Your client Gerard is 30 years old and plans to retire at age 65. He has a mutual fund portfolio of $40,000 in which he invests $1,500 monthly. Gerard's objective is to use these funds to meet the 20% down payment requirement to buy a house for $650,000. What is Gerard's investment time horizon not considering market fluctuations?
Correct Answer: A
Explanation 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)n1 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×r1FVPMT×r1 Plugging in the given values, we get: n=log(1+0.06)log40,000+1,500×0.061130,0001,500×0.061 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. References: 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
CIFC Exam Question 52
Josephine is a Dealing Representative with Sunshine Mutual Funds Inc. for over 10 years. Her brother Jonathan has an account with Sunshine Mutual Funds Inc., too. Jonathan wants Josephine to manage his portfolio and make investment decisions on his behalf. Jonathan trusts his sister to make better investment choices than he can. He also wants to give Power of Attorney (POA) to Josephine so she can have full authority over his account. How can Josephine respond to her brother's request?
Correct Answer: A
Explanation According to the MFDA rules, a Member or an Approved Person cannot accept or act upon a general power of attorney or other similar authorization from a client in favour of the Member or Approved Person, unless the client is a spouse, parent, or child of the Approved Person and certain conditions are met. However, a Member or an Approved Person can accept a limited trading authorization from a client, which allows the Member or Approved Person to execute trades on behalf of the client, but not to engage in any discretionary trading. Therefore, Josephine can accept a limited POA from her brother, as long as she does not make any investment decisions without his consent. References = Canadian Investment Funds Course (CIFC) - Module 1: The Financial Services Industry - Section 1.3: Know Your Client (KYC)1 and web search results from search_web(query="power of attorney and mutual fund dealers association rules")23 1: https://www.ifse.ca/wp-content/uploads/2021/08/CIFC-Module-1.pdf
CIFC Exam Question 53
Last year Peter's earned income from employment was $50,000. Last year, after receiving a $2 per share in dividends from 500 shares in ABC Inc., a publicly-traded Canadian corporation, he sold his shares. The sale resulted in a capital gain of $15,000. Based on the tax rates mentioned above, what is Peter's net federal tax liability for the year? (Round to 2 decimal places).
Correct Answer: C
CIFC Exam Question 54
As a measurement of risk, which of the following statements about beta is TRUE?
Correct Answer: C
CIFC Exam Question 55
Your client, Kimberly has investments in both registered and non-registered plans. Which of the following investment strategies is best suited for Kimberly from a tax perspective?
Correct Answer: C
Explanation According to the Canadian Investment Funds Course, different types of investment income are taxed differently in Canada. Interest income is fully taxed at the marginal rate, while dividend income is favourably taxed with a dividend tax credit. Capital gains are taxed on 50% of the gain at the marginal rate, and foreign income is subject to withholding tax. Therefore, a tax-efficient strategy is to include interest paying investments, such as bonds or GICs, in the registered plan, where they can grow tax-deferred until withdrawal. Dividend paying investments, such as Canadian stocks or ETFs, should be included in the non-registered plan, where they can benefit from the lower tax rate and the dividend tax credit. Foreign income should also be avoided in the non-registered plan, unless it is held in a U.S. dollar account or a foreign currency hedged ETF, to reduce the impact of withholding tax and currency fluctuations. References: 1: Canadian Investment Funds Course - IFSE Institute 2 (Unit 9: Retirement)
