1 a) b) c) d)

What transaction is permissible for the portfolio manager of a balanced mutual fund? invest fund assets as follows: 50% Canadian bonds and 50% foreign fixed income securities modify the asset mix of the fund according to market conditions while always maintaining investments in both equities and fixed income securities invest in a balance of Canadian equities and international equities vary the asset mix of the fund from 100% stocks to 100% bonds as the market outlook changes

2 a) b) c) d)

Which of the following would be the proper method of displaying mutual fund performance? The current yield for the Matrix Money Market Fund is 2.45% and its effective yield is 2.25%. The current yield for the Lindmar Dividend Fund is 8.42% and its effective yield is 8.56%. The annual compounded rate of return for the Lindmar Dividend Fund is 8.42%. The annual compounded rate of return for the Matrix Money Market Fund is 2.45%.

a) b) c) d)

Whenever you encounter a client who has not thought about how his or her portfolio will be distributed after death, you offer to refer them to an estate lawyer and/or an insurance broker with whom you have a relationship. For every name you refer you receive a commission. If a client subsequently purchases life insurance, you receive another commission. With respect to referral rules which of the following is TRUE? All referral arrangements are prohibited by MFDA Rules. Referral rules under NI 31-103 would not apply to your relationship with the estate lawyer because it does not involve financial services. Your referral relationship and how your fee is calculated must be disclosed to the client in writing. It is not necessary to inform your dealer of your referral arrangements.

a) b) c) d)

Tiny Toes Ltd. is a children's shoe manufacturer. The company has 10 employees and is able to produce 200 pairs of shoes a month at a cost of $5.50 per unit. To boost production, the manager decides to hire another employee. However, production only increases by 15 pairs of shoes and the cost per unit is now $5.58. What is this phenomenon called? economies of scale inefficient market hypothesis law of diminishing marginal productivity production cost relation theory

5 a) b) c) d)

What rights do owners of common shares possess? the right to determine when dividends will be issued the right to vote at shareholders' meetings or vote by proxy the right to receive a fixed proportion of the corporation's profits in cash the right to buy restricted securities before they are offered to the public

Foster is calculating this years tax liability from his investments. Below is a summary of his transactions (please ignore transaction costs and distributions). Date Jan 4 Mar 31 Dec 10 Transaction Buy Buy Switch from Switch to Dec 20 Sell Fund ABBA Global Equity Eagles U.S. Equity ABBA Global Equity ABBA Gold Eagles U.S. Equity NAVPS $4 $10 $6 $20 $8 No. of units 2,000 1,000 2,000 600 1,000 Amount $8,000 $10,000 $12,000 $12,000 $8,000

a) b) c) d) 7 a) b) c) d)

What is Foster's capital gain or loss for the year? capital gain of $2,000 capital gain of $4,000 capital loss of $2,000 capital loss of $4,000

Which of the following statements about a fund's management expense ratio (MER) and fund performance is TRUE? The higher a fund's MER, the greater the rate of return. The MER will have a greater impact on annual contributions versus lump sum investments. A lower MER guarantees a higher rate of return for a mutual fund. MERs have no impact on the performance of a mutual fund.

What does the Mutual Fund Dealers Association (MFDA) have the power to do? i. ii. iii. iv. audit its members perform compliance reviews initiate securities legislation draft National Instruments

a) b) c) d)

i and ii only i and iii only i, ii, and iv only i, ii, iii, and iv

Use the following information for the next 5 questions. Amy Choi became the legal guardian for her niece, Emily Tam, when her sister and brother-in-law perished in a tragic accident. Emily, who is five years old, is the beneficiary of a life insurance policy with a $100,000 death benefit. In their will, Emily's parents specified that the insurance proceeds are to be used to establish a trust for her where the funds would remain until she reaches 25 years of age. At that time, the trust would be collapsed and the trust funds paid out to her. During the life of the trust, Amy would be the sole trustee and would make all the investment decisions. Amy has approached her investment advisor, Loreen Liang, for advice on setting up a trust account and selecting the appropriate investments. Amy has been a client of Loreen's for the past 10 years and has herself become quite knowledgeable about mutual fund investing. In Amy's own accounts, she has invested in various mutual funds including bond funds, balanced funds, and foreign and domestic equity funds. Loreen's tendency is to recommend quality funds to her clients that provide competent management, excellent diversification, and proven track records. Amy and Loreen both agree that a growth-oriented portfolio would be the most suitable for Emily considering her long time horizon. By selecting good quality mutual funds with adequate diversification and risk management, Amy is comfortable with taking on a higher level of risk. She and Loreen will monitor the portfolio on an ongoing basis to ensure that the investments continue to match Emily's objectives.

Loreen acquires all the necessary information for the New Account Application Form and analyzes Emily's situation in order to devise a suitable investment proposal. She feels that the following portfolio would be the most appropriate for Emily:

Opus Balanced Fund Trustco Canadian Large Cap Equity Fund Hastings International Equity Fund

40% 30% 30%

Amy has some questions about the risk factors and investment restrictions on the Hastings fund. Loreen shows Amy the fund's literature and points out the answer. Amy agrees to follow Loreen's recommendations and makes the necessary arrangements with the insurance company so that the funds can be forwarded directly to Loreen's mutual fund dealer. According to FINTRAC guidelines, what is Loreen's reporting responsibilities regarding the transfer of the $100,000? Loreen must report the transaction because it is over $10,000. Loreen must report the transaction because it is considered a suspicious transaction. Loreen does not have to report the transaction because the funds are being transferred from the insurance company. Loreen does not have to report the transaction because both Amy and Emily are Canadian citizens. Where are Loreen and Amy in regards to the strategic investment planning process? establishing client objectives and gathering client data clarifying present situation and identifying problems and opportunities developing and presenting the strategic investment plan implementing the strategic investment plan

a) b) c)

d)

10 a) b) c) d)

11 a) b) c) d)

What document did Loreen use to show Amy the risk factors for the Hastings fund? simplified prospectus annual information form financial statements risk questionnaire

12 a) b) c) d)

What document did Loreen use to show Amy the investment restrictions on the Hastings fund? simplified prospectus annual information form financial statements risk questionnaire

13 a) b) c) d)

What must Loreen do once she receives the money from the insurance company? If the funds are received during business hours, she must purchase the mutual funds by the end of the next business day. She must ensure that a confirmation is sent to Amy after the trades are processed. She must deliver a prospectus to Amy within two days of Amy receiving the trade confirmations. She must contact the insurance company to inform them of the receipt of the money.

14 a) b) c) d)

Which of the following statements about preferred shares is TRUE? A capital gain or loss may be triggered when preferred shares are sold. Corporations pay preferred share dividends from pre-tax income. Preferred shares are considered a liability on a company's balance sheet. Like bonds, most preferred shares are issued at a par value of $100.

14 a) b) c) d)

Which of the following statements about preferred shares is TRUE? A capital gain or loss may be triggered when preferred shares are sold. Corporations pay preferred share dividends from pre-tax income. Preferred shares are considered a liability on a company's balance sheet. Like bonds, most preferred shares are issued at a par value of $100.

16

a) b) c) d)

Versacorp common shares have a par value of $40 per share and there are 100,000 shares outstanding. The shares have a current market value of $60 per share. If earnings during the last 12 months were $10 per share and dividends were $4 per share, what is the price/earnings ratio for Versacorp shares? 4:1 6:1 10:1 15:1

17 a) b) c) d)

What is the major advantage of a group RRSP over an individual RRSP? The employer's contributions to a group RRSP do not affect an employee's RRSP contribution room. Group RRSP contributions via payroll deductions result in immediate tax savings. Group RRSPs offer more investment alternatives. The employer accepts all the investment risk in a group RRSP.

18

a) b) c) d)

Aileen Grogan is considering investing in mutual funds and on the advice of a friend has approached Marcus Green for advice. Marcus is a registered representative with Henson and Hicks, an IIROC member and subsidiary of Colossus of Canada, a chartered bank. Aileen has recently read about an investment house going bankrupt and wants to know how her mutual fund investment would be protected should Henson and Hicks or a mutual fund company go bankrupt. Which of the following statements is INCORRECT? Aileen's investment would be protected by the Canada Deposit Insurance Corporation (CDIC). Aileen's investment would be protected by the Canadian Investor Protection Fund (CIPF). Any mutual fund investment she makes would be held by a custodian, separate and apart from the mutual fund company. Independent auditors must review the practices and operations of mutual funds on a regular basis.

19

a) b) c) d)

Kari, a Canadian mutual fund manager, has made significant gains in her fund's U.S. holdings. She decides to protect the value of the gains against a drop in the value of the U.S. dollar. What action should she take? Kari should buy put options on the S&P 500 Index. Kari should sell put options on the S&P 500 Index. Kari should buy put options on the U.S. dollar. Kari should sell put options on the U.S. dollar.

20

Calvin calls his stockbroker to place an order on Weather Gear Inc. common stock. He wants to sell 500 shares of Weather Gear at the best price currently available.

a) b) c) d)

What type of order has Calvin placed? market limit open stop-loss

21 a) b) c) d)

What statement regarding registered education savings plans (RESPs) is CORRECT? If the designated beneficiary does not pursue post-secondary education, the subscriber will forfeit principal contributions to the plan. Although there is a lifetime maximum contribution limit of $50,000 per beneficiary, there is no annual limit. RESP contributions are tax deductible for the subscriber. Canada Education Savings Grants (CESGs) are only available to those with low family incomes.

22 a) b) c) d)

A portfolio manager chooses the securities in the portfolio in an attempt to replicate a benchmark. What type of investment strategy is this? technical investing value investing passive investing active investing

23

Which of the following factors could cause investment prices to fluctuate? i. ii. iii. iv. a a a a hike in the Bank of Canada rate referendum in Qubec fall in the unemployment rate credit downgrade for BCE

a) b) c) d)

i, ii, and iii only i, ii, and iv only ii, iii, and iv only i, ii, iii, and iv

24

Who would benefit from a mutual fund dealer that uses a commission-based compensation model?

i. ii. iii. iv.

Dixon who is an active trader Luciano, who only trades a few times at the beginning of the year when he rebalances his portfolio Rebekah, who also wants frequent meetings and access to investment research Adam, an experienced trader who does not need ongoing advice or personal attention

a) b) c) d)

i only i and iii ii only ii and iv

25 a) b) c) d)

Which of the following mutual funds are most appropriately ranked from highest risk to lowest risk? specialty, dividend, real estate, mortgage closed-end, open-end, fixed trust bond, mortgage, money market, specialty growth, bond, mortgage, money market

26

Use the following information for the next 6 questions. In 2009, Elijah Armitage turns 71 years of age and must mature his RRSP before the end of the year. His wife, Lucinda, is 62 years of age and has a spousal RRSP and defined contribution pension plan with her employer. Elijah and his partner, Bryan, started a consulting business 15 years ago and each own 50% of the shares of their privately held company. Since Lucinda has a pension plan, her pension adjustment is $5,500. Elijah's marginal tax rate (MTR) is 35%; while Lucinda's is 29%. Following is a summary of Elijah and Lucinda's incomes for 2008 and 2009.

Elijah 2008 2009 $75,000 $78,000

Lucinda $55,000 $56,500

Elijah wants to use one of his assets to make a contribution in kind to his RRSP. In addition to the shares in his company, he owns an interest rate futures contract, a

mutual fund limited partnership that trades on the TSX, and a loose diamond. Following is a summary of the adjusted cost bases (ACB) and fair market values (FMV) for each security.

ACB futures contracts private corporation shares diamond limited partnership $4,500 $2,600 $7,500 $6,000

FMV $ 5,000 $10,000 $12,000 $ 8,000

Below are the RRSP contribution room limits. Maximum Current Contribution Limit $20,000 $21,000 $22,000

Year 2008 2009 2010

Elijah wants to make an RRSP contribution for 2009 to his own RRSP. When is the last day for Elijah to make the contribution? March 1, 2009 December 31, 2009 March 1, 2010 December 31, 2010

a) b) c) d) 27 a) b) c) d)

Assuming he has no carry-forward room, what is Elijah's RRSP contribution room for 2009? $13,500 $14,040 $20,000 $21,000

28 a)

Assuming she has no carry-forward room, what is Lucinda's RRSP contribution room for 2009? $4,400

b) c) d)

$4,670 $9,900 $10,170

29 a) b) c) d)

Which of Elijah's assets can he contribute in kind to his RRSP? futures contract private corporation shares diamond limited partnership

30 a) b) c) d)

Given the asset chosen in the previous question, what is Elijah's tax liability when he makes his contribution in kind? $87.50 $350.00 $787.50 $1,295.00

31 a) b) c) d)

When Elijah matures his RRSP what is NOT an available option to him? life income fund (LIF) lump-sum withdrawal life annuity registered retirement income fund (RRIF)

32 a) b) c) d)

What transaction is a taxable event? Inside her RRSP, Serena sells the Tudor Equity Fund, and with the proceeds buys units in the Coronet Bond Fund. Malcolm switches $5,000 from the Applegate Emerging Markets Fund to the Applegate Money Market Fund in his non-registered account. Lenny matures his RRSP by using the funds to purchase a life annuity. Kent receives a capital dividend from his investment in the Argon Canadian Equity Fund.

33

a)

Naquib wishes to purchases units of an exchange-traded fund (ETF) that is currently trading on the TSX. He places an order through his online discount broker at 3:00 Eastern Time. What price will he pay for his units? The NAVPS calculated at the end of the business day.

b) c) d)

The NAVPS calculated at the end of the next business day. The current bid price prevailing in the market. The current ask price prevailing in the market.

34 a) b) c) d)

Which of the following statements concerning income mutual funds is most accurate? Money market funds may hold bankers' acceptances and commercial paper. The NAVPS of a mortgage fund will drop as financial institutions reduce prevailing rates on residential mortgages. By law, bond funds must have a weighted term to maturity that does not exceed 90 days. Returns on dividend funds are dependent strictly on the capital appreciation of the underlying shares.

35 a) b) c) d)

How is dollar-cost averaging best defined? equal amounts of money invested in the same investment at regular intervals predetermined percentages of money invested in a diversified portfolio of assets money invested according to a specific formula for timing purchases of a given investment equal amounts of money in a diversified portfolio of assets

36

a) b) c) d)

The performance record of a mutual fund shows a significant appreciation in its net asset value per share (NAVPS). In discussing this investment with a client, which of the following is permissible for a mutual fund representative? making a promise to the client that the NAVPS will continue to appreciate stating that the NAVPS of the fund will always be at least as high as what the investor initially paid for the shares promising that the fund will make income distributions on an annual basis suggesting that the investment be reviewed on an ongoing basis to ensure it meets the client's suitability

37

a)

Your client, Claudio, advises you that his new employer does not have a registered pension plan. However, they do have a deferred profit sharing plan (DPSP). Claudio is unsure as to what is meant by the term "vesting". What should you tell Claudio? Vesting refers to the distribution of benefits from the plan before he reaches age 71.

b) c) d)

Vesting refers to Claudio's non-forfeitable interest in the plan. Vesting refers to the benefits payable to Claudio or his beneficiary as periodic payments. Vesting refers to the payment from the DPSP representing Claudio's account balance or accrued benefits on termination of his employment from the company.

38

What statements about a mutual fund simplified prospectus are TRUE? i. ii. iii. iv. i and iii ii and iii i, ii, and iv i, ii, iii, and iv It must be distributed to a customer within 48 hours of the signing of the purchase agreement. It must be accompanied by the annual information form. It must be filed with regulatory bodies before units in the fund may be sold. It must be revised every second year.

a) b) c) d)

39 a) b) c) d) 40

Lalita makes a Home Buyers' Plan (HBP) withdrawal of $25,000 from her RRSP on January 31, 2010. Which of the following statements is CORRECT? She must complete the purchase of her home by October 1, 2010. Her first HBP repayment must be made before March 1, 2012. She must repay a minimum of $1,666.67 each year for 15 years. All the funds must be repaid back into her RRSP by 2025. James owns an investment that can mimic the return of the Toronto Stock Exchange (TSX) index. If he wants to sell his investment, he can do so on the TSX. What type of investment does James own? Canadian index mutual fund exchange-traded fund (ETF) equity-linked GIC index futures contract

a) b) c) d)

41 a) b)

Carlotta is explaining the benefits of mutual fund investing to her client. Which of the following statements is TRUE? Pooling funds with other investors allow mutual fund unitholders to diversify away investment risk. Mutual fund portfolios cannot hold more than 10% of a company's outstanding shares.

c) d)

In order to increase liquidity, mutual fund units may be traded on a secondary market. Professional portfolio managers can consistently outperform the markets.

42 a) b) c) d)

Mattix Corp. is interested in being listed on the over-the-counter (OTC) market. What is a characteristic of the OTC market compared to a stock exchange? Mattix Corp. would be subject to more stringent listing requirements. Mattix Corp. would have greater exposure to the investing public. Mattix Corp. would experience greater trading volume for its stock. Mattix Corp.'s stock would be sold through a network of dealers.

43

a) b) c) d)

You have returned to work after a two-week holiday. While you were away, your dealer launched a new family of managed portfolios, each consisting of various mutual funds you already know. You supervisor hands you a sheet of paper listing five portfolios that correspond to five different levels of risk tolerance. You know you have a new client that has a moderate-to-low risk tolerance. You immediately call her up and recommend one of these new managed portfolios. Which of the following is TRUE? You have failed in your KYP duties because you dont know enough about this new product to make a recommendation. You have failed in your KYP duties because this new product is inappropriate for investors with moderate-to-low risk profiles. You have satisfied your KYP duties because your dealer has already performed due diligence on these new products. You have satisfied your KYP duties because you have matched a risk profile on the information sheet to that of your client.

44 a) b) c) d)

Which of the following funds is most likely to generate a positive return? Fund A with an average return of 5% and a standard deviation of 10 Fund B with an average return of 8% and a standard deviation of 7 Fund C with an average return of 12% and a standard deviation of 20 Fund D with an average return of 3% and a standard deviation of 5

45

a)

Diane is a retired widow who wants a monthly income from her mutual fund portfolio. Although she has no immediate needs for the capital, she is concerned about losing too much of her principal if she invests it. The ideal investment would be a fairly conservative fund. What type of mutual fund would be most suitable for Diane? money market fund

b) c) d)

mortgage fund corporate bond fund Canadian dividend fund

46 a) b) c) d)

What type of mutual fund only issues a fixed number of shares? closed-end fund open-end fund fixed income mutual fund general management fund

47

The use of borrowed money to invest (leverage) increases the investment risk of your portfolio. Why is that? i. ii. iii. iv. The value of the leveraged portfolio may fall below the value of the loan. Interest costs could be higher than any positive investment returns received. If the investment drops in value, you will incur greater losses than someone who did not use leverage. You may be forced to realize losses as a result of the terms of secured loans.

a) b) c) d)

i only i and ii only i, ii, and iii only i, ii, iii and iv

48 a) b) c) d)

Which of the following individuals has shown ethical conduct as a mutual fund representative? Corey, who uses a fund's past performance to guarantee his clients a minimum rate of return on their investment Sandy, who does not personally send out trade confirmations and annual statements to her clients but has her mutual fund dealer do it for her Donna, who suggests that it is not necessary to compare the merits of one mutual fund selected for a client with comparable funds as part of making client recommendations Vincent, who suggests that by virtue of his registration with the securities commission, he is equipped with the knowledge to differentiate good funds from bad funds

49

In her office, Cindy has the following items:

business cards with her name, title, mutual fund dealer, and contact information brochures on the tax benefits of saving for retirement using an RRSP

posters from mutual fund companies promoting their corporate image prospectuses and financial statements from various mutual fund companies

According to National Instrument 81-102, which of the following is considered sales communication? business cards marketing brochures marketing posters prospectuses and financial statements

a) b) c) d)

49

In her office, Cindy has the following items:

business cards with her name, title, mutual fund dealer, and contact information brochures on the tax benefits of saving for retirement using an RRSP posters from mutual fund companies promoting their corporate image prospectuses and financial statements from various mutual fund companies

According to National Instrument 81-102, which of the following is considered sales communication? business cards marketing brochures marketing posters prospectuses and financial statements

a) b) c) d)

51 a) b) c) d)

If the Consumer Price Index (CPI) for the current year is 138 and the CPI for last year was 132, what is the rate of inflation? 4.25% 4.35% 4.45% 4.55%

52 a) b)

When interest rates rise, what happens to the net asset value per share of a bond fund invested in long-term bonds? It will increase because investors will be attracted to the fund based on the increase in rates. It will decrease because investors will sell the fund and buy treasury bills at higher yields.

c) d)

It will remain unchanged because the mutual fund is locked into long-term bonds. It will decrease because the underlying bonds in the portfolio will decline in value.

53 a) b) c) d)

What is TRUE of a ratio withdrawal plan? The investor receives a fixed dollar amount. A fixed number of shares are redeemed from each mutual fund in the portfolio. Depending on market conditions, the investor receives a variable dollar amount. The assets in the plan will be exhausted by a pre-determined time.

54

a) b) c) d)

Because of a budgetary surplus, the federal government announced that the surtax for high income earners would be eliminated and there would be more money available to the provinces for healthcare and education. What type of policy has been announced? expansionary fiscal policy restrictive fiscal policy expansionary monetary policy restrictive monetary policy

55 a) b) c) d)

With Series-T mutual funds, what will happen if the payout ratio is consistently greater than the returns on the fund? Nothing. Payments are made as a return of capital so no units need to redeemed. The fund will eventually be depleted. The fund will grow over time. The fund will have to initiate a stock split to reduce its unit price which will reduce the size your total distribution.

56

Use the following information for the next 4 questions. Janice Brewster is a 58 year old public health nurse who has recently finalized her divorce. As part of the property settlement, she received a home worth $240,000 and cash of $40,000 from the sale of a family cottage. Her home is mortgage free and she has no other debts. Since Janice has a well funded defined benefit pension plan with her employer, she has not contributed much into an RRSP. Currently, her retirement plan with a mutual fund dealer is worth $14,000 and is 100% invested in a diversified Canadian equity mutual fund. Janice plans on retiring in seven years when she turns 65 years of age. Her

pension plan is based on 2% per year of the average last five years of earnings. Her present annual income is $53,000 and she expects her salary increases to keep up with inflation until she retires. Janice has three adult children. Her youngest child, Nina, lives with Janice along with her three year old daughter, Jessica. She would like to use the $40,000 in cash to take a trip around the world when she retires. Since the money is not needed immediately, Janice would be willing to take some risks but at the same time, she would not want to jeopardize too much of the principal. Over the years, Janice and her ex-husband dabbled in various investments, including stocks, bonds, and real estate. Some of her investments worked out, while others did not. Because of her investing history, Janice feels quite comfortable with risk and is knowledgeable enough about investments to understand market fluctuations. Furthermore, Janice is guaranteed a pension for life, so if her investments do not work out, she will still have a steady income. At the time of retirement, suppose Janice's projected average salary for the last five years is $58,000 and she has 30 years of service. How much would she expect to receive each year from her pension plan? $31,800 $34,800 $53,000 $58,000

a) b) c) d)

57 a) b) c) d)

With respect to her $40,000, how would you classify Janice's risk tolerance? no tolerance for risk low tolerance for risk moderate tolerance for risk high tolerance for risk

58 a) b)

What is Janice's objective for the $40,000 in cash? liquidity capital preservation

c) d) 59 a) b) c) d)

income growth Given the information, which of the following portfolios would be the most suitable for the $40,000 cash? 100% money market fund 100% mortgage fund 100% balanced fund 100% real estate fund

60

a) b) c) d)

In January, BCE common shares are trading at $28. Dodi owns 500 shares, which he plans to sell in June to pay for the cost of his daughter's wedding. In order to protect himself against a decline in the share price, Dodi decides to purchase put options that allow him to sell the shares at $30. The premium for the options is $2 and the options expire in June. In June, the stock is trading at $32. Which of the following statements is most applicable? The strike price for the put options is $32. Dodi's put options are considered in the money. If Dodi does not exercise his options, they will expire worthless. The best course of action is for Dodi to exercise his options.

61

a) b) c) d)

To whom are you permitted to make an unsolicited telephone call to market new products (cold-call) if they have signed up on the National Do Not Call List (DNCL)? someone who is not yet a client someone who used to be a client but is not now someone with whom you already have a business relationship You are not permitted to contact anyone on the DNCL for telemarketing purposes.

62 a) b) c)

What is the main difference between term insurance and whole life insurance? Term insurance generally has a higher cash surrender value than whole life insurance. Owners of term insurance can borrow against their policy while this feature is not available to whole life insurance policyholders. In the early years of the policy, whole life insurance involves partially prefunding the mortality costs of the life insured. There is no prefunding with term insurance.

d)

The premium for whole life insurance changes each year while the premium for term insurance tends to be stable for the given term.

63

Yannick has a portfolio of five mutual funds consisting of a Canadian Equity Fund, a U.S. Index Fund, a Global Bond Fund, a Canadian Bond Fund, and a Canadian Money Market Fund in equal proportions. Hazel has a portfolio of five mutual funds equally split among a U.S. Equity Fund, an Emerging Markets Fund, a Canadian Index Fund, a Global Equity Fund, and a Canadian Bond Fund. What is likely TRUE about these two portfolios? Yannicks: more volatility and more short-term risk Hazels: more volatility and more short-term risk Yannicks: less volatility but more short-term risk Hazels: less volatility but more short-term risk

a) b) c) d)

64

a) b) c) d)

Two years ago, Tyson invested $5,000 in a principal-protected note with a 7-year maturity. Its information sheet states that at maturity, the investor will receive a return equal to the positive return, if any, of the S&P/TSX Composite Index. The index has dropped significantly since he purchased the note. Tyson is worried about the stock market and wants to redeem his note. Which of the following statements is TRUE? He will receive his $5,000 but will not benefit from any further increase in the index. He will receive his $5,000, but he could face liquidity and redemption restrictions. He could receive less than $5,000 because he is redeeming his note before maturity. He could receive less than $5,000 but he is able to claim the difference from the Canada Deposit Insurance Corporation (CDIC).

65 a) b) c)

What does it mean if preferred shares are redeemable or callable? The investor can retract the shares on a specific date. The investor can demand the company buy back the shares on or after a specific date. The issuing company reserves the right to force the investor to sell the shares back to the company, usually at a premium over the issue price.

d)

The issuing company is required to purchase a certain amount of the shares in the marketplace each year.

66 a) b) c) d)

Which of the following funds may typically be valued on a monthly or quarterly basis? Canadian equity fund international equity fund real estate fund index fund

67

a) b) c) d)

Louisa and Carl are each looking at purchasing a life annuity when they mature their RRSPs this year. Louisa is a 65 year old female while Carl is a 59 year old male. Which of the following factors will favorably affect Louisas payment amount compared to Carls? the fact that Louisa is a woman the fact that Louisa is in better health the fact that Louisa has a family history of longevity the fact that Louisa is older

68 a) b) c) d)

What statement does NOT apply to a registered mutual fund representative? In all jurisdictions in Canada, his or her registration must be renewed every two years. A representative may not advertise or promote the fact that he or she is registered with a provincial securities commmission. A representative must be registered in the province(s) in which he or she sells mutual funds. If you move from one dealer to another within 90 days, your registration is suspended but will be reinstated automatically once you start with your new employer.

69 a) b) c)

Which of the following individuals would be most appropriate for an exempt security trade? Connie, who has made over $1 million dollars actively trading alternative investment instruments Louie, who has net assets of $5,000,000, but is too busy with his business to bother with his investments Chandler, who earns $150,000 per year but has no liquid financial assets because of his lavish lifestyle

d)

Moira, who earns $50,000 annually and has $10,000 available to start an investing program

70 a) b) c) d)

What type of analysis focuses on distinguishing trends and patterns in a stocks price history? fundamental value technical growth

70 a) b) c) d)

What type of analysis focuses on distinguishing trends and patterns in a stocks price history? fundamental value technical growth

70 a) b) c) d)

What type of analysis focuses on distinguishing trends and patterns in a stocks price history? fundamental value technical growth

71 a) b) c) d)

Your clients are concerned about the risks associated with mutual funds. What should you tell them? Risk is not an issue because all funds have positive returns over a 10 year period. Some funds are riskier than others because of the types of assets they hold. Risk can be avoided by selecting the appropriate funds. A mutual fund that is adequately diversified can eliminate risk.

72 a) b)

The degree to which investment capital is influenced by changes in financial markets and the overall economy is descriptive of what investment characteristic? scarcity sensitivity

c) d)

mobility Reactivity

73

a) b) c) d)

If a capital gains distribution from a mutual fund is reinvested back into the fund, when would an investor incur a tax liability from the distribution? when the shares purchased with the reinvested distribution amount are eventually sold upon death of the investor as this is when the tax liability for reinvested distributions is triggered in the year the distribution is made never, there is no tax liability if the distribution is reinvested

74

a) b) c) d)

Danii has no RRSP contribution room remaining and wants to take advantage of a tax-free savings account (TFSA). Which of the following statements is TRUE? Danii will receive a tax deduction for her contribution. Daniis contribution will never be subject to tax. Growth within the TFSA is sheltered from tax but will be taxed when withdrawn. She may only contribute up to 18% of her earned income from the previous year to her TFSA. 75 Use the following information for the next 5 questions. Alex Kwan has come to you for some advice on his investments. He has been choosing his own mutual funds and unfortunately, they have not performed well recently. He is looking to make some changes and hopes that you can advise him accordingly. Alex is a single, 41 year old recruitment specialist. He earns $120,000 per year and participates in the group RRSP plan provided by his employer. As a hobby, Alex buys older homes, renovates them, and then sells them again for a profit. He has been quite successful, making $150,000 from his last two real estate flips. His latest property is worth $365,000 with an outstanding mortgage of $125,000. The renovations are almost complete and Alex plans to put the house on the market in two months. Alex's goal is to retire from his job in 12 years and flip homes full-time. He believes that he does not need to draw from his retirement funds until he is 60 years old. Currently, he has an RRSP worth $210,000, a group RRSP worth $65,000, and $42,000 in cash left over from his renovation budget. Alex wants to use the cash to finance another project, so it should be readily available for when he wants it. With his demanding job and his home renovation venture, Alex feels that he does not have time to devote to his investment portfolio. He has made

some mistakes in his RRSP which has caused the overall value to decline by 25%. At the moment, his investments are as follows:

Individual RRSP international bond fund Canadian equity fund Japanese equity healthcare equity fund Nasdaq index fund

Group RRSP 10% Canadian equity fund 50%

30% U.S. equity fund telecommunications fund

30%

20%

20%

20% 20%

You discuss with Alex his recent investment experience. Although he is not happy with the drop in value, he is still willing to be fairly aggressive. However, he wants your help in selecting good quality investments. How would you classify Alex's risk tolerance? no tolerance for risk

a)

b) low tolerance for risk moderate tolerance for risk c) high tolerance for risk d)

76 a) b) c) d)

What is Alex's investment objective for his individual RRSP? capital preservation income growth speculation