A risk-averse investor is meeting with their advisor to discuss investment solutions. Traditionally, the investor has considered GICs only, but they are open to considering other alternatives. To what emotional bias is the investor most susceptible?
Correct Answer: D
IFC Exam Question 22
Which statement CORRECTLY describes index mutual funds and traditional exchange-traded funds (ETFs)?
Correct Answer: A
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
IFC Exam Question 23
As it pertains to fixed-income securities, which yield metric factors in cash flows relative to ongoing bond prices rather than the initial amount invested?
Correct Answer: D
IFC Exam Question 24
Greg is a Dealing Representative. As a part of his business building activity, Greg prepares several messages to post on his website and Facebook page. Which statement CORRECTLY describes this situation?
Correct Answer: C
According to the MFDA rules, any sales communication that is prepared by a Member or an Approved Person, such as Greg, must be approved by the dealer in writing prior to its publication, issuance, or use. A sales communication is any communication that is intended to promote the business of the Member or the Approved Person, or the sale of securities, including any communication on a website or a social media platform. The dealer must ensure that the sales communication is fair, balanced, and not misleading, and that it complies with the applicable laws and regulations12 References = web search results from search_web(query="sales communication and mutual fund dealers association rules")12
IFC Exam Question 25
Russell is a Dealing Representative with Wealth Quest Strategies Ltd., a mutual fund dealer and member of the Mutual Fund Dealers Association of Canada (MFDA). Russell is developing his website to include sales content on a Target Date Fund. Which of the following is Russell permitted to include on his website about the Target Date Fund? i. the asset mix through the life of the fund until the future date ii. the expected decline in the fund's risk level as the fund reaches its target date iii. the guaranteed return that the client will receive on the future date iv. a graphic illustration of the fund's promised growth on target date
Correct Answer: A
A target date fund is a type of mutual fund that adjusts its asset allocation and risk level according to a predetermined future date, such as retirement or college education. A target date fund typically starts with a higher proportion of stocks and a lower proportion of bonds and cash, and gradually shifts to a more conservative mix as the target date approaches. This is called the fund's glide path, which shows the asset mix through the life of the fund until the future date. Russell is permitted to include this information on his website, as it is factual and relevant to the fund's characteristics and suitability. Russell is also permitted to include information about the expected decline in the fund's risk level as the fund reaches its target date, as this is part of the fund's objective and strategy. However, Russell is not permitted to include any information that implies or suggests that the target date fund offers a guaranteed return or a promised growth on the future date, as this would be misleading and inaccurate. Target date funds are not guaranteed investments, and their performance depends on the market conditions and the fund manager's decisions. Russell must not make any false or exaggerated claims about the target date fund's benefits or returns on his website. Canadian Investment Funds Course, Chapter 7: Know Your Product1