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

Preferred dividend fund

Mortgage fund

Short-term bond fund

T-bill fund

2. Your client contacts you requesting that you purchase a mutual fund based on a “hot tip” from a friend who has been a successful investor.

What bias is your client most likely being affected by?

Overconfidence

Availability

Endowment

Cognitive dissonance

3. Ian is 25, employed, and has no dependents. He has no current financial or family obligations. He has asked for your recommendation for investing a $50,000 inheritance.

What asset allocation would typically suit an investor with Ian’s characteristics?

10% in a bond fund, 80% in equity funds, 10% in a money market fund

10% in equity funds, 70% in a bond fund, 20% in a money market fund

35% in equity, 25% in a money market fund, 60% in a bond fund

50% in equity funds, 20% in a bond fund, and 30% in a money market fund

4. The demand for blue widgets increases sharply due to a newspaper report that using blue widgets improves recovery from influenza.

What can be said about the law of supply?

Price decreases and production increases

Price increases and production decreases

Price and production both decrease

Price and production both increase

5. What term describes the range of possible future outcomes on the price of a security?

Beta

Risk

Fluctuation

Return

6. Yesterday, Mariana purchased mutual funds for the first time from Diablo, who is a Dealing Representative for Horizon Financial. When Mariana mentions to her friend Marcus that she just started to invest, Marcus confides that he experienced losses from mutual fund investing. Her initial feelings of excitement have now changed to worry and regret. She wished she had talked to her friend before investing and wonders if she can change her mind.

Which statement regarding the right of withdrawal applies?

The right of withdrawal is based on the securities act legislation within the jurisdiction the purchase occurred.

Before Mariana can cancel her order, she must wait two business days to pass before she can cancel her order.

How the right of withdrawal can be applied is determined by the Mutual Fund Dealers Association of Canada's conduct rules.

The Canadian Securities Administrators have instituted national instruments regarding Mariana's right to cancel her order.

7. One of your clients, Fernando, is approaching 71 years of age and has a few questions regarding life income funds (LIFs).

Which of the following statements about LIFs is TRUE?

Fernando may make contributions to his LIF if he continues working.

Fernando is free to withdraw any amount from his LIF above the minimum amount.

Fernando can transfer money from his registered retirement savings plan (RRSP) to a LI

Fernando can transfer money from his locked-in retirement account (LIRA) to a LI

8. Your client’s unused RRSP contribution room is $46,000. He contributes $15,000 in the current taxation year.

How much RRSP contribution room can he carry forward?

$31,000

$46,000

$35,000

$38,000

9. What is the securities administrator’s power that is intended to ensure investors can make fully informed investment decisions?

Disclosure

Enforcement

Registration

Termination

10. Your client, Helen, just received her non-registered account statement which states that one of her mutual funds made an interest income distribution during the year. She asks you how she will be taxed on the distribution.

What do you tell Helen?

She will pay taxes on 50% of the distribution.

She will pay taxes at her top marginal tax rate.

She will pay taxes on the grossed-up amount of the income.

She will pay taxes at her average tax rate.

11. Which form of investment income is taxed at an investor’s marginal tax rate?

Capital gains

Capital losses

Canadian dividend income

Foreign dividend income

12. Gary chooses not to recommend that his client sell a current mutual fund to purchase a similar new mutual fund despite pressure to meet a sales target for the new fund.

What responsibility applies to Gary’s action?

Compliance

Professional

Ethical

Legal

13. What type of benefit plan has a final benefit that is dependent on the investment returns within the plan?

Career average plan

Defined contribution plan

Final average plan

Flat benefit plan

14. You are concerned about upcoming weakness in the Canadian dollar.

Which type of fund should you invest in?

A specialty fund that uses derivatives to hedge the value of its portfolio

An international fund that hedges its foreign currency risk

A global fund that hedges its foreign currency risk

A global fund that does not hedge its foreign currency risk

15. Which factors would cause the management expense ratio charged by a mutual fund to be higher?

The fund invests in foreign equities

The fund is large in size

The fund is managed by the fund sponsor’s management team

The fund pays a trailer fee

2 and 3

1 and 2

1 and 4

3 and 4

16. Sven owns preferred shares that give him the option to sell his holdings back to the issuing company at a predetermined price and within a specified time.

What type of preferred shares does Sven own?

retractable

participating

convertible

redeemable

17. Which of the following is a rationale for a portfolio manager to use a passive portfolio management strategy?

The manager does not believe in using benchmarks.

The manager wishes to create capital gains in the mutual fund by frequently buying and selling stocks

The manager believes he or she can outperform the market with his or her stock picking skills.

The manager believes that as the markets are fairly priced, it would be futile to look for mis-priced securities.

18. What does suitability mean?

Recommendations are appropriate for the client’s unique situation and investment objectives

The investor’s major concerns are addressed

Understanding the personal and financial knowledge of the client

Recommendations are not based on the personal and financial knowledge of the client

19. What is the time period during which an individual must complete a training program once she starts acting as a dealing representative?

30 days

90 days

6 months

3 months

20. Recently interest rates have gone up. Your customer, Mr. Corelli, has asked you how this will affect the value of his mortgage fund.

What is the best response to give to Mr. Corelli?

The mortgage fund will not be affected because the rise in interest rates will affect only new mortgages

The value of the mortgage fund will go down because new mortgages will pay higher interest than those in the fund

The mortgage fund will not be affected because mortgages do not react to changes in interest rates the way bonds do

The value of the mortgage fund should go up because mortgages will now be earning higher interest

21. Gershon is a Dealing Representative and he opens a new account for his client, Isaac. Gershon collects the necessary information from Isaac in order to designate the Trusted Contact Person (TCP) for Isaac’s account.

Which of the following statements about Isaac’s TCP is CORRECT?

The TCP is an alternative to a Power of Attorney (PQA) and has the authority to make changes to Isaac's account and direct trading.

The TCP is an alternative authority on Isaac's account that has the power to place a temporary hold on Isaac's account to disallow trading.

The TCP is the person whom Gershon can speak to if he becomes concerned about Isaac's mental capacity to make financial decisions.

The TCP is the person who is designated with authority to direct financial dealings for Isaac's account and make financial decisions.

22. Your client, a high-income earner in a high marginal tax bracket, is seeking to minimize the amount of tax he pays on investment income while continuing to invest in mutual funds.

Which mutual fund would best meet his investment objective?

Fixed-income fund

Canadian equity fund

Money market fund

Foreign equity fund

23. What stage in the business cycle typically has increasing wages, rising inflation, rising interest rates with slowing sales, and decreasing business investment?

Peak

Expansion

Trough

Recovery

24. Karen works Monday to Wednesday for a member of the MFDA as a dealing representative and Thursday and Friday as a language instructor at a local college. Client orders received on Thursdays and Fridays are held until Karen returns to work the following week.

What condition of dual employment is violated under these circumstances?

The dealer must maintain procedures to address any potential conflicts of interest

Karen’s alternate employment must not bring the MFDA, its members, or the mutual fund industry into disrepute

The dealer must maintain procedures to ensure continuous service to clients

The dealer must be aware of and approve of Karen’s other occupation

25. You wish to sell a perpetual preferred share with a par value of $25.00, which pays a quarterly dividend of $0.25.

If other preferred shares of similar quality are currently yielding 3.5%, what price should you expect to receive for your share?

$30.35

$25.00

$28.57

$14.29

26. You have been researching Canadian equity mutual funds for a new client.

You come across the following information.





What can you conclude from this information?

Chamberlain Equity Fund has lower volatility since its 5-year annualized return is higher.

Fontaine Equity Fund is a better fund because it has a higher quartile ranking.

Fontaine Equity Fund has a lower risk level since its Sharpe Ratio is lower.

Fontaine Equity Fund's higher MER contributes to its lower 5-year annualized return.

27. What is the characteristic of a Stage 2 C Family Commitment investor that most affects the ability to save for the long term?

Lack of liquidity

Marginal tax bracket

Wealth transfer considerations

Risk tolerance

28. Joanne’s earned income last year was $45,000 and her pension adjustment was $2,500. She has $2,000 in carry-forward registered retirement savings plan (RRSP) room for the current taxation year.

What is Joanne’s maximum tax-deductible RRSP contribution amount for the current year?

$12,600

$5,600

$7,600

$8,100

29. A married couple is opening a spousal RRSP account in the name of the wife. The dealing representative gathers the information required on the NAAF, including the wife’s name, social insurance number, permanent address, and investment objectives. The representative also gathers KYC information for both and informs them that leveraging is not permitted with respect to RRSP accounts.

Which information was not required?

Disclaimer with respect to leveraging

Wife’s KYC information

Wife’s social insurance number

Husband’s KYC information

30. Calculate the 2-year simple return for the AAA Mutual Fund.

AAA Mutual Fund Performance

Year | Price at Beginning | Distribution | Price at End | Simple 1-Yr Return

1st Year | $10.00 | $0.25 | $11.00 | 12.50%

2nd Year | $11.00 | $0.25 | $10.20 | -5.00%

7%

3%

8%

-3%

31. When you buy a put option, which of the following is TRUE?

You have the right to sell a set number of shares at a set price.

You have the right to purchase a set number of shares at a set price.

You have the obligation to sell a set number of shares at a set price.

You have the obligation to buy a set number of shares at a set price.

32. Fund A has a 5-year average return of 10% and a standard deviation of 5%. Fund B has a 5-year average return of 8% and a standard deviation of 2%. Select the most accurate statement about Funds A and B.

Fund A will always provide a higher return than Fund B

Fund B’s lowest return is lower than Fund A’s lowest return

Fund A’s returns have ranged from 5% to 10%

Fund B is less risky than Fund A

33. Rank the decisions made by a portfolio manager in order of importance for the success of the portfolio.

Sector weighting, security selection, asset allocation

Asset allocation, security selection, sector weighting

Security selection, sector weighting, asset allocation

Asset allocation, sector weighting, security selection

34. An investor seeks an equity investment that will mirror the performance of the energy sector in Canada. She desires a low-cost, flexible alternative that can quickly be bought or sold.

Which product is most suited to her needs?

Energy-sector index mutual fund

Exchange-traded fund of energy sector stocks

Direct investment in energy sector stocks

Energy sector segregated fund

35. A fund manager who utilizes an interest rate anticipation philosophy forecasts a rise in interest rates.

What change in asset allocation should he implement?

Increase long-term bond and low coupon bond holdings

Increase long-term and high coupon bond holdings

Increase short-term T-bill and low coupon bond holdings

Increase short-term T-bill and high coupon bond holdings

36. Which Sharpe ratio result would indicate that the fund earned a return less than the risk-free return?

2.5

1

-0.2

0.5

37. Which newspaper article would be likely to result in foreign capital moving out of a country?

Corporate Taxes Reduced

New Taxes on Foreign Direct Investment

Government Re-elected for a Fourth Consecutive Term

International Ranking of Domestic Level of Education Rises Significantly

38. You are comparing the performance of ABC Equity Fund and XYZ Equity Fund to their benchmark.

Indicate the correct statement.

Return | Year 1 | Year 2 | Year 3 | 3 Year Compound Return

Benchmark | -2.0% | 12.6% | 20.6% | 10.0%

ABC Equity Fund | -10.0% | 16.0% | 24.0% | 9.0%

XYZ Equity Fund | 8.0% | 9.0% | 10.0% | 9.0%

Fund XYZ would have offered a lower likelihood of loss if a client needed to sell the investment

Fund ABC showed greater consistency in its simple annual returns

Fund ABC demonstrated a superior performance in a bearish market

Fund XYZ offered less protection on the downside

39. Iliana owns 1,000 participating preferred shares in the First Canadian Bank.

Which of the following features are characteristic of her investment?

Iliana has the right to purchase more preferred shares in the company before common shareholders.

Iliana is able to vote at the annual general meeting and elect members of the board of directors.

Iliana can convert her preferred shares to common shares at a fixed price and within a specified time period.

Iliana has a right to share in the bank's net profits over and above the specified dividend rate.

40. Apex Mutual Fund has been structured to avoid taxation by distributing any net interest, dividends, and capital gains to unitholders each calendar year.

This is an example of what type of mutual fund structure?

Closed-end mutual fund

Mutual fund trust

Open-ended mutual fund

Mutual fund corporation

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