CSI IFC Dumps

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

A put option is a contract that gives the buyer the right, but not the obligation, to sell a certain amount of an underlying security at a specified price within a specified time frame. A put option increases in value as the price of the underlying security decreases, and vice versa. Therefore, buying a put option can be used as a hedging strategy to protect against downside risk or loss in the value of the underlying security. In this case, Maxine is using a put option to hedge against the potential drop in the market value of Never2Tacky due to the regulatory changes. If the price of Never2Tacky falls below $95, she can exercise the put option and sell her shares at $95, limiting her loss. If the price of Never2Tacky stays above $95, she can let the put option expire and keep her shares, paying only the premium for the option. Buying a put option is not speculating, as it does not involve taking a high-risk position in anticipation of a favorable outcome. It is also not related to modern portfolio theory or passive management, which are different concepts in investment analysis. References: Put Option: What It Is, How It Works, and How to Trade Them, Put Options: What They Are and How They Work, Put: What It Is and How It Works in Investing, With Examples

Global equity funds are a type of investment fund that invests in equity securities of companies from different countries around the world, including the investment fund manager’s home country. Global equity funds aim to provide diversification and growth potential by taking advantage of the opportunities and risks in various markets and regions. Global equity funds may have different geographic, sectoral, or thematic focuses, depending on their investment objectives and strategies. Global equity funds are different from international equity funds, which invest only in countries outside of the investment fund manager’s home country. Global equity funds are also different from regional or country-specific equity funds, which specialize in one or a few countries or regions. Global equity funds may have higher risk than domestic equity funds, as they are exposed to currency risk, foreign market risk, political risk, and regulatory risk.

Canadian Investment Funds Course, Chapter 4: Types of Investments1

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."

 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

According to the life-cycle hypothesis, medium-term goals for clients in their family commitment years (ages 25–50) include education savings for children.

Emergency fund = short-term goal

Down payment on a house = short-term to medium-term, but typically earlier in life-cycle stage

Retirement = long-term goal

Thus, the correct medium-term financial target is saving for a child’s university education.

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

Dividends from a large public Canadian corporation are eligible for the dividend tax credit, which reduces the amount of tax payable on this type of income. The dividend tax credit is a non-refundable tax credit that recognizes that dividends are paid out of income that has already been taxed at the corporate level, and therefore should not be taxed again at the personal level. The dividend tax credit applies to both federal and provincial taxes, and the rates vary depending on the province or territory of residence12

References = Canadian Investment Funds Course (CIFC) - Module 4: Taxation - Section 4.1: Taxation of Investment Income3 and web search results from search_web(query="tax treatment of different types of investment income in Canada")12

3:

Whether the couple saves on income tax will be dependent on Minu’s marginal tax rate. Pension income splitting is a tax planning strategy that allows a spouse or common-law partner who receives eligible pension income to allocate up to 50% of that income to their spouse or common-law partner1. This may result in tax savings if the transferring spouse or common-law partner is in a higher tax bracket than the receiving spouse or common-law partner1. The tax savings depend on the difference between the marginal tax rates of the spouses or common-law partners1. The other statements are incorrect. Minu will not be exposed to a pension adjustment (PA) if she receives income from Saheed’s pension. A PA is a measure of the value of benefits accrued in a registered pension plan or deferred profit sharing plan during a calendar year2. It reduces the RRSP contribution room of the plan member, not the spouse or common-law partner who receives part of their pension income2. Pension income splitting is not a form of tax evasion and is not illegal based on income tax legislation. It is a legitimate way to reduce taxable income and taxes payable by shifting income from a higher-income spouse or common-law partner to a lower-income spouse or common-law partner1. Pension income splitting may change the total amount of income taxes paid by the couple, depending on their marginal tax rates. If the transferring spouse or common-law partner is in a higher tax bracket than the receiving spouse or common-law partner, pension income splitting may lower their combined taxes payable1. However, if they are in the same tax bracket, pension income splitting may not have any effect on their taxes payable1. References: Pension income splitting, Pension adjustment

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.

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."

 If Ellen receives the National Child Benefit Supplement (NCBS), Jeff may be eligible for the Canada Learning Bond (CLB). The CLB is a grant of up to $2,000 that the Government of Canada deposits into a child’s RESP to help low-income families start saving for their child’s education2. The CLB does not require any contributions from the parents. To be eligible for the CLB, the child must have been born after December 31, 2003 and the family must receive the NCBS, which is part of the Canada Child Benefit3. The other statements are false. If Jeff qualifies for additional CESG, his CESG lifetime maximum increases to $7,200, not $10,000. If Jeff decides not to pursue a post-secondary education, he cannot keep the CESG; it must be returned to the government. George may open an RESP for Jeff and it will qualify to receive CESGs, as long as George is a resident of Canada and has a valid social insurance number. References: Unit 8: Retirement, Canada Learning Bond, [Canada Education Savings Grant], [RESP Withdrawals], [RESP Providers]

Misrepresenting risks violates the MFDA Rule No. 2 requirement to deal fairly, honestly, and in good faith with clients. The feedback from the document states:

"MFDA Rule No 2 ‘Business Conduct’ sets out the standards applicable to all MFDA members and their respective dealing representatives. In this case, the representative has not dealt honestly with the client by misrepresenting information."

In a deflationary environment, prices of goods and services fall. This leads to:

Lower corporate profits (as companies sell at lower prices)

Lower interest rates (to stimulate borrowing)

But personal savings increase because consumers delay purchases expecting lower future prices.

Therefore, the correct answer is Personal savings.

A strategic asset allocation strategy is one that involves setting target allocations for various asset classes based on the investor’s risk tolerance, time horizon, and investment objectives, and rebalancing the portfolio periodically to maintain the original allocations. This strategy is compatible with a buy-and-hold approach and aims to achieve long-term goals by diversifying across different asset classes and markets. In this case, you are implementing a strategic asset allocation strategy for your client Sierra by assigning 30% of her portfolio to fixed income and 70% to equities, and planning to rebalance her portfolio when the actual allocations deviate significantly from the target allocations.

Canadian Investment Funds Course, Unit 7, Section 7.1

An individual can legally sell mutual funds only after receiving notification of registration from the securities administrator, not merely after completing exams or filing applications. The feedback from the document states:

"Despite receiving notification of successful completion of the required proficiency examination, filing a registration application and paying the required fee, an individual is not officially registered to sell mutual funds until notice has been received from the applicable securities administrator."

The current ratio is a liquidity ratio that measures a company’s ability to pay its short-term obligations with its current assets. A higher current ratio indicates that the company has more current assets than current liabilities, which means it can meet its short-term obligations more easily. A lower current ratio indicates that the company has less current assets than current liabilities, which means it may face liquidity problems or default risk. Therefore, the information given in the question indicates that Truesteel is better able to meet its short-term financial obligations than Strongco. The current ratio does not necessarily reflect the profitability, market outlook, or debt financing of the companies. References: Current Ratio Explained With Formula and Examples, Current Ratio Formula, Current ratio

 A portfolio with a beta less than 1 would be suitable for Gregory, who is a conservative investor and wants to reduce his exposure to market risk. A beta less than 1 means that the portfolio is less volatile than the market index and tends to dampen its movements. This implies that the portfolio would fall less than the market in a downturn, but also rise less than the market in an upturn. A portfolio with a beta equal to 1 would move in the same direction and magnitude as the market, while a portfolio with a beta greater than 1 would be more volatile than the market and amplify its movements.

Canadian Investment Funds Course, Chapter 3: Risk and Return1

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

Technical analysis is the method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Xian-Li is using technical analysis to evaluate the companies in her portfolio.

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,

The national self-regulatory organization (SRO) for investment dealers is the Investment Industry Regulatory Organization of Canada (IIROC). An SRO is a non-governmental organization that sets and enforces rules and standards for its members in a specific industry or profession. IIROC is an SRO that oversees all investment dealers and their trading activity in Canada’s debt and equity markets. IIROC’s mandate is to protect investors and support healthy capital markets by ensuring high standards of conduct, competence, and compliance among its members and their representatives. Therefore, option D is correct regarding the national SRO for investment dealers. The other options are not correct or relevant to the question. Option A is false because there is no such organization as the National Securities Commission in Canada; rather, there are provincial and territorial securities regulators that form the Canadian Securities Administrators (CSA), which is a council of securities regulators that coordinates and harmonizes regulation for the Canadian capital markets. Option B is false because the Mutual Fund Dealers Association of Canada (MFDA) is not the national SRO for investment dealers; rather, it is the national SRO for mutual fund dealers and their representatives in Canada. Option C is false because the Canadian Securities Administrators (CSA) is not the national SRO for investment dealers; rather, it is a council of securities regulators that coordinates and harmonizes regulation for the Canadian capital markets. References: [IIROC - Home], [SROs | GetSmarterAboutMoney.ca], [CSA - Home]

A is correct because retractable preferred shares are a type of preferred shares that give the holder the option to sell the shares back to the issuer at a predetermined price and within a specified time. This feature provides the holder with more flexibility and protection against interest rate fluctuations. Participating preferred shares (B) are a type of preferred shares that give the holder the right to receive additional dividends if the issuer’s earnings exceed a certain level. Convertible preferred shares © are a type of preferred shares that give the holder the option to convert the shares into common shares of the issuer at a predetermined ratio and price. Redeemable preferred shares (D) are a type of preferred shares that give the issuer the option to buy back the shares from the holder at a predetermined price and within a specified time.

Commercial paper is a type of money market security that is issued by corporations and financial institutions to raise short-term funds. Commercial paper has a maturity of less than one year, typically between 30 and 90 days. Commercial paper is unsecured, meaning that it is not backed by any collateral or guarantee. Therefore, commercial paper has the highest degree of risk for the investor among the four types of money market securities listed, as it depends on the creditworthiness and liquidity of the issuer. If the issuer defaults or faces financial difficulties, the investor may lose part or all of their principal. Commercial paper also has a higher interest rate than other money market securities to compensate for the higher risk.

The other types of money market securities are:

Bankers’ acceptances: These are negotiable instruments that are issued by a bank on behalf of a client who needs to finance international trade transactions. Bankers’ acceptances have a maturity of less than one year, usually between 30 and 180 days. Bankers’ acceptances are secured by the bank’s guarantee and the underlying goods or services that are being traded. Therefore, bankers’ acceptances have a lower degree of risk for the investor than commercial paper, as they are backed by the bank’s creditworthiness and the value of the trade transaction.

Treasury bills: These are short-term debt obligations that are issued by the federal government to finance its operations and programs. Treasury bills have a maturity of less than one year, usually between 3 and 12 months. Treasury bills are considered risk-free investments, as they are backed by the full faith and credit of the government. Therefore, treasury bills have the lowest degree of risk for the investor among the four types of money market securities listed, as they have virtually no default risk or liquidity risk. Treasury bills also have the lowest interest rate among the four types of money market securities, as they reflect the risk-free rate of return.

Municipal short-term paper: These are short-term debt instruments that are issued by municipalities or other local governments to finance their capital projects or operating expenses. Municipal short-term paper has a maturity of less than one year, usually between 30 and 270 days. Municipal short-term paper is secured by the taxing power and revenue sources of the issuing municipality or government. Therefore, municipal short-term paper has a lower degree of risk for the investor than commercial paper, as it is backed by the ability and willingness of the issuer to levy taxes and collect revenues.

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 5: Fixed-Income Securities, Section 5.1: Money Market Securities, page 5-21

Money Market Definition - Investopedia2

Commercial Paper Definition - Investopedia3

Bankers’ Acceptance (BA) Definition - Investopedia4

Treasury Bill (T-Bill) Definition - Investopedia

Municipal Bond Definition - Investopedia

The information that is typically included in the Letter of Engagement is the client’s responsibilities. A Letter of Engagement is a document that formalizes the relationship between a registered firm and its client by specifying the duties, responsibilities, and level of service that both parties agree to. It also outlines the fees and charges that apply to the client’s account, the scope and frequency of reporting and communication, and the process for resolving disputes or terminating the relationship. The client’s responsibilities may include providing accurate and complete information, reviewing statements and reports, informing of any changes in circumstances or objectives, and complying with applicable laws and regulations. Therefore, option A is correct regarding what information is typically included in the Letter of Engagement. The other options are not correct or relevant to the Letter of Engagement. Option B is false because the process for complaints is not typically included in the Letter of Engagement; rather, it is part of the Relationship Disclosure Information (RDI) that is provided to clients at account opening and updated as necessary. Option C is false because the investment objective is not typically included in the Letter of Engagement; rather, it is part of the Know Your Client (KYC) information that is collected from clients at account opening and updated as necessary. Option D is false because the payee for deposits is not typically included in the Letter of Engagement; rather, it is part of the account documentation that specifies how clients can deposit or withdraw funds from their accounts. References: [Letter of Engagement | IFIC], [Relationship Disclosure Information | IFIC], [Know Your Client (KYC) | IFIC]

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

Quartile rankings:

1st quartile = top-performing funds.

4th quartile = worst-performing funds.

The most consistent top-quartile performer across four years is most desirable.

Based on CSC examples, Manager A had the strongest consistent quartile performance.

✅ Correct = Manager A.

By ignoring sales quotas and prioritizing client needs, the representative adheres to the standard of putting the client’s interests first. The feedback from the document states:

"Priority of Client’s Interest: The client’s interest must be the foremost consideration in all business dealings. In situations where you may have an interest that competes with that of the client, the client’s interest must be given priority."

The management expense ratio (MER) represents the total of all management fees and operating expenses charged to the fund, expressed as a percentage of average net asset value.

Operating expense ratio is not a standard measure.

Management fee ratio refers only to the management fee portion.

Trading expense ratio covers only trading commissions.

Therefore, mutual fund investors pay expenses through the MER

The net asset value per unit (NAVPU) of a mutual fund is calculated by dividing the net asset value (NAV) of the fund by the number of outstanding units. The NAV is the difference between the total assets and total liabilities of the fund. Current assets and current liabilities are not relevant for the NAVPU calculation. Therefore, Great Lengths Equity Fund’s NAVPU is ($135 million - $10 million) / 11 million = $11.36.

When opening a new non-registered account, the Know Your Client (KYC) rule requires collecting information such as:

personal and financial circumstances,

investment knowledge,

investment objectives,

risk profile, and

time horizon.

The Social Insurance Number (SIN) is mandatory only for registered accounts (RRSP, TFSA, RESP, etc.) to track tax-related reporting, but it is optional for non-registered accounts.

Thus, the correct answer is A. Social insurance number.

Cavalry can place a temporary hold on Darsha’s account to temporarily disallow the redemption if they have reasonable grounds to believe that Darsha is being financially exploited or that she lacks mental capacity to make financial decisions. This is in accordance with the guidance issued by the Mutual Fund Dealers Association of Canada (MFDA) on how to deal with vulnerable clients. A temporary hold can be placed for up to 15 business days, which can be extended for another 15 business days if necessary. During this time, Cavalry must conduct an internal review of the matter and contact Darsha and any trusted contact person or legal representative to resolve the situation. Cavalry cannot place a permanent hold on Darsha’s account without her consent or a court order. Cavalry is not required to place a temporary hold on Darsha’s account, but it is an option available to them to protect their client’s interests. References: What We Heard Report: Financial Crimes and Harms Against Seniors, MFDA Bulletin #0859-P - Guidance on Vulnerable Clients

 According to the What Is a Call Option and How to Use It With Example - Investopedia, a call option is a contract that gives the buyer the right, but not the obligation, to buy an underlying stock at a specified price (the strike price) within a specified time period (the expiration date). The seller of a call option is obligated to sell the stock if the buyer exercises the option. Pierre buys a call option on a stock, which means he has the right to buy the stock if he exercises the option. He can also choose not to exercise the option or sell it before expiration.

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.

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.

The 2-year simple return is calculated as:

Return = (Price at the end of the period + total cash flow earned during the period - Price at the beginning of the period) / Price at the beginning of the period.

Total cash flow = $0.25 (Year 1) + $0.25 (Year 2) = $0.50.

Return = ($10.20 + $0.50 - $10.00) / $10.00 = $0.70 / $10.00 = 7.00%.

The feedback from the document confirms:

"Return = (Price at the end of the period + cash flow earned during the period - Price at the beginning of the period) / Price at the beginning of the period. In this case, ($10.20 + $0.50 - $10.00) / $10.00 = 7.00%."

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

Dave invested in a U.S.-dollar denominated mutual fund. Even though the unit price increased (US$15 → US$16), he lost money when converted back to Canadian dollars. This loss was caused by fluctuations in the exchange rate between the Canadian dollar and the U.S. dollar, not the fund’s performance itself.

This is a clear example of exchange rate (currency) risk.

New taxes on foreign direct investment increase the cost of investing in a country, making it less attractive for foreign capital and likely causing capital outflows. The feedback from the document explains:

"Capital moves in and out of a country based on a variety of risk factors. Increased trade barriers or increased taxes on foreign investments would typically reduce the attractiveness of a country for foreign investment. (a), (c), and (d) would all indicate positive trends in a risk factor analysis."

Global equity funds can act as a hedge against a decline in the Canadian dollar’s value, increasing the investment’s value in Canadian dollars if the foreign currency strengthens. The feedback from the document states:

"Global mutual funds are attractive because they can provide a hedge against a decline in the relative value of the Canadian dollar. For example: if investors buy a Japanese fund, and then the value of the Canadian dollar falls relative to the yen, the Canadian dollar value of that investment will increase even if the value of the fund’s units in yen has remained unchanged."

 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

According to the Canada Revenue Agency, taxable income is the amount used to calculate federal tax and provincial or territorial tax on the income tax return. Taxable income is calculated by subtracting tax deductions from total income. Total income is the sum of income from all sources, such as employment, business, investment, pension, and other income. Tax deductions are amounts that can be subtracted from total income to reduce the amount of income that is subject to tax. Some examples of tax deductions are RRSP contributions, child care expenses, moving expenses, and alimony payments. Tax credits are not subtracted from total income, but rather from the tax payable. Tax credits are amounts that can reduce the amount of tax owed or increase the amount of refund. Some examples of tax credits are basic personal amount, spouse or common-law partner amount, Canada workers benefit, and foreign tax credit.

Therefore, the correct answer is C. total income less tax deductions.

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

Eligible Canadian dividends are grossed up by 38% and then receive a federal dividend tax credit of 15.02% of the taxable amount.

For Nancy’s $160 dividend:

Grossed-up amount = $160 × 1.38 = $220.80

Federal dividend tax credit = 15.02% × $220.80 = $33.15

Thus, Nancy will receive a dividend tax credit of approximately $33.

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

 Participating preferred shares are a type of preferred shares that give the holder a right to share in the issuer’s net profits over and above the specified dividend rate. This means that participating preferred shareholders may receive additional dividends if the issuer performs well. Iliana owns participating preferred shares in the First Canadian Bank, which means she has a right to share in the bank’s net profits over and above the specified dividend rate. References: Investment Funds in Canada (IFC) | Canadian Securities Institute

Dakota can send promotional emails to clients who have opted in to receive commercial electronic messages (CEMs). A CEM is any electronic message that encourages participation in a commercial activity, such as an email, a text message, or a social media message. Under Canada’s anti-spam legislation (CASL), Dakota must obtain consent from the recipients before sending CEMs, either explicitly (e.g., by asking them to sign up for a newsletter) or implicitly (e.g., by having an existing business relationship with them). Dakota must also identify himself and his dealer, provide contact information, and include an unsubscribe mechanism in every CEM. The other statements are incorrect. Dakota cannot make telemarketing calls to clients who are listed on the National Do Not Call List (DNCL). The DNCL is a list of telephone numbers of consumers who do not want to receive unsolicited telemarketing calls. Under the Telecommunications Act, Dakota must register with the National DNCL operator, subscribe to the National DNCL, and avoid calling any number on the list, unless he has express consent from the consumer or an exemption applies. Dakota cannot send promotional emails to clients who have opted into Harvest Wealth’s Do Not Call List. A Do Not Call List is a list of telephone numbers of consumers who do not want to receive telemarketing calls from a specific organization. Under the Telecommunications Act, Dakota must maintain an internal Do Not Call List for his dealer and respect the requests of consumers who ask not to be called by his dealer. However, this does not mean that he can send promotional emails to those consumers, as that would violate CASL. Dakota cannot make telemarketing calls to clients who have opted in to receive commercial electronic messages (CEMs). Opting in to receive CEMs does not imply consent to receive telemarketing calls, as they are different forms of communication governed by different laws . Dakota must obtain separate consent from the clients before making telemarketing calls to them, either explicitly or implicitly. References: [Canada’s anti-spam legislation], [National Do Not Call List]

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

An eligible dividend is a type of dividend that is paid by a Canadian corporation that meets certain criteria and is eligible for the enhanced dividend tax credit. The dividend tax credit reduces the amount of tax payable on dividends by providing a credit against the tax liability. An eligible dividend has a higher gross-up rate and a higher dividend tax credit rate than a non-eligible dividend, which means that it results in a lower effective tax rate. A capital dividend is a type of dividend that is paid from the capital gains realized by a corporation and is tax-free to the shareholder. However, a tactical asset allocation fund is unlikely to pay capital dividends, as they are usually reserved for private corporations. A capital gain is the profit from selling an asset at a higher price than its purchase price. Only 50% of the capital gain is taxable, which means that it has a lower effective tax rate than interest income, which is fully taxable. However, a capital gain distribution from a mutual fund is not the same as a capital gain from selling the mutual fund units. A capital gain distribution is paid when the fund realizes a capital gain from selling its underlying assets, and it is taxable in the year it is received, regardless of whether the shareholder sells the fund units or not. Therefore, it does not benefit from the deferral of tax that occurs when the shareholder sells the fund units at a later date. An interest distribution is paid when the fund earns interest income from its underlying assets, such as bonds or money market instruments. Interest income is fully taxable at the marginal tax rate, which means that it has the highest effective tax rate among the four types of distributions.

To compare the amount of tax payable for each type of distribution, we can use the following formula:

Tax=(Distribution×Gross−up)×MarginalTaxRate−(Distribution×Gross−up)×DividendTaxCreditRate

For simplicity, we assume that Davis receives $100 of each type of distribution and that he does not have any other income or deductions. We also ignore any provincial taxes or credits. Using the formula, we can calculate the tax payable for each type of distribution as follows:

Capital Dividend: Tax=(100×0)×0.26−(100×0)×0=0

Capital Gain: Tax=(100×0.5)×0.26−(100×0.5)×0=13

Eligible Dividend: Tax=(100×1.38)×0.26−(100×1.38)×0.15=10.14

Interest: Tax=(100×1)×0.26−(100×1)×0=26

Therefore, an eligible dividend would result in the lowest amount of tax payable, followed by a capital gain, a capital dividend, and an interest distribution.

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.2: Taxation of Investment Income, page 7-41

Eligible Dividends Definition - Investopedia2

Capital Dividend Definition - Investopedia3

Capital Gain Distribution Definition - Investopedia4

This statement is true because a mutual fund trust can distribute its net income and net realized capital gains to its unitholders, and avoid paying tax at the fund level. The unitholders then report their share of the fund’s income and capital gains on their tax returns, and pay tax according to their marginal tax rates. In this case, Redwood has generated $14.25 per unit of capital gains from the sale of Canadian and foreign corporations, and $2.00 per unit of capital losses from the sale of foreign corporations. Therefore, its net capital gains are $12.25 per unit ($14.25 - $2.00), which it can distribute to its unitholders. The unitholders will only include 50% of the net capital gains in their taxable income, as per the inclusion rate for capital gains in Canada1. The other 50% is tax-free.

The other statements are false because:

A. Redwood cannot flow the foreign dividends to unitholders, who can then take advantage of the dividend gross-up and tax credit mechanism. This mechanism only applies to dividends received from Canadian corporations that are eligible for the enhanced dividend tax credit or the ordinary dividend tax credit2. Foreign dividends are treated as foreign income, and are subject to withholding tax by the source country and income tax by Canada3.

C. Redwood cannot distribute the $2.00 per unit of capital losses to unitholders, who can then use them to offset their capital gains. A mutual fund trust can only distribute its net income and net realized capital gains, not its capital losses4. However, a mutual fund trust can carry forward its capital losses indefinitely and use them to reduce its taxable capital gains in future years5.

D. Redwood does not pay the tax on foreign income, and it does distribute dividend or capital gains income from foreign sources to unitholders. A mutual fund trust pays tax on its foreign income only if it does not distribute it to its unitholders in the same year it is earned. However, most mutual fund trusts distribute all or most of their foreign income to their unitholders, as they want to avoid paying tax at the fund level and maintain their status as a mutual fund trust.

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.3: Taxation of Mutual Funds, page 7-10

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 7: Taxation, Section 7.2: Taxation of Investment Income, page 7-4

Foreign Income - Canada.ca

Mutual Fund Trusts - Canada.ca

Capital Losses and Deductions - Canada.ca

Taxation of Foreign Income - IFSE Institute

Mutual Fund Trusts - IFSE Institute

Unused RRSP contribution room can be carried forward indefinitely. The carry-forward amount is the unused room minus the current year’s contribution: $46,000 - $15,000 = $31,000. The feedback from the document states:

"Any RRSP contribution room that is not used in a taxation year can be carried forward to be used in future years. There is no limit on the amount that can be carried forward. In this example, $46,000 - $15,000 = $31,000."

In Canada, anyone involved in securities enforcement or adjudication must be properly licensed or registered.

The unlicensed new hire erred by taking on a case (licensing violation) without being formally registered, violating regulatory requirements.

Requesting subpoenas (A) and FATF involvement (C) may show poor judgment, but the fundamental error is acting without registration.

Sector rotation is an investment philosophy that prioritizes weighting industries based on their expected performance during different economic cycles, placing less emphasis on individual security selection. The feedback from the document states:

"Sector rotation is a portfolio manager’s attempt to profit through timing. It is based on the belief that different industries will perform well during certain stages of the economic cycle. Industries expected to outperform would be overweighted. More emphasis is placed on industry weighting than on security selection."

According to the Canadian Investment Funds Course, a stock exchange is a centralized and regulated market where securities of listed companies are traded between buyers and sellers. A stock exchange has strict listing requirements that companies must meet in order to be eligible for trading on the exchange. These requirements may include minimum capitalization, number of shareholders, financial reporting, corporate governance, and compliance with securities laws. A stock exchange also provides liquidity, transparency, and efficiency for the trading of securities.

An over-the-counter (OTC) market is a decentralized and unregulated market where securities that are not listed on a stock exchange are traded between dealers and brokers. An OTC market has no physical location, rather the trading is done through phone, email, or computer networks. An OTC market has lower listing requirements than a stock exchange, which makes it easier for smaller or newer companies to access capital. However, an OTC market also has less liquidity, transparency, and efficiency than a stock exchange.

Therefore, if Underground Airways Ltd. wants to take their privately owned corporation public through an initial public offering (IPO), they would have to weigh the pros and cons of listing on a stock exchange or the OTC market. One of the main considerations is that a stock exchange listing would provide them with greater market exposure and public confidence than listing on the OTC market. This is because a stock exchange listing signals that the company has met the high standards of the exchange and is subject to ongoing regulation and oversight. A stock exchange listing also attracts more investors, analysts, and media attention than an OTC listing. A stock exchange listing may also increase the value and liquidity of the company’s shares.

 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 5: Equity Securities)

The federal tax on eligible Canadian dividends is calculated as follows:

First, the dividend amount is grossed up by 38%, which means multiplying it by 1.38. This is to account for the corporate tax that has already been paid by the company. Eleanora’s grossed-up dividend is $500 x 1.38 = $690.

Second, the grossed-up dividend is multiplied by the federal marginal tax rate to get the gross federal tax. Eleanora’s gross federal tax is $690 x 0.29 = $200.10.

Third, the grossed-up dividend is multiplied by the federal dividend tax credit rate to get the federal tax credit. This is to avoid double taxation of the dividend income. Eleanora’s federal tax credit is $690 x 0.1502 = $103.64.

Fourth, the federal tax credit is subtracted from the gross federal tax to get the net federal tax. Eleanora’s net federal tax is $200.10 - $103.64 = $96.46.

Therefore, Eleanora will pay $96.46 in federal tax on her dividend. References: How Dividends Are Taxed and Reported on Tax Returns - Investopedia, Dividend Tax Credit in Canada - TurboTax

Gerard’s investment time horizon is the length of time he plans to hold his investment until he needs to use the money for his specific goal. In this case, Gerard’s goal is to use his mutual fund portfolio to meet the 20% down payment requirement to buy a house for $650,000. Therefore, his investment time horizon is determined by how long it will take him to accumulate enough money in his portfolio to cover the down payment amount. Assuming that Gerard does not withdraw any money from his portfolio and that his portfolio earns a constant annual rate of return of 6%, we can use the following formula to calculate how long it will take him to reach his goal:

FV=PV×(1+r)n+PMT×r(1+r)n−1​

where:

FV is the future value of the portfolio

PV is the present value of the portfolio

r is the annual interest rate

n is the number of years

PMT is the monthly payment

We can rearrange the formula to solve for n:

n=log(1+r)logPV+PMT×r1​FV−PMT×r1​​​

Plugging in the given values, we get:

n=log(1+0.06)log40,000+1,500×0.061​130,000−1,500×0.061​​​

n=4.98

Therefore, Gerard’s investment time horizon is approximately 5 years, not considering market fluctuations. This means that he will need to invest his money in a way that matches his risk tolerance and expected return for this time period.

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 4: Mutual Funds, Section 4.6: Asset Allocation and Diversification, page 4-271

Future Value of an Annuity Definition - Investopedia2

The Mutual Fund Dealers Association of Canada (MFDA) is the self-regulatory organization (SRO) that regulates mutual fund dealers in Canada, except in Québec. The MFDA is responsible for setting and enforcing rules and standards of conduct for its members and their representatives, as well as conducting compliance reviews and investigations. Rashad works for a mutual fund dealer that is registered in all provinces and territories of Canada, including Alberta, where he is based. Therefore, his client files will be part of a compliance review by the MFDA, which is the applicable SRO for his firm and jurisdiction.

References = Canadian Investment Funds Course, Unit 7: The Regulatory Environment, Lesson 1: The Regulatory Framework, Section 7.1.2: Self-Regulatory Organizations (SROs) 1; MFDA website 2

To fulfill the know your client (KYC) obligation, an advisor must collect and document information about the client’s personal and financial situation, investment objectives, risk tolerance, and investment knowledge. The KYC rule is a regulatory requirement that ensures that the advisor understands the client’s needs and goals, and provides suitable recommendations that match the client’s profile. In this case, Cosmo has provided some information about his personal and financial situation, such as his age, occupation, income, assets, and inheritance. He has also given some indication of his investment objectives, such as saving for retirement, and his investment knowledge, such as making his own investment decisions and preferring balanced funds. However, he has not disclosed his risk tolerance, which is his willingness and ability to accept fluctuations in the value of his investments. Risk tolerance is an important factor that affects the choice of investment strategies and products. Therefore, to complete the KYC process, the advisor needs to obtain additional information about Cosmo’s risk tolerance. References:

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 1: The Investment Funds Industry, Section 1.4: The Know Your Client (KYC) Rule, page 1-111

Know Your Client (KYC) Definition - Investopedia2

 Investment dealers are people or firms who buy and sell securities for their own account, whether through a broker or otherwise. They play an important role in the Canadian and global financial markets because they are market makers, create liquidity, and help promote long-term growth in the market. They also provide investment services to investors, such as underwriting securities, raising capital, and offering advice. By assisting with the exchange of capital for a financial instrument, they facilitate the flow of funds between savers and borrowers, and between different sectors and countries. The other options are not accurate descriptions of the role of investment dealers. References: Dealers: Definition in Trading, Meaning and Comparison to Brokers, Investment Dealers Definition

Interest income distribution is a type of income that a mutual fund pays to its investors from the interest earned on its fixed-income investments, such as bonds and mortgages. Interest income distribution is taxed as ordinary income at the investor’s top marginal tax rate, which is the highest tax rate that applies to their income bracket. Therefore, B is the correct answer. References: Interest Income and Taxes - Fidelity, Topic No. 403, Interest Received | Internal Revenue Service

Discretionary income is the amount left after subtracting expenses from total income, available for savings or investments. Total income = $100,000 (employment) + $10,000 (investments) = $110,000. Subtracting $95,000 in bills gives $110,000 - $95,000 = $15,000. The feedback from the document states:

"Discretionary income eligible for savings and investments is the difference between the amount of money coming in from employment and other sources and the amount of money going out to pay bills. In this example, $100,000 + $10,000 - $95,000 = $15,000."

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.

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]

The question that you should ask Sarah and Kyle next is what is their investment objective for these savings. An investment objective is a statement that defines the purpose and goals of an investment. It helps investors and advisors select suitable investment products and strategies that match the investor’s needs and expectations. An investment objective typically considers factors such as risk tolerance, return expectations, time horizon, liquidity needs, tax situation, and personal preferences. Therefore, option B is the correct question to ask Sarah and Kyle next. The other options are not relevant or sufficient to determine their investment objective. Option A is related to their risk tolerance, but it is not the only factor that affects their investment objective. Option C is related to their net worth, but it does not indicate their purpose and goals for their savings. Option D is related to their income, but it does not reflect their return expectations or liquidity needs for their savings. References: [Investment Objective Definition], [Investment Objectives: What They Are and How to Use Them], [Investment Objectives | GetSmarterAboutMoney.ca]

Jabir will be eligible to open new client accounts and sell investments only upon formal confirmation from the regulator. Before he can start his activities as a dealing representative, he must complete the registration process, which includes passing the proficiency course, applying for registration through his dealer, and obtaining approval from the securities regulator in his jurisdiction. References: Guide to Broker-Dealer Registration

The Management Reports of Fund Performance (MRFP) are documents that provide information about a mutual fund’s financial performance, portfolio composition, risk profile, and management expenses. The MRFP are prepared by the fund manager and filed with the securities regulators twice a year, for the semi-annual and annual periods. The MRFP are also made available to the investors on the fund manager’s website or upon request. The MRFP include the following sections:

Financial Highlights: This section summarizes the key financial data of the fund, such as net assets, net asset value per unit, total return, ratios and supplemental data.

Past Performance: This section shows the historical returns of the fund over different time periods and compares them with a benchmark index or category average.

Summary of Investment Portfolio: This section provides a breakdown of the fund’s portfolio by asset class, sector, geographic region, and top holdings. It also shows how the portfolio has changed over the reporting period.

Management Discussion of Fund Performance: This section explains the fund’s investment objectives, strategies, and risks, and analyzes the factors that affected the fund’s performance during the reporting period. It also discloses the fund’s management expense ratio (MER), trading expense ratio (TER), and turnover rate.

Financial Statements: This section presents the fund’s statement of financial position, statement of comprehensive income, statement of changes in net assets attributable to holders of redeemable units, and statement of cash flows. It also includes notes to the financial statements that provide additional information and disclosures.

The MRFP would provide Beatrice with comprehensive information regarding the analysis of financial statements and fund management expenses as it relates to her current mutual fund investment.

Canadian Investment Funds Course, Chapter 6: Fund Operations and Regulations1

Money market funds invest in short-term securities that generate interest income, and their unit value remains constant (typically $10), preventing capital gains. The feedback from the document states:

"All returns earned on money market funds are considered interest earnings and are taxed as interest income. Since money market funds invest only in money market securities that pay interest, no other type of income can be earned. Because the value of the units of a money market fund is constant ($10), no capital gains can be made on the sale of units of the fund."

The Fund Facts document provides essential information to ensure the fund’s objectives and risk profile align with the investor’s needs. The feedback from the document states:

"The fundamental purpose of a Fund Facts document is to provide ‘full, plain and true’ disclosure of material information concerning the securities and the issuer of the securities, so that potential purchasers can make informed decisions about purchasing the new securities. The fundamental investment objectives of a mutual fund can be found in the Fund Facts. It specifies what the fund intends to accomplish and how it is to be done."

The management expense ratio (MER) is the percentage of a fund’s assets that is paid to the fund manager for operating and managing the fund. A higher MER means that more of the fund’s returns are eaten up by fees, leaving less for the investors. Therefore, Fontaine Equity Fund’s higher MER of 2.99% contributes to its lower 5-year annualized return of 11.25%, compared to Chamberlain Equity Fund’s MER of 2.57% and 5-year annualized return of 13.42%. Therefore, D is the correct answer. , Management Expense Ratio (MER): Definition and How It Works - Investopedia

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 normal yield curve is a graphical representation of the relationship between the interest rates and the maturities of different fixed income securities. It slopes upward to the right, meaning that longer-term bonds have higher yields than shorter-term bonds. This reflects the fact that investors demand higher compensation for lending money for longer periods of time and taking on more risk. A normal yield curve indicates that investors expect the economy to grow steadily and inflation to remain stable.

Know Your Client (KYC) requirements are ongoing obligations that advisors must fulfill to ensure that they provide suitable recommendations and services to their clients. KYC requirements include collecting and documenting information about the client’s personal and financial situation, investment objectives, risk tolerance, and investment knowledge. KYC requirements also include monitoring and updating the client’s information and investment performance on a regular basis. According to the Mutual Fund Dealers Association of Canada (MFDA), advisors must review the KYC information at least once every 36 months, or more frequently if there are any material changes in the client’s circumstances or needs1. Advisors must also monitor the investment performance of the client’s portfolio and compare it with the client’s expectations and goals. If the investment performance is not satisfactory or consistent with the client’s risk tolerance, advisors must take appropriate actions, such as rebalancing the portfolio, switching funds, or revising the investment strategy2. Therefore, Harold’s responsibility moving forward is to monitor the investment performance of Felicia’s lump sum investment and determine if it is on track to satisfy her financial needs for the next 5 years. He must also review her KYC information at least once every 36 months, or sooner if there are any changes in her situation or objectives. References:

MFDA Bulletin #0756-P - Know-Your-Client and Suitability1

MFDA Bulletin #0760-P - Monitoring of Investment Performance2

For a spousal RRSP, KYC information is required only for the account holder (the wife) and those with trading authority, not the contributing spouse (the husband), who has no financial interest in the account. The feedback from the document states:

"The investment experience and knowledge of all individuals who have trading authority over the account should be obtained, as well as KYC information for anyone with a financial interest in the account. For spousal RRSPs, the contributing spouse does not have a financial interest in the account, so KYC information is required for the non-contributing spouse only."

The independent review committee approves actions involving conflicts of interest only if they achieve a fair and reasonable result for the fund. The feedback from the document states:

"The Independent Review Committee will only approve actions where a conflict of interest arises if certain requirements are met, including, most importantly, the action achieves a fair and reasonable result for the fund."

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]

Fixed assets are long-term tangible assets used in business operations, not held for resale (e.g., land, buildings, machinery, equipment, computers).

Marketable securities (A) are current assets (short-term investments).

Inventories (B) are current assets.

Trade receivables (D) are current assets (accounts receivable).

Jasmine realizes interest income of $400 because she bought a strip bond, which is a bond that has its principal and coupon payments separated and sold individually. Jasmine bought the principal-stripped bond, also known as a zero-coupon bond, which pays no interest until maturity. The difference between the purchase price and the face value at maturity is considered interest income and is taxable in the year it is received. References: Strip Bonds: Definition, How They Work, Returns, and Example

Promising that a mutual fund’s NAVPU will increase by a certain amount is an illegal and unacceptable selling practice, as it implies guaranteed future performance. The feedback from the document states:

"There are a number of sales practices that are clearly illegal or otherwise unacceptable to securities regulators. A dealing representative may not make promises that the NAVPS or NAVPU of a fund will achieve a certain level or increase by any amount."

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.

Gary’s decision to prioritize the client’s interests over meeting a sales target reflects his ethical responsibility. The feedback from the document states:

"Gary is fulfilling his ethical responsibility by placing his client’s needs ahead of his own need to reach a sales target. As the new fund is similar to the current investment, it would be an appropriate one for the client, so he would not be compromising his legal responsibility to ensure that all client orders are suitable."

 A vulnerable client is a client who, due to their personal circumstances, is especially susceptible to harm or disadvantage when dealing with financial services. Vulnerability can be permanent or temporary, and can arise from various factors, such as physical or mental health conditions, cognitive impairments, low financial literacy, language barriers, abuse, or discrimination. A vulnerable client may have different needs and challenges than other clients, and may require more support and protection from their adviser. Ginger would be categorized as a vulnerable client because she has reached retirement age and is easily confused, which may affect her ability to understand and make informed decisions about her financial situation. She may also be at risk of being exploited or misled by others who may take advantage of her confusion. Therefore, Ginger’s adviser should take extra care to ensure that she is treated fairly and that her best interests are served.

Canadian Investment Funds Course, Chapter 8: Suitability and Know Your Client1

The right of withdrawal is a statutory right that allows investors to cancel their purchase order of mutual funds within a specified period of time and receive a refund of the amount they paid. The right of withdrawal is also known as the cooling-off period or the rescission right. The right of withdrawal for investors can be different depending on which province (or territory) the fund was purchased within, as each jurisdiction has its own securities legislation and regulations that govern the mutual fund industry. For example, in Ontario, the right of withdrawal is two business days after receiving the simplified prospectus or the fund facts document, whichever is later1. In Quebec, the right of withdrawal is two business days after receiving the simplified prospectus or confirmation of purchase, whichever is later2. In British Columbia, the right of withdrawal is 48 hours after receiving confirmation of purchase3. Therefore, Mariana may still be able to exercise her right of withdrawal, depending on where she bought her mutual funds and when she received the required documents. References:

Canadian Investment Funds Course (CIFC) Study Guide, Chapter 3: The Regulatory Environment, Section 3.2: The Right of Withdrawal, page 3-54

Ontario Securities Commission - Mutual Funds - Buying and Selling1

Autorité des marchés financiers - Mutual Funds - Buying and Selling2

British Columbia Securities Commission - Mutual Funds - Buying and Selling3

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."

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."

Comprehensive Detailed Explanation with Investment Funds in Canada Course References:

The custodian of a mutual fund is responsible for safekeeping assets and handling cash inflows and outflows.

According to CSC, an independent financial organization, usually a trust company, serves as custodian. The custodian collects funds from investors, receives portfolio income, and arranges for distributions and redemptions.

Thus, the correct answer is A. A trust company.

One of the main reasons why different entities have securities created and sold is to raise funds for various purposes. Governments, for example, can issue securities such as bonds or treasury bills to finance public spending, such as infrastructure, education, health care, or social programs. By selling securities to investors, governments can borrow money at a lower cost than other sources of funding, and can also stimulate the economy and create jobs12

References = Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.1: Money Market Instruments3 and web search results from search_web(query="reasons for issuing securities")12

3:

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 custodian in mutual fund is a trust company, bank, or similar financial institution that is responsible for holding and safeguarding the securities owned within a mutual fund. The custodian also records and reports all transactions to the fund manager. The custodian does not oversee the general administration, construct and manage the portfolio, or calculate the NAVPU of the mutual fund. These are the roles of other entities such as the fund administrator, the fund manager, and the fund accountant.

References = Canadian Investment Funds Course (CIFC) - Module 2: Investment Products - Section 2.2: Mutual Funds1 and web search results from search_web(query="role of a custodian in mutual funds")23

1:

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.

To calculate the federal tax liability from the investment income, we need to consider the following steps:

Convert the foreign dividend to Canadian dollars using the exchange rate. In this case, $882.02 USD x 1.3605 = $1,200.00 CAD.

Gross up the eligible dividend by the enhanced dividend gross-up rate of 38%. In this case, $1,800 x 1.38 = $2,484.

Add the grossed-up eligible dividend and the foreign dividend to get the total taxable income from dividends. In this case, $2,484 + $1,200 = $3,684.

Multiply the total taxable income from dividends by the federal marginal tax rate of 29% to get the gross federal tax payable. In this case, $3,684 x 0.29 = $1,068.36.

Multiply the grossed-up eligible dividend by the federal dividend tax credit rate of 15% to get the federal dividend tax credit. In this case, $2,484 x 0.15 = $372.60.

Subtract the federal dividend tax credit from the gross federal tax payable to get the net federal tax liability. In this case, $1,068.36 - $372.60 = $695.76.

Therefore, Firmansyah’s federal tax liability from his investment income is $695.76.

 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 9: Retirement)

Sudhir wants to share in corporate profits (dividends) and accepts volatility, but he is not sophisticated.

Preferred shares provide dividend income (share in profits), are less volatile than common shares, and are appropriate for moderate investors.

Commercial paper (A) and Mortgages (B) are debt instruments, not equity.

Options (C) are complex derivatives, not suitable for a non-sophisticated investor.

Speculators avoid diversification because it reduces the potential for both large losses and large gains, which they seek to achieve significant wealth. The feedback from the document states:

"Diversification affects the returns that investors hope to earn. Diversification tends to reduce the probability of both very large losses and very large gains. Speculators tend to avoid diversification for this reason. Great wealth can be achieved only through an absence of diversification."

A Trusted Contact Person (TCP) is someone that an investor authorizes their brokerage firm to contact in limited circumstances, such as if the broker has trouble reaching the investor or has a reasonable belief that the investor’s account may be exposed to possible financial exploitation. A TCP does not have the authority to make changes to the investor’s account or direct trading, unlike a Power of Attorney (POA). A TCP also does not have the power to place a temporary hold on the investor’s account, which is a decision made by the brokerage firm. Therefore, C is the correct answer. References: What is a Trusted Contact Person and why you should name one, Do You Need A ‘Trusted Contact’ To Help Protect You?, Investor Bulletin: Please Consider Adding a Trusted Contact Person to Your Account

The OTC (dealer) market is a negotiated market where investment dealers (market makers) post bid and ask quotations via electronic platforms.

Mutual fund companies and issuing companies do not post quotes directly.

Retail investors place orders through dealers, but they do not set bid-ask spreads.

Thus, the correct answer is D. Dealers.

Withdrawals from an RRSP are taxed as regular income at the plan holder’s marginal tax rate, regardless of the type of income earned within the plan. The feedback from the document states:

"Contributions withdrawn from an RRSP are taxed as regular income at the plan holder’s marginal tax rate."

Financial circumstances are a critical component of the Know Your Client (KYC) process, as they determine the client’s ability to commit savings to investments and the level of risk they can assume. Mortgage documents provide insights into the client’s debt and obligations, which are essential for assessing financial circumstances. The feedback from the document states:

"Financial circumstances are an important consideration in judging the suitability of investments, because they determine the amount of savings clients can commit to investing and the level of risk they can assume. Marc’s client’s mortgage document will give Marc valuable insights into the level of debt and mortgage obligations his client has, helping in evaluating the client’s financial circumstances."

Defined benefit pension plans base retirement income on formulas that may use:

Career average earnings → lower protection against inflation.

Final average earnings (last few years of salary) → better protection against inflation, since the calculation reflects recent, higher earnings that have already adjusted for inflation.

Defined contribution and group RRSPs do not guarantee inflation-adjusted benefits.

Thus, the Final average pension plan offers better inflation protection before retirement.

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)]

 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

Martine has multiple financial goals (short-term home purchase, medium-term education, long-term retirement). Using a single growth fund for all goals is inappropriate because growth funds are designed for long-term objectives and involve higher volatility.

This results in unsuitable allocation across her short-, medium-, and long-term needs.

 Relationship Disclosure Information (RDI) is a document that provides important information about the nature and scope of the relationship between a registered firm and its clients. It covers topics such as the products and services offered by the firm, the fees and charges applicable to the client’s account, the risks associated with investing, the conflict of interest management policies of the firm, and the dispute resolution services available to the client. According to Section 14.2 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103), registered firms must provide RDI to their clients before they purchase or sell securities for them or advise them to do so. Registered firms must also update RDI in a timely manner if there are any significant changes to it. To evidence that they have satisfied their RDI obligation, registered firms may retain a copy of the RDI in the client file with detailed notes to confirm that they have provided and explained RDI to their clients. This is one of the acceptable methods suggested by Alberta Securities Commission (ASC) in its presentation on RDI1. Delivering RDI only upon request or using a letter of engagement are not sufficient methods to comply with NI 31-103. Providing and explaining Fund Facts is a separate obligation under NI 31-101 Mutual Fund Distribution Rules. References: Relationship Disclosure Information August 2021, Relationship Disclosure Information, Relationship Disclosure Information

Tax deductions are amounts that reduce your total income before calculating your tax payable. They lower your marginal tax rate, which is the tax rate that applies to your last dollar of income. For example, if Wilma’s total income is $50,000 and she claims $5,000 in tax deductions, her taxable income will be $45,000 and her marginal tax rate will be lower than if she had no deductions. Therefore, A is the correct answer. References: All deductions, credits, and expenses - Personal income tax - Canada.ca

Beta measures systematic (market) risk:

Beta = 1.0 → moves with market.

Beta < 1.0 → less volatile, more defensive.

Beta > 1.0 → more volatile, aggressive.

Defensive stocks (e.g., banks, utilities) typically have low betas.

Given options:

0.5 (A) = least risky, most defensive.

2.0 (B) = highly aggressive.

1.0 (C) = average risk.

1.5 (D) = above-average risk.

Factors that increase a mutual fund’s management expense ratio (MER) include investing in foreign equities and paying trailer fees, as these add to operational costs. The feedback from the document states:

"Four factors primarily affect the management expense ratio. Funds that invest in foreign equities; are small in size; are managed by an outside specialist firm; and charge trailer fees will have higher management expense ratios."

Disclosure documents are documents that provide information about a mutual fund’s features, risks, performance, fees, and expenses to investors and regulators. Disclosure documents are required by securities laws and must be prepared and filed by the fund manager in accordance with the prescribed rules and standards. Disclosure documents relating to mutual funds include the following:

Statement of net assets: This is a document that shows the value of the fund’s assets and liabilities as of a specific date. It also shows the net asset value per unit (NAVPU) of the fund, which is the price at which investors can buy or sell units of the fund. The statement of net assets is part of the fund’s financial statements, which are prepared and filed semi-annually and annually.

Annual information form (AIF): This is a document that provides additional information about the fund that is not included in the simplified prospectus or the fund facts. The AIF includes information such as the fund’s history, organization, management, governance, policies, risks, conflicts of interest, fees, expenses, taxation, and legal matters. The AIF is prepared and filed annually.

Management reports of fund performance (MRFP): These are documents that provide information about the fund’s financial performance, portfolio composition, risk profile, and management expenses. The MRFPs are prepared by the fund manager and filed semi-annually and annually. The MRFPs include sections such as financial highlights, past performance, summary of investment portfolio, management discussion of fund performance, and financial statements.

Canadian Investment Funds Course, Chapter 6: Fund Operations and Regulations1

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

Behavioural biases are divided into:

Cognitive biases (errors in thinking, e.g., anchoring, hindsight, overconfidence).

Emotional biases (driven by feelings and instincts).

The status quo bias is considered an emotional behavioural bias, because it arises from an emotional reluctance to change, rather than a logical error.

Therefore, the correct answer is D. Status quo.

Survivorship bias occurs when poor-performing funds are closed, excluding them from performance rankings and inflating the perceived performance of surviving funds. The feedback from the document states:

"All comparison universes also 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. A performance universe is essentially a universe of survivors."

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."

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.