned by the fund’s investment portfolio, proceeds from the sale of the fund’s investments, holds all the fund’s assets and distributes the fund’s money to pay the fund’s expenses."

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."

Contractionary monetary policy is used when the economy is overheating or facing inflationary pressure.

The Bank of Canada increases interest rates, which leads to reduced borrowing and lending.

This action decreases the money supply in circulation and reduces the availability of credit to consumers and businesses.

Therefore, the correct effect of contractionary monetary policy is that it reduces both money supply and credit in the economy.

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

A registered disability savings plan (RDSP) is a savings plan intended to help parents and others save for the long-term financial security of a person who is eligible for the disability tax credit (DTC). The DTC is a non-refundable tax credit that helps persons with disabilities or their supporting persons reduce the amount of income tax they may have to pay. To be eligible for the DTC, a person must have a severe and prolonged impairment in physical or mental functions, as defined by the Income Tax Act and as certified by a medical practitioner. Therefore, Alex must qualify for the DTC in order to be eligible for an RDSP. References: What is a registered disability savings plan (RDSP) - Canada.ca, Disability tax credit - Canada.ca

A self-directed RESP is a type of RESP where the subscriber (the person who opens the plan) has the freedom to choose and manage the investments within the plan, such as stocks, bonds, mutual funds, etc. A self-directed RESP can have one or more beneficiaries (the children who will use the funds for their education) and can be individual or family plans. A self-directed RESP is eligible for the Canada Education Savings Grant (CESG), which is a 20% matching grant on the first $2,500 of annual contributions per beneficiary, up to a lifetime limit of $7,200. Additionally, low income families who qualify may receive an extra 10% or 20% on the first $500 of annual contributions per beneficiary, depending on their net family income. This is called the Additional CESG. Educational Assistance Payments (EAPs) are the payments made from the RESP to the beneficiary when they enroll in a qualifying post-secondary program. EAPs consist of the CESG, the Additional CESG, and any income or growth earned within the plan. EAPs may be used for any education-related expenses, such as tuition, books, transportation, accommodation, etc. EAPs are taxable in the hands of the beneficiary, who usually has a lower tax rate than the subscriber.

Canadian Investment Funds Course, Chapter 5: Registered Plans1

Shirley’s risk profile is the primary consideration for Jonathan when making an investment recommendation. Risk profile is a measure of how much risk an investor is willing and able to take on in their portfolio. It is determined by factors such as age, income, net worth, investment objectives, time horizon, and personal preferences. It is essential for a dealing representative to assess the risk profile of their client before recommending any investment products or strategies, as they have a fiduciary duty to act in the best interest of their client and ensure that their recommendations are suitable for their client’s needs and goals. The other variables are also important, but they are secondary to the risk profile. References: [Risk Profile], [Know Your Client (KYC)]

When anticipating rising interest rates, a fund manager using an interest rate anticipation philosophy should reduce interest rate sensitivity by increasing holdings in short-term T-bills and high coupon bonds, which are less affected by rate increases. The feedback from the document states:

"Interest rate anticipation is a fixed-income investing philosophy that involves moving between long-term government bonds and very short-term T-bills, based on a forecast of interest rates over a certain time horizon. Price sensitivity to interest rate movements increases as the term to maturity increases and the coupon decreases. Therefore, to avoid a large capital loss if interest rates rise, the fund manager would decrease the fund's interest rate sensitivity."

 Hamid is using a bottom-up investment approach, which focuses on the analysis of individual stocks rather than the overall market or industry trends. Hamid is looking for companies that have strong fundamentals and are undervalued by the market, regardless of their sector or macroeconomic factors. References: Investment Strategies to Learn Before Trading

Long transactions involve buying a security with the expectation that its price will increase, while short transactions involve borrowing and selling a security with the hope of buying it back at a lower price. The feedback from the document states:

"Short transactions are a common feature of the capital markets, although not as common as long transactions – the transactions taken by investors who anticipate a price increase in the security. Investors who short sell stocks must first borrow the shares. They must also declare their short transactions."

The investment objective for the $10,000 currently sitting in Lucas’s RRSP is safety of principal, which means that he wants to preserve the value of his investment and avoid any loss of capital. Safety of principal is a suitable objective for Lucas because he plans to withdraw the money in two months for the LLP, which is a very short time horizon. He does not need to generate any income or growth from his investment, as he will use the money to pay for his education expenses. He also does not need to worry about tax-deferral, as the LLP allows him to withdraw money from his RRSP without paying any tax, as long as he meets the eligibility and repayment requirements1. Therefore, Lucas should invest his money in low-risk and liquid assets, such as money market securities or guaranteed investment certificates (GICs), that will protect his principal and ensure that he can access his funds when he needs them. References:

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 6: Registered Plans, Section 6.4: Lifelong Learning Plan (LLP), page 6-132

Lifelong Learning Plan (LLP) - Canada.ca1

Government of Canada Bonds are fixed income securities issued by the federal government that pay a fixed rate of interest (coupon) and return the principal amount (par value) at maturity. They are considered low risk investments, as they are backed by the full faith and credit of the government. They also provide regular income to investors, as they pay interest semi-annually. For Sheldon, who has a low risk profile and an investment objective of receiving regular income, 3% Government of Canada Bonds at par would be an appropriate investment recommendation, as they would match his time horizon of 5 years and provide him with a stable and predictable income stream. The other options are not suitable for Sheldon, as they involve higher risk, volatility, or complexity.

References = Canadian Investment Funds Course, Unit 5: Types of Investments, Lesson 2: Fixed Income Securities, Section 5.2.1: Government Bonds1; CIFC prepkit, Chapter 5: Types of Investments, Question 5.2.1 2

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)

Old Age Security (OAS) requires Canadian residency for eligibility. A pensioner must typically have resided in Canada for at least 10 years after age 18 to qualify.

CPP (C) is contributory and based on employment earnings, not residency.

RPP (B) is an employer-sponsored pension, not linked to residency.

GIS (D) is a supplement to OAS and also requires residency but is dependent on OAS eligibility.

Given Jeff’s low wealth level and strong emotional biases, the advisor should moderate and adapt to these emotional biases to ensure suitable investment recommendations. The feedback from the document states:

"Jeff has a relatively low level of wealth and strong emotional biases; that’s why the advisor should moderate and adapt to Jeff’s emotional biases."

Ethics in the securities industry are defined as moral principles that go beyond simple compliance with the law, incorporating both the letter and the spirit of the law .

Compliance = following rules only.

Fiduciary duty = acting in the best interest of clients.

Professional responsibility = broader conduct obligations.

The correct term here is Ethical conduct.

According to the MFDA rules, a Member or an Approved Person cannot accept or act upon a general power of attorney or other similar authorization from a client in favour of the Member or Approved Person, unless the client is a spouse, parent, or child of the Approved Person and certain conditions are met. However, a Member or an Approved Person can accept a limited trading authorization from a client, which allows the Member or Approved Person to execute trades on behalf of the client, but not to engage in any discretionary trading. Therefore, Josephine can accept a limited POA from her brother, as long as she does not make any investment decisions without his consent.

References = Canadian Investment Funds Course (CIFC) - Module 1: The Financial Services Industry - Section 1.3: Know Your Client (KYC)1 and web search results from search_web(query="power of attorney and mutual fund dealers association rules")23

1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-1.pdf

The maximum tax-deductible RRSP contribution is calculated as 18% of the previous year’s earned income, minus the pension adjustment, plus any carry-forward contribution room. In this case:

(18% × $45,000) = $8,100

$8,100 - $2,500 (pension adjustment) + $2,000 (carry-forward) = $7,600.

The feedback from the document confirms:

"Joanne’s tax-deductible RRSP contribution room would be calculated as (18% × $45,000) - $2,500 + $2,000 = $7,600."

Unused RRSP contribution room is the amount of RRSP contributions that you did not deduct in previous years and are available to deduct in the current year. Unused RRSP contribution room can be carried forward to future years indefinitely, until you use it up or reach the age of 71. You can find your unused RRSP contribution room on your notice of assessment or by logging into your Canada Revenue Agency account. References: What to do with unused RRSP, PRPP or SPP contributions

Sales communication is any written or electronic communication that is intended to promote the sale of a mutual fund, or to influence a person to buy or sell a mutual fund. Sales communication includes any advertisement, brochure, report, newsletter, or other material that is distributed to existing or potential clients. A marketing brochure is an example of sales communication, as it is designed to inform and persuade clients about the features and benefits of a mutual fund. A prospectus, a fund facts, and an annual information form are not considered sales communication, as they are legal documents that provide essential information about a mutual fund, such as its investment objectives, strategies, risks, fees, and performance. These documents are required by securities regulators and must be delivered to investors before or after they purchase a mutual fund.

References = Canadian Investment Funds Course, Unit 7: The Regulatory Environment, Lesson 2: Sales Communication, Section 7.2.1: Definition and Scope of Sales Communication1; CIFC prepkit, Chapter 7: The Regulatory Environment, Question 7.2.1 2

Structural unemployment occurs when there is a mismatch between available jobs and the skills of workers. This is exactly the case when there is a lack of skilled workers in the economy.

Cyclical unemployment (A) arises during economic downturns.

Frictional unemployment (C) is temporary, due to workers moving between jobs.

Seasonal unemployment (D) arises in industries affected by seasonal patterns (e.g., agriculture, tourism).

Dale is using his mutual fund portfolio for income, is comfortable with variable payouts, and accepts market fluctuations.

A ratio withdrawal plan pays out a fixed percentage of the fund’s value each year. Since the percentage is applied to a fluctuating fund value, the payouts vary with market performance. This makes it suitable for investors who can tolerate variability.

In contrast:

Life withdrawal plans and annuities provide more predictable income.

Fixed-period plans are designed to exhaust the investment over a set period, which may not align with Dale’s needs.

Thus, the best option is the Ratio withdrawal plan, which matches Dale’s comfort with variable payouts and fluctuating markets.

The duty of care includes Know Your Client (KYC) and due diligence. Due diligence means ensuring that product recommendations are suitable, unbiased, and based on a careful review of the product’s risks, costs, and client needs.

Jane violated due diligence by recommending a fund based on a sales incentive ($50 bonus) rather than analyzing suitability for her clients.

The market value of a perpetual preferred share is calculated by dividing the annual dividend by the yield of similar shares. Annual dividend = $0.25 × 4 = $1.00. Price = $1.00 / 0.035 = $28.57. The feedback from the document states:

"The current market value of a perpetual preferred share is calculated by dividing the annual dividend in dollars by the annual yield currently offered on preferred shares of a similar level of risk. In this case, the share would be valued as: ($0.25 × 4) / 0.035 = $28.57."

A long margin purchase means buying securities partly with borrowed funds from the dealer .

The investor pays part of the purchase price (the margin), while the dealer lends the balance .

This differs from:

A (cash purchase): uses only own funds.

B (limit order): unrelated, based on price conditions.

D (short sale): selling borrowed shares, not buying.

Correct action = buying shares on borrowed funds at market price.

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.

For non-registered accounts, the mandatory personal information includes the client’s full legal name and permanent address, while date of birth and social insurance number are recommended but not required. The feedback from the document states:

"The first step as a dealing representative is to obtain a client’s personal data including full legal name, permanent and mailing address, social insurance number and date of birth. While a permanent address is mandatory, providing a different mailing address is optional. Neither the social insurance number nor date of birth are mandatory for non-registered accounts, but both are highly recommended."

According to the Registered Investments (RIs) - Canada.ca, you must inform the regulatory authorities of any material or significant changes to your personal circumstances, such as a change of name, address, or employment status. You must also report any disciplinary actions, criminal charges, or civil lawsuits that may affect your suitability as a registrant. Failing to do so may result in suspension or revocation of your registration.

When an investor purchases a mutual fund, the price is based on the next NAVPS (Net Asset Value Per Share) calculated after the order is entered. Orders placed before 4:00 p.m. ET are priced at that day’s closing NAV; orders after 4:00 p.m. are priced using the next business day’s NAV.

Since the order was placed at 2:30 p.m. ET, today’s NAV applies.

Sean’s distribution is reinvested at a NAVPU of $19.75 and he receives approximately 31.65 additional units. When a mutual fund declares a distribution, it reduces its NAVPU by the amount of the distribution per unit. In this case, the NAVPU drops from $21 to $19.75 after the distribution of $1.25 per unit. Sean’s distribution is $625 ($1.25 x 500 units), which he reinvests in the mutual fund at the new NAVPU of $19.75. He receives

additional units. The total value of Sean’s mutual fund holdings after the distribution and reinvestment is

(500+31.65)×19.75=$10,500

, not $9,875. The NAVPU of the mutual fund does change after the distribution, regardless of whether Sean reinvests his distribution or not. References: [Unit 7: Mutual Funds Administration]

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 corporations12. 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

Discussing a client’s household budget is part of identifying their financial situation and constraints, a key step in the financial planning process. The feedback from the document states:

"The household budget is part of the discussions related to identifying financial problems and constraints."

Dividends from both preferred and common shares of Canadian corporations receive preferential tax treatment because they are eligible for the dividend tax credit. This credit reduces the amount of tax payable on dividend income by accounting for the tax that the corporation has already paid on its earnings. Dividends from non-resident corporations do not qualify for this credit and are taxed at the same rate as interest income. Only 50% of capital gains, not dividend income, are subject to tax. References: The Dividend Tax Rate in Canada: What You Need to Know Now - Hardbacon, How are Dividends Taxed in Canada? Exploring the Canadian Dividend Tax Credit

Orel’s goal is to build emergency savings, which means he needs a flexible and accessible account that does not penalize withdrawals. A TFSA is more suitable for this purpose, as it allows tax-free withdrawals at any time and does not affect other income-tested benefits. An RRSP, on the other hand, is designed for long-term retirement savings, and withdrawals are subject to income tax and withholding tax. Moreover, RRSP withdrawals reduce the contribution room permanently, and may affect eligibility for government benefits such as the Canada Child Benefit or the Guaranteed Income Supplement.

References = Canadian Investment Funds Course (CIFC) - Module 3: Registered Plans - Section 3.1: Registered Retirement Savings Plan (RRSP)1 and Section 3.2: Tax-Free Savings Account (TFSA)2

1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf 2: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-3.pdf

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

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.

Target-date funds (also called life-cycle funds) automatically adjust their asset allocation (glide path) over time. They start with a growth-oriented strategy (more equities) and gradually shift towards conservative allocations as the target date approaches.

This matches the father’s goal: minimal management required while allowing for growth in earlier years and reduced risk later.

Balanced equity, high-yield income, and global equity funds do not automatically shift allocations over time.

Thus, the most appropriate choice is Target date fund.

The Strategic Investment Planning (SIP) process is a four-step process that helps advisors to create and deliver customized investment plans for their clients. The four steps are:

Clarify Client Status, Problems and Opportunities: This step involves gathering information about the client’s personal and financial situation, goals, risk tolerance, and investment knowledge. The advisor also identifies the client’s problems and opportunities, such as tax issues, estate planning needs, or market trends.

Identify Strategies and Present the Plan: This step involves analyzing the information collected in the previous step and developing strategies to address the client’s problems and opportunities. The advisor also presents the plan to the client, explaining the rationale, benefits, costs, and risks of the proposed strategies. This is the stage where Sonya mentions factors such as inflation, interest rates, and rates of return, as they are relevant to the investment approaches she is offering to Elijah.

Implement the Plan: This step involves executing the agreed-upon strategies with the client’s consent. The advisor also ensures that the necessary documentation and transactions are completed.

Monitor and Update: This step involves reviewing the performance of the plan and making adjustments as needed. The advisor also communicates with the client regularly and updates the plan according to any changes in the client’s situation or goals.

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 2: The Sales Process, Section 2.3: The Strategic Investment Planning (SIP) Process, page 2-81

Strategic Investment Planning Process - IFSE Institute2

A registered retirement savings plan (RRSP) is a type of tax-deferred account that allows individuals to save for retirement. Contributions to an RRSP are deductible from taxable income, which means that they reduce the amount of income tax payable for the year. The amount of tax savings from an RRSP contribution depends on the individual’s marginal tax rate, which is the tax rate applied to the next dollar earned. Leira has a marginal tax rate of 45% and may deduct $5,000 in RRSP contributions on her income tax return. If she decides to use her available deduction and assuming this does not reduce her taxable income to a lower tax bracket, by how much will it reduce her tax payable? To answer this question, we can use the following formula: $$(Tax savings = RRSP contribution \times Marginal tax rate)

A mutual fund trust is a type of unit trust that meets certain conditions under the Canadian Income Tax Act and is eligible for favourable tax treatment. A unit trust is a collective investment vehicle that holds assets and distributes profits to individual unit owners, also called unitholders, instead of reinvesting them in the fund. A mutual fund trust is not a corporation and does not have a board of directors or shareholders. It is also not a closed-end fund, which has a fixed number of shares that trade on an exchange. A mutual fund trust is an open-end fund, which can issue and redeem units at any time based on the net asset value of the fund.

Canadian Investment Funds Course, Unit 5, Section 5.1

Survivorship bias occurs when underperforming funds are terminated and excluded from performance rankings, making surviving funds appear to perform better over time. The feedback from the document states:

"All comparison universes exhibit some degree of survivorship bias no matter how carefully the universes are constructed. Survivorship bias develops as defunct portfolios drop out and are excluded from rankings in subsequent quarters. Funds that are terminated or cease to exist are usually those who have been unsuccessful, creating an upward bias in the returns of longer-run funds in the surviving universe."

Securities commissions are responsible for regulating mutual and investment funds in Canada. The feedback from the document confirms:

"The responsibility of regulating mutual funds lies with the securities commissions."

An RRSP must be terminated by the end of the calendar year in which the holder turns 71. At that time, assets must either be:

Withdrawn in full (taxable),

Converted to a Registered Retirement Income Fund (RRIF), or

Used to purchase an annuity.

Thus, the correct age is 71.

A target date fund is a type of mutual fund that adjusts its asset allocation and risk level according to a predetermined future date, such as retirement or college education. A target date fund typically starts with a higher proportion of stocks and a lower proportion of bonds and cash, and gradually shifts to a more conservative mix as the target date approaches. This is called the fund’s glide path, which shows the asset mix through the life of the fund until the future date. Russell is permitted to include this information on his website, as it is factual and relevant to the fund’s characteristics and suitability. Russell is also permitted to include information about the expected decline in the fund’s risk level as the fund reaches its target date, as this is part of the fund’s objective and strategy. However, Russell is not permitted to include any information that implies or suggests that the target date fund offers a guaranteed return or a promised growth on the future date, as this would be misleading and inaccurate. Target date funds are not guaranteed investments, and their performance depends on the market conditions and the fund manager’s decisions. Russell must not make any false or exaggerated claims about the target date fund’s benefits or returns on his website.

Canadian Investment Funds Course, Chapter 7: Know Your Product1

Market risk, or systematic risk, arises from factors affecting the entire market, such as changes in inflation or interest rates, and cannot be fully eliminated through diversification. The feedback from the document states:

"Once a portfolio becomes well diversified, the only remaining risk to be concerned about is market risk. Market risk is defined as the variability of a stock or a portfolio in relation to the market as a whole. The process of diversification cancels out much firm-specific risk, so market risk is less than the total risk you would calculate if you looked at each stock separately. Market risk is also referred to as systematic risk and arises from such things as inflation, the business cycle, and interest rates."

By asking Brad about his financial obligations and assets, you are trying to gather information about his net worth, which is one of the essential facts that you need to know about your client according to the KYC rule. Net worth is the difference between the total value of a client’s assets and the total value of their liabilities. It reflects the client’s financial position and helps you assess their risk tolerance, investment objectives, and suitability for different products and services.

References = Canadian Investment Funds Course (CIFC) - Module 1: The Financial Services Industry - Section 1.3: Know Your Client (KYC)1 and web search results from search_web(query="know your client rule")23

1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-1.pdf

Eligible dividends from a publicly-listed Canadian corporation would provide the most favourable tax treatment for Bernadette, who is in the top tax bracket. Eligible dividends are subject to a lower tax rate than other types of income because they qualify for the enhanced dividend tax credit. This credit is intended to reduce the double taxation of corporate income, which occurs when a corporation pays tax on its earnings and then distributes those earnings to its shareholders, who also pay tax on them. Dividends received from a large foreign corporation do not qualify for the dividend tax credit and are taxed at the same rate as interest income. Coupon payments from Government of Canada bonds are also fully taxable as interest income. Capital gains from a large Canadian corporation are taxed at a lower rate than interest income, but higher than eligible dividends, because only 50% of the gain is included in taxable income. References: Capital gains, interest and dividends: How they’re taxed in Canada, How Are Dividends Taxed in Canada?

This is the net asset value per unit (NAVPU) for the Marigold Canadian Dividend Fund for July 6. The NAVPU is calculated by dividing the net asset value (NAV) of the fund by the number of units outstanding. In this case, the NAVPU is $8.25 ($45,668,900 / 5,564,443).

The NAV is the value of a fund’s assets minus the value of its liabilities. The value of assets is the value of all the securities in the portfolio, plus any cash and cash equivalents, plus any accrued income for the day. The value of liabilities is the value of all short-term and long-term liabilities, plus any accrued expenses for the day. The NAV is usually expressed on a per-share or per-unit basis, which is the NAVPU.

The NAVPU is the price at which investors can buy or sell units of the fund. It is determined at the end of each trading day based on the closing market prices of the portfolio’s securities. The NAVPU can change daily depending on the performance of the securities in the fund and the fund’s expenses.

A mutual fund trust structure allows the fund to avoid taxation by distributing its income to unitholders. The feedback from the document states:

"The most common structure for mutual funds in Canada is the open-end trust. The trust structure allows a fund itself to avoid taxation. Any interest, dividends and capital gains income, net of the fund’s fees, expenses and capital losses, if passed to its unitholders each calendar year, will allow the trust to avoid being taxed on its income."

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."

 Dollar-cost averaging is the practice of systematically investing equal amounts of money at regular intervals, regardless of the price of a security. This strategy can reduce the overall impact of price volatility and lower the average cost per share. By buying regularly in up and down markets, investors buy more shares at lower prices and fewer shares at higher prices. Dollar-cost averaging aims to prevent a poorly timed lump sum investment at a potentially higher price. References: What Is Dollar-Cost Averaging? - Investopedia

Quartile rankings divide funds into four equal groups, with the 1st quartile being the top 25%. A rank of 54 out of 100 places the fund in the 3rd quartile (51–75). The feedback from the document states:

"A quartile sorts performance into four equal parts or blocks. The quartiles are given a rank – 1, 2, 3 or 4 – to show how well a certain fund’s performance compared to all other funds in the peer group, with the 1st quartile representing the top 25 performers."

A is correct because Francis will receive $37,888 in Canadian dollars when he redeems the Funds. This is calculated by dividing the current proceeds from the redemption in US dollars by the current CAD/USD exchange rate and rounding to the nearest dollar. That is,

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

A put option is a contract that gives the buyer the right, but not the obligation, to sell an underlying stock at a specified price (the strike price) within a specified time period (the expiration date). The seller of a put option is obligated to buy the stock if the buyer exercises the option. Patrick can purchase put options for the fund’s existing assets, which means he can lock in a minimum selling price for his stocks in case the market value drops below the strike price. This way, he can protect against potential losses and hedge his portfolio against market risk. References: What Is a Put Option and How to Use It With Example - Investopedia, How to Hedge With Stock Index Futures - Investopedia

In volatile market conditions with rising interest rates, asset allocation fund managers may shift to money market securities to reduce risk. The feedback from the document states:

"Asset allocation funds ideally provide a ‘balanced’ mix of safety, income and capital appreciation… When both bond and stock markets are volatile, they will hold large amounts of money market securities. In other words, asset allocation mutual fund managers attempt to time the market to get the best returns depending on market conditions."

The correct answer is A. Indicates how much an investment’s performance fluctuates around its average historical return.

Standard deviation is a measure of how spread out the data points are from the mean value. It is calculated as the square root of the variance, which is the average of the squared differences from the mean. Standard deviation can be used to assess the volatility or risk of an investment by showing how much the returns deviate from the expected or average return. A higher standard deviation means that the investment has a wider range of possible outcomes, which implies more uncertainty and risk. A lower standard deviation means that the investment has a narrower range of possible outcomes, which implies more stability and consistency.

B. A standard deviation greater than one indicates a higher level of volatility than the market. This statement is incorrect because the standard deviation of an investment is not directly comparable to the standard deviation of the market, unless they have the same mean return. The standard deviation of an investment only measures the absolute variation of the returns, not the relative variation to the market. A better measure of the relative volatility of an investment to the market is beta, which is the ratio of the covariance of the investment and the market to the variance of the market.

C. Measures the systematic risk of an investment relative to a benchmark index. This statement is incorrect because the standard deviation of an investment does not distinguish between the systematic risk and the unsystematic risk. The systematic risk is the risk that affects the entire market or a large segment of the market, such as inflation, interest rates, or political events. The unsystematic risk is the risk that affects a specific investment or a small group of investments, such as management decisions, product quality, or lawsuits. The standard deviation of an investment captures both types of risk, whereas the beta of an investment only captures the systematic risk.

D. Standard deviation is also referred to as beta. This statement is incorrect because standard deviation and beta are different measures of risk. Standard deviation measures the absolute variation of the returns of an investment, whereas beta measures the relative variation of the returns of an investment to the market. Standard deviation is a measure of total risk, whereas beta is a measure of systematic risk.

The availability bias occurs when investors rely on easily available or recent information rather than a thorough analysis. In this case, the investor bases decisions on internet recommendations and stock tips, believing they are accurate, instead of analyzing fundamentals. This clearly matches availability bias.

Endowment bias applies when investors overvalue what they already own.

Representativeness bias applies when investors judge outcomes by stereotypes or past patterns.

Overconfidence refers to excessive faith in one’s own knowledge.

Thus, the behavioural bias here is Availability .

The peak stage of the business cycle is marked by demand exceeding supply, leading to rising wages, inflation, and interest rates, while sales slow and business investment decreases. The feedback from the document states:

"The top of the cycle is called a peak. A peak is characterized by the following activities: demand begins to outstrip the capacity of the economy to supply it; wages increase; inflation rises; interest rates rise and bond prices fall; sales begin to decline; business investment slows, and stock market activity begins to decline."

The Fund Facts document is a summary disclosure document that highlights key information about a mutual fund or an exchange-traded fund (ETF), such as the performance history, investments, fees, and risks. According to the Point of Sale (POS) disclosure rules, a Dealing Representative must provide and explain the Fund Facts document to the client before accepting an order to buy or switch a fund. This allows the client to make an informed investment decision and to know their rights.

References = Fund Facts | AMF - Autorité des marchés financiers, Fund Facts/ETF Facts - Fidelity, Understanding Fund Facts | GetSmarterAboutMoney.ca, IFSE CIFC Module 2: The Investment Industry, page 2-16.

A conflict of interest is a situation in which a person’s personal interests conflict with their professional duties or responsibilities. A conflict of interest should be avoided or disclosed to prevent harm to the client or the registrant. In this case, Arilla’s client, Gwen, wants to co-invest with Arilla in units of a real estate limited partnership. This is a conflict of interest because Arilla may have a personal interest in the investment that could influence her advice to Gwen or affect her ability to act in Gwen’s best interest. For example, Arilla may benefit from the investment at Gwen’s expense, or she may have access to information that Gwen does not have. Therefore, this is a conflict of interest that should be avoided by Arilla. She should decline Gwen’s offer and explain that it would compromise her professional obligations and fiduciary duty to Gwen.

Canadian Investment Funds Course, Unit 2, Section 2.3

Guaranteed Income Supplement (GIS) and Allowance for the Survivor are both income-tested benefits that are part of the Old Age Security (OAS) program. They are designed to provide financial assistance to low-income seniors who meet certain eligibility criteria. GIS is a monthly payment that supplements the OAS pension for seniors whose income is below a certain threshold. Allowance for the Survivor is a monthly payment for low-income seniors aged 60 to 64 whose spouse or common-law partner has died and who have not remarried or entered into another common-law relationship. The benefit amounts for both GIS and Allowance for the Survivor depend on the income level of the recipient and are adjusted quarterly based on the Consumer Price Index. The higher the income, the lower the benefit amount, until it reaches zero at a certain income limit. Therefore, eligibility for both GIS and Allowance for the Survivor depends on income level.

Canadian Investment Funds Course, Chapter 5: Registered Plans1

A bond fund is a mutual fund that invests primarily in bonds and other debt securities. Income from a bond fund will primarily be interest but may also be capital gains if the fund sells bonds that have appreciated in value. Bond funds are not very low risk because they can fluctuate in value depending on interest rate changes and credit risk. If interest rates rise, the value of a bond fund will tend to fall because existing bonds will become less attractive than new bonds with higher rates. Securities regulation does not specify that bond funds must invest in investment grade bonds, although some funds may have this as an investment objective or policy. References: What Is a Bond Fund?

Hedge fund incentive fees apply only to returns above the hurdle rate.

Gross return = 22%

Hurdle rate = 5%

Excess return = 22% − 5% = 17%

Incentive fee = 20% × 17% = 3.4%

Thus, the fund manager earns 3.4% compensation.

The financial planning pyramid illustrates the risk-return spectrum of investments. For a very aggressive investor, high-risk securities like OTC securities are suitable. The feedback from the document states:

"As a visual aid, the planning pyramid helps you show clients how mutual funds fit into the investment universe. A very aggressive investor could consider investments such as OTC Securities."

A registrant adds value by helping clients match mutual fund solutions to their needs and objectives, not by making promises or pushing products.

B (low MERs) is one factor, but not the entire scope of advice.

C (guaranteeing performance) is unethical and prohibited.

D (cross-selling) prioritizes the dealer, not the client.

A Canadian equity index fund is a type of mutual fund that invests in stocks that track a Canadian equity market index, such as the S&P/TSX Composite Index or the S&P/TSX 60 Index. These indices measure the performance of the largest and most liquid companies listed on the Toronto Stock Exchange (TSX). A Canadian equity index fund aims to replicate the returns of the index it follows, before fees and expenses. Therefore, this type of fund would be best for Karen, who has a long time horizon, is comfortable with risk and volatility, and is primarily interested in growth. She also wants a mutual fund that will closely match what she sees on the TSX. References: CIBC Canadian Equity Index ETF, Top Canadian Index Funds of 2023 | The Motley Fool Canada

 A commodity pool is a type of mutual fund that can invest in specified derivatives and forward contracts for commodities, such as grains, meats, metals, energy products, and coffee. A commodity pool allows investors to gain exposure to the commodity markets without having to buy or sell the physical commodities themselves. A commodity pool may also use leverage and hedging strategies to enhance returns and reduce risks. Therefore, B is the correct answer. References: Commodity Pool: Definition and How It Works - Investopedia, Canadian Investment Funds Course (CIFC) | IFSE Institute

Asset allocation should be reviewed when the investment environment changes to ensure it remains suitable for the client’s objectives. The feedback from the document states:

"In general terms, an equity weighting of less than 25% is considered conservative and more than 75% is considered aggressive. Only if the client is very aggressive should the weighting of his equity component reach 90%."

MFDA Policy No. 3 requires that all written client complaints, including emails, be acknowledged in writing. The feedback from the document states:

"MFDA Policy No. 3 specifies the minimum procedures for dealing with written client complaints (including emails). All written client complaints must be acknowledged in writing."

Trailer fees are ongoing fees that are paid by mutual fund managers to mutual fund dealers for providing ongoing services to their clients who hold units of their funds. Trailer fees are calculated as a percentage of the value of assets under management (AUM) of the clients who hold units of the fund. Trailer fees are paid out of the management fee that is charged by the mutual fund manager to cover the costs of operating and administering the fund. Therefore, option C is correct regarding mutual fund fees. The other options are incorrect. Option A is false because redemptions are not made from units held by investors to pay trailer fees; rather, trailer fees are paid out of the management fee that is deducted from the net asset value (NAV) of the fund. Option B is false because trailer fees are not only paid to mutual fund dealers when a purchase is made; rather, trailer fees are paid on an ongoing basis as long as the clients hold units of the fund. Option D is false because trading commissions are not paid from the management fee; rather, trading commissions are paid from the trading expense ratio (TER) that reflects the costs of buying and selling securities within the fund. References: [Mutual Fund Fees Explained | Wealthsimple], [Mutual Fund Fees | GetSmarterAboutMoney.ca], [Understanding Mutual Fund Fees | Investopedia]

The holding out rule is a regulatory requirement that prohibits registered individuals from using any title or designation other than their registration category when dealing with clients or potential clients. The purpose of this rule is to prevent misleading or confusing representations about the qualifications, roles, and responsibilities of registered individuals. According to Section 4.4 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), individuals who are registered to sell mutual funds must use the title “dealing representative” when holding out to clients or potential clients. Therefore, Ai Fen must prominently note “dealing representative” on her business card to comply with the holding out rule. The other options are not valid registration categories for selling mutual funds. Option B is a generic term that does not specify the type of securities that can be sold. Option C is a registration category for individuals who trade securities on behalf of an investment dealer. Option D is a professional designation that does not indicate registration status. References: [Holding Out Rule], [Registration Categories], [Registration Requirements, Exemptions and Ongoing Registrant Obligations]

Taline’s risk profile should be “low” because her risk capacity is low and she cannot afford large investment losses. Risk capacity is the degree of risk that an investor must take in order to achieve their financial goals, while risk tolerance is the degree of risk that an investor is willing to take. Risk capacity is more important than risk tolerance in determining an investor’s risk profile1. Taline has a low risk capacity because she lives on a low, fixed income and cannot afford to lose money. Her risk tolerance may be high, but that does not mean she should take more risk than she can handle. Faruq should not override Taline’s risk capacity or assess her risk profile based on the higher of her risk tolerance and risk capacity, as that would be unsuitable and unethical. References: Unit 3: Suitability

Loss-averse investors prioritize minimizing potential losses over maximizing gains. The option with a 25% chance of gaining $2,000 and a 75% chance of losing nothing has the lowest loss potential, making it the preferred choice. The feedback from the document states:

"The loss-averse investor will choose a lower potential of loss over a more rational choice. In this example, a 25% chance of gaining $2,000 and a 75% chance of losing nothing has the lowest possible loss potential, and will typically be the statement selected by the loss-averse investor."

Beta is a relative measure that compares how an investment reacts to movements in a specific index. A beta of 1 means that the investment moves in sync with the index. A beta greater than 1 means that the investment is more volatile than the index. A beta less than 1 means that the investment is less volatile than the index.

Withdrawals under a ratio withdrawal plan are based on the current portfolio value, ensuring the fund is never fully depleted unless a 100% payout ratio is used. The feedback from the document states:

"Under a ratio withdrawal plan, the ratio is always based on the current portfolio value. Technically, this means that clients will never fully exhaust their mutual fund investment under this type of plan. Only in the unrealistic situation of a 100% payout ratio would the fund be completely paid out."

To make a suitable recommendation, Solomon needs to identify how the proposed investment is in alignment with the investor’s profile and holdings. A suitable recommendation is one that meets the investor’s needs, goals, risk tolerance, time horizon, and personal circumstances. It also considers the investor’s existing portfolio and how the new investment would affect its diversification, performance, and risk. Therefore, option C is correct regarding what Solomon needs to do to make a suitable recommendation. The other options are not correct or sufficient to make a suitable recommendation. Option A is false because mutual fund costs are important regardless of the past fund performance, as they reduce the net returns and compound over time. Option B is false because relying on the risk rating of the mutual fund is not enough to offer an investment solution, as it does not reflect the investor’s return expectations, liquidity needs, tax situation, or personal preferences. Option D is false because matching the past rates of return of the mutual fund with what is the anticipated rate of return is not a reliable way to make a recommendation, as past performance does not guarantee future results and may not be consistent with the investor’s risk tolerance or time horizon. References: [Suitability | GetSmarterAboutMoney.ca], [Mutual Fund Fees | GetSmarterAboutMoney.ca], [Risk Rating | GetSmarterAboutMoney.ca]